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  EXHIBIT 10.5 EXECUTION COPY HSBC Private Label Credit Card Master Note Trust (USA) I Series 2002-1 AMENDMENT NO. 1 TO SERIES 2002-1 INDENTURE SUPPLEMENT           AMENDMENT NO. 1, dated as of August 11, 2006 (“Amendment”), between WILMINGTON TRUST COMPANY, not in its individual capacity, but solely as Owner Trustee of the HSBC PRIVATE LABEL CREDIT CARD MASTER NOTE TRUST (USA) I, a common law trust existing under the laws of the State of Delaware (herein, the “Issuer” or the “Trust”), and U.S. BANK NATIONAL ASSOCIATION, a national banking association, not in its individual capacity, but solely as the Indenture Trustee, Paying Agent and the Securities Intermediary, to the Series 2002-1 Indenture Supplement dated as of March 28, 2002 by and between such parties ( the “Indenture Supplement”) under the Amended and Restated Master Indenture, dated as of August 11, 2006 (the “Indenture”, and together with the Indenture Supplement, the “Agreement”).           WHEREAS, the Issuer and the Indenture Trustee wish to amend the Indenture Supplement.           NOW, THEREFORE, the Issuer and the Indenture Trustee agree that the Indenture Supplement is hereby amended effective as of the date hereof as follows:           Section 1. Amendment to Section 2.01 (“Definitions”).           (a) The definitions of “Administration Fee” and “Monthly Administration Fee” are each hereby deleted in their entirety.           (b) The definition of “Eligible Investments” is hereby amended by adding the following to the end of the definition:      “and (c) investments in notes issued by HSBC Finance Corporation (i) shall not qualify as Eligible Investments for the Principal Funding Account the Reserve Account or the Special Funding Account unless rated “A-1+” by S&P, and (ii) shall not qualify as Eligible Investments for the Collection Account in an amount in excess of 20% of the Outstanding Amount of the Notes.”           Section 2. Amendment to Section 4.04 (“Application of Available Funds on Deposit in the Collection Account”). Sections 4.04(a)(iv)(B) and 4.04(a)(ix) of the Indenture Supplement is hereby deleted in its entirety.           Section 3. Confirmation of Subordination of Payment of Servicing Fee. Notwithstanding Section 5.05(b) of the Indenture, as long as Series 2002-1 remains outstanding, the Servicer agrees to subordinate its right of payment of the Servicing Fee pursuant to Section 5.05(b) SECOND of the Indenture to the payments to be made to the Holders of the Notes of Series 2002-1 pursuant to Section 5.05(b) THIRD and FOURTH of the Indenture to the Holders of the Notes of Series 2002-1.   --------------------------------------------------------------------------------             Section 4. Counterparts. This Amendment to the Indenture Supplement may be executed in several counterparts, each of which shall be deemed an original hereof and all of which, when taken together, shall constitute one and the same Amendment to the Indenture Supplement.           Section 5. Ratification of Indenture Supplement. Except as provided herein, all provisions, terms and conditions of the Indenture Supplement shall remain in full force and effect. As amended hereby, the Indenture Supplement is ratified and confirmed in all respects.           Section 6. Authorization. The Owner Trustee is hereby directed by HSBC Funding (USA) Inc. V to execute and deliver this Amendment on behalf of the Trust. HSBC Funding (USA) Inc. V hereby certifies to the Owner Trustee that all conditions precedent to the Owner Trustee’s execution and delivery of this Amendment have been satisfied.           Section 7. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS. [Remainder Of Page Intentionally Left Blank] 2 --------------------------------------------------------------------------------             IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date set forth on the first page hereof.               WILMINGTON TRUST COMPANY, not in its individual capacity, but solely as Owner Trustee of the HSBC PRIVATE LABEL CREDIT CARD MASTER NOTE TRUST (USA) I               By:   /s/ Rachel L. Simpson                   Name: Rachel L. Simpson         Title: Sr. Financial Services Officer               U.S. BANK NATIONAL ASSOCIATION, as Indenture Trustee, Paying Agent and Securities Intermediary               By:   /s/ Patricia M. Child                   Name: Patricia M. Child         Title: Vice President           The undersigned hereby consent to this Amendment as of the date hereof.           HSBC FUNDING (USA) INC. V, as Transferor               By:   /s/ Steven H. Smith   Name: Steven H. Smith         Title: Vice President and Assistant Treasurer               HSBC FINANCE CORPORATION, as Servicer               By:   /s/ William H. Kessler   Name: William H. Kessler         Title: Senior Vice President – Treasurer     Signature Page to Amendment No. 1 to Series 2002-1 Indenture Supplement  

Exhibit 10.02 PERFORMANCE SHARE AGREEMENT This Performance Share Agreement (the "Agreement") is entered into effective January 18, 2006, by and between Valero Energy Corporation, a Delaware corporation ("Valero"), and _______, a participant (the "Participant") in Valero's 2005 Omnibus Stock Incentive Plan (as may be amended, the "Plan"), pursuant to and subject to the provisions of the Plan. 1 . Grant of Performance Shares. Valero hereby grants to Participant _______ Performance Shares pursuant to Section 6.7 of the Plan. The Performance Shares represent rights to receive shares of Common Stock of Valero, subject to the terms and conditions of this Agreement and the Plan. 2 . Performance Period. Except as provided below with respect to a Change of Control (as defined in the Plan), the "Performance Period" for any Performance Shares eligible to vest on any given Normal Vesting Date (as defined below) shall be the three calendar years ending on the December 31 immediately preceding the Normal Vesting Date. 3 . Vesting and Delivery of Shares. A. Vesting . The Performance Shares granted hereunder shall vest over a period of three years in equal, one-third increments with the first increment vesting on the date of the regularly scheduled meeting of the Board's Compensation Committee ("Meeting Date") in January 2007, and the second and third increments vesting on the Committee's Meeting Dates in January 2008 and January 2009, respectively (each of these three vesting dates is referred to as a "Normal Vesting Date"), such vesting being subject to verification of attainment of the Performance Objectives described in Paragraph 4 by the Compensation Committee. If the Committee is unable to meet in January of a given year, then the Normal Vesting Date for that year will be the date not later than March 31 of that year as selected by the Compensation Committee. B. Rights. Until shares of Common Stock are actually issued to Participant (or his or her estate) in settlement of the Performance Shares, neither Participant nor any person claiming by, through or under Participant shall have any rights as a stockholder of Valero (including, without limitation, voting rights or any right to receive dividends or other distributions) with respect to such shares, and Participant's status with respect to the issuance of such shares shall be that of a general creditor of Valero. C. Distribution . Any shares of Common Stock to be distributed under the terms of this Agreement shall be distributed as soon as administratively practicable after the applicable Normal Vesting Date, but not later than two-and-one-half months following the end of the year in which the vesting date for such Common Stock occurred. 4. Performance Objectives . A. Total Shareholder Return . Total Shareholder Return ("TSR") will be compiled for a peer group of companies (the "Target Group") for the Performance Period immediately preceding each Normal Vesting Date. TSR for each such company is measured by dividing the sum of (i) the dividends on the common stock of such company during the Performance Period, assuming dividend reinvestment, and (ii) the difference between the price of a share of such company's common stock at the end and at the beginning of the period (appropriately adjusted for any stock dividend, stock split, spin-off, merger or other similar corporate events) by (iii) the price of a share of such company's common stock at the beginning of the period. B. Target Group . The applicable Target Group shall be selected by the Compensation Committee, acting in its sole discretion, at the beginning of the calendar year immediately preceding each Normal Vesting Date (or not later than 90 days after the commencement of such calendar year). The same Target Group shall be utilized to determine the number of Performance Shares vesting under all Performance Award Agreements of Valero having a similar Normal Vesting Date, but the decision of the Compensation Committee as to the composition of such Target Group shall be final. C. Performance Ranking . The TSR for the Performance Period for Valero and each company in the Target Group shall be arranged by rank from best to worst according to the TSR achieved by each company. The total number of companies so ranked shall then be divided into four groups ("Quartiles"). For purposes of assigning companies to Quartiles (with the 1st Quartile being the best and the 4th Quartile being the worst), the total number of companies ranked (including Valero) shall be divided into four groups as nearly equal in number as possible. The number of companies in each group shall be the total number contained in the Target Group divided by four. If the total number of companies is not evenly divisible by four, so that there is a fraction contained in such quotient, the extra company(ies) represented by such fraction will be included in one or more Quartiles as follows: fraction is 1/4: extra company(ies) in 1st Quartile fraction is 1/2: extra company(ies) in 1st and 2nd Quartile fraction is 3/4: extra company(ies) in 1st, 2nd and 3rd Quartile Any performance shares not awarded as shares of Common Stock as a result of a ranking in the 3rd or 4th Quartile will carry forward for one more Performance Period; up to 100% of the Performance Shares carried forward may be awarded based on Valero's TSR during the next Performance Period, provided, that if any Performance Shares are carried forward due to a ranking in the 3rd Quartile, no such shares shall be awarded unless Valero's TSR in the subsequent period is in the 2nd or 1st Quartile. To the extent shares of Common Stock are not distributed due to a ranking in the 3rd or 4th Quartile and are further deferred, such deferred shares may be distributed in accordance with this paragraph as soon as administratively practicable following a determination that such shares are to be awarded in accordance with this Paragraph 4(C), and in such event, the distribution shall not occur later than two-and-one-half months following the end of the year in which the vesting date for such Common Stock occurred. D. Vesting Percentages . The number of shares of Common Stock, if any, that Participant will be entitled to receive in settlement of the vested Performance Shares will be determined on each Normal Vesting Date and, subject to the provisions of the Plan and this Agreement, on such Normal Vesting Date, the following percentage of the vested Performance Shares will be awarded as shares of Common Stock to the Participant if Valero's TSR during the Performance Period falls within the following ranges: Valero TSR is 4th Quartile: 0% awarded as common shares Valero TSR is 3rd Quartile: 50% awarded as common shares Valero TSR is 2nd Quartile: 100% awarded as common shares Valero TSR is 1st Quartile: 150% awarded as common shares If Valero's TSR is the highest achieved in the 1st Quartile for the Performance Period, Participant shall be awarded a number of shares of Common Stock equal to 200% of the Performance Shares that vested during the Performance Period. 5. Termination of Employment . A. Voluntary Termination and Termination for "Cause" . Except for a Change of Control (described below), if Participant's employment is voluntarily terminated by the Participant (other than through retirement, death or disability), or is terminated by Valero for "cause" (as defined pursuant to the Plan), then (a) those Performance Shares that have not vested or been forfeited, and for which a Normal Vesting Date occurs on or before the 30th day following the date of such termination, shall be awarded as shares of Common Stock on such Normal Vesting Date subject to the attainment of the performance objectives in accordance with Paragraph 4 hereof, and (b) any such Performance Shares for which a Normal Vesting Date does not occur within such 30-day period, or that are not otherwise awarded as shares of Common Stock on a Normal Vesting Date as a result of the application of Paragraph 4, shall thereupon be forfeited. B. Retirement, Death, Disability, and Involuntary Termination Other Than for "Cause" . Except for a Change of Control, if a Participant's employment is terminated through retirement, death, or disability, or by Valero other than for cause (as determined pursuant to the Plan), then (a) those Performance Shares that have not theretofore vested or been forfeited, and for which a Normal Vesting Date occurs on or before the 90th day following the date of such termination, shall be subject to vesting on such Normal Vesting Date in accordance with Paragraph 4 hereof, and (b) any such Performance Shares for which such a Normal Vesting Date does not occur within such 90-day period, or which otherwise do not vest on a Normal Vesting Date as a result of application of Paragraph 4, shall thereupon be forfeited. 6. Change of Control . If a Change of Control occurs with respect to Valero, then each Performance Period with respect to any Performance Shares that have not vested or been forfeited shall be terminated effective as of the date of such Change of Control (a "Change of Control Vesting Date"); the TSR for Valero and for each company in the Target Group shall be determined for each such shortened Performance Period and the percentage of Performance Shares to be received by the Participant for each such Performance Period shall be determined in accordance with Paragraph 4 and shall be distributed as soon as administratively practicable thereafter. For purposes of determining the number of Performance Shares to be received as of any Change of Control Vesting Date, the Target Group as most recently determined by the Compensation Committee prior to the date of the Change of Control shall be used. 7. Plan Incorporated by Reference . The Plan is incorporated into this Agreement by this reference and is made a part hereof for all purposes. Capitalized terms not otherwise defined in this Agreement shall have the meaning specified in the Plan. 8. No Assignment . This Agreement and the Participant's interest in the Performance Shares granted by this Agreement are of a personal nature, and, except as expressly permitted under the Plan, Participant's rights with respect thereto may not be sold, mortgaged, pledged, assigned, transferred, conveyed or disposed of in any manner by Participant, except by an executor or beneficiary pursuant to a will or pursuant to the laws of descent and distribution. Any such attempted sale, mortgage, pledge, assignment, transfer, conveyance or disposition shall be void, and Valero shall not be bound thereby. 9. Successors . This Agreement shall be binding upon any successors of Valero and upon the beneficiaries, legatees, heirs, administrators, executors, legal representatives, successors and permitted assigns of Participant.   VALERO ENERGY CORPORATION By: R. Michael Crownover , Vice President   __________________________________________ Participant

EXHIBIT 10(iii).15 BALDOR ELECTRIC COMPANY NON-QUALIFIED STOCK OPTION AGREEMENT This Agreement is entered into as of «DATE» (the “Agreement Date”), by and between BALDOR ELECTRIC COMPANY (the “Company”) and «OPTIONEE» (ID # «SS») (the “Employee”). The Plan under which this Agreement is made is the Baldor Electric Company 1994 Stock Option Plan and the Administrator of the Plan is the Stock Option Committee of the Board of Directors of the Company. This Agreement is based upon non-qualified stock options originally granted to the Employee on «ORIG DATE». The Board of Directors of the Company, with the approval of the shareholders of the Company, has determined: (1) that the interests of the Company will be advanced by encouraging and enabling certain of its employees to acquire shares of the common stock of the Company which will provide them with a more direct concern for the welfare of the Company and assure a closer identification of their interests with those of the Company; (2) that the acquisition of such an interest in the Company will stimulate the endeavors of such employees on behalf of the Company and strengthen their desire to remain with the Company; and (3) that the Employee named above is one of such employees. The Company and the Employee hereby agree to all of the terms, conditions, and restrictions of the Plan and further agree as follows:   1. Shares Subject to Option. The Company hereby grants to the Employee the option to purchase all or part of an aggregate of «UNITS » shares of common stock of the Company at the purchase price of $ «PRICE » per share.   2. Time, Manner of Exercise, and Form of Payment. The options shall be one hundred percent (100%) exercisable on and after «EXERVEST». Options granted pursuant to this Agreement shall cease to be exercisable on and after «EXPIRATION», and the Employee shall have no rights to these options after this date. Subject to Paragraphs 3 and 6, the Employee may purchase all or part of the shares subject to this Agreement, but in no case may the Employee exercise an option for a fraction of a share. The option granted pursuant to this Agreement shall be exercisable by the giving of written notice of exercise to the Company on a form provided by the Company and shall be accompanied by payment in full of the purchase price for the shares to be purchased. The full purchase price shall be payable in cash or check at the time of exercise. In lieu of cash or check, the Employee may make payment, in whole or in part, by tendering shares of common stock of the Company (“Shares”) valued at the fair market value on the day before the date the Company receives written notice of exercise from the Employee; provided that, the shares used to purchase shares under this Agreement must be issued to the Employee in certificate form. The purchase transaction shall be affected as soon as practical following receipt by the Company of such a written notice.   3. Employment Status. Options under this Agreement shall be exercisable during the lifetime of the Employee only by him. Except as provided in Paragraph 6, the Employee may not exercise an option under this Agreement unless at the time of exercise he has been employed by the Company continuously since the Agreement Date. The rights and privileges of the Employee granted pursuant to this Agreement may not be transferred, or assigned to any person other than the Employee, except by will or the laws of descent and distribution.   4. Shareholder Status. Neither the Employee nor his legal representatives shall have any rights or privileges of a shareholder of the Company with respect to any of the Shares issuable on the exercise of this option unless and until certificates representing such shares shall have been issued and delivered to the Employee or his representatives.   5. Adjustment of Shares. If prior to exercise there shall be any change in the outstanding common shares of the Company through merger, consolidation, reorganization, recapitalization, stock dividend, split-up, combination of shares, exchange of shares, change in corporate structure, or otherwise, proportionate adjustments to the kind and number of shares and price per share of   1 -------------------------------------------------------------------------------- shares subject to this option shall be made by the Administrator. No fractional shares of stock shall be issued under this option on account of any such adjustments, and rights to shares shall be limited after such an adjustment to the lower full share. The determination by the Administrator in each case shall be conclusive and binding on the Company and the Employee and his legal representatives.   6. Termination of Employment. If the Employee’s employment terminates for any reason other than those listed below, the Employee may at any time within three months after termination of his employment exercise options granted under this Agreement only to the extent such options were exercisable by him on the date of his termination of employment. The Company, in its sole discretion, may consent to retirement before age 65 and within six months of the Agreement Date, and accelerate vesting on account of termination of employment before age 65, in which case the option will become exercisable six months after the Agreement Date and the Employee may exercise options granted under this Agreement until nine months after the Agreement Date. Disability – If the Employee’s employment with the Company terminates due to disability, all options granted pursuant to this Agreement shall become exercisable on the date of such termination of employment and shall remain exercisable for a period of up to three months. For purposes of this paragraph, disability normally means termination of employment on account of a medical impairment resulting in inability to perform the duties of the position held by the Employee with the Company. The Administrator shall judge whether termination of employment is a result of disability, and the decision of the Administrator shall be binding. Misconduct – If the Employee’s employment with the Company terminates on account of conduct which involves dishonesty or action by the Employee which is detrimental to the best interest of the Company, options granted pursuant to this Agreement shall terminate immediately upon such a termination of employment and the Employee shall have no further rights under this Agreement. The Administrator shall judge whether termination of employment is a result misconduct, and the decision of the Administrator shall be binding. Death – If the Employee shall die while in the employ of the Company, or within three months after termination of his employment and prior to the termination of the options granted pursuant to this Agreement, such option may be exercised at any time within twelve months following his death by the person or persons to whom the Employee’s rights under this option shall pass by the Employee’s will or by the laws of descent and distribution. The option holder shall have no further rights under this Agreement after the expiration of such exercise period.   7. Required Withholding. Notwithstanding anything to the contrary in this Agreement, if the Company is required to withhold an amount from the wages of the Employee as a result of the award of Shares, expiration of a Restricted Period or exercise of an option, the Company shall not deliver or otherwise make the Stock Certificate available to the Employee until the Employee pays to the Company in cash or check the amount necessary to enable the Company to remit to the appropriate government entity or entities on behalf of the Employee the amount required to be withheld from his wages with respect to such Shares. In lieu of cash or check, the Employee may make payment, in whole or in part, by tendering shares of common stock of the Company valued at the fair market value on the day before the date the Company receives written notice of exercise from the Employee.   BALDOR ELECTRIC COMPANY     ATTEST:         John A. McFarland     Ronald E. Tucker Chairman and CEO     President, CFO and Secretary         Signature of Employee     Printed Name of Employee   2

EXHIBIT 10.01 Name of Offeree: ___________________________ Document No.: __________ CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM THIS MEMORANDUM IS FOR THE CONFIDENTIAL USE OF THE OFFEREE NAMED ABOVE AND MAY NOT BE REPRODUCED IN WHOLE OR IN PART DERMA SCIENCES, INC. _________________ 2,500,000 Units Each Consisting of Four Shares of Common Stock and One Warrant to Purchase One Share of Common Stock Minimum Investment – 5,000 Units _________________ THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (“COMMISSION”) DOES NOT PASS UPON THE MERITS OF OR GIVE ITS APPROVAL TO ANY SECURITIES OFFERED OR THE TERMS OF THE OFFERING, NOR DOES IT PASS UPON THE COMPLETENESS OR ACCURACY OF ANY PRIVATE PLACEMENT MEMORANDUM OR OTHER SELLING LITERATURE. THESE SECURITIES ARE OFFERED PURSUANT TO EXEMPTION FROM REGISTRATION WITH THE COMMISSION. THE COMMISSION HAS NOT MADE AN INDEPENDENT DETERMINATION THAT THE SECURITIES OFFERED HEREUNDER ARE EXEMPT FROM REGISTRATION. THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES LAWS OF ANY STATE AND ARE OFFERED PURSUANT TO CERTAIN EXEMPTIONS THERE-UNDER. THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY ANY STATE SECURITIES AGENCY. THIS PRIVATE PLACEMENT MEMORANDUM IS FURNISHED ON A CONFIDENTIAL BASIS SOLELY FOR THE PURPOSE OF PERMITTING OFFEREES TO EVALUATE THE INVESTMENT OFFERED HEREBY. THIS PRIVATE PLACEMENT MEMORANDUM IS PERSONAL TO EACH OFFEREE AND DOES NOT CONSTITUTE AN OFFER TO ANY OTHER PERSON. DISTRIBUTION OF THIS PRIVATE PLACEMENT MEMORANDUM, OR ANY OF THE CONTENTS HEREOF, TO ANY PERSON OTHER THAN THE OFFEREE AND THOSE PERSONS, IF ANY, RETAINED TO ADVISE SUCH OFFEREE IS UNAUTHORIZED.   Price to Investors Selling Commissions or Discounts (1) Proceeds to the Company (2) Per Unit $2.40 $0.192 $2.208 Minimum $5,400,000 $432,000 $4,968,000 Maximum $6,000,000 $480,000 $5,520,000 (1)   Assumes that sales of all Units offered hereby are effected by Taglich Brothers, Inc. and/or by placement agents whose compensation relative to sales of the Units is identical to that of Taglich Brothers, Inc. (2)   Before deducting offering expenses payable by the Company in connection with this Offering estimated to aggregate $50,000.         The Units are offered by the Company subject to prior sale, withdrawal, cancellation or modification of the offer without notice and subject also to the right of the Company to reject any subscription in whole or in part. TAGLICH BROTHERS, INC. The date of this Confidential Private Placement Memorandum is April 5, 2006.   -------------------------------------------------------------------------------- THE UNITS WILL BE OFFERED PURSUANT TO REGULATION D PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. BY HIS/HER/ITS ACCEPTANCE OF THE UNITS EACH INVESTOR IS DEEMED TO REPRESENT TO THE COMPANY THAT HE/SHE/IT IS ACQUIRING THE UNITS FOR HIS/HER/ITS OWN ACCOUNT (AND NOT FOR THE ACCOUNT OF OTHERS) OR AS AN AGENT FOR OTHERS FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, THE PUBLIC DISTRIBUTION THEREOF. THIS MEMORANDUM DOES NOT KNOWINGLY CONTAIN AN UNTRUE STATEMENT OF A MATERIAL FACT OR OMIT TO STATE A MATERIAL FACT NECESSARY TO MAKE THE STATEMENTS MADE, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PRIVATE PLACEMENT MEMORANDUM AND THE ATTACHMENTS HERETO OR DOCUMENTS INCORPORATED BY REFERENCE HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON. THIS PRIVATE PLACEMENT MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES TO ANY PERSON IN ANY STATE OR OTHER JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. IT IS EXPECTED THAT INVESTORS INTERESTED IN PURCHASING THE UNITS WILL CONDUCT THEIR OWN INDEPENDENT INVESTIGATION OF THE RISKS POSED BY AN INVESTMENT IN THE UNITS. OFFICERS OF THE COMPANY WILL BE AVAILABLE TO ANSWER ANY QUESTIONS CONCERING THE COMPANY, THE UNITS AND THE TERMS AND CONDITIONS OF THE OFFERING AND WILL MAKE AVAILABLE SUCH OTHER INFORMATION AS SUCH INVESTORS MAY REASONABLY REQUEST. PROSPECTIVE PURCHASERS ARE NOT TO CONSTRUE THE CONTENTS OF THIS PRIVATE PLACEMENT MEMORANDUM OR ANY PRIOR OR SUBSEQUENT COMMUNICATIONS FROM THE COMPANY OR ANY OF ITS OFFICERS, EMPLOYEES OR AGENTS AS INVESTMENT, LEGAL OR TAX ADVICE. PRIOR TO INVESTING IN THE UNITS PROSPECTIVE PURCHASERS SHOULD CONSULT WITH THEIR ATTORNEYS AND INVESTMENT ADVISORS TO DETERMINE THE CONSEQUENCES OF AN INVESTMENT IN THE UNITS AND ARRIVE AT AN INDEPENDENT EVALUATION OF THE MERITS AND RISKS OF SUCH INVESTMENT. THE PURCHASE OF THE UNITS ENTAILS A NUMBER OF VERY SIGNIFICANT RISKS. SEE THE SECTION TITLED “RISK FACTORS” IN THIS CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM FOR A DISCUSSION OF CERTAIN CONSIDERATIONS ASSOCIATED WITH AN INVESTMENT IN THE UNITS. IN ADDITION, THERE CAN BE NO ASSURANCE THAT THE MARKET VALUE OF THE UNITS WILL NOT DECLINE UPON THE DECLARATION OF EFFECTIVENESS OF THE REGISTRATION STATEMENT REFERRED TO HEREIN OR AS A RESULT OF OTHER FACTORS. BECAUSE OF THESE RISKS, FUNDS SHOULD ONLY BE INVESTED BY INVESTORS ABLE TO BEAR THE RISK OF AND WITHSTAND THE TOTAL LOSS OF THEIR INVESTMENT. CERTIFICATES EVIDENCING THE COMMON STOCK AND WARRANTS COMPRISING THE UNITS WILL BE DELIVERED TO EACH PURCHASER WITH A LEGEND THEREON STATING THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT AND, THEREFORE, CANNOT BE SOLD UNLESS REGISTERED UNDER THE SECURITIES ACT OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE. EACH PURCHASER WILL UNDERTAKE IN THE PURCHASE AGREEMENT THAT HE/SHE/IT WILL NOT, DIRECTLY OR INDIRECTLY, OFFER, SELL, PLEDGE, TRANSFER OR OTHERWISE DISPOSE OF (OR SOLICIT ANY OFFERS TO BUY, PURCHASE OR OTHERWISE ACQUIRE OR TAKE PLEDGE OF) ANY OF THE SECURITIES EXCEPT IN COMPLIANCE WITH THE SECURITIES ACT AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER, THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE “EXCHANGE ACT”), AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER, APPLICABLE STATE SECURITIES LAWS AND THE OTHER TERMS AND CONDITIONS OF THE PURCHASE AGREEMENT. 2 -------------------------------------------------------------------------------- TABLE OF CONTENTS Page Derma Sciences.............................................................. 4 The Offering................................................................ 4 Use of Proceeds............................................................. 4 Risk Factors................................................................ 5 Where You Can Find More Information......................................... 10 Nondisclosure Agreement..................................................... 11 Plan of Distribution........................................................ 12 Restricted Securities....................................................... 12 Registration Rights......................................................... 13 Legal Matters............................................................... 13 Exhibits: Exhibit Form 10-KSB............................................................ A Proxy Statement........................................................ B Acquisition of Western Medical, Ltd.................................... C Purchase Agreement..................................................... D Registration Rights Agreement.......................................... E Warrant Agreement...................................................... F Receipt and Nondisclosure Agreement.................................... G Instructions to Purchaser.............................................. H 3 -------------------------------------------------------------------------------- DERMA SCIENCES         We market and sell three lines of products. Our wound care products consist of basic and advanced dressings, ointments and sprays designed to manage and treat a wide range of chronic and non-chronic skin conditions. Our specialty fastener products consist of sterile pressure sensitive adhesive wound closure strips, pressure sensitive adhesive catheter fasteners and tubular net dressings. Our general purpose and specialized skincare products consist of body washes, shampoos, an incontinent wash, a moisture barrier ointment, skin moisturizers and lotions, hand washes and sanitizers and a hard surface disinfectant.         We sell our products through our own direct sales force, through manufacturers’ representatives and through independent distributors. Our primary customers are nursing homes, hospitals, clinics and home healthcare agencies. Our products are available throughout the United States and in selected international markets.         Our executive offices are located at 214 Carnegie Center, Suite 100, Princeton, New Jersey and our telephone number is (609) 514-4744. THE OFFERING         The Company hereby offers up to 2,500,000 Units each consisting of four shares of the Company’s common stock and one warrant to purchase one share of common stock at $1.00 (the “Offering”). The exercise price of the warrants is subject to adjustment to reflect recapitalizations, stock dividends, mergers, stock splits and like events. The warrants will expire on April 30, 2011 and are subject to “cashless” exercise. The per Unit purchase price is $2.40 and the minimum investment is 5,000 Units subject to the right of the Company to accept investments of lesser amounts. The common stock comprising the Units and the common stock issuable upon exercise of the warrants will be registered as described under the heading Registration Rights. The Offering will terminate on April 30, 2006 unless sooner terminated or extended by the Company. Until the minimum 2,250,000 Units are sold, all proceeds of the Offering will be held in escrow by a bank escrow agent. If the minimum 2,250,000 Units have not been sold prior to 5:00 p.m. April 30, 2006, all proceeds theretofore received will be refunded without deduction or set off. USE OF PROCEEDS         The net proceeds to the Company from the sale of the Units in this Offering (after deducting selling commissions and other offering expenses) will be approximately $4,918,000 if the minimum 2,250,000 Units are sold and $5,470,000 if the maximum 2,500,000 Units are sold. The Company will utilize the net proceeds for the acquisition of substantially all of the assets of Western Medical, Ltd., a New Jersey wound care company (the “Acquisition”). Proceeds of the Offering will initially 4 -------------------------------------------------------------------------------- be placed in escrow with The Capital Trust Company of Delaware, Wilmington, Delaware, and will be maintained in a non-interest bearing account pending consummation of the Acquisition. If the Acquisition is not consummated by 5:00 p.m. April 30, 2006, no Units will be issued and all proceeds of the Offering will be returned without deduction or set off. RISK FACTORS         This investment involves a high degree of risk and you should purchase Units only if you can afford a complete loss of your investment. Consider carefully these risk factors and other information in this offering memorandum. The potential increase in common shares due to the conversion or exercise of outstanding derivative securities mayhave a depressive effect upon the market value of the Company’s shares.         As of December 31, 2005, 12,123,128 shares of the Company’s common stock were issuable upon the conversion or exercise of outstanding convertible preferred stock, warrants and options (“derivative securities”). The shares of common stock issuable upon conversion or exercise of derivative securities are substantial compared to the 12,285,768 shares of common stock currently outstanding.         Earnings per share relative to the Company’s common stock, as and when generated, will be calculated assuming the conversion or exercise of all dilutive derivative securities. Earnings per share of common stock would be substantially diluted by the existence of these derivative securities regardless of whether they are converted or exercised. This dilution of earnings per share could have a depressive effect upon the market value of the Company’s common stock. The exercise by holders thereof of all of the Company’s outstanding options and warrants could impact the abilityof purchasers to exercise the warrants comprising the Units.         The Company’s corporate charter authorizes it to issue 30,000,000 shares of common stock. The Company’s board of directors has authorized an amendment to the Company’s corporate charter increasing the authorized common stock to 50,000,000 shares and has submitted this amendment for approval of the Company’s shareholders at the annual meeting of shareholders scheduled for May 11, 2006.         In the event substantially all of the holders of the Company’s currently outstanding warrants and stock options exercised, for cash, their warrants and options, and in the event substantially all of the holders of the Company’s convertible preferred stock converted their shares into common stock, and in the further event the Company’s shareholders failed to approve the proposed increase 5 -------------------------------------------------------------------------------- in authorized common stock (events which management considers unlikely), the Company would not presently have sufficient shares of common stock to accommodate all of the foregoing conversions or warrant and option exercises. In this eventuality, the Company would explore alternative means of satisfying its obligations relative to its outstanding preferred stock, warrants and options, including the conversion of authorized preferred stock to common stock and/or implementation of a reverse split of its common stock. The Company has not paid, and is unlikely to pay in the near future, cash dividends on its securities.         The Company has never paid any cash dividends on its common or preferred stock and does not anticipate paying cash dividends in the foreseeable future. The payment of dividends by the Company will depend on its future earnings, financial condition and such other business and economic factors as the Company’s management may consider relevant. The Company’s foreign operations are essential to its economic success and are subject to various unique risks.         The Company’s future operations and earnings will depend to a large extent on the results of its operations in Canada and its ability to maintain a continuous supply of basic wound care products from its operations and suppliers in China. While the Company does not envision any adverse change to operations in Canada and China, adverse changes to these operations, as a result of political, governmental, regulatory, economic, exchange rates, labor, logistical or other factors, could have an adverse effect on the Company’s future operating results. The Company has generated only nominal income and it cannot guarantee future profitability.         The Company earned net income of $22,241 in 2003, $61,368 in 2002 and $192,398 in 2001 and incurred losses of $909,104 in 2005, $2,338,693 in 2004, $2,581,337 in 2000 and $2,998,919 in 1999. At December 31, 2005 the Company had an accumulated deficit of $13,895,134. Although the Company achieved nominal profitability in 2003, 2002 and 2001, the Company cannot offer any assurance that it will be able to generate sustained or significant earnings. The Company’s stock price has been volatile and this volatility is likely to continue.         Historically, the market price of the Company’s common stock has been volatile. The high and low prices for the years 2001 through 2005 are set forth in the table below: 6 -------------------------------------------------------------------------------- Derma Sciences Trading Range – Common Stock   Year   Low   High                   2001   $0.22   $0.80     2002   $0.35   $0.85     2003   $0.35   $2.30     2004   $0.43   $1.90     2005   $0.42   $0.78           Events that may affect the Company’s common stock price include: • Quarter to quarter variations in its operating results; • Changes in earnings estimates by securities analysts; • Changes in interest rates or other general economic conditions; • Changes in market conditions in the wound care and skin care industries; and • The introduction of new products either by the Company or by its competitors.         Although all publicly traded securities are subject to price and volume fluctuations, it is likely that the Company’s common stock will experience these fluctuations to a greater degree than the securities of more established and better capitalized organizations. The rate of reimbursement for the purchase of the Company’s products by government and private insurance is subjectto change.         Sales of several of the Company’s wound care and specialty fastener products depend partly on the ability of its customers to obtain reimbursement for the cost of its products from government health administration agencies such as Medicare and Medicaid. Both government health administration agencies and private insurance firms continuously seek to reduce healthcare costs. These cost reduction efforts may adversely affect both the eligibility of the Company’s products for reimbursement and the rate of reimbursement. Although management believes that reimbursement policies relative to the Company’s products will remain stable for the foreseeable future, it can offer no assurance that the Company’s products will continue to be eligible for reimbursement indefinitely or that the rate of reimbursement will not be reduced. 7 -------------------------------------------------------------------------------- The Company’s success may depend upon its ability to protect its patents and proprietary technology.         The Company owns patents, both in the United States and abroad, for several of its products, and relies upon the protection afforded by its patents and trade secrets to protect its technology. The Company’s success may depend upon its ability to protect its intellectual property. However, the enforcement of intellectual property rights can be both expensive and time consuming. Therefore, the Company may not be able to devote the resources necessary to prevent infringement of its intellectual property. Also, the Company’s competitors may develop or acquire substantially similar technologies without infringing the Company’s patents or trade secrets. For these reasons, the Company cannot be certain that its patents and proprietary technology will provide it with a competitive advantage. If members of the Company’s management and their affiliates were to exercise all warrants and options held by them,they would be in a position to substantially influence the affairs of the Company.         The executive officers and directors of the Company, together with institutions with which they are affiliated, own substantial amounts of the Company’s common stock, together with outstanding options and warrants to purchase the Company’s common stock. In the event these officers, directors and affiliates were to exercise all of their options and warrants, and in the further event that other holders of the Company’s options and warrants did not exercise their own options or warrants, members of management and their affiliates would thereby obtain 74.0% of the Company’s voting stock. As a result, these officers, directors and affiliates of the Company would be in a position to significantly influence the strategic direction of the Company, the composition of its board of directors and the outcome of fundamental transactions requiring shareholder approval. Government regulation plays a significant role in the Company’s ability to acquire and market products.         Government regulation by the United States Food and Drug Administration and similar agencies in other countries is a significant factor in the development, manufacturing and marketing of many of the Company’s products and in the Company’s acquisition or licensing of new products. Complying with government regulations is often time consuming and expensive and may involve delays or actions adversely impacting the marketing and sale of the Company’s current or future products. 8 -------------------------------------------------------------------------------- Approximately half of the Company’s products are manufactured by third party manufacturers.         Approximately one half of the Company’s products are manufactured by third party manufacturers. One manufacturer produces advanced wound care products which account for about ten percent of the Company’s sales. Another manufacturer produces wound closure strips and catheter fasteners which account for about ten percent of the Company’s sales. Each of the Company’s other manufacturers produces products that individually account for less than ten percent of the Company’s sales.         Management considers the Company’s relationships with its third party manufacturers to be excellent. Although there are several manufacturers potentially available for each of the Company’s products, if a current manufacturer were unable or unwilling to continue to manufacture the Company’s products, distribution and sales of the affected products could be delayed for the period necessary to secure a replacement. Competitors could invent products superior to those of the Company and cause its products and technology to become obsolete.         The Company operates in an industry where technological developments occur at a rapid pace. The Company competes with a large number of established companies and institutions many of which have more capital, larger staffs and greater expertise than the Company. The companies with which the Company competes include Bristol Myers Squibb-Convatec, Smith & Nephew, Johnson & Johnson, 3M, Kendall, Hermitage, Medical Action, Cyprus, DeRoyal, Provon, Calgon Vestal-Steris, Chester Laboratories, Medicom and Medical Mart, together with a number of smaller companies. The Company’s competitors currently manufacture and distribute a variety of products that are in many respects comparable to those of the Company. While management has no specific knowledge of products under development by the Company’s competitors, it is possible that these competitors may develop technologies and products that are more effective than any the Company currently has. If this occurs, any of the Company’s products and technology affected by these developments could become obsolete. Although the Company is insured, any material product liability claims could adversely affect its business.         The Company sells over-the-counter products and medical devices and is exposed to the risk of lawsuits claiming alleged injury caused by its products. Among the grounds for potential claims against the Company are injuries due to alleged product inefficacy and injuries resulting from infection due to allegedly non-sterile products. Although the Company carries product liability insurance with limits of $1.0 million per occurrence and $2.0 million aggregate with $5.0 million in umbrella coverage, this insurance may not be adequate to reimburse the Company for all damages 9 -------------------------------------------------------------------------------- that it could suffer as a result of successful product liability claims. No material product liability claim has ever been made against the Company and management is not aware of any pending product liability claims. However, a successful material product liability suit could adversely affect the Company’s business.         Some of the information in this offering memorandum and attachments hereto may contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and may be subject to the safe harbor created by that section. You can identify these statements by noting the use of forward-looking terms like “believes,” “expects,” “plans,” “estimates” and other similar words. Risks, uncertainties or assumptions that are difficult to predict may affect these kinds of statements. The preceding risk factors and other cautionary statements could cause our actual operating results to differ materially from those expressed in any forward-looking statement. We caution you to keep in mind the preceding risk factors and other cautionary statements and to refrain from placing undue reliance on any forward-looking statements. WHERE YOU CAN FIND MORE INFORMATION         We file reports, proxy statements and other information with the Securities and Exchange Commission. You may read and copy these reports, proxy statements and other information at the public reference facilities maintained by the SEC at Room 1204, Judiciary Plaza, 450 Fifth Street, N.W. Washington, D.C. 20549 and you can obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet Web site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding issuers, like Derma Sciences, that file electronically with the SEC. Additional information about Derma Sciences can also be found at our Web site at http://www.dermasciences.com.         We “incorporate by reference” in this offering memorandum information from the documents we file with the SEC which means that we disclose important information to you by referring you to those documents. The information which we incorporate by reference is part of this offering memorandum. Additional information that we file with the SEC will automatically update previous information. We incorporate the following documents by reference into this offering memorandum: (a)   Derma Sciences’ annual report on Form 10-KSB filed March 31, 2006 for the year ended December 31, 2005. (b)   Derma Sciences’ notice of annual meeting of shareholders and definitive proxy statement filed April 5, 2006 relative to the election of directors, amendment of Derma Sciences’ stock option plan, adoption of Derma Sciences’ restricted stock plan, 10 --------------------------------------------------------------------------------     amendment of Derma Sciences’ articles of incorporation to increase the shares of common stock available for issuance and ratification of the appointment of J.H. Cohn LLP as Derma Sciences’ independent registered public accounting firm for the year ending December 31, 2006.         Any statement contained in this offering memorandum or in an attachment hereto or in a document incorporated in this offering memorandum by reference will be considered modified or replaced for purposes of this offering memorandum if the statement is modified or replaced by a statement in a later document that also is incorporated by reference in this offering memorandum.         The statements contained in this offering memorandum as to the contents of any contract or any other document are not necessarily complete. We qualify any statement by reference to the copy of the contract or document filed with the SEC. If you would like a copy of any document incorporated in this offering memorandum by reference, you can call or write to us at our principal executive offices, Attention: Edward J. Quilty, President and Chief Executive Officer, at 214 Carnegie Center, Suite 100, Princeton, New Jersey 08540, telephone (609) 514-4744. We will provide this information upon written or oral request and without charge to any person, including a beneficial owner, to whom a copy of this offering memorandum is delivered.         We have not authorized any dealer, salesperson or other individual to give any information or to make any representation not contained or incorporated by reference in this offering memorandum or provided as an attachment to this offering memorandum. If you receive any of that kind of information or if any of those types of representations are made to you, you must not rely on the information or representations as having been authorized by Derma Sciences. Also, you must not consider that the delivery of this offering memorandum or any sale made under it implies that the affairs of Derma Sciences have remained unchanged since the date of this offering memorandum or that the information contained in this offering memorandum is correct or complete as of any time after the date of this offering memorandum.         This offering memorandum and any supplement to this offering memorandum do not constitute an offer to sell or a solicitation of an offer to buy any securities covered by this offering memorandum to any person in any jurisdiction in which this offer or solicitation is unlawful. NONDISCLOSURE AGREEMENT         Potential purchasers of the Units (“Offerees”) will be required to execute a nondisclosure agreement obligating Offerees to maintain the confidentiality of all material non-public information, including the fact of this Offering, (“Information”) furnished to them by the Company or Taglich Brothers, Inc. (see Plan of Distribution below) in connection with the Offerees’ investigation of the Company and their decision to acquire the Units. Offerees will be prohibited from disclosing the 11 -------------------------------------------------------------------------------- Information to any other person, except persons retained to advise Offerees concerning their decision to purchase the Units, and must refrain from investing in the securities of the Company (other than the Units pursuant to this Offering) or otherwise acting on the Information until the Company notifies them that the Information has been made public. PLAN OF DISTRIBUTION         The Units are being offered by the Company to “accredited investors” within the meaning of Rule 501 of Regulation D promulgated under the Securities Act of 1933 through such of its officers and directors as may legally offer the Units in the jurisdictions in which the Offering is conducted. In addition, the Company has engaged Taglich Brothers, Inc., New York, New York, a NASD registered broker-dealer (“Taglich”) to effect sales, on a “best efforts” basis, of up to $4,000,000 in aggregate amount of the Units offered hereby. Taglich will be paid eight percent (8%) of the purchase price of Units purchased by investors introduced to the Company by Taglich and will be accorded warrants (subject to registration rights similar to those accorded to purchasers of the Units) to purchase shares of common stock equal to ten percent (10%) of the shares of common stock comprising the Units purchased by investors that are introduced to the Company by Taglich. The exercise price of the Taglich warrants is $0.72 per share. Taglich will not be compensated relative to Units sold by officers or directors of the Company. The Company may engage placement agents in addition to Taglich to effect sales of the Units. However, if the Company does so, it does not intend to pay compensation to any such placement agents in excess of the compensation payable to Taglich. RESTRICTED SECURITIES         The common stock comprising the Units and issuable upon exercise of the warrants will be “restricted securities” as defined under the Securities Act of 1933 (the “Act”) and subject to limitations on their transfer pursuant to federal and state securities laws. See Registration Rights for a discussion of the registration of the reoffer and resale of the common stock. The certificates representing the common stock and warrants will, until registered, be imprinted with a legend in substantially the following form:   “THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION REQUIREMENTS OF SAID ACT OR APPLICABLE STATE SECURITIES LAWS, SUPPORTED BY AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.”   12 -------------------------------------------------------------------------------- REGISTRATION RIGHTS         The Company has agreed to use its best efforts to register the reoffer and resale of the common stock comprising the Units and issuable upon exercise of the warrants by filing a registration statement under the Securities Act with the SEC within 60 days, and causing same to become effective within 180 days, of the completion of the Offering. The Company will use its best efforts to maintain such registration statement as a current and effective document for the lesser of three years, until all shares of common stock registered thereunder are sold or until all such shares may be sold by the holders thereof under Rule 144, without limitation. The Company will bear all the expenses and pay all the fees in connection with the preparation and filing of the registration statement.         In the event the Company fails to timely file the aforesaid registration statement or fails to timely cause the registration statement to become effective, the Company will pay purchasers of the Units damages in the amount of 2% of the purchase price of the Units, not to exceed 10% of the purchase price, for each month or fraction thereof the filing or effectiveness, as applicable, of the registration statement is untimely. These damages will be payable exclusively in common stock of the Company valued at the average closing bid price thereof for the ten trading days preceding the date of the damages calculation.         If, after expiration of the registration statement discussed above, the Company decides to register common stock for its own account or for the benefit of any of its stockholders, other than a registration relating solely to employee stock option or purchase plans, the Company will provide to each purchaser of the Units the opportunity to include in the registration statement the shares of common stock comprising the Units and the shares of common stock issuable upon the exercise of the warrants. The Company will keep such registration effective for the lesser of 180 days or until all of the shares of the registered common stock have been sold. LEGAL MATTERS         For the purposes of this Offering, Hedger & Hedger, 2 Fox Chase Drive, P.O. Box 915, Hershey, Pennsylvania, 17033, is giving its opinion on the validity and non-assessability of the shares. 13 -------------------------------------------------------------------------------- FIRST AMENDMENT TO CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM OF DERMA SCIENCES, INC.         Derma Sciences, Inc., a Pennsylvania corporation (the “Company”), issued a Confidential Private Placement Memorandum, dated April 5, 2006 (together with the Exhibits thereto, collectively, the “Memorandum”) relating to the offering (the “Offering”) of a minimum principal amount of $5,400,000 (the “Minimum Amount”) and a maximum principal amount of $6,000,000 (the “Maximum Amount”) of the Company’s series H units (the “Units”), with each Unit consisting of four shares (the “Shares”) of the Company’s common stock, $.01 par value per share (the “Common Stock”), and one warrant (an “Investor Warrant”) with a five (5) year term for the purchase of one share of Common Stock with an initial exercise price equal to $1.00 per Share, subject to adjustment as provided in the Investor Warrants.         Capitalized terms used and not otherwise defined herein shall have the meanings set forth in the Memorandum. Increase in Units Offered         The Company has determined to increase the Maximum Amount from 2,500,000 Units ($6,000,000 gross proceeds) to 2,750,000 Units ($6,600,000 gross proceeds). Assuming the sale of all Units offered hereby are effected by Taglich Brothers, Inc. and/or by placement agents whose compensation relative to sale of Units is identical to that of Taglich Brothers, Inc., the selling commissions or discounts will be $528,000 and the proceeds to the Company will be $6,072,000. The Company expects that offering expenses will be approximately $50,000 with the resulting net proceeds to the Company, assuming the sale of all Units, being approximately $6,022,000. The Company will utilize the net proceeds of the Offering for the acquisition of substantially all of the assets of Western Medical, Ltd., a New Jersey wound care company (the “Acquisition”). Any proceeds remaining after the Acquisition will be used for working capital purposes. Registration Rights Current Provisions         The Company has agreed to use its best efforts to register the reoffer and resale of the common stock comprising the Units and issuable upon exercise of the Investor Warrants by filing a registration statement under the Securities Act with the SEC within 60 days, and causing same to become effective within 180 days, of the completion of the Offering. The Company will use its best efforts to maintain such registration statement as a current and effective document for the lesser of three years, until all Shares of Common Stock registered thereunder are sold or until all such Shares may be sold by the holders thereof under Rule 144, without limitation. The Company will bear all the expenses and pay all the fees in connection with the preparation and filing of the registration statement.         In the event the Company fails to timely file the aforesaid registration statement or fails to timely cause the registration statement to become effective, the Company will pay purchasers of the Units damages in the amount of 2% of the purchase price of the Units, not to exceed 10%   -------------------------------------------------------------------------------- of the purchase price, for each month or fraction thereof the filing or effectiveness, as applicable, of the registration statement is untimely. These damages will be payable exclusively in Common Stock of the Company valued at the average closing bid price thereof for the ten trading days preceding the date of the damages calculation. Additions and Modifications         In addition to paying purchasers liquidated damages, as described above, for failure to timely file, or cause to become effective, a registration statement relative to Common Stock comprising the Units, the Company will also pay purchasers liquidated damages if it fails to maintain the effectiveness of the registration statement for the above specified period. Damages will be in the amount of 2% of the purchase price of the Units, not to exceed 10% of the purchase price when aggregated with any other liquidated damages payable, for each month or fraction thereof that the effectiveness of the registration statement is not maintained as required. These damages will be payable exclusively in Common Stock of the Company valued at the average closing bid price thereof for the ten trading days preceding the date of the damages calculation.         The above described liquidated damages provisions have been added to section 3 of the registration rights agreement attached as exhibit E to the Memorandum. Provisions inconsistent with the above described liquidated damages provisions have been deleted from section 10 of the registration rights agreement. Appropriate provisions of the registration rights agreement, marked to show changes, are attached hereto. Subscription         If you have subscribed for Units and do not want to purchase the Units as a result of the above described changes, please send written notice by fax of your intentions to Taglich Brothers, Inc. at (212) 661-6824 marked “Attn: Vincent Palmieri”. Closing         The Company and Taglich Brothers Inc. (the “Placement Agent”) expect that the Final Closing Date will be April 18, 2006. There will be one closing for the sale of all the Units, or such lesser amount (but not less than the Minimum Amount) as the Company and Placement Agreement shall determine. Other Terms Unchanged         Except as expressly provided herein, the terms and conditions of the Memorandum are unchanged and remain in full force and effect.   DERMA SCIENCES, INC. Dated: April 13, 2006   -------------------------------------------------------------------------------- Registration Rights Agreement         3.    Resale Registration; Timing of Filing, Effectiveness and Period of Usability. Subject to the provisions of Section 4 hereof, the Company shall use its best efforts to file not later than 60 days after the date hereof (“Anticipated Filing Date”), and use its best efforts to cause to be declared effective not later than 180 days after the date hereof (“Anticipated Effective Date”), a Registration Statement on any appropriate form under the Securities Act for all the Registrable Securities such as to permit the public resale of the Registrable Securities.         In the event the Company fails to either file the Registration Statement by the Anticipated Filing Date or cause the Registration Statement to be declared effective by the Anticipated Effective Date or maintain the effectiveness of the Registration Statement for the entire Effectiveness Period (described below), then the Company shall pay to each Holder, as liquidated damages and not as a penalty, on the Anticipated Filing Date or Anticipated Effective Date or the date within the Effectiveness Period that the Registration Statement ceases to be effective, as applicable, and each monthly anniversary thereof until the Registration Statement is filed or declared effective, an amount equal to 2.0% of the aggregate purchase price paid by such Holder for the Units, such amount to be payable exclusively in Common Stock of the Company valued at the average closing bid price thereof on the OTC Bulletin Board for the ten trading days immediately preceding the date as to which the subject liquidated damages are calculated. Provided, however, if as of the Anticipated Effective Date the Registration Statement has not yet been declared effective, the Anticipated Effective Date shall be extended for the following periods: (a) such periods as the SEC has under consideration responses of the Company to its comments relative to the Registration Statement, and (b) such periods, not to exceed 20 days each, following the SEC’s responses to the filing by the Company of pre-effective amendments to the Registration Statement. Provided, further, liquidated damages payable by the Company hereunder may in no event exceed 10.0% of the purchase price paid by Holders for the Units.         The Company agrees to use its best efforts to keep the Registration Statement continuously effective and usable for resale of Registrable Securities until the date which is three (3) years (the “Effectiveness Period”) after the date upon which the Commission declares the Registration Statement effective or such shorter period which shall terminate when all the Registrable Securities covered by such Registration Statement have been sold pursuant to such Registration Statement or when all Registrable Securities otherwise have been sold pursuant to Rule 144 or are freely tradeable in essentially the same manner as contemplated in Section 4 below. The Effectiveness Period shall be extended, day for day, by the length of any “black out” periods declared pursuant to section 4(l) hereof.         If, at any time or from time to time on or after the expiration of the Effectiveness Period, the Company determines to register Common Stock for its own account for a public offering or for the account of any of its stockholders to publicly sell their shares of Common Stock, other than a registration on Form S-1 or S-8 relating solely to employee stock option or purchase plans, the Company will promptly notify each Holder of such registration and, if such Holder notifies the Company of his/her/its desire to be included in such registration within five (5) business days of the Company’s notice, the Company will include the shares of Common Stock of such Holder and/or the shares issuable upon the exercise of the Warrants, as applicable, in such registration. The Company at its expense will keep such registration effective for a period of 180 days or until all of the Holders named in the registration statement have completed the distribution described in such registration statement, whichever first occurs, and will furnish such number of prospectuses and other documents incident thereto as such Holders from time to time may reasonably request.         10.    Remedies. The Company acknowledges that there is no adequate remedy at law for failure by it to comply with the provisions of this Agreement and that such failure would not be adequately compensable in damages, and therefore agrees that its obligations and agreements contained in this Agreement may be specifically enforced. In the event that the Company shall fail to file such registration statement when required pursuant to this Agreement or to keep any registration statement effective as provided in this Agreement or otherwise fails to comply with its obligations and agreements in this Agreement, then, in addition to any other rights or remedies the Holders may have at law or in equity, including, without limitation, the right of rescission, the Company shall indemnify and hold harmless the Holders from and against any and all manner or loss which they may incur as a result of such failure. In addition, the Company shall also reimburse the Holders for any and all reasonable legal fees, expenses and disbursements incurred by them in enforcing their rights pursuant to this Agreement, regardless of whether any litigation was commenced; provided, however, that the Company shall not be liable for the fees and expenses of more than one law firm, which firm shall be designated by Taglich Brothers, Inc. -------------------------------------------------------------------------------- SECOND AMENDMENT TO CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM OF DERMA SCIENCES, INC.         Derma Sciences, Inc., a Pennsylvania corporation (the “Company”), issued a Confidential Private Placement Memorandum, dated April 5, 2006, as amended by the First Amendment to the Confidential Private Placement Memorandum of the Company, dated April 13, 2006 (together with the Exhibits thereto, as further amended or supplemented from time to time, collectively, the “Memorandum”), relating to the offering (the “Offering”) of a minimum principal amount of $5,400,000 (the “Minimum Amount”) and a maximum principal amount of $6,600,000 of the Company’s series H units (the “Units”), with each Unit consisting of four shares (the “Shares”) of the Company’s common stock, $.01 par value per share (the “Common Stock”), and one warrant (an “Investor Warrant”) with a five (5) year term for the purchase of one share of Common Stock with an initial exercise price equal to $1.00 per Share, subject to adjustment as provided in the Investor Warrants.         Capitalized terms used and not otherwise defined herein shall have the meanings set forth in the Memorandum. Registration Rights Current Provisions         The Company has agreed to use its best efforts to register the reoffer and resale of the Common Stock comprising the Units and issuable upon exercise of the Investor Warrants by filing a registration statement under the Securities Act with the SEC within 60 days, and causing same to become effective within 180 days, of the completion of the Offering. The Company will use its best efforts to maintain such registration statement as a current and effective document for the lesser of three years, until all Shares of Common Stock registered thereunder are sold or until all such Shares may be sold by the holders thereof under Rule 144, without limitation. The Company will bear all the expenses and pay all the fees in connection with the preparation and filing of the registration statement.         In the event the Company fails to timely file the aforesaid registration statement, fails to timely cause the registration statement to become effective or fails to maintain the effectiveness of the registration statement for the above specified period, the Company will pay purchasers of the Units damages in the amount of 2% of the purchase price of the Units, not to exceed 10% of the purchase price, for each month or fraction thereof the filing or effectiveness, as applicable, of the registration statement is untimely. These damages are currently payable exclusively in Common Stock of the Company valued at the average closing bid price thereof for the ten trading days preceding the date of the damages calculation. Additions and Modifications         In lieu of paying purchasers liquidated damages in Common Stock, the Company may elect to pay purchasers liquidated damages in cash, calculated as described above, for failure to timely file, cause to become effective or maintain the effectiveness of the registration statement for the above specified period.   --------------------------------------------------------------------------------         The above described option to pay purchasers in cash, or in Common Stock, has been added to section 3 of the registration rights agreement attached as exhibit E to the Memorandum. Provisions inconsistent with the above described liquidated damages provisions have been deleted from section 3 of the registration rights agreement. Appropriate provisions of the registration rights agreement, marked to show changes, are attached hereto. Subscription         If you have subscribed for Units and do not want to purchase the Units as a result of the above described changes, please send written notice by fax of your intentions to Taglich Brothers, Inc. (the “Placement Agent”) at (212) 661-6824 marked “Attn: Vincent Palmieri”. Closing         The Company and the Placement Agent expect that the Closing Date will be April 18, 2006. There will be one closing for the sale of all the Units, or such lesser amount (but not less than the Minimum Amount) as the Company and Placement Agreement shall determine. Other Terms Unchanged         Except as expressly provided herein, the terms and conditions of the Memorandum are unchanged and remain in full force and effect.   DERMA SCIENCES, INC. Dated: April 13, 2006   -------------------------------------------------------------------------------- Registration Rights Agreement         3.    Resale Registration; Timing of Filing, Effectiveness and Period of Usability. Subject to the provisions of Section 4 hereof, the Company shall use its best efforts to file not later than 60 days after the date hereof (“Anticipated Filing Date”), and use its best efforts to cause to be declared effective not later than 180 days after the date hereof (“Anticipated Effective Date”), a Registration Statement on any appropriate form under the Securities Act for all the Registrable Securities such as to permit the public resale of the Registrable Securities.         In the event the Company fails to either file the Registration Statement by the Anticipated Filing Date or cause the Registration Statement to be declared effective by the Anticipated Effective Date or maintain the effectiveness of the Registration Statement for the entire Effectiveness Period (described below), then the Company shall pay to each Holder, as liquidated damages and not as a penalty, on the Anticipated Filing Date or Anticipated Effective Date or the date within the Effectiveness Period that the Registration Statement ceases to be effective, as applicable, and each monthly anniversary thereof until the Registration Statement is filed or declared effective, an amount equal to 2.0% of the aggregate purchase price paid by such Holder for the Units, such amount to be payable exclusively, at the election of the Company, either in cash or in Common Stock of the Company valued at the average closing bid price thereof on the OTC Bulletin Board for the ten trading days immediately preceding the date as to which the subject liquidated damages are calculated. Provided, however, if as of the Anticipated Effective Date the Registration Statement has not yet been declared effective, the Anticipated Effective Date shall be extended for the following periods: (a) such periods as the SEC has under consideration responses of the Company to its comments relative to the Registration Statement, and (b) such periods, not to exceed 20 days each, following the SEC’s responses to the filing by the Company of pre-effective amendments to the Registration Statement. Provided, further, liquidated damages payable by the Company hereunder may in no event exceed 10.0% of the purchase price paid by Holders for the Units.         The Company agrees to use its best efforts to keep the Registration Statement continuously effective and usable for resale of Registrable Securities until the date which is three (3) years (the “Effectiveness Period”) after the date upon which the Commission declares the Registration Statement effective or such shorter period which shall terminate when all the Registrable Securities covered by such Registration Statement have been sold pursuant to such Registration Statement or when all Registrable Securities otherwise have been sold pursuant to Rule 144 or are freely tradeable in essentially the same manner as contemplated in Section 4 below. The Effectiveness Period shall be extended, day for day, by the length of any “black out” periods declared pursuant to section 4(l) hereof. If, at any time or from time to time on or after the expiration of the Effectiveness Period, the Company determines to register Common Stock for its own account for a public offering or for the account of any of its stockholders to publicly sell their shares of Common Stock, other than a registration on Form S-1 or S-8 relating solely to employee stock option or purchase plans, the Company will promptly notify each Holder of such registration and, if such Holder notifies the Company of his/her/its desire to be included in such registration within five (5) business days of the Company’s notice, the Company will include the shares of Common Stock of such Holder and/or the shares issuable upon the exercise of the Warrants, as applicable, in such registration. The Company at its expense will keep such registration effective for a period of 180 days or until 3

EXHIBIT 10.3   CONFORMING AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT This CONFORMING AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT (this “Conforming Amendment”) is made and entered into as of the 25th day of July, 2006, by and among CASELLA WASTE SYSTEMS, INC., a Delaware corporation (the “Parent”), its Subsidiaries (other than Excluded Subsidiaries and the Non-Borrower Subsidiaries) listed on Schedule 1 to the Amended and Restated Revolving Credit Agreement dated as of April 28, 2005, (as the same may be amended and in effect from time to time, the “Credit Agreement”) (together with the Parent, collectively the “Borrowers”), the lenders wishing to advance a portion of the Term B Loan pursuant to Section 2.14 of the Credit Agreement (collectively, the “Term B Lenders” and, individually, a “Term B Lender”), and BANK OF AMERICA, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer. WHEREAS, the Borrowers have requested a Term B Loan in the principal amount of $90,000,000 and an increase of $10,000,000 to the Commitment amount; and WHEREAS, pursuant to Section 2.14(b)(v) of the Credit Agreement, certain conforming changes to the Credit Agreement are set forth herein in order to effect the addition of the Term B Loan; NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1.             Definitions. Capitalized terms used herein without definition shall have the meaning assigned to such terms in the Credit Agreement. 2.             Amendments to Section 1.01 of the Credit Agreement. (a)           Section 1.01 of the Credit Agreement is hereby amended by inserting at the end of the first full paragraph following the table contained in the definition of “Applicable Rate” the following sentence “During the period commencing from the Term B Loan Date until the date on which the Borrowers deliver to the Administrative Agent a Compliance Certificate for the second full fiscal quarter ending after such Term B Loan Date, the Applicable Rate for the Term B Loan shall be the Applicable Rate set forth in Level VI in the table above.”   1 --------------------------------------------------------------------------------   (b)           Section 1.01 of the Credit Agreement is hereby amended by inserting the rates applicable to Term B Loans by adding two new columns under the heading “Term B” to the existing table contained in the definition of “Applicable Rate”, so that the amended table shall appear as follows:   Applicable Rate           Committed Loans   Term B Loans   Level   Ratio of Consolidated Total Funded Debt to Consolidated EBITDA   Base Rate Loans   Eurodollar Rate Loans   Commitment Fee   Base Rate Loans   Eurodollar Rate Loans                               I   Less than 2.75:1.0   0.00 % 1.50 % 0.375 % 0.50 % 1.75 %                             II   Greater than or equal to 2.75:1.0 and less than 3.25:1.0   0.00 % 1.75 % 0.375 % 0.50 % 1.75 %                             III   Greater than or equal to 3.25:1.0 and less than 3.75:1.0   0.25 % 2.00 % 0.500 % 0.50 % 1.75 %                             IV   Greater than or equal to 3.75:1.0 and less than 4.25:1.0   0.50 % 2.25 % 0.500 % 0.50 % 1.75 %                             V   Greater than or equal to 4.25:1.0 and less than 4.75:1.0   0.50 % 2.50 % 0.500 % 0.50 % 1.75 %                             VI   Greater than or equal to 4.75:1.00   0.50 % 2.75 % 0.500 % 0.50 % 2.00 %   (c)           The definition of the term “Interest Period” in Section 1.01 of the Credit Agreement is hereby amended by inserting after the words “Committed Loan Notice” the following words: “or Term B Loan Notice, as the case may be”;  and (d)           The definition of the term “Request for Credit Extension” in Section 1.01 of the Credit Agreement is hereby amended by: (i)            inserting in subsection (a) after the words “Committed Loan Notice” the following words “or Term B Loan Notice, as the case may be”; and   (ii)           deleting in subsection (a) the word “Committed” before the word “Loans”. 3.             Amendments to Section 2.07 of the Credit Agreement.  Section 2.07 of the Credit Agreement is hereby amended by inserting the following new subsection (c):   2 -------------------------------------------------------------------------------- “(c)         The Borrower shall repay to the Term B Lenders the principal amount of the Term B Loan in three (3) consecutive annual installment payments, each such payment equal to one percent (1%) of the original principal amount of the Term B Loan, which are due and payable on the first, second and third anniversary of the Term B Loan Date, with a final balloon payment on the Maturity Date in an amount equal to the unpaid balance of the Term B Loan plus accrued and unpaid interest.” 4.             Amendments to Section 2.08 of the Credit Agreement.  Section 2.08(a) of the Credit Agreement is hereby amended by deleting the word “Committed” found in subsections (a)(i) and (a)(ii) therein. 5.             Amendments to Section 3.03 of the Credit Agreement.  Section 3.03 of the Credit Agreement is hereby amended by deleting the word “Committed” before the word “Borrowing” in the last sentence of such Section 3.03. 6.             Amendments to Section 10.06 of the Credit Agreement.  Section 10.06(b)(i) of the Credit Agreement is hereby amended by inserting the parenthetical “(or $1,000,000, in the case of a Term B Lender)” after the following dollar amount “$5,000,000”. 7.             Amendments to Schedule 2.01 of the Credit Agreement.  Schedule 2.01 of the Credit Agreement is hereby amended by deleting such Schedule in its entirety and substituting in lieu thereof Schedule 2.01 as set forth on Schedule A attached hereto.  Such Schedule 2.01 shall reflect an increase in the Commitment of any Revolving Lender in the total amount of $10,000,000. 8.             No Waiver.  Except as a result of the amendments set forth in §§ 2 through 6 of this Conforming Amendment, nothing contained herein shall be deemed to (i) constitute a waiver of any Default or Event of Default that may heretofore or hereafter occur or have occurred and be continuing or to otherwise modify any provision of the Credit Agreement, or (ii) give raise to any defenses or counterclaims to the Administrative Agent’s or any of the Lenders’ right to compel payment of the Obligations when due or to otherwise enforce their respective rights and remedies under the Credit Agreement and the other Loan Documents. 9.             Conditions to Effectiveness.  This Conforming Amendment shall become effective as of the date (the “Term B Loan Date”) when each of the following conditions is met: (a)           receipt by the Administrative Agent of this Conforming Amendment duly and properly authorized, executed and delivered by each of the respective parties hereto; (b)           receipt by the Administrative Agent of payment in cash of the fees in the amounts specified in the Fee Letter dated June       , 2006, by and between the Borrowers, the Administrative Agent and the Arranger; (c)           payment of all of the Administrative Agent’s reasonable legal fees and expenses incurred in connection with the preparation and negotiation of this Conforming Amendment; 3 -------------------------------------------------------------------------------- (d)           receipt by the Administrative Agent of a certificate dated as of the Term B Loan Date signed by a Responsible Officer of the Parent certifying and attaching the resolutions adopted by each of the Borrowers authorizing the Borrower to enter into and approving the Term B Loan;   (e)           receipt by the Administrative Agent of a certificate dated as of the Term B Loan Date signed by a Responsible Officer of the Parent certifying that before and after giving effect to the Term B Loan, (i) the applicable conditions set forth in Sections 4.02(a) and (b) of the Credit Agreement will be satisfied and (ii)(A) the Term B Loan is permitted senior Indebtedness under the existing Senior Subordinated Debt Documents and (B) no default under the existing Senior Subordinated Debt Documents has occurred and is continuing or would result after giving effect to the transactions contemplated by the Loans; and   (f)            receipt by the Administrative Agent, upon the request of any Lender, of a Note evidencing such Lender’s portion of the Term B Loan or any increase in its Commitment duly and properly authorized, executed and delivered by the Borrowers.                   10.          Representations and Warranties.  The Borrowers represent and warrant to the Administrative Agent and the Lenders as follows:   (a)           The execution, delivery and performance of this Conforming Amendment and the transactions contemplated hereby (i) are within the corporate (or the equivalent company or partnership) authority of each of the Borrowers, (ii) have been duly authorized by all necessary corporate (or other) proceedings, (iii) do not conflict with or result in any material breach or contravention of any provision of law, statute, rule or regulation to which any of the Borrowers is subject or any judgment, order, writ, injunction, license or permit applicable to any of the Borrowers so as to materially adversely affect the assets, business or any activity of the Borrowers, and (iv) do not conflict with any provision of the corporate charter, articles or bylaws (or equivalent other company or partnership documents) of the Borrowers or any agreement or other instrument binding upon the Borrowers, including, without limitation, the Indenture. (b)           The execution, delivery and performance of this Conforming Amendment will result in valid and legally binding obligations of the Borrowers enforceable against each in accordance with the respective terms and provisions hereof and thereof, except as enforceability is limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting generally the enforcement of creditors’ rights and except to the extent that availability of the remedy of specific performance or injunctive relief or other equitable remedy is subject to the discretion of the court before which any proceeding therefor may be brought.   (c)           The execution, delivery and performance by the Borrowers of this Conforming Amendment and the transactions contemplated hereby do not require any approval or consent of, or filing with, any governmental agency or authority other than those already obtained, if any.   (d)           The representations and warranties contained in Article V of the Credit Agreement are true and correct in all material respects as of the date hereof as though made on and as of the date hereof, except to the extent that such representations and warranties 4 -------------------------------------------------------------------------------- specifically refer to an earlier date, in which case they shall be true and correct as of such earlier date and except to the extent of changes resulting from transactions contemplated or permitted by this Agreement (as amended by the Conforming Amendment) and changes occurring in the ordinary course of business which singly or in the aggregate do not have a Material Adverse Effect.  For purposes of this Section 10(d), the representations and warranties contained in Section 5.05(a) of the Credit Agreement shall be deemed to refer to the most recent statements furnished pursuant to Section 6.04(a) of the Credit Agreement. (e)           After giving effect to this Conforming Amendment, no Default or Event of Default under the Credit Agreement has occurred and is continuing. 11.          Ratification, etc.  Except as expressly amended hereby, the Credit Agreement, the other Loan Documents and all documents, instruments and agreements related thereto are hereby ratified and confirmed in all respects and shall continue in full force and effect.  This Conforming Amendment and the Credit Agreement shall hereafter be read and construed together as a single document, and all references in the Credit Agreement, any other Loan Document or any agreement or instrument related to the Credit Agreement shall hereafter refer to the Credit Agreement as amended by this Conforming Amendment. 12.          Agreement of Term B Lenders. (a)           Subject to the terms and conditions of this Conforming Amendment, each Term B Lender hereby agrees to fund, without recourse to the Lenders or the Administrative Agent, on the Term B Loan Date, that portion of the Term B Loan equal to the amount set forth on Schedule A attached hereto opposite its name, in accordance with the terms and conditions set forth herein and in the Credit Agreement.  Each Term B Lender, if not a Lender party to the Credit Agreement immediately prior to giving effect to this Conforming Amendment, hereby agrees to be bound by, and hereby requests the agreement of the Borrowers and the Administrative Agent that each Term B Lender shall be entitled to the benefits of, all of the terms, conditions and provisions of the Credit Agreement as if such Term B Lender had been one of the lending institutions originally executing the Credit Agreement as a “Lender”; provided that nothing herein shall be construed as making any of the Term B Lenders liable to the Borrowers or the other Lenders in respect of any acts or omissions of any party to the Credit Agreement or in respect of any other event occurring prior to the Term B Loan Date. (b)           Each Term B Lender (a) represents and warrants that (i) it is duly and legally authorized to enter into this Conforming Amendment, (ii) the execution, delivery and performance of this Conforming Amendment does not conflict with any provision of law or of the charter or by-laws of such Term B Lender, or of any agreement binding on such Term B Lender, (iii) all acts, conditions and things required to be done and performed and to have occurred prior to the execution, delivery and performance of this Conforming Amendment, and to render the same the legal, valid and binding obligation of such Term B Lender, enforceable against it in accordance with its terms, have been done and performed and have occurred in due and strict compliance with all applicable laws; (b) confirms that it has received a copy of the Credit Agreement, together with copies of the most recent financial statements delivered pursuant to Section 6.04 of the Credit Agreement and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this 5 -------------------------------------------------------------------------------- Conforming Amendment; (c) agrees that it will, independently and without reliance upon the Lenders or the Administrative Agent and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (d) represents and warrants that it is eligible to become a party to this Conforming Amendment under the terms and conditions of the Credit Agreement; (e) appoints and authorizes the Administrative Agent to take such action as Administrative Agent on its behalf and to exercise such powers under the Credit Agreement and the other Loan Documents as are delegated to the Administrative Agent by the terms thereof, together with such powers as are reasonably incidental thereto; (f) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement are required to be performed by it as a Lender. 13.          Payments to Term B Lenders.  From and after the Term B Loan Date, the Borrowers shall make all payments in respect of the Term B Lenders’ portion of the Term B Loan, including payments of principal, interest, fees and other amounts, to the Administrative Agent for the account of each of the Term B Lenders. 14.          Governing Law.  THIS CONFORMING AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS. 15.          Counterparts.  This Conforming Amendment may be executed in any number of counterparts and by different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which counterparts taken together shall be deemed to constitute one and the same instrument.  Delivery of an executed counterpart of a signature page of this Conforming Amendment by telecopy shall be as effective as delivery of an original executed counterpart of this Conforming Amendment. 16.          Copy of Conformed Credit Agreement.  A copy of the conformed Credit Agreement incorporating the First Amendment to the Amended and Restated Credit Agreement, dated as of June 2, 2006 and this Conforming Amendment is attached hereto as Exhibit A. 17.          Term B Loan Notice.  Attached hereto as Exhibit B is a Form of Term B Loan Notice. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 6 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, each of the undersigned has duly executed this Conforming Amendment to Amended and Restated Revolving Credit Agreement as a sealed instrument as of the date first set forth above.   BORROWERS:       CASELLA WASTE SYSTEMS, INC.           By: /s/ Richard A. Norris       Name: Richard A. Norris     Title: Senior Vice President and        Chief Financial Officer           ALL CYCLE WASTE, INC.   ATLANTIC COAST FIBERS, INC.   B. AND C. SANITATION CORPORATION   BLASDELL DEVELOPMENT GROUP, INC.   BRISTOL WASTE MANAGEMENT, INC.   CASELLA TRANSPORTATION, INC.   CASELLA WASTE MANAGEMENT OF CAPE COD, INC.   CASELLA WASTE MANAGEMENT OF HOLLISTON, INC.   CASELLA WASTE MANAGEMENT OF MASSACHUSETTS, INC.   CASELLA WASTE MANAGEMENT OF N.Y., INC.   CASELLA WASTE MANAGEMENT OF   PENNSYLVANIA, INC.   CASELLA WASTE MANAGEMENT, INC.   C.V. LANDFILL, INC.   FOREST ACQUISITIONS, INC.   GRASSLANDS, INC.   HAKES C & D DISPOSAL, INC.   HARDWICK LANDFILL, INC.           By: /s/ Richard A. Norris       Name: Richard A. Norris     Title: Vice President and Treasurer                       [SIGNATURES CONTINUED ON FOLLOWING PAGE]   Signature Pages to Conforming Amendment --------------------------------------------------------------------------------     HIRAM HOLLOW REGENERATION CORP.   K-C INTERNATIONAL, LTD.   KTI BIO-FUELS, INC.   KTI ENVIRONMENTAL GROUP, INC.   KTI NEW JERSEY FIBERS, INC.   KTI OPERATIONS, INC.   KTI SPECIALTY WASTE SERVICES, INC.   KTI, INC.   MECKLENBURG COUNTY RECYCLING, INC.   NATURAL ENVIRONMENTAL, INC.   NEW ENGLAND WASTE SERVICES OF MASSACHUSETTS, INC.   NEW ENGLAND WASTE SERVICES OF ME, INC.   NEW ENGLAND WASTE SERVICES OF N.Y., INC.   NEW ENGLAND WASTE SERVICES OF VERMONT, INC.   NEW ENGLAND WASTE SERVICES, INC.   NEWBURY WASTE MANAGEMENT, INC.   NORTH COUNTRY ENVIRONMENTAL SERVICES, INC.   NORTHERN PROPERTIES CORPORATION OF PLATTSBURGH   NORTHERN SANITATION, INC.   PERC, INC.   PINE TREE WASTE, INC.   R.A BRONSON, INC.   RESOURCE RECOVERY SYSTEMS OF SARASOTA, INC.   RESOURCE TRANSFER SERVICES, INC.   RESOURCE WASTE SYSTEMS, INC.   SCHULTZ LANDFILL, INC.   SOUTHBRIDGE RECYCLING & DISPOSAL PARK, INC.   SUNDERLAND WASTE MANAGEMENT, INC.   WASTE-STREAM, INC.   WESTFIELD DISPOSAL SERVICES, INC   WINTERS BROTHERS, INC.           By:  /s/ Richard A. Norris       Name: Richard A. Norris     Title: Vice President and Treasurer                       [SIGNATURES CONTINUED ON FOLLOWING PAGE]   Signature Pages to Conforming Amendment --------------------------------------------------------------------------------     CASELLA RTG INVESTORS CO., LLC       By: Casella Waste Systems, Inc., its sole member           By: /s/ Richard A. Norris       Name: Richard A. Norris     Title: Senior Vice President and       Chief Financial Officer           THE HYLAND FACILITY ASSOCIATES           By: /s/ Richard A. Norris       Name: Richard A. Norris     Title: Duly Authorized Agent           MAINE ENERGY RECOVERY COMPANY, LIMITED PARTNERSHIP         By: KTI Environmental Group, Inc., its general partner           By: /s/ Richard A. Norris         Name: Richard A. Norris       Title: Vice President and Treasurer                           [SIGNATURES CONTINUED ON FOLLOWING PAGE]   Signature Pages to Conforming Amendment --------------------------------------------------------------------------------     PERC MANAGEMENT COMPANY, Limited Partnership           By: PERC, Inc., its general partner       By: /s/ Richard A. Norris       Name: Richard A. Norris     Title: Vice President and Treasurer           ROCHESTER ENVIRONMENTAL PARK LLC           By: /s/ Richard A. Norris       Name: Richard A. Norris     Title: Vice President and Treasurer           CWM ALL WASTE LLC           By: /s/ Richard A. Norris       Name: Richard A. Norris     Title: Duly Authorized Agent           GROUNDCO LLC           By: /s/ Richard A. Norris       Name: Richard A. Norris     Title: Duly Authorized Agent                     [SIGNATURES CONTINUED ON FOLLOWING PAGE]   Signature Pages to Conforming Amendment --------------------------------------------------------------------------------     NEWSME LANDFILL OPERATIONS LLC           By: /s/ Richard A. Norris       Name: Richard A. Norris     Title: Duly Authorized Agent           ROCKINGHAM SAND & GRAVEL, LLC           By: /s/ Richard A. Norris       Name: Richard A. Norris     Title: Duly Authorized Agent           TEMPLETON LANDFILL LLC           By: /s/ Richard A. Norris       Name: Richard A. Norris     Title: Duly Authorized Agent           CASELLA MAJOR ACCOUNT SERVICES LLC             By: Casella Waste Systems, Inc., its       sole member                       By: /s/ Richard A. Norris         Name: Richard A. Norris       Title: Senior Vice President and         Chief Financial Officer                         [SIGNATURES CONTINUED ON FOLLOWING PAGE]   Signature Pages to Conforming Amendment --------------------------------------------------------------------------------   CASELLA WASTE SERVICES OF ONTARIO LLC             By: New England Waste Services of       N.Y., Inc., its sole member                 By: /s/ Richard A. Norris         Name: Richard A. Norris       Title: Vice President and Treasurer               NEWS OF WORCESTER LLC         By: Casella Waste systems, Inc., its       sole member                     By: /s/ Richard A. Norris         Name: Richard A. Norris       Title: Senior Vice President and           Chief Financial Officer               TRILOGY GLASS LLC         By: New England Waste Services of       N.Y., Inc., its sole member                       By: /s/ Richard A. Norris           Name: Richard A. Norris         Title: Vice President and Treasurer               BLUE MOUNTAIN RECYCLING, LLC         By: FCR, LLC, its manager                       By: /s/ Richard A. Norris           Name: Richard A. Norris         Title: Vice President and Treasurer                             [SIGNATURES CONTINUED ON FOLLOWING PAGE]   Signature Pages to Conforming Amendment --------------------------------------------------------------------------------     CHEMUNG LANDFILL LLC             By: New England Waste Services of N.Y., Inc.,       its sole member                   By: /s/ Richard A. Norris           Name: Richard A. Norris         Title: Vice President and Treasurer           COLEBROOK LANDFILL LLC         By: New England Waste Services, Inc., its sole       member                       By: /s/ Richard A. Norris           Name: Richard A. Norris         Title: Vice President and Treasurer           LEWISTON LANDFILL LLC         By: New England Waste Services of ME, Inc.,       its sole member                       By: /s/ Richard A. Norris           Name: Richard A. Norris         Title: Vice President and Treasurer           FAIRFIELD COUNTY RECYCLING, LLC       By:  /s/ Richard A. Norris       Name: Richard A. Norris     Title: Vice President and Treasurer                     [SIGNATURES CONTINUED ON FOLLOWING PAGE]   Signature Pages to Conforming Amendment --------------------------------------------------------------------------------   FCR CAMDEN, LLC           By: /s/ Richard A. Norris       Name: Richard A. Norris     Title: Vice President and Treasurer           FCR FLORIDA, LLC           By: /s/ Richard A. Norris       Name: Richard A. Norris     Title: Vice President and Treasurer           FCR GREENSBORO, LLC           By: /s/ Richard A. Norris       Name: Richard A. Norris     Title: Vice President and Treasurer           FCR GREENVILLE, LLC           By: /s/ Richard A. Norris       Name: Richard A. Norris     Title: Vice President and Treasurer           FCR MORRIS, LLC           By: /s/ Richard A. Norris       Name: Richard A. Norris     Title: Vice President and Treasurer           FCR REDEMPTION, LLC           By: /s/ Richard A. Norris       Name: Richard A. Norris     Title: Vice President and Treasurer             [SIGNATURES CONTINUED ON FOLLOWING PAGE]   Signature Pages to Conforming Amendment --------------------------------------------------------------------------------     FCR TENNESSEE, LLC           By: /s/ Richard A. Norris       Name: Richard A. Norris     Title: Vice President and Treasurer           KTI RECYCLING OF NEW ENGLAND, LLC           By: /s/ Richard A. Norris       Name: Richard A. Norris     Title: Vice President and Treasurer           RESOURCE RECOVERY SYSTEMS, LLC           By: /s/ Richard A. Norris       Name: Richard A. Norris     Title: Vice President and Treasurer           U.S. FIBER, LLC           By: /s/ Richard A. Norris       Name: Richard A. Norris     Title: Vice President and Treasurer           FCR, LLC           By: /s/ Richard A. Norris       Name: Richard A. Norris     Title: Vice President and Treasurer                     [SIGNATURES CONTINUED ON FOLLOWING PAGE]   Signature Pages to Conforming Amendment --------------------------------------------------------------------------------     NH INVESTORS CO., LLC         By: Casella NH Investors Co., LLC     By: Casella NH Power Co., LLC             By: KTI, Inc.                         By: /s/ Richard A. Norris             Name: Richard A. Norris           Title: Vice President and             Treasurer                                 [SIGNATURES CONTINUED ON FOLLOWING PAGE]     Signature Pages to Conforming Amendment --------------------------------------------------------------------------------     RECOVERY TECHNOLOGIES OPERATIONS LLC         By: NH Investors Co., LLC             By: Casella NH Investors Co., LLC       By: Casella NH Power Co., LLC                 By: KTI, Inc.                   By: /s/ Richard A. Norris             Name: Richard A. Norris           Title: Vice President and             Treasurer                                 [SIGNATURES CONTINUED ON FOLLOWING PAGE]     Signature Pages to Conforming Amendment --------------------------------------------------------------------------------   CASELLA NH INVESTORS CO. LLC         By: KTI, Inc., its sole member                 By: /s/ Richard A. Norris         Name: Richard A. Norris       Title: Vice President and Treasurer                         [SIGNATURES CONTINUED ON FOLLOWING PAGE]   Signature Pages to Conforming Amendment --------------------------------------------------------------------------------   CASELLA NH POWER CO., LLC         By: KTI, Inc., its sole member                 By: /s/ Richard A. Norris         Name: Richard A. Norris       Title: Vice President and Treasurer   Signature Pages to Conforming Amendment --------------------------------------------------------------------------------     BANK OF AMERICA, N.A.,   as Administrative Agent           By: /s/ Maria F. Maia       Name: Maria F. Maia     Title: Managing Director   Signature Pages to Conforming Amendment --------------------------------------------------------------------------------   BANK OF AMERICA, N.A.,   as a Term B Lender               By: /s/ Maria F. Maia       Name: Maria F. Maia     Title: Managing Director   Signature Pages to Conforming Amendment   --------------------------------------------------------------------------------

Exhibit 10.5 LOGO [g66430ex105.jpg] Mr. Armando Anido 14500 High Meadow Way North Potomac, MD 20878 June 26, 2006 Dear Armando: In order to assist you with your relocation to the Malvern, PA area, Auxilium Pharmaceuticals, Inc. (the “Company”) hereby agrees to reimburse you for the expenses set out below within thirty (30) days of submission of written documentation and receipts evidencing such expenses. 1. Home Search:     •   Transportation, room charges, meals, and telephone expenses for you and your spouse will be reimbursed for up to two (2) trips not to exceed seven (7) days in total.     •   Cost of rental car. 2. Sale of Home: The Company will reimburse the following expenses related to the sale of your current home:     •   Commission paid to licensed real estate broker, based on rate that is normal and customary;     •   Appraisal fee;     •   Advertising expense if no realtor’s fee is incurred;     •   Normal, customary or reasonable attorney’s fees directly related to the sale;     •   Federal documentary tax stamps;     •   Recording of discharge of mortgage;     •   Penalty for prepayment of mortgage;     •   Other conveyance expenses when it is the local custom for the seller to pay such costs to include:     •   State or local tax on the transfer of real estate,     •   Abstract, title or title insurance costs,     •   Tax search,     •   Survey expense,     •   Inspection fees,     •   Closing or transfer fee,     •   Escrow retainer fee. -------------------------------------------------------------------------------- Mr. Armando Anido Page 2 Other settlement expenses must have prior approval of the Vice President of Human Resources 3. Closing Cost Reimbursement for New Home:     •   If you purchase or contract to purchase a home in the Malvern, PA area within twelve (12) months following the effective date of your employment with the Company, the Company will reimburse the following expenses:     •   Attorney’s fees (limited to normal closing services);     •   Mortgage Originator’s fees (points) discount points and VA seller points up to a maximum of 1% total loan amount;     •   Mortgage tax;     •   Recording fees;     •   Mandated appraisal and inspection fees;     •   Bank or escrow service fees (not actual escrow funds);     •   Other closing costs which are normally charged to the buyer such as:     •   Property survey expense (if required by lender),     •   Tax on transfer or real estate,     •   Inspection fees,     •   Title report and title insurance, Other settlement expenses must have prior approval of the Vice President of Human Resources 4. Temporary Living Assistance:     •   You will be provided relocation assistance for reasonable expenses including hotel room/executive housing charges, breakfast and dinner expenses, and incidental expenses of laundry and phone calls home for a period of sixty (60) days. This period may be extended an additional thirty (30) days by approval of the Chairman of the Board of Directors of the Company.     •   The Company will provide relocation assistance for your family’s hotel/executive housing, meals and incidental living expenses for a maximum of two (2) weeks in the new location while awaiting the arrival of household goods or availability of permanent housing.     •   Travel expenses may also be reimbursed for a reasonable number of trips to the old location for the purpose of closing your affairs and accompanying the family to the new location. 5. Movement of Household Goods     •   The Company will pay for the cost of transporting (including packing and unpacking) the household and personal effects and those of other household members.     •   The Company will pay for the shipment of one automobile.     •   Mileage reimbursement will be provided and will apply to car(s) driven to the new location. -------------------------------------------------------------------------------- Mr. Armando Anido Page 3 6. Incidental Expenses The Company will make to you a one-time payment in the amount of $10,000 for incidental expenses no later than August 15, 2006. The amount will be included in the gross-up allowance described in paragraph 7 below. 7. Taxable Income Reimbursement: Some of the reimbursements and allowances provided by the Company will be taxable income and must be included in the W-2 summary of earnings. To help offset this extra tax expense, a special gross-up allowance will be calculated to cover the estimated tax liability (federal, state, and local) resulting from the relocation assistance. This allowance will be paid so long as you remain in the employ of the Company for 26 weeks following the effective date of your employment. The payment is in the form of additional income and withholding on your W-2 (this is not income for any benefit plan calculations or pension plan benefits). Please sign below to indicate your agreement with and acceptance of the terms of this agreement. Sincerely,   AUXILIUM PHARMACEUTICALS, INC. By:   /s/ James E. Fickenscher Name:   James E. Fickenscher Title:   Chief Financial Officer AGREED AND ACCEPTED: /s/ Armando Anido Armando Anido

Exhibit 10.2   PERSONAL AND CONFIDENTIAL   May 16, 2005 Mr. Gary W. Boyd Chief Financial Officer Ascendant Solutions 16250 Dallas Parkway, Suite 102 Dallas, Texas 75248 Dear Gary: I have discussed with you, on a confidential basis that Ascendant Solutions (“the Company") is currently searching for possible acquisition candidates ("Targets"). This letter will confirm an understanding between GaylerSmith Group, LLC ("GSG") and the Company in the event that (i) GSG introduces a Target to the Company and/or (ii) the Company specifically requests that GSG review a Target for possible acquisition by the Company (the “Transaction”). To the extent necessary, our services would include assisting you in the negotiation of the financial aspects of the proposed transaction, and if requested by the Company, assist in due diligence and / or raising capital to accomplish the Transaction. As compensation for services, the Company agrees to pay GSG the following fees: Retainer Fee No retainer fee will be required at this time. Transaction Fee A transaction fee equal to three percent (3.00%) of the aggregate consideration paid by the Company up to $5 million plus one percent (1.0%) of the aggregate consideration paid by the Company in excess of $5 million (the "Transaction Fee") which shall be payable in cash promptly upon closing of a Transaction. The aggregate consideration shall be deemed to be the total amount received by the Target and its stockholders upon consummation of the acquisition (including any debt or capital lease obligations assumed, extinguished or discharged), plus, in the case of an acquisition of assets, the net value of any operating current assets not sold by the Target. The net value of any operating current asset not sold by the Target will not be considered part of the aggregate consideration if the signed Letter of Intent specifically excludes the operating current assets from the Transaction. -6- -------------------------------------------------------------------------------- If the consideration per share to be received by the holders of the Targets common stock exceeds the conversion price of any of the Target's outstanding convertible securities (excluding stock options), such securities shall be considered to have been converted for purposes of calculating the amount of aggregate consideration. If such aggregate consideration may be increased by contingent payments related to future earnings or operations, the portion of our fee relating thereto shall be calculated and paid when and as such contingent payments are made. In the event that the consideration is paid in whole or in part in the form of securities of the Company, the value of such securities, for purposes of calculating our fee, shall be the fair market value thereof, as the parties hereto shall mutually agree, on the day prior to the closing of the sale; provided, however, that if such securities consist of stock with an existing public trading market, the value thereof shall be determined by the last sales price for such stock on the last trading day thereof prior to such closing. Financing Fees If the Company requests that GSG assist the Company with respect to financing of the Transaction and, as a direct or proximate result of GSG's assistance, financing is obtained and utilized by the Company, the Company will pay to GSG a fee as follows: The Company will pay GSG (or cause GSG to be paid) a fee equal to one percent (1.0%) of the aggregate purchase price of senior securities or bank debt; two percent (2.0%) of the aggregate purchase price of subordinated securities; three percent (3.0%) of the aggregate purchase price of preferred stock or common stock which fee shall be payable at the time of the funding of such financing. Consulting Fee If the Company requests that GSG assist the Company with respect with due diligence or other projects, the Company agrees to pay GSG a consulting fee of $95 per hour. Such consulting fee is not contingent upon the successful completion of the transaction contemplated hereunder, and shall be payable as billed by GSG from time to time. Any consulting fee paid by or due from the Company to GSG directly related to the acquisition of the Target will reduce the Transaction Fee upon closing of a Transaction in an amount not to exceed $10,000. Expenses In addition to the cash fee that the Company agrees to pay for the services to be performed as set forth above, the Company agrees to reimburse GSG for all out-of-pocket expenses incurred on this project. Such expense reimbursement is not contingent upon the successful completion of the transaction contemplated hereunder, and shall be payable as billed by GSG from tune to time. -7- -------------------------------------------------------------------------------- Indemnity In addition to the fee which the Company has agreed to pay GSG for the services to be preformed on behalf of the Company, the Company agrees to indemnify and hold GSG and its officers, directors, agents and controlling persons harmless against and from any and all losses, claims, and damages or liabilities, joint and several, to which GSG and it officers, directors, agents and controlling persons may become subject in connection with the transactions referred to in this agreement under an of the Federal securities laws, under any other statute, at common law or otherwise, and to reimburse GSG and its officers, directors, agents and controlling persons for any legal or other expenses, including the cost of investigation and preparation, incurred by GSG and its officers, directors, agents and controlling persons arising out of or in connection with any action or claim in connection therewith, whether or not resulting in any Liability. The indemnity provided in this paragraph shall cover any loss, claim, damage, liability or expense incurred by an indemnified party regardless of the negligence, or strict liability, of such indemnified party, but shall not cover any loss, claim damage, liability or expense resulting primarily from such indemnified party's gross negligence or willful misconduct. The indemnity provided in this agreement shall be in addition to any other rights any indemnified party may have with respect to the Company or otherwise. Arbitration Any controversy or dispute arising out of or relating to the Transaction or the breach or alleged breach of any provision of this Agreement which cannot be resolved by mediation shall be settled by arbitration in Dallas, Texas, in accordance with the rules of the American Arbitration Association and judgment upon award rendered the arbitrator may be entered in any court having jurisdiction thereof. The prevailing party in any such arbitration shall be entitled to recover from the other parity reasonable attorneys' fees and costs incurred in connection therewith. The determination of the arbitrator in such proceeding shall be final, binding and non-appealable. Termination and Other The Company or GSG may terminate this agreement at any time with or without cause, upon written advice to that effect to the other party. Notwithstanding any termination or expiration of this agreement, if during the two (2) year period after such termination or expiration a transaction of the nature contemplated by this agreement is consummated involving the Company and any party to whom the Company was introduced by GSG, or who was contacted by GSG in connection with its services hereunder or who was contacted by any party who was contacted by GSG in connection herewith, then the Company shall, immediately upon the closing of such transaction, pay to GSG the fees set forth above as if such transaction had been consummated prior to the termination or expiration of this agreement. The indemnity provisions as set forth above shall survive any termination or expiration of this agreement. This agreement shall be governed by and construed and enforced in accordance with the laws of the State of Texas, without regard to the principles of conflicts of laws thereof. -8- -------------------------------------------------------------------------------- If the foregoing correctly sets forth our understanding, please so indicate by signing and returning to us the enclosed copy.   Very truly yours, GaylerSmith Group, LLC.   By: /s/ Michal L. Gayler   Michal L. Gayler   President   Agreed to and accepted this 18th day of May 2005.     By: /s/ Gary W. Boyd Gary W. Boyd     -9- --------------------------------------------------------------------------------

EXECUTION COPY ASSIGNMENT AND ASSUMPTION AGREEMENT ASSIGNMENT AND ASSUMPTION AGREEMENT, dated July 28, 2006, between Residential Funding Corporation, a Delaware corporation ("RFC"), and Residential Accredit Loans, Inc., a Delaware corporation (the "Company"). Recitals A. RFC has entered into contracts ("Seller Contracts") with various seller/servicers, pursuant to which such seller/servicers sell to RFC mortgage loans. B. The Company wishes to purchase from RFC certain Mortgage Loans (as hereinafter defined) sold to RFC pursuant to the Seller Contracts. C. The Company, RFC, as master servicer, and Deutsche Bank Trust Company Americas, as trustee (the "Trustee"), are entering into a Series Supplement, dated as of July 1, 2006 (the "Series Supplement"), and the Standard Terms of Pooling and Servicing Agreement, dated as of March 1, 2006 (collectively, the "Pooling and Servicing Agreement"), pursuant to which the Company proposes to issue Mortgage Asset-Backed Pass-Through Certificates, Series 2006-QS8 (the "Certificates") consisting of nine classes designated as Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class A-P, Class A-V, Class R-I and Class R-II Certificates; and six classes designated as Class M-1, Class M-2, Class M-3 (collectively the "Class M Certificates"), Class B-1, Class B-2 and Class B-3 Certificates (collectively the "Class B Certificates") representing beneficial ownership interests in a trust fund consisting primarily of a pool of Mortgage Loans identified in Exhibit One to the Series Supplement (the "Mortgage Loans"). D. In connection with the purchase of the Mortgage Loans, the Company will assign to RFC the Class A-P Certificates and Class A-V Certificates and a de minimis portion of each of the Class R-I and Class R-II Certificates. E. In connection with the purchase of the Mortgage Loans and the issuance of the Certificates, RFC wishes to make certain representations and warranties to the Company. F. The Company and RFC intend that the conveyance by RFC to the Company of all its right, title and interest in and to the Mortgage Loans pursuant to this Agreement shall constitute a purchase and sale and not a loan. NOW THEREFORE, in consideration of the recitals and the mutual promises herein and other good and valuable consideration, the parties agree as follows: 1. All capitalized terms used but not defined herein shall have the meanings assigned thereto in the Pooling and Servicing Agreement. 2. Concurrently with the execution and delivery hereof, RFC hereby assigns to the Company without recourse all of its right, title and interest in and to the Mortgage Loans, including all interest and principal, and with respect to the Sharia Mortgage Loans, all amounts in respect of profit payments and acquisition payments, received on or with respect to the Mortgage Loans after July 1, 2006 (other than payments of principal and interest, and with respect to the Sharia Mortgage Loans, all amounts in respect of profit payments and acquisition payments due on the Mortgage Loans on or before July 31, 2006). In consideration of such assignment, RFC or its designee will receive from the Company in immediately available funds an amount equal to $949,567,630.92, the Class A-P Certificates, the Class A-V Certificates and a de minimis portion of each of the Class R-I and Class R-II Certificates. In connection with such assignment and at the Company's direction, RFC has in respect of each Mortgage Loan endorsed the related Mortgage Note (other than any Destroyed Mortgage Note) to the order of the Trustee and delivered an assignment of mortgage or security instrument, as applicable, in recordable form to the Trustee or its agent. RFC and the Company agree that the sale of each Pledged Asset Loan pursuant to this Agreement will also constitute the assignment, sale, setting-over, transfer and conveyance to the Company, without recourse (but subject to RFC's covenants, representations and warranties specifically provided herein), of all of RFC's obligations and all of RFC's right, title and interest in, to and under, whether now existing or hereafter acquired as owner of such Pledged Asset Loan with respect to any and all money, securities, security entitlements, accounts, general intangibles, payment intangibles, instruments, documents, deposit accounts, certificates of deposit, commodities contracts, and other investment property and other property of whatever kind or description consisting of, arising from or related, (i) the Credit Support Pledge Agreement, the Funding and Pledge Agreement among the Mortgagor or other Person pledging the related Pledged Assets (the "Customer"), Combined Collateral LLC and National Financial Services Corporation, and the Additional Collateral Agreement between GMAC Mortgage Corporation and the Customer (collectively, the "Assigned Contracts"), (ii) all rights, powers and remedies of RFC as owner of such Pledged Asset Loan under or in connection with the Assigned Contracts, whether arising under the terms of such Assigned Contracts, by statute, at law or in equity, or otherwise arising out of any default by the Mortgagor under or in connection with the Assigned Contracts, including all rights to exercise any election or option or to make any decision or determination or to give or receive any notice, consent, approval or waiver thereunder, (iii) the Pledged Amounts and all money, securities, security entitlements, accounts, general intangibles, payment intangibles, instruments, documents, deposit accounts, certificates of deposit, commodities contracts, and other investment property and other property of whatever kind or description and all cash and non-cash proceeds of the sale, exchange, or redemption of, and all stock or conversion rights, rights to subscribe, liquidation dividends or preferences, stock dividends, rights to interest, dividends, earnings, income, rents, issues, profits, interest payments or other distributions of cash or other property that secures a Pledged Asset Loan, (iv) all documents, books and records concerning the foregoing (including all computer programs, tapes, disks and related items containing any such information) and (v) all insurance proceeds (including proceeds from the Federal Deposit Insurance Corporation or the Securities Investor Protection Corporation or any other insurance company) of any of the foregoing or replacements thereof or substitutions therefor, proceeds of proceeds and the conversion, voluntary or involuntary, of any thereof. The foregoing transfer, sale, assignment and conveyance does not constitute and is not intended to result in the creation, or an assumption by the Company, of any obligation of RFC, or any other Person in connection with the Pledged Assets or under any agreement or instrument relating thereto, including any obligation to the Mortgagor, other than as owner of the Pledged Asset Loan. The Company and RFC intend that the conveyance by RFC to the Company of all its right, title and interest in and to the Mortgage Loans pursuant to this Section 2 shall be, and be construed as, a sale of the Mortgage Loans by RFC to the Company. It is, further, not intended that such conveyance be deemed to be a pledge of the Mortgage Loans by RFC to the Company to secure a debt or other obligation of RFC. Nonetheless, (a) this Agreement is intended to be and hereby is a security agreement within the meaning of Articles 8 and 9 of the Minnesota Uniform Commercial Code and the Uniform Commercial Code of any other applicable jurisdiction; (b) the conveyance provided for in this Section shall be deemed to be, and hereby is, a grant by RFC to the Company of a security interest in all of RFC's right, title and interest, whether now owned or hereafter acquired, in and to any and all general intangibles, payment intangibles, accounts, chattel paper, instruments, documents, money, deposit accounts, certificates of deposit, goods, letters of credit, advices of credit and investment property consisting of, arising from or relating to any of the following: (A) the Mortgage Loans, including (i) with respect to each Cooperative Loan, the related Mortgage Note, Security Agreement, Assignment of Proprietary Lease, Cooperative Stock Certificate, Cooperative Lease, any insurance policies and all other documents in the related Mortgage File, (ii) with respect to each Sharia Mortgage Loan, the related Sharia Mortgage Loan Security Instrument, Sharia Mortgage Loan Co-Ownership Agreement, Obligation to Pay, Assignment Agreement and Amendment of Security Instrument, any insurance policies and all other documents in the related Mortgage File and (iii) with respect to each Mortgage Loan other than a Cooperative Loan or a Sharia Mortgage Loan, the related Mortgage Note, the Mortgage, any insurance policies and all other documents in the related Mortgage File, (B) all monies due or to become due pursuant to the Mortgage Loans in accordance with the terms thereof and (C) all proceeds of the conversion, voluntary or involuntary, of the foregoing into cash, instruments, securities or other property, including without limitation all amounts from time to time held or invested in the Certificate Account or the Custodial Account, whether in the form of cash, instruments, securities or other property; (c) the possession by the Trustee, the Custodian or any other agent of the Trustee of Mortgage Notes or such other items of property as constitute instruments, money, payment intangibles, negotiable documents, goods, deposit accounts, letters of credit, advices of credit, investment property or chattel paper shall be deemed to be "possession by the secured party," or possession by a purchaser or a person designated by such secured party, for purposes of perfecting the security interest pursuant to the Minnesota Uniform Commercial Code and the Uniform Commercial Code of any other applicable jurisdiction (including, without limitation, Sections 8-106, 9-313 and 9-106 thereof); and (d) notifications to persons holding such property, and acknowledgments, receipts or confirmations from persons holding such property, shall be deemed notifications to, or acknowledgments, receipts or confirmations from, securities intermediaries, bailees or agents of, or persons holding for, (as applicable) the Trustee for the purpose of perfecting such security interest under applicable law. RFC shall, to the extent consistent with this Agreement, take such reasonable actions as may be necessary to ensure that, if this Agreement were determined to create a security interest in the Mortgage Loans and the other property described above, such security interest would be determined to be a perfected security interest of first priority under applicable law and will be maintained as such throughout the term of this Agreement. Without limiting the generality of the foregoing, RFC shall prepare and deliver to the Company not less than 15 days prior to any filing date, and the Company shall file, or shall cause to be filed, at the expense of RFC, all filings necessary to maintain the effectiveness of any original filings necessary under the Uniform Commercial Code as in effect in any jurisdiction to perfect the Company's security interest in or lien on the Mortgage Loans, including without limitation (x) continuation statements, and (y) such other statements as may be occasioned by (1) any change of name of RFC or the Company, (2) any change of location of the state of formation, place of business or the chief executive office of RFC, or (3) any transfer of any interest of RFC in any Mortgage Loan. Notwithstanding the foregoing, (i) the Master Servicer shall retain all servicing rights (including, without limitation, primary servicing and master servicing) relating to or arising out of the Mortgage Loans, and all rights to receive servicing fees, servicing income and other payments made as compensation for such servicing granted to it under the Pooling and Servicing Agreement pursuant to the terms and conditions set forth therein (collectively, the "Servicing Rights") and (ii) the Servicing Rights are not included in the collateral in which RFC grants a security interest pursuant to the immediately preceding paragraph. 3. Concurrently with the execution and delivery hereof, the Company hereby assigns to RFC without recourse all of its right, title and interest in and to the Class A-P Certificates, the Class A-V Certificates and a de minimis portion of each of the Class R-I and Class R-II Certificates as part of the consideration payable to RFC by the Company pursuant to this Agreement. 4. RFC represents and warrants to the Company that on the date of execution hereof (or, if otherwise specified below, as of the date so specified): (a) The information set forth in Exhibit One to the Series Supplement with respect to each Mortgage Loan or the Mortgage Loans, as the case may be, is true and correct in all material respects, at the date or dates respecting which such information is furnished; (b) Each Mortgage Loan is required to be covered by a standard hazard insurance policy. Except in the case of approximately 0.4% of the aggregate principal balance of the Mortgage Loans, each Mortgage Loan with a Loan-to-Value Ratio at origination in excess of 80% will be insured by a Primary Insurance Policy covering at least 35% of the principal balance of the Mortgage Loan at origination if the Loan-to-Value Ratio is between 100.00% and 95.01%, at least 30% of the principal balance of the Mortgage Loan at origination if the Loan-to-Value Ratio is between 95.00% and 90.01%, at least 25% of the balance if the Loan-to-Value Ratio is between 90.00% and 85.01% and at least 12% of the balance if the Loan-to-Value Ratio is between 85.00% and 80.01%. To the best of the Company's knowledge, each such Primary Insurance Policy is in full force and effect and the Trustee is entitled to the benefits thereunder; (c) Each Primary Insurance Policy insures the named insured and its successors and assigns, and the issuer of the Primary Insurance Policy is an insurance company whose claims-paying ability is currently acceptable to the Rating Agencies; (d) Immediately prior to the assignment of the Mortgage Loans to the Company, RFC had good title to, and was the sole owner of, each Mortgage Loan free and clear of any pledge, lien, encumbrance or security interest (other than rights to servicing and related compensation and, with respect to certain Mortgage Loans, the monthly payment due on the first Due Date following the Cut-off Date), and no action has been taken or failed to be taken by RFC that would materially adversely affect the enforceability of any Mortgage Loan or the interests therein of any holder of the Certificates; (e) No Mortgage Loan was 30 or more days delinquent in payment of principal and interest as of the Cut-off Date and no Mortgage Loan has been so delinquent more than once in the 12-month period prior to the Cut-off Date; (f) Subject to clause (e) above as respects delinquencies, there is no default, breach, violation or event of acceleration existing under any Mortgage Note or Mortgage and no event which, with notice and expiration of any grace or cure period, would constitute a default, breach, violation or event of acceleration, and no such default, breach, violation or event of acceleration has been waived by the Seller or by any other entity involved in originating or servicing a Mortgage Loan; (g) There is no delinquent tax or assessment lien against any Mortgaged Property; (h) No Mortgagor has any right of offset, defense or counterclaim as to the related Mortgage Note or Mortgage except as may be provided under the Servicemembers Civil Relief Act, formerly known as the Soldiers' and Sailors' Civil Relief Act of 1940, as amended, and except with respect to any buydown agreement for a Buydown Mortgage Loan; (i) There are no mechanics' liens or claims for work, labor or material affecting any Mortgaged Property which are or may be a lien prior to, or equal with, the lien of the related Mortgage, except such liens that are insured or indemnified against by a title insurance policy described under clause (aa) below; (j) Each Mortgaged Property is free of damage and in good repair and no notice of condemnation has been given with respect thereto and RFC knows of nothing involving any Mortgaged Property that could reasonably be expected to materially adversely affect the value or marketability of any Mortgaged Property; (k) Each Mortgage Loan at the time it was made complied in all material respects with applicable local, state, and federal laws, including, but not limited to, all applicable anti-predatory lending laws; (l) Each Mortgage contains customary and enforceable provisions which render the rights and remedies of the holder adequate to realize the benefits of the security against the Mortgaged Property, including (i) in the case of a Mortgage that is a deed of trust, by trustee's sale, (ii) by summary foreclosure, if available under applicable law, and (iii) otherwise by foreclosure, and there is no homestead or other exemption available to the Mortgagor that would interfere with such right to sell at a trustee's sale or right to foreclosure, subject in each case to applicable federal and state laws and judicial precedents with respect to bankruptcy and right of redemption; (m) With respect to each Mortgage that is a deed of trust, a trustee duly qualified under applicable law to serve as such is properly named, designated and serving, and except in connection with a trustee's sale after default by a Mortgagor, no fees or expenses are payable by the Seller or RFC to the trustee under any Mortgage that is a deed of trust; (n) The Mortgage Loans are conventional, fixed rate, fully-amortizing, first mortgage loans having terms to maturity of not more than 30 years from the date of origination or modification with monthly payments due, with respect to a majority of the Mortgage Loans, on the first day of each month; (o) No Mortgage Loan provides for deferred interest or negative amortization; (p) If any of the Mortgage Loans are secured by a leasehold interest, with respect to each leasehold interest: the use of leasehold estates for residential properties is an accepted practice in the area where the related Mortgaged Property is located; residential property in such area consisting of leasehold estates is readily marketable; the lease is recorded and no party is in any way in breach of any provision of such lease; the leasehold is in full force and effect and is not subject to any prior lien or encumbrance by which the leasehold could be terminated or subject to any charge or penalty; and the remaining term of the lease does not terminate less than ten years after the maturity date of such Mortgage Loan; (q) Each Assigned Contract relating to each Pledged Asset Loan is a valid, binding and legally enforceable obligation of the parties thereto, enforceable in accordance with their terms, except as limited by bankruptcy, insolvency or other similar laws affecting generally the enforcement of creditor's rights; (r) The Assignor is the holder of all of the right, title and interest as owner of each Pledged Asset Loan in and to each of the Assigned Contracts delivered and sold to the Company hereunder, and the assignment hereof by RFC validly transfers such right, title and interest to the Company free and clear of any pledge, lien, or security interest or other encumbrance of any Person; (s) The full amount of the Pledged Amount with respect to such Pledged Asset Loan has been deposited with the custodian under the Credit Support Pledge Agreement and is on deposit in the custodial account held thereunder as of the date hereof; (t) RFC is a member of MERS, in good standing, and current in payment of all fees and assessments imposed by MERS, and has complied with all rules and procedures of MERS in connection with its assignment to the Trustee as assignee of the Depositor of the Mortgage relating to each Mortgage Loan that is registered with MERS, including, among other things, that RFC shall have confirmed the transfer to the Trustee, as assignee of the Depositor, of the Mortgage on the MERS(R)System; (u) No instrument of release or waiver has been executed in connection with the Mortgage Loans, and no Mortgagor has been released, in whole or in part from its obligations in connection with a Mortgage Loan; (v) With respect to each Mortgage Loan, either (i) the Mortgage Loan is assumable pursuant to the terms of the Mortgage Note, or (ii) the Mortgage Loan contains a customary provision for the acceleration of the payment of the unpaid principal balance of the Mortgage Loan in the event the related Mortgaged Property is sold without the prior consent of the mortgagee thereunder; (w) The proceeds of the Mortgage Loan have been fully disbursed, there is no requirement for future advances thereunder and any and all requirements as to completion of any on-site or off-site improvements and as to disbursements of any escrow funds therefor (including any escrow funds held to make Monthly Payments pending completion of such improvements) have been complied with. All costs, fees and expenses incurred in making, closing or recording the Mortgage Loans were paid; (x) Except with respect to approximately 1.0% of the Mortgage Loans, the appraisal was made by an appraiser who meets the minimum qualifications for appraisers as specified in the Program Guide; (y) To the best of RFC's knowledge, any escrow arrangements established with respect to any Mortgage Loan are in compliance with all applicable local, state and federal laws and are in compliance with the terms of the related Mortgage Note; (z) Each Mortgage Loan was originated (1) by a savings and loan association, savings bank, commercial bank, credit union, insurance company or similar institution that is supervised and examined by a federal or state authority, (2) by a mortgagee approved by the Secretary of HUD pursuant to Sections 203 and 211 of the National Housing Act, as amended, or (3) by a mortgage broker or correspondent lender in a manner such that the Certificates would qualify as "mortgage related securities" within the meaning of Section 3(a)(41) of the Securities Exchange Act of 1934, as amended; (aa) All improvements which were considered in determining the Appraised Value of the Mortgaged Properties lie wholly within the boundaries and the building restriction lines of the Mortgaged Properties, or the policy of title insurance affirmatively insures against loss or damage by reason of any violation, variation, encroachment or adverse circumstance that either is disclosed or would have been disclosed by an accurate survey; (bb) Each Mortgage Note and Mortgage constitutes a legal, valid and binding obligation of the borrower, or the consumer in the case of the Sharia Mortgage Loans, enforceable in accordance with its terms except as limited by bankruptcy, insolvency or other similar laws affecting generally the enforcement of creditor's rights; (cc) None of the Mortgage Loans are subject to the Home Ownership and Equity Protection Act of 1994; (dd) None of the Mortgage Loans are loans that, under applicable state or local law in effect at the time of origination of such loan, are referred to as (1) "high cost" or "covered" loans or (2) any other similar designation if the law imposes greater restrictions or additional legal liability for residential mortgage loans with high interest rates, points and/or fees; (ee) None of the Mortgage Loans secured by a property located in the State of Georgia were originated on or after October 1, 2002 and before March 7, 2003; (ff) No Mortgage Loan is a High Cost Loan or Covered Loan, as applicable (as such terms are defined in the then current Standard & Poor's LEVELS(R)Glossary which is now Version 5.7 Revised, Appendix E (attached hereto as Exhibit A)); provided that no representation and warranty is made in this clause (ff) with respect to 0.00% of the Mortgage Loans (by outstanding principal balance as of the Cut-off Date) secured by property located in the State of Kansas, and with respect to 0.01% of the Mortgage Loans (by outstanding principal balance as of the Cut-off Date) secured by property located in the State of West Virginia; (gg) With respect to each Sharia Mortgage Loan, mortgage pass-through certificates or notes representing interests in mortgage loans that are in all material respects of the same type as the Mortgage Loans, and which are structured to be permissible under Islamic law utilizing a declining balance co-ownership structure, have been, for a least one year prior to the date hereof, (a) held by investors other than employee benefit plans, and (b) rated at least BBB- or Baa3, as applicable, by a Rating Agency; and (hh) No fraud or misrepresentation has taken place in connection with the origination of any Mortgage Loan. RFC shall provide written notice to GMAC Mortgage Corporation of the sale of each Pledged Asset Loan to the Company hereunder and by the Company to the Trustee under the Pooling and Servicing Agreement, and shall maintain the Schedule of Additional Owner Mortgage Loans (as defined in the Credit Support Pledge Agreement), showing the Trustee as the Additional Owner of each such Pledged Asset Loan, all in accordance with Section 7.1 of the Credit Support Pledge Agreement. Upon discovery by RFC or upon notice from the Company or the Trustee of a breach of the foregoing representations and warranties in respect of any Mortgage Loan which materially and adversely affects the interests of any holders of the Certificates or of the Company in such Mortgage Loan or upon the occurrence of a Repurchase Event (hereinafter defined), notice of which breach or occurrence shall be given to the Company by RFC, if it discovers the same, RFC shall, within 90 days after the earlier of its discovery or receipt of notice thereof, either cure such breach or Repurchase Event in all material respects or, either (i) purchase such Mortgage Loan from the Trustee or the Company, as the case may be, at a price equal to the Purchase Price for such Mortgage Loan or (ii) substitute a Qualified Substitute Mortgage Loan or Loans for such Mortgage Loan in the manner and subject to the limitations set forth in Section 2.04 of the Pooling and Servicing Agreement. If the breach of representation and warranty that gave rise to the obligation to repurchase or substitute a Mortgage Loan pursuant to this Section 4 was the representation and warranty set forth in clause (k) or (hh) of this Section 4, then RFC shall pay to the Trust Fund, concurrently with and in addition to the remedies provided in the preceding sentence, an amount equal to any liability, penalty or expense that was actually incurred and paid out of or on behalf of the Trust Fund, and that directly resulted from such breach, or if incurred and paid by the Trust Fund thereafter, concurrently with such payment. 5. With respect to each Mortgage Loan, a first lien repurchase event ("Repurchase Event") shall have occurred if it is discovered that, as of the date thereof, the related Mortgage was not a valid first lien on the related Mortgaged Property subject only to (i) the lien of real property taxes and assessments not yet due and payable, (ii) covenants, conditions, and restrictions, rights of way, easements and other matters of public record as of the date of recording of such Mortgage and such permissible title exceptions as are listed in the Program Guide and (iii) other matters to which like properties are commonly subject which do not materially adversely affect the value, use, enjoyment or marketability of the Mortgaged Property. In addition, with respect to any Mortgage Loan as to which the Company delivers to the Trustee or the Custodian an affidavit certifying that the original Mortgage Note has been lost or destroyed, if such Mortgage Loan subsequently is in default and the enforcement thereof or of the related Mortgage is materially adversely affected by the absence of the original Mortgage Note, a Repurchase Event shall be deemed to have occurred and RFC will be obligated to repurchase or substitute for such Mortgage Loan in the manner set forth in Section 4 above. 6. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns, and no other person shall have any right or obligation hereunder. -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties have entered into this Assignment and Assumption Agreement on the date first written above. RESIDENTIAL FUNDING CORPORATION By: /s/Heather Anderson Name: Heather Anderson Title: Associate RESIDENTIAL ACCREDIT LOANS, INC. By: /s/Tim Jacobson Name: Tim Jacobson Title: Vice President -------------------------------------------------------------------------------- EXHIBIT A APPENDIX E OF THE STANDARD & POOR'S GLOSSARY FOR FILE FORMAT FOR LEVELS(R)VERSION 5.7 REVISED REVISED July 1, 2006 APPENDIX E - STANDARD & POOR'S PREDATORY LENDING CATEGORIES Standard & Poor's has categorized loans governed by anti-predatory lending laws in the Jurisdictions listed below into three categories based upon a combination of factors that include (a) the risk exposure associated with the assignee liability and (b) the tests and thresholds set forth in those laws. Note that certain loans classified by the relevant statute as Covered are included in Standard & Poor's High Cost Loan Category because they included thresholds and tests that are typical of what is generally considered High Cost by the industry. STANDARD & POOR'S HIGH COST LOAN CATEGORIZATION ---------------------------------- ------------------------------------------------- --------------------------------- CATEGORY UNDER NAME OF ANTI-PREDATORY LENDING APPLICABLE ANTI- STATE/JURISDICTION LAW/EFFECTIVE DATE PREDATORY LENDING LAW ---------------------------------- ------------------------------------------------- --------------------------------- ---------------------------------- ------------------------------------------------- --------------------------------- Arkansas Arkansas Home Loan Protection Act, High Cost Home Loan Ark. Code Ann.ss.ss.23-53-101 et seq. Effective July 16, 2003 ---------------------------------- ------------------------------------------------- --------------------------------- ---------------------------------- ------------------------------------------------- --------------------------------- Cleveland Heights, OH Ordinance No. 72-2003 (PSH), Mun. Covered Loan Codess.ss.757.01 et seq. Effective June 2, 2003 ---------------------------------- ------------------------------------------------- --------------------------------- ---------------------------------- ------------------------------------------------- --------------------------------- Colorado Consumer Equity Protection, placeStateColo. Covered Loan Stat. Ann.ss.ss.5-3.5-101 et seq. Effective for covered loans offered or entered into on or after January 1, 2003. Other provisions of the Act took effect on June 7, 2002 ---------------------------------- ------------------------------------------------- --------------------------------- ---------------------------------- ------------------------------------------------- --------------------------------- Connecticut placeStateConnecticut Abusive Home Loan High Cost Home Loan Lending Practices Act, Conn. Gen. Stat. ss.ss.36a-746 et seq. Effective October 1, 2001 ---------------------------------- ------------------------------------------------- --------------------------------- ---------------------------------- ------------------------------------------------- --------------------------------- District of Columbia Home Loan Protection Act, D.C. Code Covered Loan ss.ss.26-1151.01 et seq. Effective for loans closed on or after January 28, 2003 ---------------------------------- ------------------------------------------------- --------------------------------- ---------------------------------- ------------------------------------------------- --------------------------------- Florida Fair Lending Act, Fla. Stat. Ann.ss.ss. High Cost Home Loan 494.0078 et seq. Effective October 2, 2002 ---------------------------------- ------------------------------------------------- --------------------------------- -------------------------------------------------------------------------------- ---------------------------------- ------------------------------------------------- --------------------------------- STATE/JURISDICTION NAME OF ANTI-PREDATORY LENDING CATEGORY UNDER LAW/EFFECTIVE DATE APPLICABLE ANTI- PREDATORY LENDING LAW ---------------------------------- ------------------------------------------------- --------------------------------- ---------------------------------- ------------------------------------------------- --------------------------------- Georgia (Oct. 1, 2002 - Georgia Fair Lending Act, Ga. Code High Cost Home Loan Mar. 6, 2003) Ann.ss.ss.7-6A-1 et seq. Effective October 1, 2002 - March 6 2003 ---------------------------------- ------------------------------------------------- --------------------------------- ---------------------------------- ------------------------------------------------- --------------------------------- Georgia as amended Georgia Fair Lending Act, Ga. Code High Cost Home Loan (Mar. 7, 2003 - current) Ann.ss.ss.7-6A-1 et seq. Effective for loans closed on or after March 7, 2003 ---------------------------------- ------------------------------------------------- --------------------------------- ---------------------------------- ------------------------------------------------- --------------------------------- HOEPA Section 32 Home Ownership and Equity Protection High Cost Loan Act of 1994, 15 U.S.C.ss.1639, 12 C.F.R.ss.ss.226.32 and 226.34 Effective October 1, 1995, amendments October 1, 2002 ---------------------------------- ------------------------------------------------- --------------------------------- ---------------------------------- ------------------------------------------------- --------------------------------- Illinois High Risk Home Loan Act, Ill. Comp. High Risk Home Loan Stat. tit. 815,ss.ss.137/5 et seq. Effective January 1, 2004 (prior to this date, regulations under Residential Mortgage License Act effective from May 14, 2001) ---------------------------------- ------------------------------------------------- --------------------------------- ---------------------------------- ------------------------------------------------- --------------------------------- Kansas Consumer Credit Code, Kan. Stat. Ann. High Loan to Value Consumer ss.ss.16a-1-101 et seq. Loan (id.ss.16a-3-207) and; Sections 16a-1-301 and 16a-3-207 became effective April 14, 1999; Section 16a-3-308a became effective July 1, 1999 ---------------------------------- ------------------------------------------------- --------------------------------- ---------------------------------- ------------------------------------------------- --------------------------------- High APR Consumer Loan (id.ss. 16a-3-308a) ---------------------------------- ------------------------------------------------- --------------------------------- ---------------------------------- ------------------------------------------------- --------------------------------- Kentucky 2003 KY H.B. 287 - High Cost Home High Cost Home Loan Loan Act, Ky. Rev. Stat.ss.ss.360.100 et seq. Effective June 24, 2003 ---------------------------------- ------------------------------------------------- --------------------------------- ---------------------------------- ------------------------------------------------- --------------------------------- Maine Truth in Lending, Me. Rev. Stat. tit. 9- High Rate High Fee Mortgage A,ss.ss.8-101 et seq. Effective September 29, 1995 and as amended from time to time ---------------------------------- ------------------------------------------------- --------------------------------- ---------------------------------- ------------------------------------------------- --------------------------------- STATE/JURISDICTION NAME OF ANTI-PREDATORY LENDING CATEGORY UNDER LAW/EFFECTIVE DATE APPLICABLE ANTI- PREDATORY LENDING LAW ---------------------------------- ------------------------------------------------- --------------------------------- ---------------------------------- ------------------------------------------------- --------------------------------- Massachusetts Part 40 and Part 32, 209 C.M.R.ss.ss. High Cost Home Loan 32.00 et seq. and 209 C.M.R.ss.ss.40.01 et seq. Effective March 22, 2001 and amended from time to time ---------------------------------- ------------------------------------------------- --------------------------------- ---------------------------------- ------------------------------------------------- --------------------------------- Nevada Assembly Bill No. 284, Nev. Rev. Stat. Home Loan ss.ss.598D.010 et seq. Effective October 1, 2003 ---------------------------------- ------------------------------------------------- --------------------------------- -------------------------------------------------------------------------------- ---------------------------------- ------------------------------------------------- --------------------------------- New Jersey New Jersey Home Ownership Security High Cost Home Loan Act of 2002, N.J. Rev. Stat.ss.ss.46:10B- 22 et seq. Effective for loans closed on or after November 27, 2003 ---------------------------------- ------------------------------------------------- --------------------------------- ---------------------------------- ------------------------------------------------- --------------------------------- New Mexico Home Loan Protection Act, N.M. Rev. High Cost Home Loan Stat.ss.ss.58-21A-1 et seq. Effective as of January 1, 2004; Revised as of February 26, 2004 ---------------------------------- ------------------------------------------------- --------------------------------- ---------------------------------- ------------------------------------------------- --------------------------------- New York N.Y. Banking Law Article 6-1 High Cost Home Loan Effective for applications made on or after April 1, 2003 ---------------------------------- ------------------------------------------------- --------------------------------- ---------------------------------- ------------------------------------------------- --------------------------------- North Carolina Restrictions and Limitations on High High Cost Home Loan Cost Home Loans, N.C. Gen. Stat.ss.ss.24-1.1E et seq. Effective July 1, 2000; amended October 1, 2003 (adding open-end lines of credit) ---------------------------------- ------------------------------------------------- --------------------------------- ---------------------------------- ------------------------------------------------- --------------------------------- Ohio H.B. 386 (codified in various sections of the Covered Loan Ohio Code), Ohio Rev. Code Ann.ss.ss.1349.25 et seq. Effective May 24, 2002 ---------------------------------- ------------------------------------------------- --------------------------------- ---------------------------------- ------------------------------------------------- --------------------------------- Oklahoma Consumer Credit Code (codified in various Subsection 10 Mortgage sections of Title 14A) Effective July 1, 2000; amended effective January 1, 2004 ---------------------------------- ------------------------------------------------- --------------------------------- ---------------------------------- ------------------------------------------------- --------------------------------- STATE/JURISDICTION NAME OF ANTI-PREDATORY LENDING CATEGORY UNDER LAW/EFFECTIVE DATE APPLICABLE ANTI- PREDATORY LENDING LAW ---------------------------------- ------------------------------------------------- --------------------------------- ---------------------------------- ------------------------------------------------- --------------------------------- South Carolina South Carolina High Cost and High Cost Home Loan Consumer Home Loans Act, S.C. Code Ann.ss.ss.37-23-10 et seq. Effective for loans taken on or after January 1, 2004 ---------------------------------- ------------------------------------------------- --------------------------------- ---------------------------------- ------------------------------------------------- --------------------------------- West Virginia West Virginia Residential Mortgage Lender, West Virginia Mortgage Loan Act Broker and Servicer Act, W. Loan Va. Code Ann.ss.ss.31-17-1 et seq. Effective June 5, 2002 ---------------------------------- ------------------------------------------------- --------------------------------- STANDARD & POOR'S COVERED LOAN CATEGORIZATION ---------------------------------- ------------------------------------------------- --------------------------------- STATE/JURISDICTION NAME OF ANTI-PREDATORY LENDING CATEGORY UNDER APPLICABLE ANTI- LAW/EFFECTIVE DATE PREDATORY LENDING LAW ---------------------------------- ------------------------------------------------- --------------------------------- ---------------------------------- ------------------------------------------------- --------------------------------- Georgia (Oct. 1, 2002 - Georgia Fair Lending Act, Ga. Code Covered Loan Mar. 6, 2003) Ann.ss.ss.7-6A-1 et seq. Effective October 1, 2002 - March 6, 2003 ---------------------------------- ------------------------------------------------- --------------------------------- ---------------------------------- ------------------------------------------------- --------------------------------- New Jersey New Jersey Home Ownership Security Covered Home Loan Act of 2002, N.J. Rev. Stat.ss.ss.46:10B 22 et seq. Effective November 27, 2003 - July 5, 2004 ---------------------------------- ------------------------------------------------- --------------------------------- STANDARD & POOR'S HOME LOAN CATEGORIZATION ---------------------------------- ------------------------------------------------- --------------------------------- STATE/JURISDICTION NAME OF ANTI-PREDATORY LENDING CATEGORY UNDER APPLICABLE ANTI- LAW/EFFECTIVE DATE PREDATORY LENDING LAW ---------------------------------- ------------------------------------------------- --------------------------------- ---------------------------------- ------------------------------------------------- --------------------------------- Georgia (Oct. 1, 2002 - Georgia Fair Lending Act, Ga. Code Home Loan Mar. 6, 2003) Ann.ss.ss.7-6A-1 et seq. Effective October 1, 2002 - March 6, 2003 ---------------------------------- ------------------------------------------------- --------------------------------- ---------------------------------- ------------------------------------------------- --------------------------------- New Jersey New Jersey Home Ownership Security Home Loan Act of 2002, N.J. Rev. Stat.ss.ss.46:10B- 22 et seq. Effective for loans closed on or after November 27, 2003 ---------------------------------- ------------------------------------------------- --------------------------------- ---------------------------------- ------------------------------------------------- --------------------------------- New Mexico Home Loan Protection Act, N.M. Rev. Stat.ss.ss. Home Loan 58-21A-1 et seq. Effective as of January 1, 2004; Revised as of February 26, 2004 ---------------------------------- ------------------------------------------------- --------------------------------- ---------------------------------- ------------------------------------------------- --------------------------------- North Carolina Restrictions and Limitations on High Cost Home Consumer Home Loan Loans, N.C. Gen. Stat.ss.ss. 24-1.1E et seq. Effective July 1, 2000; amended October 1, 2003 (adding open-end lines of credit) ---------------------------------- ------------------------------------------------- --------------------------------- ---------------------------------- ------------------------------------------------- --------------------------------- South Carolina South Carolina High Cost and Consumer Home Consumer Home Loan Loans Act, S.C. Code Ann.ss.ss.37-23-10 et seq. Effective for loans taken on or after January 1, 2004 ---------------------------------- ------------------------------------------------- ---------------------------------

Exhibit 10.284   --------------------------------------------------------------------------------   THE CHARLES SCHWAB   SEVERANCE PAY PLAN   (As Amended and Restated Effective January 1, 2006)   (Includes Amendment Numbers 1 and 2)   -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- TABLE OF CONTENTS   ARTICLE 1 - PURPOSE OF PLAN    1 ARTICLE 2 - DEFINITIONS    1 ARTICLE 3 – PARTICIPATION    7     3.1.    Commencement of Participation    7     3.2    Termination of Participation    7 ARTICLE 4 - EFFECT ON OTHER BENEFITS    7     4.1.    Eligibility for Benefits    7     4.2    Paid Time Off Benefits    7 ARTICLE 5 - NOTICE PERIOD    7     5.1    Notice Period.    7     5.2    Participants Requested to Work During Notice Period.    7     5.3    Acceleration of Termination Date.    8 ARTICLE 6 - BENEFITS    8     6.1    Non-Officers Severance Pay.    9     6.2    Officer Severance Pay    10     6.3    Group Health Plan Coverage Payment and Long-Term Awards    10     6.4    Additional Provisions Related to Severance Benefits.    11 ARTICLE 7 - FUNDING    13 ARTICLE 8 - ADMINISTRATION    13     8.1    Administrator’s Authority.    13     8.2    Claims for Benefits    14     8.3    Indemnification    14 ARTICLE 9 - AMENDMENT AND TERMINATION    14 ARTICLE 10 - MISCELLANEOUS    15 ARTICLE 11 - EXECUTION    15 APPENDIX A    A-1   i. -------------------------------------------------------------------------------- ARTICLE 1 - PURPOSE OF PLAN   The purpose of this Plan is to set forth the terms and conditions under which severance pay and other severance benefits will be provided to employees of the Company. This Plan is intended to constitute an employee welfare benefit plan within the meaning of section 3(1) of ERISA, and is intended to memorialize the provisions of the Company’s severance pay program.   The effective date of this restatement is January 1, 2006. The rights of any person whose Notice Period Start Date is prior to the Restated Effective Date shall be determined solely under the terms of the Plan provisions as in effect on such date, unless such person is thereafter reemployed and again becomes a Participant. The rights of any other person shall be determined solely under the terms of this restated Plan, except as may be otherwise required by law.   This Plan is not intended to constitute a “nonqualified deferred compensation plan” within the meaning of section 409A of the Internal Revenue Code of 1986, as amended (the “Code”). In the event that that any benefit hereunder is deemed by the Administrator to be subject to section 409A of the Code, the Administrator may modify such benefit as it deems necessary to comply with, or to qualify for an exemption from, Code section 409A.   ARTICLE 2 - DEFINITIONS   A. “Administrator” means Schwab or such person or committee as may be appointed from time to time by Schwab to supervise the administration of the Plan.   B. “Affiliate” means any company which is a member of a controlled group of corporations (within the meaning of section 414(b) of the Code) or a group of trades or businesses under common control (within the meaning of section 414(c) of the Code) that includes the Company.   C. “Base Salary” means the Participant’s annual “pay rate” maintained under the authoritative system of record used to produce the Participant’s regular semi-monthly pay. Base Salary shall be determined as of the Participant’s Notice Period Start Date. Unless included by the Company in a Participant’s “pay rate,” Base Salary shall exclude all other earnings or paid amounts such as bonuses, overtime, commissions, all differentials, variable pay, incentive pay, the value of employee benefits and any other amounts that are treated as “other earnings” under the Company’s payroll system. In the case of an Eligible Employee who is classified by the Administrator as a branch manager or a financial consultant of a retail, national or satellite branch, the Administrator may determine, in its sole discretion, that such individual’s Base Salary, for purposes of calculating Severance Benefits, shall be supplemented with the amount that the Administrator determines, in its sole discretion, to be the Participant’s “practice service” payment in effect as of the Participant’s Notice Period Start Date and as annualized by the Plan Administrator. In the case of an Eligible Employee   1 -------------------------------------------------------------------------------- who is classified by the Administrator as a regional branch executive, the Administrator may determine, in its sole discretion, that such individual’s Base Salary, for purposes of calculating Severance Benefits, shall be supplemented with 50% of the amount that the Administrator determines, in its sole discretion, to be the Participant’s “regional revenue” payment in effect as of the Participant’s Notice Period Start Date and as annualized by the Plan Administrator. The Administrator shall have sole discretionary authority to determine a Participant’s Base Salary for all purposes, and the Administrator’s discretionary determinations shall be conclusive and binding on all persons.   D. “Code” means the Internal Revenue Code of 1986, as amended.   E. “Company” means The Charles Schwab Corporation, a Delaware corporation, and (unless the context requires otherwise) any Participating Company.   F. “Comparable Position” means a position that is comparable, as determined by the Administrator in its sole and absolute discretion taking into account such factors as it deems appropriate including without limitation the similarity of duties and salary and any increase in the commuting distance to the individual’s principal place of employment.   G. “Corporate Transaction” means a merger, acquisition, spin-off, stock sale, sale of assets or portions of a business, outsourcing of all or any portion of a business or any other similar corporate transaction.   H. “Eligible Employee” means an individual classified by the Administrator as a Regular Employee who has incurred a Job Elimination. The term “Eligible Employee” shall not include (i) individuals employed pursuant to the terms of a collective bargaining agreement between the Company or an Affiliate and a bargaining unit representing such individuals; (ii) an employee who is on an unpaid leave of absence and has no right to reinstatement under applicable law upon completion of the leave; and (iii) any individual who the Administrator, in its sole discretion, determines to be covered by a Guaranteed Payments Arrangement or any arrangement that, by its terms, makes the individual ineligible for Plan benefits. Notwithstanding the foregoing, the Administrator may, in its sole discretion, determine that an individual who is a party to a Guaranteed Payments Arrangement is an Eligible Employee eligible to receive benefits under Section 6.4(g).   I. “Guaranteed Payments Arrangement” is any guarantee or agreement, offer letter, policy, arrangement or plan (regardless of whether it is written or oral) that provides for guaranteed payments of any nature, severance benefits of any kind, cash payments representing the value of stock options or restricted stock, and/or similar amounts.   J. “Job Elimination” means involuntary termination of employment solely on account of changes in the Company’s operations or organization that result in the elimination of the employee’s job, as determined by the Administrator in its sole and absolute discretion taking into account such factors as it deems appropriate including without limitation (i) a   2 -------------------------------------------------------------------------------- relocation or dissolution of a portion of the business of the Company; (ii) a withdrawal by the Company from a segment of a market served by the Company; (iii) the elimination of one or more Company product lines; (iv) an elimination, reduction, or change in the Company’s need for one or more specialized skills provided by the employee; (v) an organizational change in the Company, including without limitation a business redesign, reorganization or consolidation; (vi) a significant change in the Company’s systems or technology; and (vii) a reduction in the Company’s staffing levels. Notwithstanding anything to the contrary contained herein, a Job Elimination shall not result (A) from retirement, death or voluntary resignation (whether or not in response to changes in the Company’s operations or organization or in an individual’s title, duties, responsibilities, compensation or benefits) prior to Notice of Eligibility; (B) if the Company or any successor employer or successor organization offers the employee a Comparable Position; (C) from termination prior to or after Notice of Eligibility on account of unsatisfactory performance, failure of a condition of employment, breach of any agreement to which the employee and the Company are parties, or violation of any law, regulation, or Company policy (including but not limited to the Code of Business Conduct and Ethics, Compliance Manual, and HR Policies); (D) where, in connection with a Corporate Transaction, an employee is employed in the same or a substantially similar position at the closing of the Corporate Transaction or the employee is offered a Comparable Position; (E) from the employee’s failure to return to work within the time required following an approved leave of absence; (F) from a change in employment that results from a natural disaster, unforeseeable governmental action, act of war, or other similar unanticipated business disaster; (G) from a transfer of employment among the Company and any of its Affiliates; (H) where, in connection with the outsourcing of all or any a portion of a business, the employee is offered a position by the successor organization at substantially the same salary level and commuting distance to the employee’s principal place of employment; and (I) from the Company’s modification or termination of any telecommuting arrangement.   K. “Long-Term Award” means a long-term award outstanding as of the Participant’s Termination Date and granted under the plan of a Participating Company that provides for long-term or stock-based awards.   L. “Non-Officer” means an Eligible Employee who is not an Officer.   M. “Notice of Eligibility” means a written or electronic notice, in a form approved by the Administrator, provided to an Eligible Employee that there will be a Job Elimination and that he or she is eligible for Severance Benefits under the Plan.   N. “Notice Period” means a sixty (60) calendar day period commencing on the date specified in the Notice of Eligibility. Except as provided in Section 5.2, Participants are relieved from job responsibilities during the Notice Period and generally are not required to report to work. Also during the Notice Period, all Compliance, Human Resources and Information Security policies and procedures that applied to Participants before receiving Notice of Eligibility continue in full force and effect and Participants remain subject to those   3 -------------------------------------------------------------------------------- policies and procedures. Participants will continue to receive Base Salary and to participate in certain employee benefits. Except as otherwise provided under the applicable bonus or incentive plan, Participants shall not be eligible for bonuses and other incentive pay during the Notice Period. In all cases, non-production-based bonuses will be pro-rated to reflect the Participant’s service prior to the Notice Period Start Date and will be subject to discretionary adjustments by the Company in its sole and absolute discretion.   O. “Notice Period Start Date” means the first day of the Notice Period.   P. “Officer” means an Eligible Employee who is classified by the Company as an “officer” based on job grade, designation and such other factors the Company deems relevant.   Q. “Participant” means any person who is participating in the Plan as provided in Article 3.   R. “Participating Company” means the Company and any Affiliate that participates in the Plan (as determined by the Company or Schwab in its sole discretion). A current list of Participating Companies is set forth in Appendix A. Notwithstanding the foregoing, if a Participating Company ceases to be an Affiliate by reason of a Corporate Transaction, then such entity shall cease to be a Participating Company upon the closing of such Corporate Transaction. Notwithstanding anything to the contrary in this Plan, no benefits shall be payable under the Plan on account of any employment termination (actual or constructive) that occurs on or after the closing of such Corporate Transaction in which such entity ceases to be a Participating Company.   S. “Plan” means The Charles Schwab Severance Pay Plan.   T. “Regular Employee” means an individual who (i) is directly employed and paid by the Company and on whose behalf the Company withholds income tax from his or her compensation; (ii) has regular full-time or part-time employment with the Company; and (iii) is considered and classified by the Company as a “regular employee.” Notwithstanding the foregoing, a “Regular Employee” shall not include any of the following:   (A) a temporary employee, intern, co-op or floater;   (B) an agency temporary or leased employee;   (C) an employee on an unpaid leave of absence who does not have a job guarantee upon completion of the leave;   (D) an individual who is not directly paid by the Company through its payroll system (without regard to his or her common law employment status);   (E) consultants, contingent workers, independent contractors, persons who have   4 -------------------------------------------------------------------------------- signed independent contractor, consultant or vendor agreement(s) or provide services to the Company pursuant to an independent contractor, consultant or vendor agreement, or pursuant to an agreement with any third party, irrespective of whether any such individuals are determined by any third party (including without limitation any court, arbitrator or governmental or regulatory agency) to constitute an employee of the Company or any Affiliate (including but not limited to, a common law employee, a joint employee or a leased employee); and   (F) persons (including but not limited to those identified in subparagraphs (A) through (E)) not otherwise considered by the Company to be a Regular Employee, irrespective of whether any such individuals are deemed by a court, arbitrator or government agency or other third party to be an employee of the Company or any Affiliate (including but not limited to, a common law employee, a joint employee or a leased employee).   If, during any period, the Company has not treated an individual as a common law employee and, for that reason, has not withheld income and employment taxes with respect to that individual, then that individual shall not be a Regular Employee for that period, even if the individual is determined, retroactively, to have been a common law employee during all or any portion of that period by the Internal Revenue Service or other third party or pursuant to a court decree, judgment or settlement in a judicial proceeding or otherwise.   U. “Restated Effective Date” means January 1, 2006.   V. “Return Date” means the date specified in the Participant’s Notice of Eligibility by which the Participant must sign and return a Severance Agreement.   W. “Revocation Period” means the seven calendar day (or other longer legally required calendar day) period immediately following the date the Participant signs the Severance Agreement during which a Participant who is either: (i) at least forty (40) years old; or (ii) is under forty (40) years old and is employed in a state that requires a specific Revocation Period, may revoke his or her signed Severance Agreement. To be effective, a written request to revoke must be received by the Administrator (as defined by applicable law) no later than 5:00 p.m. PST on the seventh calendar day (or other longer period required by law) from the date the Participant signed the Severance Agreement or, if mailed, be postmarked no later than the seventh calendar day (or other longer period required by law) from the date the Participant signed the Severance Agreement.   X. “Schwab” means Charles Schwab & Co., Inc., a California corporation.   Y. “Severance Agreement” means a written agreement in a form satisfactory to the Administrator in exchange for payment of Severance Benefits as provided in Article 6. In the sole discretion of the Administrator, such agreement may include without limitation, but is not limited to, provisions relating to (i) non-disparagement and non-disclosure; (ii) non-solicitation of customers, clients and employees; (iii) use of confidential and proprietary   5 -------------------------------------------------------------------------------- information; (iv) return of company property; (v) cooperation with investigations, arbitrations, and litigation; (vi) release and waiver of all legal claims; and (vii) authorized deductions (if any). To be effective, a Severance Agreement must be signed and returned by the Return Date (and not revoked during any applicable Revocation Period). Severance Agreements are not required to be identical among Participants.   Z. “Severance Benefits” means all payments and benefits provided for in this Plan, including but not limited to all salary and benefits for periods during which a Participant remains an employee after being provided a Notice of Eligibility (such as the Notice Period), all forms of compensation and/or benefits of any kind for or in connection with such periods, and all other amounts paid or payable to Participants in accordance with the Plan. The Severance Benefits a Participant may be eligible for are gross amounts from which applicable taxes, withholding and appropriate deductions will be taken, including but not limited to, deduction of any outstanding amount owed to the Company by the Participant regardless of the reason for or source of the amount due. In order to receive Severance Benefits under Article 6, a Participant must timely sign and return (and not revoke, where a Revocation Period applies) a Severance Agreement. All Severance Benefits shall be applied toward satisfaction of the Company’s WARN obligations, if any, and shall constitute WARN notice and/or WARN benefits where WARN applies.   AA. “Severance Period” means the period of time determined by adding, to the Participant’s Termination Date, the number of months for which the Participant is eligible to receive severance pay under Section 6.2.   BB. “Termination Date” means the earlier of (i) last day that the Participant is employed by the Company; or (ii) day that the Participant’s Notice Period ends (as it may be accelerated under Article 5).   CC. “U.S. Trust” means U.S. Trust Corporation and each of its subsidiaries.   DD. “WARN” means the Federal Worker Adjustment Retraining and Notification Act, as amended, and any applicable state plant or facility closing or mass layoff law. In the event WARN applies to a Participant, any Notice Period and/or Severance Period, and all compensation and all benefits of any kind due or paid with respect to either are also deemed to constitute WARN notice and/or WARN benefits, and will be applied toward satisfying the Company’s obligations under WARN.   EE. “Year of Service” means each 12-month period of service completed by a Participant while a Regular Employee including any service commencing on the Participant’s date of hire and ending on the Participant’s Notice Period Start Date and any service prior to a break in service for any reason other than Job Elimination. A Participant will receive credit for service with a predecessor employer that was acquired by the Company or an Affiliate if such service must be credited for purposes of an “employee benefit plan” within the meaning of ERISA under the applicable purchase agreement. Except as provided in Section 6.4(a), a   6 -------------------------------------------------------------------------------- Participant’s Years of Service shall exclude service previously used to determine a Participant’s severance benefits under this Plan, any predecessor plan or any other Affiliate-sponsored severance arrangement.   ARTICLE 3 – PARTICIPATION   3.1. Commencement of Participation. An Eligible Employee will become a Participant as of the date he or she is issued a Notice of Eligibility.   3.2 Termination of Participation. A Participant’s participation in the Plan shall terminate on the earlier of (i) the date when his or her entire Plan benefit has been paid; or (ii) the date that his or her participation ends under Section 5.3(b) or 6.4(b).   ARTICLE 4 - EFFECT ON OTHER BENEFITS   4.1. Eligibility for Benefits. A Participant’s eligibility for all employee benefits (including without limitation medical, dental and vision insurance) will cease in accordance with the terms of each respective plan no later than the last day of the month that includes the Termination Date except as may be otherwise required by applicable law.   4.2 Paid Time Off Benefits. A Participant will continue accruing paid time off benefits until the Termination Date. The rate of accrual during the Notice Period will be the same as the rate of accrual prior to the Participant’s Notice of Eligibility.   ARTICLE 5 - NOTICE PERIOD   5.1 Notice Period. Following an Eligible Employee’s Notice of Eligibility, the Participant will enter a Notice Period for a period of sixty (60) calendar days. Except as provided in Section 5.2, during the Notice Period Participants shall not be required to report to work but shall remain subject to the Company’s policies and procedures. If WARN is applicable to a Participant, the Notice Period and all compensation (including but not limited to salary/wages, benefits and benefit plan participation) attributable to the Notice Period shall constitute WARN notice and the payment of WARN benefits, respectively, and will be applied against any notice period or other payments that would otherwise be due to satisfy the Company’s obligations under WARN.   5.2 Participants Requested to Work During Notice Period. If a Participant is requested to work during the Notice Period, then the Participant will be entitled to Severance Benefits only if the Participant continues to perform his or her assigned duties and responsibilities to the satisfaction of the Company through the date established by the Company in its discretion.   7 -------------------------------------------------------------------------------- 5.3 Acceleration of Termination Date. The Termination Date, which is originally established as the end of the 60 day Notice Period, will be accelerated or otherwise changed if any of the following events occur:   (a) If, prior to the end of the Notice Period, a Participant resigns or otherwise obtains an external position or acts as an employee, consultant or independent contractor or as a sole proprietor of a business or acts as an officer, director, or partner in another public or privately held company. In that case, the Participant is required to notify the Administrator immediately, the end of the Notice Period and the Termination Date will be accelerated to coincide with the next day after the Participant resigned or otherwise obtained that position. The Participant will receive a payment reflecting the balance of the Base Salary attributable to the unused portion of the original Notice Period; however, no payment will be made for the value of bonuses, or other incentive compensation or the value of other employee benefits that might otherwise have been received if the Termination Date had not been accelerated. The Participant remains eligible to sign and return the applicable Severance Agreement by the Return Date in order to obtain additional Severance Benefits under Article 6.   (b) Except as provided in Section 5.2 as determined by the Administrator, if a Participant provides substantial services to the Company or any Affiliate as an employee (full-time, part-time or seasonal), consultant or independent contractor of the Company or any Affiliate within the Notice Period (without regard to whether the end of the Notice Period has been accelerated pursuant to Section 5.3(a)), his or her Termination Date under the Plan will be accelerated or cancelled (as appropriate), his or her participation will end, and the Participant will no longer be eligible to receive any Severance Benefits or any payment of any kind for compensation (including benefits) otherwise attributable to the unused portion of the Notice Period. If a Participant already received payment of lump sum severance pay under Section 6.1, 6.2 and/or 6.3 (as applicable), the Participant will be required, except as the Administrator otherwise determines in its sole discretion, to repay the lump sum severance pay, including the COBRA payment, in full, as a condition of employment or providing services. In addition, if a Participant already received a lump sum payment for the unused portion of the Notice Period under Section 5.3(a), the Participant is required, except as the Administrator otherwise determines in its sole discretion, to repay the amount by which this lump sum payment exceeds the amount the Participant would have received if the payment had been calculated based on the number of business days that actually elapsed between the beginning of the Notice Period and the date of his or her commencement of service, as a condition of employment or providing services.   ARTICLE 6 - BENEFITS   Upon being provided with a Notice of Eligibility, a Participant becomes eligible to receive the Severance Benefits described in Sections 6.1, 6.2, and 6.3 (as applicable) only if the Participant returns to the Administrator a signed Severance Agreement no later than the   8 -------------------------------------------------------------------------------- Return Date. If a Revocation Period applies, a Participant’s eligibility to receive these Severance Benefits also is conditioned upon the Participant not revoking (or attempting to revoke) the Severance Agreement during the Revocation Period. Subject to those conditions and such other conditions set forth in this Plan, the Participant will be entitled to receive the benefits set forth in Sections 6.1 and 6.2, or 6.3 (as applicable).   6.1 Non-Officers Severance Pay.   (a) Schwab Non-Officers. A Non-Officer Participant employed by a Participating Company other than U.S. Trust as of his or her Notice of Eligibility will be eligible to receive a lump sum severance pay benefit equal to the greater of the amount determined under (i) or (ii) below:   (i) The amount of the Participant’s Base Salary that would have been payable for one-half month of active employment (i.e., 11 business days) multiplied by the Participant’s full Years of Service (but in no event to exceed the maximum amount equivalent to 220 business days of Base Salary). The Participant also will receive credit for a partial Year of Service (after aggregation of partial years), based on the following table:   Length of Partial Year --------------------------------------------------------------------------------    Number of Business Days -------------------------------------------------------------------------------- Less than 3 months    3 days At least 3 months but less than 6 months    6 days At least 6 months but less than 9 months    9 days At least 9 months but less than 12 months    11 days   or   (ii) The amount of the Participant’s Base Salary that would have been payable for the number of business days determined under the following table:   Base Salary --------------------------------------------------------------------------------    Number of Business Days -------------------------------------------------------------------------------- $29,999 or less    22 days $30,000 to $39,999    44 days $40,000 to $54,999    66 days $55,000 to $74,999    88 days $75,000 and over    110 days   The length of service formula under Section 6.1(a)(i) will be used in the event application of Section 6.1(a)(i) and 6.1(a)(ii) results in the same amount. Notwithstanding the foregoing, the Severance Benefit that a Participant shall be eligible to receive under this Section 6.1(a) shall be no less than the amount of Base Salary that would have been payable to the Participant for 22 business days.   9 -------------------------------------------------------------------------------- (b) U.S. Trust Non-Officers. A Non-Officer Participant employed by U.S. Trust as of his or her Notice of Eligibility will be eligible to receive a lump sum severance payment in an amount equal to two (2) weeks of the Participant’s Base Salary, multiplied by the Participant’s full Years of Service. Notwithstanding the foregoing, the Severance Benefit that a Participant shall be eligible to receive under this Section 6.1(b) shall be no less than the amount of Base Salary that would have been payable to the Participant for two (2) weeks and shall be no greater than the amount of Base Salary that would have been payable to the Participant for thirteen (13) weeks.   6.2 Officer Severance Pay.   (a) Schwab Officers. An Officer Participant employed by a Participating Company other than U.S. Trust as of his or her Notice of Eligibility will be eligible to receive a lump sum severance pay benefit in an amount equal to the number of months determined under the table below, multiplied by one-twelfth (1/12) of the Participant’s Base Salary.   Years of Service --------------------------------------------------------------------------------    Vice President --------------------------------------------------------------------------------    Senior Vice President or Executive Vice President -------------------------------------------------------------------------------- Less than 1 year    5 months    8 months At least 1 year but less than 2 years    9 months    12 months At least 2 years but less than 5 years    11 months    14 months 5 years or more    12 months    16 months   (b) U.S. Trust Officers. An Officer Participant employed by U.S. Trust as of his or her Notice of Eligibility will be eligible to receive a lump sum severance pay benefit in an amount equal to the number of months determined under the table below, multiplied by one-twelfth (1/12) of the Participant’s Base Salary.   Officer Title --------------------------------------------------------------------------------    No. of Months -------------------------------------------------------------------------------- First Level Officer, Assistant Vice President or Vice President    6 months Senior Vice President, Managing Director or Executive Vice President    12 months   6.3 Group Health Plan Coverage Payment and Long-Term Awards.   (a) A Participant who becomes entitled to receive Severance Benefits will be eligible to receive a single lump sum payment to cover a portion of the cost of group health plan coverage for the Participant and his or her enrolled spouse, domestic partner and dependents (“Dependents”). The amount of such payment shall be based on the period of time for which the Participant is eligible to receive severance pay and COBRA rates for group health plan coverage in effect for the Participant and his or her Dependents as of the Participant’s Notice of Eligibility, without regard to changes in COBRA rates or coverage after Notice of Eligibility.   10 -------------------------------------------------------------------------------- (b) If an Officer Participant described in Section 6.2(a) or a Senior Vice President, Managing Director or Executive Vice President described in Section 6.2(b) becomes entitled to Severance Benefits, then:   (i) The portion of each of the Participant’s Long-Term Awards that would have vested if the Participant had remained employed during the Severance Period shall be vested as soon as administratively practicable after the Participant’s Termination Date, subject to subparagraph (iii) below; and   (ii) The determination of whether the Participant has satisfied the conditions of “retirement” under each Long-Term Award agreement (to the extent applicable) shall be made as of his or her Termination Date, without regard to the Participant’s Severance Period.   The Severance Period shall not modify or extend the exercise period of any Long-Term Award, and, except as set forth in Section 6.3(b)(i), the Plan shall not provide any benefit with respect to any Long-Term Award.   6.4 Additional Provisions Related to Severance Benefits.   (a) If a Participant receives severance benefits under this Plan, any predecessor plan or any other Affiliate-sponsored severance arrangement and if the Participant subsequently provides services to the Company or an Affiliate, then any Severance Benefits that may become payable to the Participant under this Plan following the date of recommencement of service shall be based solely on the Participant’s Years of Service following the date of such recommencement and, in the case of a Non-Officer Participant, shall be calculated without regard to Section 6.1(a)(ii); provided, however, the Administrator shall have the discretionary authority to suspend the application of this provision to a Participant who repaid more than 80% of his or her Severance Benefits pursuant to Section 5.3(b) or 6.4(d).   (b) Notwithstanding anything to the contrary contained herein, (i) an employee or Participant whose employment with the Company (or an Affiliate) is terminated before or after receipt of Notice of Eligibility for any reason other than Job Elimination shall not be entitled to receive any Severance Benefits hereunder, (ii) a Participant shall lose eligibility to receive Severance Benefits if (A) after receipt of Notice of Eligibility, the employee fails to work satisfactorily at the request of the Company through the date it specifies; or (B) the Company becomes aware of circumstances which could or would have caused a Participant’s termination from employment including but not limited to misconduct or any violation of law, regulation or Company policy, and (iii) in the case of an Regular Employee who the Administrator determines, in its sole discretion, is covered by a Guaranteed   11 -------------------------------------------------------------------------------- Payments Arrangement, except as provided in Section 6.4(g), the calculation of any payment to such Regular Employee upon such termination or resignation shall be governed by the terms of such arrangement, and not by this Article 6.   (c) Lump sum benefits payable pursuant to Section 6.1, 6.2 or 6.3(a) shall be paid during the next payroll processing cycle that follows the later of (i) the date the Severance Agreement is received, assuming it is signed and returned to the Administrator in the required time and is not revoked in accordance with any applicable Revocation Period; or (ii) the Termination Date, as it may be accelerated under Article 5 or 6.   (d) If a Participant receives payment of any or all of his or her Severance Benefit under Section 6.1, 6.2 and/or 6.3 and after his Termination Date subsequently provides substantial services to the Company or any Affiliate as an employee, consultant or independent contractor (other than pursuant to a Corporate Transaction), the Participant will be required, except as the Administrator otherwise determines in its sole discretion, as a condition of reemployment or otherwise providing services, to repay the amount (if any) by which the lump sum payment (including COBRA payments) exceeds the amount the Participant would have received if such payment had been calculated based on the number of business days that have actually elapsed between the Termination Date and the date that the Participant started to provide such services. The repayment obligation is applicable regardless of whether the Participant’s severance pay was paid under Section 6.1, 6.2 and/or 6.3(a); provided, however, the repayment obligation shall not apply to benefits provided under Section 6.3(b). Repayment of a pro rata share of severance benefits does not affect the validity of the Severance Agreement.   (e) Notwithstanding anything to the contrary contained in this Plan, in the event WARN is applicable to a Participant: (i) any Notice Period and/or Severance Benefits paid or payable to the Participant will be deemed to constitute and shall be attributed to WARN notice and/or WARN benefits; (ii) all Severance Benefits under this Plan will be reduced and/or offset by any notice, payments or benefits to which the Participant may be entitled under WARN; and (iii) all Severance Benefits under this Plan will be reduced and/or offset by any amount of paid days and/or paid benefits in lieu of notice the Participant is given or is required to be given by the Company to satisfy its obligations under WARN. A Severance Agreement is not required for receipt of WARN benefits.   (f) Notwithstanding anything to the contrary contained herein, the Company may revoke a Participant’s Severance Agreement during any applicable Revocation Period.   (g) Notwithstanding anything to the contrary contained herein, in the event that the Administrator determines, in its sole discretion, that an individual is a party to a Guaranteed Payments Arrangement and that such individual would otherwise be entitled to a benefit under Section 6.1 or 6.2 and/or 6.3, then the Administrator may determine, in its sole   12 -------------------------------------------------------------------------------- discretion, that such individual shall be eligible to receive a cash severance benefit (instead, and in lieu, of any and all payments under such Guaranteed Payments Arrangement) equal to the greater of either (i) the amount that the Administrator determines, in its sole discretion, to be the amount of the Participant’s payments under the Guaranteed Payments Arrangement; or (ii) the total amount of the cash severance payments to which the Administrator determines, in its sole discretion, the Participant otherwise would have been entitled under Section 6.1, 6.2 and/or 6.3. Payment of such cash severance benefit shall be deemed to be subject to all of the terms and conditions of the Plan relating to the payment of benefits under Article 6, as construed by the Administrator in its sole discretion.   ARTICLE 7 - FUNDING   The amount required to be paid as Severance Benefit under this Plan shall be paid from the general assets of the Company at the time such Severance Benefits are to be paid.   ARTICLE 8 - ADMINISTRATION   8.1 Administrator’s Authority. The administration of the Plan shall be under the supervision of the Administrator. It shall be the responsibility of the Administrator to assure that the Plan is carried out in accordance with its terms. The Administrator shall have full power and sole discretionary authority to administer, interpret and construe the Plan, and to determine all claims for benefits, subject to the requirements of ERISA. For this purpose, the Administrator shall have discretionary authority:   (a) To make and enforce such rules and regulations as it deems necessary or proper for the efficient administration of the Plan;   (b) To interpret and construe the plan, its interpretation and construction thereof to be final and conclusive on all persons claiming benefits under the Plan;   (c) To decide all questions concerning the Plan and the eligibility of any person to participate in the Plan;   (d) To compute the amount of benefits which will be payable to any Participant accordance with the provisions of the Plan, and to determine the person or persons to whom such benefits will be paid;   (e) To authorize the payment of benefits;   (f) To appoint such agents, counsel, accountants, consultants and actuaries as may be required to assist in administering the Plan; and   (g) To allocate and delegate its responsibilities under the Plan and to designate other persons to carry out any of its responsibilities under the Plan, and such allocation, delegation or designation to be by written instrument and in accordance with Section 405 of ERISA.   13 -------------------------------------------------------------------------------- The interpretations and determinations of the Administrator shall be final and binding and are not required to be uniform among similarly situated individuals. The Administrator also reserves the right to provide additional benefits, in the Administrator’s sole discretion. Determinations to be made in the discretion of the Company are made by the Company in its non-fiduciary capacity, with regard to the best interests of the Company, and are not required to be uniform among similarly situated individuals. In administering the Plan, the Administrator shall be entitled, to the extent permitted by law, to rely conclusively on all tables, valuations, certificates, opinions and reports which are furnished by any accountant, counsel or other expert who is employed or engaged by the Administrator. Schwab shall be the “named fiduciary” for purposes of section 402(a)(1) of ERISA with authority to control and manage the operation and administration of the Plan, and shall be responsible for complying with all of the reporting and disclosure requirements of Part 1 of Subtitle B of Title I of ERISA.   8.2 Claims for Benefits. No person shall be entitled to benefits under this Plan unless the Administrator has determined that he or she is entitled to them. All applications for benefits, and all inquiries concerning the Plan or present or future rights to benefits under the Plan, must be submitted to the Administrator in accordance with the established claims procedure set forth in the summary plan description. Notwithstanding anything to the contrary in this Plan, no person shall have a colorable claim for vested or unvested benefits under this Plan unless the Administrator (i) has determined that the person has incurred a Job Elimination; and (ii) has issued to the person a Notice of Eligibility.   8.3 Indemnification. The Company agrees to indemnify, defend and hold harmless to the fullest extent permitted by law any employee serving as or on behalf of the Administrator or as a member of a committee designated as Administrator (including any employee or former employee who formerly served as Administrator or as a member of such committee) against all liabilities, damages, costs and expenses (including attorneys’ fees and amounts paid in settlement of any claims approved by the Company) occasioned by any act or omission to act in connection with the Plan, if such act or omission is in good faith.   ARTICLE 9 - AMENDMENT AND TERMINATION   The Plan and/or any of its terms may be amended, suspended or terminated at any time with or without prior notice by action of the Board of Directors of Schwab or the Company or their respective delegates. Schwab’s Executive Vice President – Human Resources shall have the authority to adopt amendments that do not materially increase the cost of the Plan.   14 -------------------------------------------------------------------------------- ARTICLE 10 - MISCELLANEOUS   Except where otherwise indicated by the context, any masculine terminology used herein shall also include the feminine and vice versa, and the definition of any term herein in the singular shall also include the plural, and vice versa.   This Plan shall not be deemed to constitute a contract between the Company and any Eligible Employee or to be a consideration or an inducement for the employment of any Eligible Employee. Nothing contained in this Plan shall be deemed to give any Eligible Employee the right to be retained in the service of the Company or to interfere with the right of the Company to discharge any Eligible Employee at any time, irrespective of the effect which such discharge shall have upon such individual as an Eligible Employee of this Plan.   This Plan shall be construed and enforced according to federal law, except where not preempted, by the laws of the State of California other than its laws respecting choice of law.   ARTICLE 11 - EXECUTION   To record the amendment and restatement of the Plan to read as set forth herein effective as of January 1, 2006, Charles Schwab & Co., Inc. has caused its authorized officer to execute the same this 10th day of October, 2005.   CHARLES SCHWAB & CO., INC. /s/ Charles R. Schwab -------------------------------------------------------------------------------- Charles R. Schwab   15 -------------------------------------------------------------------------------- APPENDIX A   Charles Schwab & Co., Inc. Charles Schwab Bank, National Association Charles Schwab Investment Management, Inc. CyBerCorp Holdings, Inc. CyberTrader, Inc Mayer & Schweitzer, Inc. Schwab Performance Technologies, Inc. Schwab Holdings, Inc. Schwab International Holdings, Inc. The Charles Schwab Trust Company Schwab Retirement Plan Services, Inc. Schwab Retirement Technologies, Inc. Schwab (SIS) Holdings, Inc. I U.S. Trust Corporation CTC Consulting, Inc. Fernhill Holding, Inc. Fund Five Financial, Inc. U.S. Trust Company of Delaware U.S. Trust Company, National Association Excelsior LaSalle Property Fund, Inc. U.S. Trust Hedge Fund Management, Inc. United States Trust Company of New York United States Trust Company International Corporation UST Mortgage Company Co-Op Holdings, Inc. UST Securities Corp. UST Advisers, Inc. US Trust Technology and Support Services, Inc.   A-1

  Exhibit 10.2 EMPLOYMENT AGREEMENT   Troy A. Lyndon ("Employee") hereby accepts the offer of Left Behind Games Inc. ("LBG" or the "Company") for employment as Chief Executive Officer beginning March 1, 2003. Employee and the Company are sometimes individually referred to herein as a "party" and collectively as the "parties."   1.  Employment and Employment Term. The Company shall employ Employee, and Employee shall serve the Company, for a term beginning on the date of this Agreement and ending on February 28, 2004, unless sooner terminated pursuant to the provisions of this Agreement (the "Initial Term"). Thereafter, this Agreement renews automatically for successive one (1) year terms unless either party provides ninety (90) days prior written notice to the other of its intent not to renew this Agreement (the Initial Term together with any renewal hereof, is the "Term").   2.  Prior Communication. Employee and LBG further understand and agree that nothing in any prior correspondence or communication between them is intended to be and nothing therein should be construed to be a limitation of LBG's right to terminate, transfer, demote, suspend and administer discipline at any time for any reason. Employee and LBG understand and agree nothing in any prior correspondence or communication is intended to, and nothing in any prior correspondence or communication should be construed to, create an implied or express contract of employment contrary to this Agreement.   3.  Position and Responsibilities. During employment, Employee shall have such responsibilities, duties and authority as LBG through its Board of Directors may from time to time assign to Employee, and that are normal and customary duties of a Chief Executive Officer engaged in the business of the Company. Employee's initial title shall be Chief Executive Officer.   4.  Compensation.            a. As compensation for the services to be rendered by Employee to LBG pursuant to this Agreement, Employee shall be paid the following compensation and shall receive the following benefits:   i.  Base Salary. Employee's base salary will be at a rate of $95,000 per year, payable no less frequently than monthly.   ii.  Stock Options, Savings, and Retirement Plans. Employee shall be entitled to participate in all stock option, savings, and retirement plans, policies, and programs made available by the Company to other peer employees of the Company.   iii.  Automobile. Company shall pay Employee, in addition to his base salary, a monthly car allowance up to a maximum of $1,000 per month, plus his actual maintenance, repair and automobile insurance costs, payable on the first day of each month during the term hereof.   1 -------------------------------------------------------------------------------- iv.  Employee Benefits. Employee shall be entitled to participate during the period of his employment under this Agreement in standard employee benefits or any other written compensation arrangement approved by the Board of Directors of LBG.           b. Notwithstanding any other provision in this Agreement to the contrary, the compensation specified in Section 4(a) above will accrue on the date the Company closes an initial private offering of the Company's stock.   5.  Termination. In the event of termination or resignation, the following terms and conditions will apply:           a.  Cause, Severance Benefit. In the event Employee is terminated by LBG without cause, Employee shall be entitled to receive a severance benefit, including standard employee benefits available to other employees of LBG, in an amount equal to six (6) months' compensation. One half of any severance benefit owing hereunder shall be paid within ten (10) days of termination and the balance shall be paid on a bi-weekly basis over the severance period. As part of Employee's severance benefits, he shall be allowed (i) to keep all personal business equipment used by him in his office or work space during his employment such as computers, electronic equipment, software and (ii) to be provided, upon his request, copies of such non-confidential information created or prepared by him during his employment.           b.  With Cause, No Severance Benefit. LBG may terminate Employee with cause, which shall be limited to the occurrence of one or more of the following events: (i) the Employee's commission of any fraud against LBG; (ii) Employee's intentional appropriation for his or her personal use or benefit the funds of the Company not authorized by the Board of Directors; (iii) Employee's conviction of any crime involving moral turpitude; (iv) Employee's conviction of a violation of any state or federal law which could result in a material adverse impact upon the business of LBG; (v) the Employee engaging in any other professional employment or consulting or directly or indirectly participating in or assisting any for profit business which is a current or potential customer, broker or competitor of LBG without prior written approval from the Board of Directors of LBG, or (vi) when Employee has been disabled and is unable to perform the essential functions of the position for any reason notwithstanding reasonable accommodation and has received from LBG compensation in an amount equivalent to his or her severance benefit payment. No severance benefit shall be due to Employee if Employee is terminated for cause.           c.  Resignation or Retirement, No Severance Pay. No severance pay shall be due to Employee if Employee resigns or retires from employment.   6.  Termination Obligations.           a.  Return of LBG Company Property. Employee shall take all reasonable steps to make sure all LBG Company Property (as defined in Attachment #1) is returned to LBG within two (2) business days following termination of employment and request by LBG for return of LBG Company Property.           b.  Employee Cooperation. Following any termination of employment, Employee shall cooperate fully with LBG in all matters relating to completing pending work on behalf of LBG and the orderly transfer of work to other employees of LBG. Employee shall also cooperate in the defense of any action brought by any third party against LBG that relates in any way to Employee's acts or omissions while employed by LBG.           c.  Survival of Obligations. Employee's obligations under this Section shall survive the termination of employment and the expiration or termination of this Agreement.   7.  Confidential Information and Inventions. Employee and LBG hereby agree to the Confidential Information and Assignment Agreement, Covenant of Exclusivity and Covenant Not to Compete attached hereto and made a part hereof as Attachment #1. Employee's obligations under this Section shall survive the termination of employment and the expiration or termination of this Agreement.   8.  Competitive Activity. Employee covenants, warrants and represents that during the period of his or her employment with LBG, Employee shall not engage anywhere directly or indirectly in (as a principal, shareholder, partner, director, officer, agent, employee, consultant or otherwise) or be financially interested in any for profit business which is involved in business activities which are the same as, similar to, or in competition with business activities carried on by LBG or any business that is a current or potential customer, broker or competitor of LBG without prior written approval from the Board of Directors of LBG.   9.  Employee Conduct.            a. Employee covenants, warrants and represents that during the period of his or her employment with LBG, Employee shall not accept or encourage the offering of gifts or gratuities from any customer, broker or other person doing business with LBG. Employee represents and understands that acceptance or encouragement of any gift or gratuity may create a perceived financial obligation and/or conflict of interest for LBG and shall not be permitted as a means to influence business decisions, transactions or service. In this situation, as in all other areas of employment, Employee is expected to conduct himself or herself using the highest ethical standard.           b. Employee has performed services for non-profit organizations for many years and intends to continue providing services for non-profit organizations during his employment with the Company. Provided his services do not materially prevent his diligent performance of his responsibilities and obligations to the Company, Employee shall be allowed to provide services for non-profit organizations.   2 --------------------------------------------------------------------------------   10.  Entire Agreement. This Agreement contains the entire agreement between the parties. It supersedes any and all other agreements, either oral or in writing, between the parties hereto with respect to Employee's employment by LBG. Each party to this Agreement acknowledges that no representations, inducements, promises or agreements, oral or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not embodied herein and acknowledges that no other agreement, statement or promise not contained in this Agreement shall be valid or binding. This Agreement may not be modified or amended by oral agreement or course of conduct, but only by an agreement in writing signed by the Board of Directors of LBG and Employee. To the extent the practices, policies or procedures of LBG, now or in the future, are inconsistent with the terms of this Agreement, the provisions of this Agreement shall control.   11.  Governing Law. This Employment Agreement shall be construed and enforced in accordance with the laws of the State of California.   12.  Provisions Separable. Should any part or provision of this Employment Agreement be held unenforceable or in conflict with the law of any jurisdiction, the validity of the remaining parts shall not be affected by such holding.   13.  Attorney's Fees. Should any party institute any action, arbitration or proceeding to enforce, interpret or apply any provision of this Employment Agreement, the parties agree that the prevailing party shall be entitled to reimbursement by the non-prevailing party of all recoverable costs and expenses, including, but not limited to, reasonable attorney fees.   14.  Interpretation. This Agreement shall be construed as a whole, according to its fair meaning, and not in favor of or against any party. By way of example and not in limitation, this Agreement shall not be construed in favor of the party receiving a benefit nor against the party responsible for any particular language in this Agreement.   15.  Mediation. The Parties shall use reasonable good faith efforts to directly resolve any dispute arising this Agreement. Either Party may request non-binding mediation with the assistance of a neutral mediator from a recognized mediation service. The Parties shall participate in the mediation in good faith and shall devote reasonable time and energy to the mediation so as to promptly resolve the dispute or conclude with the mediator that they cannot resolve the dispute within 30 days of notice from the dispute. The persons attending the mediation shall have the authority to accept a settlement. LBG shall bear the cost of mediation.   3 --------------------------------------------------------------------------------   EMPLOYEE   /s/ Troy A. Lyndon   _______________________ Troy A. Lyndon     LEFT BEHIND GAMES INC. a Delaware corporation   /s/ Jefferey S. Frichner   By:_____________________________________ Jeffrey S. Frichner, President 4 -------------------------------------------------------------------------------- ATTACHMENT #1   CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT, COVENANT OF EXCLUSIVITY AND COVENANT NOT TO COMPETE   This Confidential Information And Invention Assignment Agreement ("Agreement") is made between Left Behind Games Inc., a Delaware corporation ("Company") and the undersigned Employee.   In consideration of and as a condition of my prospective and continued employment relationship with the Company (which for purposes of this Agreement shall be deemed to include any subsidiaries or affiliates of the Company where "affiliate" shall mean any person or entity that directly or indirectly controls, is controlled by, or is under common control with the Company), the receipt of confidential information while associated with the Company, and other good and valuable consideration, I agree to the following, and I agree the following shall be in addition to the terms and conditions of any Confidential Information and Invention Assignment Agreement executed by employees of the Company generally, and which I may execute in addition hereto:   1.  Inventions.           a.  Disclosure. I will disclose promptly in writing to the appropriate officer or other representative of the Company, any idea, invention, work of authorship, design, formula, pattern, compilation, program, device, method, technique, process, improvement, development or discovery, whether or not patentable or copyrightable or entitled to legal protection as a trade secret, trademark service mark, trade name or otherwise ("Invention"), that I may conceive, make, develop, reduce to practice or work on, in whole or in part, solely or jointly with others ("Invent"), during the period of my employment with the Company.   i.  The disclosure required by this Section 1a. applies to each and every Invention that I Invent (1) whether during my regular hours of employment or during my time away from work (2) whether or not the Invention was made at the suggestion of the Company, and (3) whether or not the Invention was reduced to or embodied in writing, electronic media or tangible form.   ii.  The disclosure required by this Section 1 a. also applies to any Invention which may relate at the time of conception or reduction to practice of the Invention to the Company's business or actual or demonstrably anticipated research or development of the Company, and to any Invention which results from any work performed by me for the Company.   iii.  The disclosure required by this Section 1 a. shall be received in confidence by the Company within the meaning of and to the extent required by California Labor Code §2871, the provisions of which are set forth on Exhibit "A" hereto.   iv.  To facilitate the complete and accurate disclosures described above, I shall maintain complete written records of all Inventions and all work, study and investigation done by me during my employment, which records shall be the Company's property.   v.  I agree that during my employment I shall have a continuing obligation to supplement the disclosure required by this Section 1 a. on a monthly basis if I Invent an Invention during the period of employment. In order to facilitate the same, the Company and I shall periodically review every six months the written records of all Inventions as outlined in this Paragraph 1 a. to determine whether any particular invention is in fact related to Company business.   5 --------------------------------------------------------------------------------         b.  Assignment. I hereby assign to the Company without royalty or any other further consideration my entire right, title and interest in and to each and every Invention I am required to disclose under Section 1a. other than an Invention that I have or shall have developed entirely on my own time without using the Company's Confidential Information or trade secrets. I acknowledge that the Company has notified me that the assignment provided for in this Section l b. does not apply to any Invention to which the assignment may not lawfully apply under the provisions of Section §2870 of the California Labor Code, a copy of which is attached as Exhibit "A" hereto. I shall bear the full burden of proving to the Company that an invention qualifies fully under Section §2870.           c.  Additional Assistance and Documents. I will assist the Company in obtaining, maintaining and enforcing patents, copyrights, trade secrets, trademarks, service marks, trade names and other proprietary rights in connection with any Invention I have assigned to the Company under Section l b., and I further agree that my obligations under this Section l c. shall continue beyond the termination of my employment with the Company. Among other things, for the foregoing purposes I will (i) testify at the request of the Company in any interference, litigation or other legal proceeding that may arise during or after my employment, and (ii) execute, verify, acknowledge and deliver any proper document and, if, because of my mental or physical incapacity or for any other reason whatsoever, the Company is unable to obtain my signature to apply for or to pursue any application for any United States or foreign patent or copyright covering Inventions assigned to the Company by me, I hereby irrevocably designate and appoint each of the Company and its duly authorized officers and agents as my agent and attorney in fact to act for me and in my behalf and stead to execute and file any such applications and to do all other lawfully permitted acts to further the prosecution and issuance of any United States or foreign patent or copyright thereon with the same legal force and effect as if executed by me. I shall be entitled to reimbursement of any out-of-pocket expenses incurred by me in rendering such assistance and, if I am required to render such assistance after the termination of my employment, the Company shall pay me a reasonable rate of compensation for time spent by me in rendering such assistance to the extent permitted by law (provided, I understand that no compensation shall be paid for my time in connection with preparing for or rendering any testimony or statement under oath in any judicial proceeding, arbitration or similar proceeding).           d.  Prior Contracts and Inventions; Rights of Third Parties. I represent to the Company that, except as set forth on Exhibit "B" hereto, there are no other contracts to assign Inventions now in existence between me and any other person or entity (and if no Exhibit "B" is attached hereto or there is no such contract(s) described thereon, then it means that by signing this Agreement, I represent to the Company that there is no such other contract(s)). In addition, I represent to the Company that I have no other employments or undertaking which do or would restrict or impair my performance of this Agreement. I further represent to the Company that Exhibit "C" hereto sets forth a brief description of all Inventions made or conceived by me prior to my employment with the Company which I desire to be excluded from this Agreement (and if no Exhibit "C" is attached hereto or there is no such description set forth thereon, then it means that by signing this Agreement I represent to the Company that there is no such Invention made or conceived by me prior to my employment with the Company). In connection with my employment with the Company, I promise not to use or disclose to the Company any patent, copyright, confidential trade secret or other proprietary information of any previous employer or other person that I am not lawfully entitled so to use or disclose. If in the course of my employment with the Company I incorporate into an Invention or any product process or service of the Company any Invention made or conceived by me prior to my employment with the Company, and do so without first executing a separate assignment agreement, I hereby grant to the Company a royalty-free, irrevocable, worldwide nonexclusive license to make, have made, use and sell that Invention without restriction as to the extent of my ownership or interest.   2.  Confidential Information.           a.  Company Confidential Information. I will not use or disclose Confidential Information, whether before, during or after the period of my employment except to perform my duties as an employee of the Company based on my reasonable judgment as an Officer of the Company, or in accordance with instruction or authorization of the Company, without prior written consent of the Company or pursuant to process or requirements of law after I have disclosed such process or requirements to the Company so as to afford it the opportunity to seek appropriate relief therefrom. "Confidential Information" means any Invention of any person in which the Company has a written agreement and in addition means any financial, client, customer, supplier, marketing, distribution and other information of a confidential or private nature connected with the business of the Company or any person with whom it has a written agreement, provided by the Company to me or to which I have access during or in the course of any employment. Confidential Information is to be broadly defined, and includes all information that has or could have commercial value or other utility in the business in which the Company is engaged or contemplates engaging, and all information of which the unauthorized disclosure could be detrimental to the interests of the Company, whether or not such information is identified as Confidential Information by the Company. Confidential Information does not include any business or personal relationship developed by Employee during the course of his employment with whom the Company does not have a written agreement.           b.  Third Party Information. I acknowledge that during my employment with the Company I may have access to patent, copyright, confidential, trade secret or other proprietary information of third parties subject to restrictions on the use or disclosure thereof by the Company. During the period of my employment and thereafter I will not use or disclose any such information other than consistent with the restrictions and my duties as an employee of the Company.   3.  Property of the Company. All equipment and all tangible and intangible information relating to LBG, its employees and its customers or vendors furnished to, obtained by or prepared by Employee or any other person during the course of or incident to employment by LBG are and shall remain the sole property of LBG ("LBG Company Property"). LBG Company Property shall include, but not be limited to, computer equipment, books, manuals, records, reports, notes, correspondence, contracts, customer lists, business cards, advertising, sales, financial, personnel, operations, and manufacturing materials and information, data processing reports, computer programs, software, customer information and records, business records, price lists or information, and samples, and in each case shall include all copies thereof in any medium, including paper, electronic and magnetic media and all other forms of information storage. Upon termination of employment and request by LBG, all tangible LBG Company Property shall be returned promptly to LBG.   4.  No Solicitation of Company Employees. While employed by the Company and for a period of one year after termination of my employment with the Company, I agree not to induce or otherwise encourage any employee of the Company to terminate their employment with the Company.   6 -------------------------------------------------------------------------------- 5.  Covenant of Exclusivity and Not to Compete. During the period of my employment with the Company, I will not engage in any other professional employment or consulting or directly or indirectly participate in or assist any for profit business which is a current or potential supplier, customer or competitor of the Company without prior written approval from the Board of Directors of the Company.   6.  General.           a.  Assignments, Successors and Assignees. All representations, warranties, covenants and agreements of the parties shall bind their respective heirs, executors, personal representatives, successors and assignees ("transferees") and shall inure to the benefit of their respective permitted transferees. Neither party shall have the right to assign any or all of its rights or to delegate any or all of its obligations hereunder without the prior written consent of the other party.           b.  Number and Gender, Headings. Each number and gender shall be deemed to include each other number and gender as the context may require. The headings and captions contained in this Agreement shall not constitute a part thereof and shall not be used in its construction or interpretation.           c.  Severability. If any provision of this Agreement is found by any court or arbitral tribunal of competent jurisdiction to be invalid or unenforceable, the invalidity of such provision shall not affect the other provisions of this Agreement and all provisions not affected by the invalidity shall remain in full force and effect.           d.  Amendment and Modification. This Agreement may only be amended or modified in writing, by the parties.           e.  Government Law. The laws of California shall govern the construction, interpretation and performance of this Agreement and all transactions under it.           f.  No Effect on Other Terms or Conditions of Employment. I acknowledge that this Agreement does not affect any term or condition of my employment except as expressly provided in this Agreement, and that this Agreement does not give rise to any right or entitlement on my part to employment or continued employment with the Company. I further acknowledge that this Agreement does not affect in any way the right of the Company to terminate my employment.           g.  Consent. My signature below signifies that I have read, understand and agree to this Agreement.   EMPLOYEE   /s/ Troy A. Lyndon   ___________________________________ Troy A. Lyndon ACCEPTED: LEFT BEHIND GAMES INC. a Delaware corporation   /s/ Jeffrey S. Frichner   By:_____________________________________ Jeffrey S. Frichner, President 7 -------------------------------------------------------------------------------- EXHIBIT "A" TO ATTACHMENT #1   California Labor Code   § 2870. Invention on Own Time-Exemption from Agreement.   (a)  Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employer's equipment, supplies, facilities or trade secret information except for those inventions that either:   (1)  Relate at the time of conception or reduction to practice of the invention to the employer's business, or actual or demonstrably anticipated research or development of the employer.   (2)  Result from any work performed by the employee for the employer.   (b)  To the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under subdivision (a), the provision is against the public policy of this state and is unenforceable.   § 2871. Restrictions on Employer for Condition of Employment.   No employer shall require a provision made void or unenforceable by Section 2870 as a condition of employment or continued employment. Nothing in this article shall be construed to forbid or restrict the right of an employer to provide in contracts of employment for disclosure, provided that any such disclosures be received in confidence, of all of the employee's inventions made solely or jointly with others during the period of his or her employment, a review process by the employer to determine such issues as may arise, and for full title to certain patents and inventions to be in the United States, as required by contracts between the employer and the United States or any of its agencies.   8 -------------------------------------------------------------------------------- EXHIBIT "B" TO ATTACHMENT #1 Except as set forth below, Employee represents to the Company that there are no other contracts to assign Inventions now in existence between Employee and any other person or entity (see Section l d. of the Agreement): ·   Interactive TV Patent(s) as assigned to Campus Crusade for Christ for non-profit use. ·   Previously copyrighted software created for the inclusion of real people into interactive media productions. 9 -------------------------------------------------------------------------------- EXHIBIT "C" TO ATTACHMENT #1 Set forth below is a brief description of all Inventions made or conceived by Employee prior to Employee's employment with the Company, which Employee desires to be excluded from this Agreement (see Section l d. of the Agreement): ·   "Real-life Patent Pending Work" as continued from his work which began in 1995 and continues since 1997. The Patent Pending work essentially covers the processing of certain video captured images and angles of real-world objects and people for inclusion within a not-real 3d environment. This process is NOT based upon any traditional 3d technologies and is unique.            10 --------------------------------------------------------------------------------

Exhibit 10.2   SUMMARY PLAN DESCRIPTION   FOR MAGELLAN MIDSTREAM HOLDINGS GP, LLC   SEVERANCE PAY PLAN (Effective February 15, 2006) -------------------------------------------------------------------------------- SUMMARY PLAN DESCRIPTION FOR MAGELLAN MIDSTREAM HOLDINGS GP, LLC SEVERANCE PAY PLAN   TABLE OF CONTENTS        Page -------------------------------------------------------------------------------- INTRODUCTION    1 HIGHLIGHTS    1 ELIGIBILITY    2 Termination of Employment Due to a Reduction in Force or Job Elimination    2 Termination of Employment Due to a Change in Control    4 SEVERANCE PAY BENEFITS    5 Notice    6 Integration With Plant Closing Law(s)    6 Other Benefit Plans    7 Paid Time Off    8 Rehired Employees    8 CLAIM REVIEW PROCEDURE    9 Initial Claim for Benefits    9 Review of Claim Denial    9 Exhaustion of Review Remedies    10 Effect of Plan Administrator’s Decision on Claims    10 TECHNICAL INFORMATION    10 PARTICIPATING COMPANIES    10 PLAN ADMINISTRATION    10 LEGAL AGENT    11 COMPANY LOCATION    11 PLAN AMENDMENT OR TERMINATION    11 RIGHT TO EMPLOYMENT    11 ERISA RIGHTS    12 -------------------------------------------------------------------------------- INTRODUCTION   Magellan Midstream Holdings GP, LLC (“Company”) provides a Severance Pay Plan (“Plan”) for eligible employees of the Company on the United States payroll who are terminated because of a reduction in force, job elimination or a change in control, as defined herein, of Magellan Midstream Holdings GP, LLC. The term “Company” whenever used herein shall include Magellan and each of its subsidiaries and affiliated companies that participate in the Plan. The term “Magellan” shall include only Magellan Midstream Holdings GP, LLC.   The summary of the Plan set out herein applies to eligible employees who are in the employ of the Company on or after February 15, 2006, the effective date of the most recent version of the Plan.   This general summary is designed to highlight the Plan’s most important provisions. This summary may not contain every detail of the Plan or its specific terms. You will not gain any new rights because of a misstatement in, or omission from, this summary or by operation of the Plan.   IF THERE IS ANY QUESTION OR CONFLICT BETWEEN WHAT IS SAID IN THIS SUMMARY AND THE LANGUAGE IN THE PLAN’S LEGAL DOCUMENT, THE LEGAL DOCUMENT WILL PREVAIL.   Contact the Human Resources Department if you want to receive a copy of the Plan’s legal document.   This summary is for your information. Neither this summary nor the benefits provided by the Plan is a promise of continued Company employment. Magellan may amend or terminate the Plan at any time without the consent of any eligible employee. If the Plan is amended or terminated, your benefits, if any, may be different than those summarized.   HIGHLIGHTS   • If you are an eligible employee whose employment is terminated as a result of a reduction in force or job elimination, and you remain employed until your designated termination date, the Company may make a severance payment to you.   • If you are an eligible employee whose employment is terminated voluntarily for good reason or involuntarily for other than performance reasons within two years after a change in control of Magellan, the Company may make a severance payment to you.   • Severance payments will be made to you based on your length of service.   • Severance payments will be paid to you in a lump sum subject to deductions required by law.   • Severance payments are subject to your signing (and not revoking) a release of claims prepared by the Company or other form of release of claims that the Company may, in its discretion, require. -------------------------------------------------------------------------------- • If you are eligible for severance payments under this Plan, your first three months of COBRA continuation health coverage may be purchased by you at active employee rates.   • Severance payments under the Plan are provided solely by the Company.   • If you receive an offer of employment for a comparable position with the Company or any affiliated company or with a successor company to any of such entities, you will not be eligible to receive benefits under this Plan.   • If you accept an offer of employment with the Company or any affiliated company or with a successor company to any of such entities, even if the offer of employment is not considered comparable, you will not be eligible to receive benefits under this Plan.   ELIGIBILITY   You will receive severance pay only if your employment termination meets specific guidelines. To receive severance pay, you must be (1) an eligible employee whose employment terminated because of a reduction in force or job elimination, or (2) an eligible employee whose employment is terminated voluntarily for good reason or involuntarily for other than performance reasons within two years after a change in control of Magellan.   An eligible employee for purposes of the Plan is a regular full- or part-time employee on United States payroll. Employees covered by a collective bargaining agreement are not eligible to participate in the Plan unless the applicable collective bargaining agreement expressly provides for coverage by the Plan or the employees’ union bargains this Plan pursuant to bargaining obligations mandated by the National Labor Relations Act. Also excluded from participation in the Plan are nonresident aliens, seasonal employees, temporary employees, leased employees and independent contractors who are reclassified by a court or governmental agency as “employees.”   Termination of Employment Due to a Reduction in Force or Job Elimination   To receive severance pay benefits due to a reduction in force or job elimination, your employment must be terminated because of a designated reduction in force or a job elimination. If you are terminated from employment and your job is eliminated, you will not receive severance pay unless the officer of the Company administering this Plan, or his/her designee, approves the reduction in force or job elimination and you are notified in writing that your employment is being terminated because of a reduction in force or job elimination. If your employment is terminated, you will not receive severance if you accept an offer of employment with the Company or any affiliated company or with a successor company to any of such entities, even if the position is not considered comparable.   If you are given advance notice of a reduction in force or job elimination, you must remain in employment until the designated termination date in order to receive severance pay. Severance pay may be paid if you leave prior to the designated termination date only if your early departure will not have an adverse effect on the activities of the department or Company and is approved in advance in writing by your Vice President and Director of the Human Resources Department.   2 -------------------------------------------------------------------------------- Even if you meet the above requirements, you will not be entitled to severance pay under the Plan if you:   • Are discharged for unsatisfactory performance, including but not limited to, failure to adequately perform job responsibilities, poor attendance, violation of Company policy or practice or acts of dishonesty;   • Voluntarily resign for any reason, including retiring, prior to your scheduled termination date (this does not preclude you from retiring concurrent with your termination date);   • Accept any benefits under an incentive retirement plan established for the purpose of encouraging eligible employees to terminate employment within a specified time period;   • Are on educational or personal leave at the time you are notified that your employment is being terminated because of a reduction in force or job elimination;   • Are transferred or receive an offer of employment for a comparable position within the Company or an affiliated company. A position will be deemed “comparable” if the position provides a total base salary and bonus target on the termination date at least equal to 90% of such eligible employee’s total base salary and bonus target as it existed on the termination date. Such a position includes any position within the Company or any affiliate of any of them, regardless of whether such position requires the participant to transfer to a different work location, but only so long as the location of your principal place of employment is not more than 50 miles from the location you were employed prior to the termination date;   • Receive an offer of comparable employment with a successor company, an affiliate of such a company or entity after a corporate rearrangement, total or partial merger, acquisition, sale or other transaction. A position will be deemed “comparable” if the position provides a total base salary and bonus target on the termination date at least equal to 90% of such participant’s total base salary and bonus target as it existed on the termination date. Such a position includes any position with a successor company or an affiliate of such a company or entity, regardless of whether such position requires the participant to transfer to a different work location, but only so long as the location of your principal place of employment is not more than 50 miles from the location you were employed prior to the termination date;   • Accept an offer of employment with the Company or with a successor company, an affiliate of such a company or entity after a corporate rearrangement, total or partial merger, acquisition, sale, or other transaction, even if the offer of employment is not for a comparable position;   • Establish employment with the Company within six months after it has been acquired by another company;   • Die before your established termination date;   3 -------------------------------------------------------------------------------- • Are receiving short-term disability benefits at the time of termination of employment due to a reduction in force or job elimination unless you are released to return to work within the initial six-month period of short-term disability and the officer of Magellan administering this Plan, or his/her designee, approves eligibility for severance upon release to return to work in his/her sole discretion; or   • Fail to sign and return a release of claims or revoke such a release of claims after signing it.   Termination of Employment Due to a Change in Control   To receive severance pay benefits due to a change in control of Magellan Midstream Holdings GP, LLC (hereinafter “Magellan”), your employment must be terminated voluntarily for good reason or involuntarily for other than performance reasons within two years after a change in control of Magellan.   A “Change in Control” shall be deemed to have occurred upon the occurrence of one or more of the following events: (i) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of Magellan Midstream Partners, L.P., Magellan GP, LLC, Magellan Midstream Holdings, L.P. (“MMH, L.P.”) or MGG Midstream Holdings, L.P. (MGGH,L.P.”) to any person or its affiliates, other than to Magellan and/or its affiliates; (ii) the consolidation, reorganization, merger or other transaction pursuant to which more than 50% of the combined voting power of the outstanding equity interests in Magellan GP, LLC cease to be owned by MMH, L.P., Magellan and/or their affiliates; (iii) the general partner of Magellan Midstream Partners, L.P. (whether Magellan GP, LLC or any other person) ceases to be an affiliate of Magellan; (iv) the sale, consolidation, reorganization, merger or other transaction pursuant to which more than 50% of the combined voting power of the outstanding equity interest of Magellan ceases to be owned by MGGH, L.P., MGG Midstream   Holdings GP, LLC (“MGGHGP, LLC”) and/or their controlling affiliates (v) the general partner (whether Magellan or any other person ) of MMH, L.P. ceases to be an affiliate of MGGHGP, LLC; or (vi) the sale, consolidation, reorganization, merger or other transaction pursuant to which more than 50% of the combined voting power of the outstanding equity interests in MGGHGP, LLC is owned by persons not having an ownership position in MGGHGP, LLC on January 1, 2006.   Voluntary termination of employment for “good reason” occurs if you voluntarily terminate your employment with the Company within two years after a change in control of Magellan because of a reduction of more than 10% in your base salary or incentive compensation opportunities after the change in control, or a requirement that you transfer the location of your principal place of employment more than 50 miles from the location you were employed immediately prior to the change in control.   4 -------------------------------------------------------------------------------- Even if you meet the above requirements, you will not be entitled to severance pay under the Plan if you:   • Are discharged for unsatisfactory performance, including but not limited to, failure to adequately perform job responsibilities, poor attendance, violation of Company policy or practice or acts of dishonesty;   • Retire under the terms of a Company retirement plan;   • Accept any benefits under an incentive retirement plan established for the purpose of encouraging eligible employees to terminate employment within a specified time period;   • Are on educational or personal leave at the time you are notified that your employment is being terminated because of a reduction in force or job elimination;   • Are terminated due to the sale of a business after the change in control and are offered employment in a comparable position with the successor company. A position will be deemed “comparable” if the position provides for a base salary and bonus target at least equal to 90% of such participant’s total base salary and bonus target as it existed on the termination date. Such a position includes any position within the successor company, a participating company or any affiliate of any of them, regardless of whether such position requires the participant to transfer to a different work location, but only so long as the location of your principal place of employment is not more than 50 miles from the location you were employed prior to the termination date;   • Die before your established termination date;   • Are receiving short-term disability benefits at the time of a change in control unless you are released to return to work within the initial six-month period of short-term disability and the officer of the Company administering this Plan, or his/her designee, approves eligibility for severance upon release to return to work in his/her sole discretion; or   • Fail to sign and return a release of claims or revoke such a release of claims after signing it.   SEVERANCE PAY BENEFITS   Subject to your signing (and not revoking) a release of claims and an agreement regarding protection of confidential information and business reputation and transition of business prepared by Magellan and as posted on the Magellan Employee Intranet, the amount of severance pay you receive will be based on your length of employment service with the Company, as set by your latest hire or rehire date. These releases of claims and agreements are incorporated into the Summary Description and the Plan. If you become entitled to severance benefits under the Plan due to a reduction in force or job elimination, you will receive two weeks of severance pay for each full, completed year of your employment service with the Company, with a minimum of six (6) weeks and a maximum of fifty-two (52) weeks of severance pay. Only full years of employment service will be counted in setting the amount of severance pay. If you have less than one full, completed year of employment service with the Company and you are otherwise eligible for benefits under this Plan, you will receive two weeks of severance pay. The Company will recognize years of employment service with The Williams Companies, Inc. and its affiliates in calculating your length of employment service with the Company. The Plan Administrator will make all determinations regarding whether an employer is an affiliate of The Williams Companies, Inc.   5 -------------------------------------------------------------------------------- If you become entitled to severance benefits under the Plan due to a change in control of Magellan, you will receive two weeks of severance pay for each full, completed year of your employment service with the Company, with a minimum of twelve (12) weeks of severance pay and a maximum of fifty-two (52) weeks of severance pay. Only full years of employment service will be counted in setting the amount of severance pay. If you have less than one full, completed year of employment service with the Company and you are otherwise eligible for benefits under this Plan, you will receive two weeks of severance pay.   Your weekly severance pay shall be determined by reference to your regular, normal workweek base wage, as determined by the Plan Administrator, on the date of employment termination. Your regular, normal workweek base wage is your total weekly salary or wages, including any salary deferral contributions you make to the Company’s defined contribution and deferred compensation plans, and salary deferral contributions made to any cafeteria or flexible benefit plan maintained by the Company. Unless otherwise determined by the Plan Administrator, your regular, normal workweek base wage does not include bonuses, overtime, commissions, cost of living pay, housing pay, relocation pay, other taxable fringe benefits and extraordinary compensation. Severance pay will be equal to the number of weeks of severance pay granted according to the above formula multiplied by your regular, normal workweek base wage, as described above.   Your length of employment service with the Company may or may not include service with any predecessor company. Service with a predecessor company may be included to the extent that the Plan Administrator determines that such employment service be included and notifies you that part or all of your service with any predecessor company will be counted. The Plan Administrator’s determination, in its discretion, of the years of employment service completed and the weeks of severance pay granted will be final and binding on all persons.   Severance pay benefits will be paid to you in a lump sum, subject to deductions required by law which include, by example and not by limitation, applicable employment and income taxes.   Notice   If a federal, state or local law does not require the Company, as an employer, to make a payment to you or provide a specified period of notice related to your involuntary termination from employment, or pursuant to a plant closing law, and you are terminated because of a reduction in force or job elimination, the Company generally will give you at least two weeks notice prior to your termination. If less than two weeks notice is provided by the Company, you will receive, in addition to the severance benefits described above, an amount of severance pay equal to your regular base wage for your normal work week, multiplied by two, less the amount of your regular base wage paid over the period for which notice was given.   Integration With Plant Closing Law(s)   To the extent the Company makes a payment to you in connection with your involuntary termination from employment, because of a federal, state or local plant closing law, the benefit   6 -------------------------------------------------------------------------------- payable under this Plan shall be reduced by the amount of all such payments. The federal plant closing law (Worker Adjustment and Retraining Notification Act) requires that notice be given under certain circumstances to certain employees that the Company will terminate their employment. If you are covered by this Plan and you are also entitled to a notice pursuant to federal, state or local plant closing law, then the period for which severance pay under this Plan is payable shall be reduced for each week for which notice is required to be given to you, but only to the extent that you remain on active payroll beyond the Company’s preferred termination date.   Other Benefit Plans   If you are entitled to receive severance pay, you may be eligible to continue participation in certain other benefits as well. However, continuation in various Company plans is subject to terms and conditions of the applicable plan documents or insurance contracts in effect on the date of your termination. Each of these plans and contracts may be changed as provided by the terms of such plans.   When you terminate employment, you may elect to convert your group term life and dependent life insurance (spouse, child or both) to individual policies. If you choose to convert your life insurance benefits to individual policies, contact the Human Resources Department and make application within 31 days of your termination. Your group participation in these life insurance plans will end on the last day of the month in which your employment is terminated.   Your participation in Company medical and dental plans will end on the last day of the month in which your employment is terminated. You have the option to continue your medical and dental coverage for up to 18 months under COBRA. If you elect COBRA continuation coverage, your premiums for COBRA will be limited to the active employee rate for the first three months of coverage. At the end of such period, you will be required to pay the full cost under COBRA for the remainder of the 18-month period. To be eligible for this option, you must have elected COBRA continuation coverage within the period of time allowed for making a COBRA election. You and your dependents will be notified by the COBRA Administrator of the opportunity to elect the COBRA continuation coverage. Participation in such plans will generally cease on the date you or your dependents become covered under any other health plan which does not exclude coverage for pre-existing conditions you or your dependents may have. The full cost of COBRA coverage is explained in the Continuation Coverage (COBRA) section in the Medical Plan and the Dental Plan Summary Plan Descriptions.   If you are age 50 at the time of the termination of employment due to a reduction in force or job elimination and you would otherwise meet eligibility requirements for continuation of medical benefits under the Retiree Medical Program, such termination of employment will not change your eligibility for Retiree Medical coverage effective upon the attainment of age 55. You will have 30 days from the date of your 55th birthday to contact the Company regarding your desire to commence your Retiree Medical benefits. If you fail to notify the Company within 30 days of your 55th birthday, your opportunity to enroll in Retiree Medical will end.   Your participation in any Flexible Spending Account ends on the last day of the month in which your employment terminates. Participation in the Dependent Care Flexible Spending Account   7 -------------------------------------------------------------------------------- cannot be continued. You may be eligible to continue participation in the Health Care Flexible Spending Account for a limited time under COBRA. Participation under COBRA is on an after-tax basis. You and your dependents will be notified by the COBRA Administrator of the opportunity to elect the COBRA continuation coverage.   Participation in all other plans will end on the date of your employment termination. The payment of any vested benefits in the Company’s retirement plans will be made in accordance with the respective plans’ terms.   You should schedule an exit interview to discuss these matters with your Human Resources Department at the time of your termination.   Paid Time Off   You will receive a single, lump sum payment for unused PTO time you have earned in accordance with the Company’s PTO policy.   Rehired Employees   If you are rehired by the Company after you receive severance pay due to a reduction in force or job elimination, you will be entitled to keep that portion of your severance pay equal to your regular, normal workweek base wage prior to your employment termination multiplied times the number of weeks and/or fraction of weeks between your termination date and the rehire date. Any remainder must be either returned to the Company upon your rehire or it will be deducted from your pay as “overpaid wages.”   If you are rehired within the same calendar year in which your employment was terminated because of a reduction in force or job elimination and you received payment for PTO earned but not taken, you may either retain the payment and forfeit the PTO time for which you were eligible prior to your employment termination, or you may return to the Company the amount you received and reinstate PTO time for which you were eligible prior to termination.   If your employment ends because of a reduction in force or job elimination and you are rehired by the Company, your years of service with the Company prior to such termination will be counted in determining your PTO benefits eligibility in future years. Applicable PTO time on rehire will be determined in accordance with the Company’s PTO policy.   Prior years of service also will be counted for purposes of determining benefits under the short-term disability plan for employees who are rehired after being terminated due to a reduction in force or job elimination.   If your employment ends because of a reduction in force or job elimination and you are rehired by the Company within 12 months of your termination date, your years of service with the Company prior to such termination will be counted in determining your years of service for purposes of determining the amount of your severance pay benefit in the event you should again become eligible for severance pay.   8 -------------------------------------------------------------------------------- CLAIM REVIEW PROCEDURE   Initial Claim for Benefits   In order to claim benefits under this Plan, the claimant must be an eligible employee. Unless the Company automatically pays severance benefits otherwise, a written claim must be filed within 90 days of the date upon which the claimant first knew (or should have known) of the facts upon   which the claim for benefits is based. The claims review procedure described in this section shall apply to all claims any person has with respect to the Plan, including claims against fiduciaries and former fiduciaries, except to the extent the Plan Administrator determines, in its sole discretion, that it does not have the power to grant, in substance, all relief reasonably being sought by the claimant. You will have no right to seek review of a denial of benefits under the Plan prior to having filed a claim for benefits. The Plan Administrator shall have the power, including, without limitation, discretionary power, to make all determinations that the Plan requires for its administration, and to construe and interpret the Plan whenever necessary to carry out its intent and purpose and to facilitate its administration, including, but not by way of limitation, the discretion to grant or to deny claims for benefits under the Plan. All such rules, regulations, determinations, constructions and interpretations made by the Plan Administrator shall be conclusive and binding.   You will be notified of your claim’s approval or denial within 90 days after the receipt of such claim unless special circumstances require an extension of time for processing the claim. If such an extension of time for processing is required, written notice of the extension shall be furnished to you prior to termination of the initial 90-day period which will specify the special circumstances requiring an extension and the date by which a final decision will be reached (which date will not be later than 180 days after the date of which the claim was filed). You will be given a written notice as to whether the claim is granted or denied, in whole or in part. If you do not receive a written notice within the time periods stated above, your claim will be deemed denied. If the claim is denied, in whole or in part, you will be given written notice that will contain: 1) the specific reasons for the denial, 2) reference(s) to pertinent Plan provisions upon which the denial is based, 3) a description of any additional material or information necessary to perfect the claim and an explanation of why such material or information is necessary, and 4) notice of your right to seek a review of the denial.   Review of Claim Denial   If your claim is denied, in whole or in part, you will have the right to request that the Plan Administrator (or its designate), review the denial, provided you file a written request for review with the Plan Administrator within 60 days after the date on which you received written notification of the denial. You (or your duly authorized representative) may review pertinent documents and submit issues and comments in writing to the Plan Administrator. Within 60 days after a request for review is received, the review will be made and you will be advised in writing of the decision on review, unless special circumstances require an extension of time for processing the review, in which case you will be given a written notification within such initial 60-day period specifying the reasons for the extension and when such review will be completed (provided that such review will be completed within 120 days after the date on which the request for review was filed).   9 -------------------------------------------------------------------------------- The decision on review will be forwarded to you in writing and will include specific reasons for the decision and references to Plan provisions upon which the decision is based.   Exhaustion of Review Remedies   You must properly file a claim for benefits, and request a review of any complete or partial denial, prior to seeking a review of your claim for benefits in a court of law. A decision on a Review of Claim Denial (see preceding paragraph) will be the final decision of the Plan Administrator. After this final decision is provided by the Plan Administrator, you may seek judicial remedies in accordance with your rights under the Employee Retirement Income Security Act of 1974 (ERISA). See the ERISA Information section in LiveLink on the Company intranet.   Effect of Plan Administrator’s Decision on Claims   The Plan Administrator will have the power, including, without limitation, discretionary power, to make all determinations that the Plan requires for its administration, and to construe and interpret the Plan whenever necessary to carry out its intent and purpose and to facilitate its administration, including, but not by way of limitation, the discretion to grant or to deny claims for benefits under the Plan. All such rules, regulations, determinations, constructions and interpretations made by the Plan Administrator will be conclusive and binding.   TECHNICAL INFORMATION   The Plan is a welfare benefit plan providing benefits from the general assets of the Company. Magellan Midstream Holdings GP, LLC is the Plan Sponsor. For identification purposes, the Plan Sponsor has assigned to the Plan number 506. The employer identification number for Magellan Midstream Holdings GP, LLC is 20-0019326.   PARTICIPATING COMPANIES   Magellan Midstream Holdings GP, LLC offers participation in the Plan to certain of its subsidiaries. Participants and beneficiaries may receive from the Plan Sponsor, upon written request, information as to whether a particular subsidiary participates in the Plan and, if so, such subsidiary’s address.   PLAN ADMINISTRATION   The administration and operation of the Plan is directed by a Benefits Committee appointed by the Chairman of Magellan Midstream Holdings GP, LLC. The Benefits Committee is the Plan Administrator. The Plan Administrator has the authority to interpret the Plan, manage its operation and determine all questions arising in the administration, interpretation and application of the Plan. The Benefits Committee does not receive any form of compensation from the Plan.   10 -------------------------------------------------------------------------------- LEGAL AGENT   The agent for legal service is:   Benefits Committee Magellan Midstream Holdings GP, LLC Severance Pay Plan c/o Magellan Midstream Holdings GP, LLC One Williams Center, 28-4 P.O. Box 22186 Tulsa, OK 74121-2186 (918) 574-7000   COMPANY LOCATION   The address of the Company’s executive offices is:   One Williams Center Tulsa, OK 74172   PLAN AMENDMENT OR TERMINATION   The Plan Sponsor reserves the right to amend, modify or terminate the Plan at any time without notice or further obligation to any employee or any other person entitled to receive benefits, if any, under the Plan. The Plan Sponsor also reserves the right to make any modifications or amendments to the Plan that are necessary or appropriate to qualify or maintain the Plan so that it satisfies the applicable provisions of the Internal Revenue Code and ERISA.   Nothing contained in the Plan or this summary will be construed to constitute a contract to provide benefits.   RIGHT TO EMPLOYMENT   The Company reserves the right to discharge any employee and to pay such employee only the benefits, if any, to which he/she is entitled under Plan terms. The Plan is not an employment contract and does not give any employee any right to be retained in the service of the Company. -------------------------------------------------------------------------------- ERISA RIGHTS Employee Retirement Income Security Act of 1974 (ERISA) Rights   Participants in the Magellan Midstream Holdings GP, LLC Severance Pay Plan have certain rights and protections under the Employee Retirement Income Security Act of 1974 as amended (ERISA). ERISA provides that all Plan participants shall be entitled to: 1. Examine without charge at the Plan Administrator’s office and at other specified locations, all Plan documents, including insurance contracts and copies of all documents filed by the Plan with the U.S. Department of Labor, such as annual reports and Plan descriptions.   2. Obtain copies of all Plan documents and other Plan information applicable to such Plan participants upon written request to the Plan Administrator. The Plan Administrator may make a reasonable charge for the copies.   3. Receive a summary of the Plan’s annual financial report. The Administrator is required by law to furnish each participant with a copy of this summary annual report.   In addition to creating rights for Plan participants, ERISA imposes duties upon the people who are responsible for the operation of an employee benefit plan. The people who operate the Plan, called “fiduciaries” of the Plan, have a duty to do so prudently and in the interest of you and other Plan participants and beneficiaries. No one, including your employer, your union, or any other person, may fire you or otherwise discriminate against you in any way to prevent you from obtaining a benefit or exercising your rights under ERISA. If your claim for a benefit is denied in whole or in part, you must receive a written explanation of the reason for the denial. You have the right to have the claim reviewed and reconsidered.   Under ERISA, there are steps you can take to enforce the above rights. For instance, if you request materials from the Plan and do not receive them within 30 days, you may file suit in a federal court. In such a case, the court may require the Plan Administrator to provide the materials and pay you up to $110 a day until you receive the materials, unless the materials were not sent because of reasons beyond the control of the Plan Administrator. If you have a claim for benefits that is denied or ignored, in whole or in part, you may file suit in a state or federal court. If it should happen that Plan fiduciaries misuse the Plan’s money, or if you are discriminated against for asserting your rights, you may seek assistance from the U.S. Department of Labor or you may file suit in a federal court. The court will decide who should pay court costs and legal fees. If you are successful, the court may order the person you have sued to pay these costs and fees. If you lose, the court may order you to pay these costs and fees, for example, if it finds your claim is frivolous.   If you have any questions about your Plan, you should contact the Plan Administrator. If you have any questions about this statement or about your rights under ERISA, you should contact the nearest Area Office of the U.S. Labor-Management Services Administration, Department of Labor.   The Plan is an employee welfare benefit plan within the meaning of ERISA.

Exhibit 10.5 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT dated as of July 17, 2006 (the “Effective Date”), between INFOLOGIX INC., a Delaware corporation (the “Company”), and CRAIG WILENSKY (“Employee”). BACKGROUND WHEREAS the Company provides enterprise mobile wireless solutions and support to the healthcare, pharmaceutical, retail, transportation, travel and entertainment, supply chain/logistics, manufacturing and financial markets, which solutions include, without limitation, the design, development and manufacture of products, RFID and other software and proprietary systems, and systems integration services (the “Business”); and WHEREAS the Company desires to employ Employee, and Employee desires to enter into the employ of the Company, on the terms and conditions contained in this Agreement. NOW THEREFORE, in consideration of the premises and the mutual covenants and agreements contained in this Agreement and intending to be legally bound, the parties hereto agree as follows: SECTION 1.                CAPACITY AND DUTIES 1.1          Employment; Acceptance of Employment. The Company employs Employee and Employee accepts employment by the Company for the period and upon the terms and conditions set forth below. 1.2          Capacity and Duties. (a)           Employee shall be employed by the Company generally as its Executive Vice President-Commercial and, subject to the supervision of the Chief Executive Officer, shall perform such duties and shall have such authority consistent with his position as may from time to time be specified by the Chief Executive Officer. Employee shall report directly to the Chief Executive Officer and shall perform his duties for the Company principally from the Company’s headquarters, except for periodic travel that may be necessary or appropriate in connection with the performance of Employee’s duties set forth in this Agreement. (b)           Employee shall devote his full working time, energy, skill and best efforts to the performance of his duties set forth in this Agreement, in a manner which will faithfully and diligently further the business and interests of the Company and its affiliates (as defined below) and shall not be employed by or participate or engage in or be a part of in any -------------------------------------------------------------------------------- manner the management or operation of any business enterprise other than the Company and its affiliates without the prior written consent of the Board, which consent may be granted or withheld in its sole discretion; provided, however, that Employee may devote a reasonable amount of time to civic, community or charitable activities and, with the prior written approval of the Board, serve as a director of other corporations. For purposes of this Agreement, “affiliate” means any person or entity which is a subsidiary of, controlling or controlled by or under common control with the Company. SECTION 2.                TERM OF EMPLOYMENT 2.1          Term. The term (the “Term”) of Employee’s employment with the Company shall commence on the Effective Date and continue until December 31, 2008, unless earlier terminated as provided below. SECTION 3.                COMPENSATION 3.1          Basic Compensation. As compensation for Employee’s services, the Company shall pay to Employee a salary at the annual rate of $295,000 (the “Base Salary”) (prorated on the basis of the actual days of employment) payable in periodic installments in accordance with the Company’s regular payroll practices in effect from time to time or at such higher annual rate as the Board shall from time to time determine in its sole discretion. 3.2          Incentive Compensation; Stock Options. During the Term, the Employee shall be entitled participate in the Incentive Compensation Plan set forth on Exhibit A. The Employee will also be granted options to purchase 675,000 shares of Common Stock (post a 1:25,000 stock split by the Company) at an exercise price of $2.00 per share. 3.3          Employee Benefits. In addition to the compensation provided for in Sections 3.1 and 3.2, Employee and his dependents shall be entitled during the Term of his employment to participate in the Company’s medical, dental, life insurance and disability insurance plans and 401(k) plan and such other of the Company’s employee benefit plans and benefit programs as may from time to time be provided for other employees of the Company whose duties, responsibilities, and compensation are reasonably comparable to those of Employee, and shall be consistent with the benefits presently provided by the Company to the Employee. During the Term of Employee’s Employment, the Company shall procure and pay for a long-term disability insurance policy for Employee with coverage in an amount equal to 60% of Employee’s Base Salary and a waiting period for disbursement of benefits not to exceed 90 days. 3.4          Vacation. Employee shall be entitled to a vacation of four weeks during each calendar year during the Term of his employment, during which time his compensation shall be paid in full. 2 -------------------------------------------------------------------------------- 3.5          Expense Reimbursement. During the Term of Employee’s employment, the Company shall reimburse Employee for all reasonable travel and entertainment expenses incurred by him in connection with the performance of his duties in accordance with the Company’s policies and procedures as in effect from time to time upon receipt of itemized vouchers and such other supporting information as the Company may reasonably require. 3.6          Automobile. During the Term of Employee’s employment, the Company shall provide Employee with a monthly automobile allowance of $1,500 and shall reimburse him for all expenses reasonably incurred by him for the mileage, of such automobile when used in connection with the performance of his duties in accordance with the Company’s regular reimbursement policies as in effect from time to time upon receipt of itemized vouchers and such other supporting information as the Company may reasonably require. 3.7          Other Perquisites. During the Term of Employee’s employment, the Company shall reimburse Employee for all cell phone charges incurred by him in connection with the performance of his duties in accordance with the Company’s regular reimbursement policies as in effect from time to time upon receipt of itemized vouchers and such other supporting information as the Company may reasonably require. The Company shall assign the current “key man” life insurance policy maintained by the Company on the life of the Employee to a beneficiary designated by Employee, and the Company shall, and shall continue to pay, the premiums necessary to maintain such life insurance policy. SECTION 4.                TERMINATION OF EMPLOYMENT 4.1          Death of Employee. Employee’s employment with the Company shall immediately terminate upon his death, upon which the Company shall not thereafter be obligated to make any further payments other than amounts (including salary, bonuses, expense reimbursement, etc.) accrued as of the date of Employee’s death. 4.2          Disability of Employee. If Employee, in the reasonable opinion of a physician selected by the Company/the Board is or has been substantially unable, due to his physical, mental or emotional illness or condition, to substantially perform his duties for a period of 16 consecutive weeks in any consecutive 18 month period or is deemed disabled under the Company’s disability insurance policy then in effect, then the Company shall have the right to terminate Employee’s employment upon 30 days’ prior written notice to Employee at any time during the continuation of such inability, in which event the Company shall pay to Employee the amounts specified in Section 4.4 below. 4.3          Termination for Cause. Employee’s employment with the Company shall terminate immediately upon notice that the Company is terminating Employee for “cause” (as defined in this Agreement), in which event the Company shall not be obligated to make any further payments to Employee other than amounts (including salary, bonuses, expense reimbursement, etc.) accrued under this Agreement as of the date of such termination and all amounts due pursuant to Section 4.5 hereof. As used herein, “cause” shall mean the following: (i)            Commission of any act of fraud or misappropriation; 3 -------------------------------------------------------------------------------- (ii)           Violation of any lawful express direction of the Company or any violation of any rule, regulation, policy or plan established by the Company from time to time regarding the conduct of its employees and/or its Business, if such violation is not remedied (if capable of remedy) by the Employee within thirty (30) days of receiving notice of such violation from the Company; (iii)          Material violation of any obligation of this Agreement that is demonstrably willful and deliberate on the Employee’s part and is not remedied (if capable of remedy) by the Employee within 15 days after receiving notice of such violation from the Company; (iv)          Disclosure or use of Confidential Information, as defined in Section 5.1, other than as required in the performance of the Employee’s duties under this Agreement; (v)           Indictment (or state law equivalent) or conviction of a crime constituting a felony or any other crime involving moral turpitude; and (vi)          The Employee’s use of alcohol or any unlawful controlled substance to an extent that it interferes materially with the performance of the Employee’s duties under this Agreement. 4.4          Termination without Cause. The Board in its sole discretion may terminate Employee’s employment with the Company upon 30 days’ prior written notice to Employee at any time. 4.5          Severance Pay. (A) In the event that Employee is terminated without cause or by reason of disability, and provided the Employee signs a full release agreement in favor of the Company, Employee shall be entitled to receive, (i) prior to the first anniversary of the Effective Date, for a period of eighteen months following such termination, severance pay in an amount equal to Employee’s Base Salary plus all earned and unpaid commissions and bonuses; and (ii) after the first anniversary of the Effective Date, for a period of one year following such termination, severance pay in an amount equal to Employee’s Base Salary plus all earned and unpaid commissions and bonuses; and, (B) in the event that Employee is terminated for “cause” (as defined in Section 4.3 hereof), and provided Employee signs a full release in favor of the Company, Employee shall be entitled to receive, for a period of six months following such termination, severance pay in an amount equal to Employee’s Base Salary, plus all earned unpaid commissions and bonuses. In addition, the Company shall continue to provide Employee’s medical and dental coverage then in effect for Employee until the earlier of (i) one year following his termination date or (ii) upon receipt by Employee of comparable benefits from an employer or other source. 4 -------------------------------------------------------------------------------- SECTION 5.                RESTRICTIVE COVENANTS 5.1          Confidentiality. (a)           Employee shall not, either during or after his employment with the Company, directly or indirectly use, publish or otherwise disclose or divulge to any third party any trade secrets, confidential or proprietary information of the Company other than as required by law or in the ordinary course of the Company business (including, without limitation, any such information concerning customers, vendors, services, products, processes, pricing policies, business plans or records, any technical or financial information or data, or any information relating to the history or prospects of the Company or any of its stockholders). “Confidential” information includes, without limitation, all proprietary information, technical data, trade secrets or know-how of the Company, including, but not limited to research, product plans, customer lists developments, inventions, processes, formulas, technology, designs, drawings, engineering, hardware configuration information or other business information disclosed to Employee by the Company either directly or indirectly in writing, orally or by drawings or Employee’s observation of parts or equipment, unpublished information and all information and data which is not generally known by the industry. (b)           Employee shall not, either during or after his employment with the Company, directly or indirectly copy, reproduce or remove from the Company’s premises, except in the ordinary course of Company business, trade secrets, confidential or proprietary information of the Company (in any medium) or any Company documents, files or records (including without limitation any invoices, customer correspondence, business cards, orders, computer records or software, or mailing, telephone or customer lists). All such documents, files and records, and all other memoranda, notes, files, records, lists and other documents made, compiled or otherwise acquired by Employee in the course of his employment with the Company are and shall remain the sole property of the Company and all originals and copies thereof shall be delivered to the Company upon termination of employment for whatever reason. 5.2          Inventions and Improvements. Any and all writings, inventions, improvements, processes, procedures, ideas and/or techniques which the Employee may have made, conceived, discovered or developed, or which Employee may make, conceive, discover or develop, either solely or jointly with any other person or persons, at any time during the term of his employment with the Company, whether or not during working hours and whether or not at the request or upon the suggestion of the Company, which (i) related or relate to or are useful in connection with any Business previously, now or hereafter carried on or contemplated by the Company, including developments or expansions of its present fields of operations, (ii) resulted or result from any work performed by the Employee for the Company or any of its clients; or (iii) resulted or result from the use of the premises or personal property (whether tangible or intangible) owned, leased, or contracted for by the Company (collectively, the “Work Product”), the Employee hereby agrees that any Work Product shall be the property of the Company and, if subject to copyright, shall be considered a “work made for hire” within the meaning of the Copyright Act of 1976, as amended (the “Act”). If and to the extent that any such Work Product is found as a matter of law not to be a “work made for hire” within the meaning of the Act, the Employee hereby expressly assigns to the Company all of his right, title, and interest in and to the Work Product, and all copies thereof, and the copyright, patent, trademark, trade secret, and 5 -------------------------------------------------------------------------------- all other proprietary rights in the Work Product, without further consideration, free from any claim, lien for balance due, or rights of retention thereto on the part of the Employee. The Employee agrees that he shall make full disclosure to the Company of all such writings, inventions, improvements, processes, procedures and techniques, and shall do everything necessary or desirable to vest the absolute title thereto in the Company. The Employee shall write and prepare all specifications and procedures regarding such inventions, improvements, processes, procedures and techniques and otherwise aid and assist the Company so that the Company can prepare and present applications for copyright or Letters Patent therefore and can secure such copyright or Letters Patent wherever possible, as well as reissues, renewals, and extensions thereof, and can obtain the record title to such copyright or patents so that the Company shall be the sole and absolute owner thereof in all countries in which it may desire to have copyright or patent protection. The Employee shall not be entitled to any additional or special compensation or reimbursement regarding any and all such writings, inventions, improvements, processes, procedures and techniques. In the event that the Company is unable, after reasonable effort, to secure my signature on any letters patent, copyright, or other analogous protection relating to Work Product, whether because of the Employee’s physical or mental incapacity or for any other reason whatsoever, Employee hereby irrevocably designates and appoints the Company and its duly authorized officers and agents as my agent and attorney-in-fact, to act for and on my behalf to execute and file any such application or applications and to do all other lawfully permitted acts to further the prosecution and issuance of letters patent, copyright and other analogous protection with the same legal force and effect as if personally executed by the Employee . 5.3          Noncompetition and Nonsolicitation. During the Term of Employee’s employment and for one year after any termination of employment for any reason, the Employee shall not, for his own benefit or the benefit of any other person or entity, directly or indirectly, in any capacity (as an employee, officer, director, shareholder, partner, agent, principal, independent contractor, owner or otherwise) (i) engage in or be financially interested in any business operation in the United States which engages in whole or in part (A) in the Business or (B) in the manufacture, assembly, design, distribution or marketing of any product or equipment substantially similar to or in competition with any product or equipment which at any time during the Term of such employment or the immediately preceding twelve month period has been manufactured, sold or distributed by the Company or any product or equipment which the Company was developing during such period for future manufacture, sale or distribution or the provision of any service substantially similar to or in competition with any service offered by the Company at any time during the twelve month period or which the Company was developing during such period; (ii) solicit, or attempt to solicit any customer of the Company; (iii) solicit, or contact with a view to the engagement or employment by, any person or entity of any person who is an employee of the Company; (iv) seek to contract with or engage (in such a way as to adversely affect or interfere with the business of the Company) any person or entity who has been contracted with or engaged to manufacture, assemble, supply or deliver products, goods, materials or services to the Company; or (v) engage in or participate in any effort or act to induce any of the customers, associates, consultants or employees of the Company or any of its affiliates to take any action which might be disadvantageous to the Company or any of its affiliates; except that nothing in this Agreement shall prohibit Employee and his affiliates from owning, as passive investors, in the aggregate not more than 5% of the outstanding publicly traded stock of any 6 -------------------------------------------------------------------------------- corporation so engaged. The duration of the Employee’s covenants set forth in this Section shall be extended by a period of time equal to the number of days, if any, during which Employee is in violation of the provisions contained in this Agreement. 5.4          Injunctive and Other Relief. (a)           Employee acknowledges that the covenants contained in this Agreement are fair and reasonable in light of the consideration paid under this Agreement, and that damages alone shall not be an adequate remedy for any breach by Employee of his covenants contained herein and accordingly expressly agrees that, in addition to any other remedies which the Company may have, the Company shall be entitled to injunctive relief in any court of competent jurisdiction for any breach or threatened breach of any such covenants by Employee. Nothing contained in this Agreement shall prevent or delay the Company from seeking, in any court of competent jurisdiction, specific performance or other equitable remedies in the event of any breach or intended breach by Employee of any of his obligations under this Agreement. (b)           Notwithstanding the equitable relief available to the Company, the Employee, in the event of a breach of his covenants contained in Section 5, understands that the uncertainties and delays inherent in the legal process would result in a continuing breach for some period of time, and therefore, continuing injury to the Company until and unless the Company can obtain such equitable relief. Therefore, in addition to such equitable relief, the Company shall be entitled to monetary damages for any such period of breach until the termination of such breach, in an amount deemed reasonable to cover all actual and consequential losses, plus all monies received by Employee as a result of said breach. If Employee should use or reveal to any other person or entity any confidential information, this will be considered a continuing violation on a daily basis for so long a period of time as such confidential information is made use of by Employee or any such other person or entity. (c)           Employee agrees that the foregoing territorial and time limitations are reasonable and properly required for the adequate protection of the business of the Company and that in the event that any such territorial or time limitation is deemed to be unreasonable by a court of competent jurisdiction, then Employee agrees and submits to the reduction of either said territorial or time limitation to such an area or period as said court shall deem reasonable. SECTION 6.                MISCELLANEOUS 6.1           Arbitration. (a)           All disputes arising out of or relating to this Agreement which cannot be settled by the parties shall promptly be submitted to and determined by a single arbitrator in Montgomery County, Pennsylvania, pursuant to the rules and regulations then obtaining of the American Arbitration Association; but nothing in this Agreement shall preclude the Company from seeking, in any court of competent jurisdiction, damages, specific 7 -------------------------------------------------------------------------------- performance or other equitable remedies in the case of any breach or threatened breach by Employee of Section 5. The decision of the arbitrator shall be final and binding upon the parties, and judgment upon such decision may be entered in any court of competent jurisdiction. (b)           Discovery shall be allowed pursuant to the intendment of the United States Federal Rules of Civil Procedure and as the arbitrators determine appropriate under the circumstances. (c)           The arbitrator shall be required to apply the contractual provisions in deciding any matter submitted to it and shall not have any authority, by reason of this Agreement or otherwise, to render a decision that is contrary to the mutual intent of the parties as set forth in this Agreement. 6.2          Prior Employment. Employee represents and warrants that he is not a party to any other employment, noncompetition or other agreement or restriction which could interfere with his employment with the Company or his or the Company’s rights and obligations; and that his acceptance of employment with the Company and the performance of his duties will not breach the provisions of any contract, agreement, or understanding to which he is party or any duty owed by him to any other person. 6.3          Severability. The invalidity or unenforceability of any particular provision or part of any provision of this Agreement shall not affect the other provisions or parts of this Agreement. If any provision of this Agreement is determined to be invalid or unenforceable by a court of competent jurisdiction by reason of the duration or geographical scope of the covenants contained in this Agreement, such duration or geographical scope, or both, shall be considered to be reduced to a duration or geographical scope to the extent necessary to cure such invalidity. 6.4          Assignment. This Agreement shall not be assignable by Employee, and shall be assignable by the Company only to any person or entity which may become a successor in interest (by purchase of assets or stock, or by merger, or otherwise) to the Company in the business or a portion of the business presently operated by it. Subject to the foregoing, this Agreement and the rights and obligations set forth in this Agreement shall inure to the benefit of, and be binding upon, the parties and each of their respective permitted successors, assigns, heirs, executors and administrators. 6.5          Notices. All notices shall be in writing and shall be sufficiently given if hand-delivered, sent by documented overnight delivery service or registered or certified mail, postage prepaid, return receipt requested or by telegram, fax or telecopy (confirmed by U.S. mail), receipt acknowledged, addressed as set forth below or to such other person and/or at such other address as may be furnished in writing by any party to the other. Any such notice shall be deemed to have been given as of the date received, in the case of personal delivery, or on the date shown on the receipt or confirmation therefor, in all other cases. Any and all service of process and any other notice in any such action, suit or proceeding shall be effective against any party if given as provided in this Agreement; but nothing in this Agreement shall be deemed to affect the right of any party to serve process in any other manner permitted by law. 8 --------------------------------------------------------------------------------   (a) If to the Company:       101 E. County Line   Suite 210   Hatboro, PA 19040   Tel: (215) 604-0691   Fax: (215) 604-0695       Attention: General Counsel     (b) If to Employee:       Craig Wilensky   5 Briar Hill Road   Montclair, NJ. 07042   Tel: (973) 746-9802   Fax: (973) 746-9803       With a copy to:       Drinker Biddle & Reath LLP   One Logan Square   18th and Cherry Streets   Philadelphia, PA 19103-6996   Tel: (215) 988-2700   Fax: (215) 988-2757   Attention: Stephen T. Burdurny, Esq. 6.6          Entire Agreement and Modification. This Agreement constitutes the entire agreement between the parties with respect to the matters contemplated in this Agreement and supersedes all prior agreements and understandings with respect to those matters. Any amendment, modification, or waiver of this Agreement shall not be effective unless in writing. Neither the failure nor any delay on the part of any party to exercise any right, remedy, power or privilege shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power, or privilege with respect to any occurrence be construed as a waiver of any right, remedy, power, or privilege with respect to any other occurrence. 6.7          Governing Law. This Agreement is made pursuant to, and shall be construed and enforced in accordance with, the internal laws of the Commonwealth of Pennsylvania (and United States federal law, to the extent applicable), without giving effect to otherwise applicable principles of conflicts of law. 6.8          Headings; Counterparts. The headings of paragraphs in this Agreement are for convenience only and shall not affect its interpretation. This Agreement may be executed 9 -------------------------------------------------------------------------------- in two or more counterparts, each of which shall be deemed to be an original and all of which, when taken together, shall be deemed to constitute but one and the same Agreement. 6.9          Further Assurances. Each of the parties shall execute such further instruments and take such other actions as any other party shall reasonably request in order to effectuate the purposes of this Agreement. 6.10        Waiver. Neither the failure nor any delay on the part of either party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. 6.1 1        Survival. The terms and conditions contained in Section 5 shall survive the termination or expiration of this Agreement. 10 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.   INFOLOGIX INC.           By: /s/ David Gulian       David Gulian           EMPLOYEE           By: /s/ Craig Wilensky       Craig Wilensky   -------------------------------------------------------------------------------- EXHIBIT A INCENTIVE COMPENSATION The Employee shall be entitled to the following incentive compensation: Fiscal Year Ending December 31, 2006 ·      The Employee shall be paid a bonus of $80,000 upon consummation of merger of the Company with a public shell company. ·                  Minimum Performance bonus of $120,000 based upon achieving Revenue and EBITDA targets set by the Board of Directors. Minimum Performance bonus will be pro rated and paid monthly throughout the year. Other incentive compensation may be available at the discretion of the Board of Directors or the Compensation Committee of the Board of Directors in excess of the $120,000 referenced above, and such additional amount will be paid to Employee after the close of the Company’s fiscal year and sign off by the Company’s auditors. Fiscal Year Ending December 21, 2007 ·      Minimum Performance bonus of $120,000 based upon achieving Revenue and EBITDA targets and such other parameters as set by the Board of Directors or the Compensation Committee of the Board of Directors for 2007. Minimum Performance bonus will be pro rated and paid monthly throughout the year. Other incentive compensation may be available at the discretion of the Board of Directors or the Compensation Committee of the Board of Directors in excess of the $120,000 referenced above, and such additional amount will be paid to Employee after the close of the Company’s fiscal year and sign off by the Company’s auditors. Fiscal Year Ending December 31, 2008 ·      Compensation to be set by the Board of Directors or the Compensation Committee of the Board of Directors; provided that the total compensation opportunity available to the Employee will be no less than that paid to Employee by the Company in 2007. --------------------------------------------------------------------------------

Exhibit 10.2   ATTORNEY-IN-FACT AGREEMENT   This Attorney-In-Fact Agreement (“Agreement”) is entered into between Select Insurance Services, Inc. (“SIS”), and the Underwriters at Texas Select Lloyds Insurance Company, acting through their Executive Committee, effective as of the 1st day of October, 2005.   R E C I T A L S   WHEREAS, SIS has assumed the authority, powers and obligations of attorney-in-fact to act for the Underwriters of Texas Select Lloyds Insurance Company (“Company”), a Lloyd’s plan organized pursuant to Chapter 941 (formerly Chapter 18) of the Texas Insurance Code; and   WHEREAS, the authority, powers and obligations of SIS are contained in the Articles of Agreement of Underwriters at Texas Select Lloyds Insurance Company, as amended and restated on the 30th day of September, 2002, and the Power of Attorney given by each of the Underwriters to SIS, all of which are filed with the Texas Department of Insurance; and   WHEREAS, it is the desire of the Underwriters for SIS to assume the financial responsibility of the Company for administrative and operational costs in order to stabilize, for the benefit of the Company, the amounts of such financial obligations relative to the net written premiums of the Company; and   WHEREAS, it is the desire of SIS to assume such financial responsibility for administrative and operational costs, as set forth herein, in return for an agreed portion of the net written premiums of the Company.   NOW, THEREFORE, subject to the terms and conditions of this Agreement, and in consideration of the mutual covenants set forth herein, the parties hereby agree as follows:   AGREEMENT     I. Authority, Powers and Obligations.   1.01 Existing. The existing powers, obligations and duties of SIS, as contained in the amended Articles of Agreement of Underwriters at Texas Select Lloyds Insurance Company and the Powers of Attorney, as described above, authorize SIS to act for the Underwriters at Texas Select Lloyds Insurance Company, fully and completely, within the authority and limitations contained in Chapter 941 of the Texas Insurance Code. -------------------------------------------------------------------------------- 1.02 Assumption of Certain Financial Obligations. In addition to the obligations undertaken by SIS, as attorney-in-fact, SIS agrees to assume the financial responsibility for all administrative and operational costs of the Company with certain exceptions as described herein. Included within the obligation of SIS for financial costs assumed herein, without limiting the foregoing, are acquisition costs, commissions to agents, and loss adjustment expenses both for internal costs and outside loss adjustment services.   1.03 Exclusions. Excluded from the financial responsibility assumed by SIS hereunder are: (i) all losses arising from insurance policies, binders, or other insurance or reinsurance undertakings of the Company, (ii) losses or liabilities incurred in any way relating to the marketing or undertaking of underwriting risks, (iii) “exgratia” payments, (iv) extra contractual liabilities of the company relating to its insurance business, and (v) premium taxes, boards and bureau fees and any assessments relating to the doing of insurance business by the Company.   1.04 Payment or Reimbursement. The obligations of SIS hereunder may be handled by direct payment by SIS or, as appropriate, by reimbursement to the Company for expenses paid or incurred by the Company. Such reimbursements shall be made by SIS within thirty days following the expenditure thereof by the Company. With respect to commissions retained by agents, SIS shall reimburse the Company concurrently with the obligation of the agent to remit premiums applicable to such commission to the Company.     II. Allocation of Premiums; Policy Fees.   2.01 Amount of Premiums to SIS. SIS agrees to accept, and the Company agrees to assign, certain percentage portions of “net earned premiums” (being earned premiums referred to in Sch. T, col. 3 of the Annual Statement, inclusive of policy fees) of the Company, as follows:   (a) In return for the assumption by SIS of the financial obligations for administrative and operational costs of the Company, as described in section 1.02, as well as for full compensation for its services, both existing and assumed hereunder – 32%.   (b) In return for the assumption by SIS of the financial obligations of the Company for loss adjustment services and expenses – 8%.   2.02 Payment. SIS is entitled to receive its portions of premiums as the Company earns the premiums which the Company agrees to pay on a monthly basis within ten (10) days of its determination.   2 -------------------------------------------------------------------------------- 2.03 Maximum Portion of Premiums. It is provided however, that the portions of premiums allocated to SIS pursuant hereto shall not exceed an amount which would cause the Company’s policyholders surplus to fall below the minimum required by law unless the Underwriters, at their election, contribute additional amounts to maintain the policyholders surplus within the minimum requirements of the law.     III. Settlements   3.01 Monthly. Initial settlements shall be made on a monthly basis with any balance due paid within 15 days following the end of each calendar month.   3.02 Annual. Settlement shall be made hereunder between the parties as soon as reasonably possible after the close of each calendar year in which the maximum portion of premiums which may be allocated to SIS (as described in Section 3.01) shall be applied and the final annual settlement under the terms of Article II, above, for amounts due to and from the parties shall be made.   3.03 Run-Off Settlements. Settlements shall continue after termination of this Agreement for a period of five years, concluding at the end of the year following the fifth anniversary of any such termination.   3.04 Accountings. SIS shall retain a full accounting of all activities and settlement pursuant to this Agreement in the records of the Company and shall provide to the Underwriter Members of the Executive Committee of Texas Select Lloyds Insurance Company, summaries of the accounting, the settlements and the payments made pursuant hereto within three months following the end of each calendar year.     IV. Term and Termination   This Agreement shall continue for as long as SIS acts as attorney-in-fact for Underwriters at Texas Select Lloyds Insurance Company, unless terminated by SIS by written notice to the Underwriting Members of the Executive Committee, or by the Underwriting Members of the Executive Committee upon written notice to SIS. Such notice shall be effective upon the date specified therein. This Agreement may also be terminated by the Commissioner of Insurance of Texas upon reasonable notice to SIS. This Agreement shall automatically be suspended in the event the Company is placed in conservatorship or receivership by the Commissioner of Insurance of Texas. The termination hereof shall not have any effect upon the existing authority and powers of SIS existing prior to this Agreement.   3 --------------------------------------------------------------------------------   V. Effective Date; Commissioner’s Approval   This Agreement shall be effective as of October 1, 2005, subject to its approval by the Commissioner of Insurance of Texas. Such “approval” may take the form of Commissioner’s Order or a letter or the notification by the Texas Department of Insurance that there is no objection to this Agreement. This Agreement supercedes any prior agreements between the Company and its Attorney-in-Fact with respect to the subject matter herein. The Articles of Agreement, amended September 30, 2001, and the Powers of Attorney, as described in the Recitals, are unaffected hereby.   IN WITNESS WHEREOF, this Agreement has been duly executed by an authorized officer of Select Insurance Services, Inc. and the Executive Committee of the Underwriters of Texas Select Lloyds Insurance Company.   SELECT INSURANCE SERVICES, INC. By   /s/ David W. Lacefield Its   President UNDERWRITER MEMBERS OF THE EXECUTIVE COMMITTEE OF TEXAS SELECT LLOYDS INSURANCE COMPANY /s/ Arthur J. Gonzales Arthur J. Gonzales (Print Name) /s/ Russell K. Crouch Russell K. Crouch (Print Name)   4

Exhibit 10.33 HOKU SCIENTIFIC, INC. FISCAL YEAR 2007 EXECUTIVE INCENTIVE COMPENSATION PLAN   1. Overview The compensation philosophy of Hoku Scientific, Inc. (the “Company”) is to attract, motivate, retain and reward its management through a combination of base salary and performance-based compensation. Executive Officers (as defined below), who commenced employment at the Company on or before April 1, 2006 and are employees of the Company on and as of March 31, 2007 (collectively, the “Participants”), shall be eligible to participate in the Fiscal Year 2007 Executive Incentive Compensation Plan (the “Plan”). For purposes of the Plan, the Company’s Section 16 reporting officers shall qualify as “Executive Officers.” The Plan is designed to award a payment (each an “Incentive Payment”) for performance in fiscal year 2007 to a Participant if the Company achieves certain corporate performance targets (“Corporate Targets”) as described below, as determined in the sole discretion of the independent members of the Company’s Board of Directors (the “Independent Committee”). Each Incentive Payment may consist of either a cash payment, a stock award pursuant to the Company’s 2005 Equity Incentive Plan (the “Stock Plan”), or both, at the sole discretion of the Independent Committee. The Independent Committee shall ultimately determine the amounts and the timing of the issuance of any stock awards under the Stock Plan in their sole discretion.   2. Determination of Fiscal Year 2007 Incentive Payments A Participant may receive an Incentive Payment if the Corporate Targets are achieved, as determined in the sole discretion of the Independent Committee. For fiscal year 2007, each Participant’s Incentive Payment, except for the Chief Executive Officer’s Incentive Payment, will be split among five categories of Corporate Targets as follows, as determined by the Independent Committee:     •   Business development and technical successes for Hoku Fuel Cells     •   Business development successes for Hoku Materials.     •   Securing key supplies for Hoku Solar.     •   Increasing shareholder value.     •   Successful completion of corporate governance initiatives. The maximum amount of an Incentive Payment a Participant may receive upon achievement of the Corporate Targets is 200% of the Participant’s base salary as of April 1, 2006 (“Base Salary”). The amount of Incentive Payment allocated to each of the above categories may be weighted differently for each Participant. The amount of the Chief Executive Officer’s Incentive Payment shall be calculated by applying the average Incentive Payment received by the other Participants as a percentage of such Participants’ Base Salary to the Chief Executive Officer’s Base Salary. For example, if the average Incentive Payment received by the Participants is equal to 150% of their cumulative Base Salary, then the Chief Executive Officer shall receive an Incentive Payment equal to 150% of his Base Salary. -------------------------------------------------------------------------------- 3. Miscellaneous Provisions The Independent Committee may amend or terminate this Plan at any time in their sole discretion. Further, the Independent Committee may modify the Corporate Targets and/or Incentive Payment Amounts and the relative weight of each Corporate Target for each Participant at any time in their sole discretion. For purposes of this Plan, a director’s independence shall be determined in accordance with The Nasdaq Stock Market, Inc. Listing Standards. The Plan shall be governed by and construed in accordance with the laws of the State of Hawaii.

Exhibit 10.1 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into this 11th day of August, 2006, by and among THE PEOPLES BANCTRUST COMPANY, INC., an Alabama corporation (the “Company”), THE PEOPLES BANK AND TRUST COMPANY, an Alabama banking corporation and wholly-owned subsidiary of the Company (the “Bank”), and DON J. GIARDINA (the “Executive”). RECITALS: WHEREAS, the Company desires to employ the Executive as President and Chief Executive Officer of the Company and Bank on the terms and conditions hereinafter set forth; and WHEREAS, the Executive desires to accept such employment on the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements hereinafter set forth, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, do hereby agree as follows: 1. Employment. (a) Commencing on September 1, 2006, (the “Commencement Date”), the Company shall employ the Executive, and the Executive shall serve the Company, as President and Chief Executive Officer of each of the Company and the Bank, and any other position agreed upon by the parties, upon the terms and conditions set forth herein. The Executive shall render such administrative and management services for the Company as are customarily performed by persons situated in similar executive capacities. The Executive shall also promote, by entertainment or otherwise, as and to the extent permitted by law, the business of the Company. The Executive’s other duties shall be such as the Board may from time to time reasonably direct, including normal duties as an officer of the Company. The Executive shall devote his business time, attention, skill and efforts to the performance of his duties hereunder, except during periods of illness or periods of vacation and leaves of absence consistent with Company policy. (b) The Executive may establish his permanent residence in such location as may be reasonably approved by the Company, which initial permanent residence will be in the Birmingham, Alabama, metropolitan area. However, the Executive will be expected to spend adequate time at the Bank’s home office in Selma, Alabama, for administrative and management purposes. The Bank will pay for or reimburse the Executive for living accommodations in Selma for these purposes.   Page 1 of    Employment Agreement 16 Pages    Peoples BancTrust - Peoples Bank - Giardina -------------------------------------------------------------------------------- (c) The Executive may devote reasonable periods of time to serve as a director or advisor to other organizations, to charitable and community activities and to managing his personal investments, provided that such activities do not materially interfere with the performance of his duties hereunder and are not in conflict or competitive with, or adverse to, the interests of the Company. (d) As soon as practical after the Commencement Date, the Executive shall be elected to serve as a member of the Board of Directors of the Company and the Bank during the current term. The Board of Directors shall use its best efforts to cause the Executive to continue to be elected to fill such seat during the term of his employment hereunder. 2. Term. The Company employs the Executive, and the Executive hereby accepts such employment under this Agreement, for the period commencing on the Commencement Date and ending 36 months thereafter (or such earlier date as provided herein). Additionally, on January 1 of each year during the term of this Agreement, including any extended term, this Agreement shall be automatically extended (without further action by the Executive or the Company), so that the remaining term will be three (3) years from such January 1 date, unless either party by written notice to the other party within sixty (60) days after any such January 1 date elects to terminate this automatic renewal provision, in which event the term shall be fixed for a finite term of three (3) years from such January 1 date without automatic renewal. 3. Compensation and Benefits. (a) The Company shall pay to the Executive a base salary of $300,000 per annum, pro rated for work done pursuant to this Agreement between the Commencement Date and December 31, 2006, and for any year in which this Agreement is terminated. The base salary shall be paid at such intervals as other salaried officers of the Company are paid, but in no event less than monthly. Beginning January 1, 2007, the Company’s Board of Directors (or its compensation committee) shall review the Executive’s salary at least annually and may increase the Executive’s base salary if it determines in its sole discretion that an increase is appropriate. (b) The Executive shall be permitted to participate in a management incentive program as adopted from time to time by the Company. In addition, the Board of Directors shall annually consider the Executive’s performance, and determine if any additional bonus is appropriate. (c) The Executive shall be granted options to acquire 50,000 shares of the Company’s common stock under the Company’s 1999 Stock Option Plan (the “Option Plan”). The options shall be granted effective as of the Commencement Date and shall have a term of ten years. The options will vest one-third per year beginning one year following the Commencement Date. That number of options eligible to qualify as incentive stock options under Section 422 of the Internal Revenue Code shall be   Page 2 of    Employment Agreement 16 Pages    Peoples BancTrust - Peoples Bank - Giardina -------------------------------------------------------------------------------- granted as incentive stock options and the remaining options shall be non-qualified stock options. The options shall have an exercise price equal to the fair market value of a share of the Company’s common stock on the effective date of grant, the Commencement Date. The options shall vest in full upon the death of the Executive or upon a change of control of the Company, as defined in the Option Plan. The detailed terms of the option grant will be set forth in a Stock Option Agreement to be executed by the Company and the Executive. (d) As soon as practical after the Commencement Date, the Executive shall be granted under the Key Employee Restricted Stock Plan (the “Restricted Stock Plan”) 6,000 shares of restricted stock to vest over a three-year period beginning one year following the Commencement Date in accordance with the terms of the Restricted Stock Plan. The details of the restricted stock grant will be set forth in the Restricted Stock Plan and Agreement. (e) Except as otherwise provided for herein, the Executive shall be eligible to participate in all retirement, welfare, deferred compensation, life and health insurance and other benefit plans or programs of the Company now or hereafter applicable to the Executive or applicable generally to employees of the Company or to a class of employees that includes senior executives of the Company, whether or not Executive is covered under any similar plan or plans, the premium or provision of which are paid by third parties. The Executive shall also be reimbursed by the Company up to $10,000 per annum for medical expenses not covered by insurance. (f) The Company shall provide to the Executive a monthly automobile allowance and mileage reimbursement in accordance with current Company policy. (g) The Company shall reimburse the Executive’s reasonable expenses for initiation fees (or purchase of membership as the case may be), and dues regarding dining club membership currently held by the Executive in Birmingham Alabama, and for any other club memberships that may be authorized by the Company. (h) The Company shall reimburse the Executive for travel, seminar and other expenses related to the Executive’s duties and services and for expenses, such as dues and travel expenses, related to Executive’s participation in civic and community activities which are incurred and accounted for in accordance with the historic practices of the Company. (i) The Executive shall be entitled to twenty (20) days of paid vacation per year. (j) In lieu of life insurance benefits applicable generally to employees of the Company, the Executive may elect to have the Company provide life insurance for the benefit of the Executive by the Company’s payment, or reimbursement to Executive, of the cost of the premium payments on the Executive’s existing life insurance policies, such premiums not to exceed $3,000.00 annually.   Page 3 of    Employment Agreement 16 Pages    Peoples BancTrust - Peoples Bank - Giardina -------------------------------------------------------------------------------- (k) The Company shall provide the Executive with relocation benefits, not to exceed a combined cost of $10,000.00, including payment or reimbursement for all costs of packing and moving the household goods, furniture, and other belongings of the Executive and his family from their present home in Tennessee to their home in Birmingham, Alabama. 4. Termination. (a) The Executive’s employment under this Agreement may be terminated prior to the end of the term of this Agreement only as follows: (i) upon the death of the Executive; (ii) by the Company due to the Disability of the Executive upon delivery of a Notice of Termination to the Executive; (iii) by the Company for Cause upon delivery of a Notice of Termination to the Executive; (iv) by the Executive for Good Reason upon delivery of a Notice of Termination to the Company after any occurrence of a Change in Control or in the event of a Constructive Termination; and (v) by the Executive at any time upon delivery of ninety (90) days notice to the Company (and, in such case but without limitation of any other rights of Executive hereunder, the Executive shall be entitled to cash within thirty (30) days of the Termination Date in an amount equal to all Accrued Compensation; provided, however, that in the event of such notice by the Executive to the Company, the Company by notice to the Executive, may specify an earlier Termination Date, including, without limitation, a Termination Date that is effective immediately upon the giving of such notice by the Company to the Executive. (b) If the Executive’s employment with the Company shall be terminated during the Term (i) by reason of the Executive’s death, or (ii) by the Company for Disability or Cause, the Company shall pay to the Executive (or in the case of his death, the Executive’s estate) within thirty (30) days after the Termination Date a lump sum cash payment equal to the Accrued Compensation and, if such termination is other than by the Company for Cause, the Executive shall also be paid the Pro Rata Bonus. If such termination is on account of death or if the Executive’s Disability constitutes a “Disability”, as defined in section 409A of the Internal Revenue Code and the regulations and guidance thereunder (“Section 409A”), the Executive (or in the case of death, the Executive’s estate) shall be paid the Pro Rata Bonus thirty (30) days following the date of death or Disability. Further, in the event employment is terminated by the Company for Disability and the Disability is a “Disability” under Section 409A, the Company shall pay to the Executive one hundred percent (100.0%)   Page 4 of    Employment Agreement 16 Pages    Peoples BancTrust - Peoples Bank - Giardina -------------------------------------------------------------------------------- of his base salary on the Company’s regular payroll date for the first ninety (90) days of his disability period (reduced, if applicable, by any disability insurance payments from policies provided by the Company). If the Executive’s Disability does not constitute a “Disability” under Section 409A, then the payment of the Pro Rata Bonus and the continuation of base salary, described in this Section 4, shall be made in a lump sum on the date that is six months following the date of the Executive’s Termination Date, or if not a business day, then on the following business day. Regardless of whether the Disability constitutes a “Disability” as defined in Section 409A, the Executive shall be covered under the Company’s long-term disability policy. (c) If the Executive’s employment with the Company shall be terminated by the Company in violation of this Agreement, by the Executive for Good Reason or in the event of a Constructive Termination, in addition to other rights and remedies available in law or equity, the Executive shall be entitled to the following: (i) The Company shall pay the Executive in cash within thirty (30) days of the Termination Date an amount equal to all Accrued Compensation; (ii) The Company shall pay to the Executive six months following the Termination Date an amount equal to the Pro Rata Bonus; (iii) The Company shall pay to the Executive in cash at the end of the sixth month following the Termination Date (the “Payment Date”), a lump sum equal to the present value on the Payment Date of the following: the right to receive for each of thirty-six consecutive months commencing on the Payment Date an amount equal to one-twelfth of the sum of (A) the Base Amount (including any increases in base salary during the term of this Agreement) plus (B) the Bonus Amount (including any increases in bonus amount called for by Section 3(b) of this Agreement). Present value shall be determined assuming an interest rate equal to six percent (6%) and thirty-six (36) equal monthly payments commencing on the Payment Date; and (iv) The restrictions on any outstanding incentive awards (including stock options and restricted stock) granted to the Executive under any Company stock option or restricted stock plan, including the options granted to the Executive pursuant to Section 3(c) of this Agreement, or under any other incentive plan or arrangement shall lapse and such incentive award shall become 100% vested, all stock options and stock appreciation rights granted to the Executive shall be immediately exercisable and shall be 100% vested. The period in which Executive may exercise any option granted shall be the full term of such option. (d) The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, and no such payment shall be offset or reduced by the amount of any compensation or benefits provided to the Executive in any subsequent employment.   Page 5 of    Employment Agreement 16 Pages    Peoples BancTrust - Peoples Bank - Giardina -------------------------------------------------------------------------------- (e) The severance pay and benefits provided for in this Section 4 shall be in lieu of any other severance or termination pay to which the Executive may be entitled under any Company severance or termination plan, program, practice or arrangement. The Executive’s entitlement to any compensation or benefits which have accrued as of the Termination Date under the Company’s employee benefit plans and other plans specifically applicable to the Executive then in effect shall be determined in accordance with the terms of any such plan. (f) (i) In the event that any payment or benefit (within the meaning of Section 280 G(b)(2) of the Internal Revenue Code of 1986, as amended (the “Code”)) to the Executive (or for his benefit) paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise in connection with, or arising out of, his relationship with the Company or a change in ownership or effective control of the Company or of a substantial portion of its assets (a “Payment” or “Payments”) would be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then Company shall pay Executive, in addition to the Payment or Payments, an amount (the “Gross-Up Payment”) equal to the sum of the Excise Tax and the amount necessary to pay all additional taxes imposed on (or economically borne by) Executive attributable to the receipt of the Gross-Up Payment (including the Excise Tax, state and federal income taxes, all applicable employment taxes and all interest and penalties incurred by the Executive with respect to any such Excise Tax or such other taxes); provided, however, the Gross-Up Payment shall not include any interest and penalties imposed by reason of the Executive’s failure to file timely a tax return or pay taxes shown due on his return unless such failure to pay results from the Company’s failure to pay the Gross-Up Payment when due. For purposes of the proceeding sentence, all taxes attributed to the receipt of the Gross-Up Payment shall be computed assuming the application of the maximum tax rate provided by law. (ii) If the Executive is entitled to a Gross-Up Payment hereunder as a result of the vesting of benefits, such as options and restricted stock, even though no termination of employment has occurred, such payment shall only be made at the time of the Change in Control, if the Change in Control constitutes a change in ownership or effective control of the Company or a change in the ownership of a substantial portion of the Company’s assets, as such terms are defined in the regulations and guidance issued under Section 409A (a “409A Change in Control”). If the Change in Control does not constitute a 409A Change in Control or if the Executive becomes entitled to a Gross-Up Payment hereunder as a result of a termination of employment, the payment shall instead be made to the Executive on the date that is six months following the Termination Date. (g) Notwithstanding anything herein to the contrary, any payments made to the Executive pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with section 18(k) of the Federal Deposit Insurance Act (12 U.S.C. § 1828(k)) and any regulations promulgated thereunder.   Page 6 of    Employment Agreement 16 Pages    Peoples BancTrust - Peoples Bank - Giardina -------------------------------------------------------------------------------- 5. Trade Secrets. The Executive shall not, at any time, either during the Term of his employment or after the Termination Date use or disclose any Trade Secrets of the Company, except in fulfillment of his duties as the Executive during his employment, for so long as the pertinent information or data remain Trade Secrets, whether or not the Trade Secrets are in written or tangible form. 6. Non-competition. (a) In the event the Executive’s employment under this Agreement shall terminate pursuant to Section 4(a)(iii) or 4(a)(v) of this Agreement during the Term and the Company has met, or is current with, its obligations under Section 4 of this Agreement, for one year following such termination, the Executive shall not, in any county where the Company or its majority-owned subsidiaries has a bank branch that accepts deposits that are insured by the Federal Deposit Insurance Corporation (“FDIC”) at the time of such termination, physically work or perform services as a consultant to, or serve as a member of management or as an employee of a financial institution whose deposits are insured by the FDIC. Company branches of Successors and Assigns of the Company shall not be considered in determining the prohibited geographical area. Notwithstanding the foregoing, this Section 6 shall not apply at any time after a Change in Control shall have occurred. Furthermore, it is expressly acknowledged, agreed and understood that this Section 6 shall not restrict or prohibit the Executive from advising or acting as a consultant to any financial institution regarding the sale of such financial institution (or its assets or liabilities) or the acquisition by any such financial institution of another financial institution (or its assets or liabilities); provided, that it is expressly acknowledged and agreed that Executive shall not be permitted to advise or act as a consultant to any financial institution during the term of Executive’s employment by the Company under this Agreement. (b) The parties have entered into this Section 6 in good faith and for the reasons set forth in the recitals hereto and assume that this Agreement is legally binding. If, for any reason, this Agreement is not binding because of its geographical scope or because of its term, then the parties agree that this Agreement shall be deemed effective to the widest geographical area and/or the longest period of time (but not in excess of one year) as may be legally enforceable. (c) The Executive acknowledges that the rights and privileges granted to the Company in this Section 6 are of special and unique character, which gives them a peculiar value, the loss of which may not be reasonably or adequately compensated for by damages in an action of law, and that a breach of this Section 6 by the Executive will cause the Company great and irreparable injury and damage. Accordingly, the Executive hereby agrees that the Company shall be entitled to remedies of injunction, specific performance or other equitable relief to prevent a breach of this Section 6 by the Executive. This provision shall not be construed as a waiver of any other rights or remedies the Company may have for damages or otherwise.   Page 7 of    Employment Agreement 16 Pages    Peoples BancTrust - Peoples Bank - Giardina -------------------------------------------------------------------------------- 7. Successors; Binding Agreement. (a) This Agreement shall be binding upon and shall inure to the benefit of the Company, its Successors and Assigns and the Company shall require any Successors and Assigns to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place. (b) Neither this Agreement nor any right or interest hereunder shall be assignable or transferable by the Executive, his beneficiaries or legal representatives, except by will or by the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive’s legal personal representative. 8. Attorneys’ Fees and Expenses. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys’ fees, costs, and necessary disbursements in addition to any other relief to which he or it may be entitled. 9. Notice. For the purposes of this Agreement, notices and all other communications provided for in the Agreement (including the Notice of Termination) shall be in writing and shall be deemed to have been duly given when personally delivered or sent by certified mail, return receipt requested, postage prepaid, addressed to the respective addresses last given by each party to the other, provided that all notices to the Company shall be directed to the attention of the Board of Directors with a copy to the Secretary of the Company. All notices and communications shall be deemed to have been received on the date of delivery thereof. 10. Settlement of Claims. The Company’s obligation to make the payments provided for in this Agreement and to otherwise perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company may have against the Executive or others. The Company may, however, withhold from any benefits payable under this Agreement all federal, state, city or other taxes as shall be required pursuant to any law or governmental regulation or ruling. 11. Modification and Waiver. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and the Company. No waiver by any party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 12. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Alabama without giving effect to the conflict of laws principles thereof. Any action brought by any party to this Agreement shall be brought and maintained in a court of competent jurisdiction in the State of Alabama.   Page 8 of    Employment Agreement 16 Pages    Peoples BancTrust - Peoples Bank - Giardina -------------------------------------------------------------------------------- 13. Severability. The provisions of this Agreement shall be deemed severable, and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. 14. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto and supersedes all prior agreements, if any, understandings and arrangements, oral or written, between the parties hereto with respect to the subject matter hereof. 15. Headings. The headings of Sections herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. 16. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 17. Section 409A. This Agreement is intended to comply with the requirements of Section 409A and shall be construed accordingly. No acceleration of any payments or benefits provided herein shall be permitted unless allowed under the requirements of Section 409A. If any compensation or benefits provided by this Agreement may result in the application of Section 409A of the Code, the Executive hereby consents to the modification of the Agreement by the Company in the least restrictive manner (as determined by the Company) necessary in order to exclude such compensation from the definition of “deferred compensation” within the meaning of such Section 409A or in order to comply with the provisions of Section 409A, other applicable provision(s) of the Code and/or any rules, regulations or other regulatory guidance issued under such statutory provisions and without any diminution in the value of the payments to the Executive. 18. Survival/Effectiveness of Certain Provisions. The rights and obligations of the parties under Sections 4, 5, 6, 8, 10, and 19 hereof shall survive the termination of this Agreement. The rights and obligation of the parties under paragraphs 3(c) and 3(d) shall be effective immediately upon the Commencement Date, and shall survive the termination of this Agreement notwithstanding any Change in Control of the Company prior to (i) the issuance of stock under said paragraphs or (ii) the execution of any stock or award agreement with respect to the options under said paragraphs. 19. Definitions. For purposes of this Agreement, the following terms shall have the following meanings: (a) “Accrued Compensation” shall mean an amount which shall include all amounts earned or accrued through the Termination Date but not paid as of the   Page 9 of    Employment Agreement 16 Pages    Peoples BancTrust - Peoples Bank - Giardina -------------------------------------------------------------------------------- Termination Date including without limitation, (i) base salary, (ii) reimbursement for reasonable and necessary expenses incurred by the Executive on behalf of the Company during the period ending on the Termination Date, and (iii) bonuses and incentive compensation, including stock options, (other than the Pro Rata Bonus). (b) “Base Amount” shall mean the greater of the Executive’s annual base salary (i) at the rate in effect on the Termination Date or (ii) at the highest rate in effect at any time during the ninety (90) day period prior to the Change in Control, and shall include all amounts of his base salary that are deferred under the qualified and non-qualified employee benefit plans of the Company or any other agreement or arrangement. (c) “Bonus Amount” shall mean the greater of (i) the most recent annual bonus paid or payable to the Executive, or, if greater, the annual bonus paid or payable for the year ended prior to the fiscal year during which a Change in Control occurred, or (ii) the average of the annual bonuses paid or payable during the three full fiscal years ended prior to the Termination Date or, if greater, the three full fiscal years ended prior to the Change in Control (or, in each case, such lesser period for which annual bonuses were paid or payable to the Executive). (d) “Cause,” with respect to the termination of the Executive’s employment shall mean: (i) the willful and continued failure of the Executive to perform substantially the Executive’s duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness) such that said failure, in the good faith opinion of the Company, constitutes a material breach of this Agreement, after a written demand for substantial performance is delivered to the Executive by the Board which specifically identifies the manner in which the Board alleges that the Executive has not substantially performed the Executive’s duties (provided the Executive’s assigned duties shall not be inconsistent with his position), or (ii) the willful engaging by the Executive in (A) illegal conduct which results in the conviction (from which no appeal may be or is timely taken) of the Executive of a felony or (B) gross misconduct which is materially and demonstrably injurious to the Company, or (iii) the suspension or removal of the Executive by federal or state banking regulatory authorities acting under lawful authority pursuant to provisions of federal or state law or regulation which may be in effect from time to time. For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered “willful” unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive’s action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Board   Page 10 of    Employment Agreement 16 Pages    Peoples BancTrust - Peoples Bank - Giardina -------------------------------------------------------------------------------- or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i), (ii), or (iii) above, and specifying the particulars thereof in detail. (e) A “Change in Control” shall mean the occurrence during the Term of any of the following events: (i) The acquisition of ownership, holding or power by any one Person to vote more than 25% of the Bank’s or the Company’s voting stock; (ii) The individuals who, as of the date of this Agreement, are members of the Board of Directors of the Company or the Bank (each, an “Incumbent Board”) cease for any reason to constitute at least two-thirds of the Board of Directors of the Company or the Bank, as applicable; provided, however, that if the election, or nomination for election by the Company’s or the Bank’s shareholders, of any new director was approved by a vote of at least two-thirds of the applicable Incumbent Board, such new director shall, for purposes of this Agreement, be considered as a member of such Incumbent Board; provided, further, however, that no individual shall be considered a member of an Incumbent Board if such individual initially assumed office as a result of either an actual or threatened “Election Contest” (as described in Rule 14a-11 promulgated under the 1934 Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a “Proxy Contest”) including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or (iii) Approval by shareholders of the Company of: (1) A merger, consolidation or reorganization involving the Company, unless (a) the shareholders of the Company, immediately before such merger, consolidation or reorganization, own, directly or indirectly, immediately following such merger, consolidation or reorganization, more than 50% of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation or reorganization (the “Surviving Corporation”) in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation or reorganization, and   Page 11 of    Employment Agreement 16 Pages    Peoples BancTrust - Peoples Bank - Giardina -------------------------------------------------------------------------------- (b) the individuals who were members of the Company’s Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute more than 50% of the members of the board of directors of the Surviving Corporation. (A transaction described in clauses (a) and (b) shall herein be referred to as a “Non-Control Transaction.”); (2) A complete liquidation or dissolution of the Company; or (3) An agreement for the sale or other disposition of all or substantially all of the assets of the Company to any Person; or (iv) Approval by shareholders of the Bank of: (1) A merger, consolidation or reorganization involving the Bank; (2) A complete liquidation or dissolution of the Bank; or (3) An agreement for the sale or other disposition of all or substantially all of the assets of the Bank to any Person. (v) For purposes of defining Change in Control, the term “Person” refers to an individual or a corporation, partnership, trust, association, joint venture, pool, syndicate, sole proprietorship, unincorporated organization, or any other form of entity not specifically listed herein. The control of the Bank by the Company itself shall not constitute a “Change in Control”; (vi) Notwithstanding anything contained in this Agreement to the contrary, if, prior to a Change in Control, the Company terminates the Executive’s employment for any reason other than Cause, and the Executive reasonably demonstrates that such termination (A) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control and who effectuates a Change in Control (a “Third Party”) or (B) otherwise occurred in connection with, or in anticipation of, a Change in Control which actually occurs, then for all purposes of this Agreement, the date of a Change in Control with respect to the Executive shall mean the date immediately prior to the date of such termination of the Executive’s employment. (f) “Company,” as used herein, unless the context appears otherwise, shall include its wholly-owned subsidiary of the Bank, it being understood that compensation, benefits, and other operations are handled directly by the Bank rather than the holding company. (g) “Constructive Termination” shall mean Executive’s voluntary Termination of Service within ninety (90) days following the occurrence of one or more   Page 12 of    Employment Agreement 16 Pages    Peoples BancTrust - Peoples Bank - Giardina -------------------------------------------------------------------------------- of the following events, except if such event is approved in writing by Executive prior to its occurrence: (i) material breach of this Agreement by the Company that is not remedied within thirty (30) business days after receiving written notification by Executive of such failure; or (ii) a material reduction in Executive’s title or responsibilities unless replaced with a new title or new responsibilities of comparable stature or value to the Company within thirty (30) business days; (iii) a reduction in the Executive’s base salary; (iv) any failure to pay the Executive any compensation or benefits to which he is entitled within five (5) days of the date due that is not remedied within thirty (30) business days after receiving written notification by Executive of such failure; (v) the requirement by the Company that the Executive be based at any place outside a 90-mile radius from the executive offices occupied by the Executive, except for reasonably required travel on the Company’s business, without the Executive’s consent; (vi) the failure by the Company to continue in effect (without reduction in benefit level and/or reward opportunities) any material compensation or employee benefit plan or program in which the Executive was participating at the Commencement Date unless such plan or program is replaced with a plan or program that provides (i) substantially equivalent compensation or benefits to the Executive or (ii) compensation or benefits to the Executive that are comparable to a class of employees that includes senior executives of the Company; or (vii) the insolvency or the filing (by any party, including the Company) of a petition for bankruptcy of the Company, which petition is not dismissed within six (60) days. (h) “Disability” shall mean a physical or mental infirmity which impairs the Executive’s ability to substantially perform his duties with the Company for a period of 180 consecutive days, as determined by an independent physician selected with the approval of both the Company and the Executive. (i) “Good Reason” shall mean the occurrence after a Change in Control of any of the events or conditions described in subsections (i) through (viii) hereof: (i) a change in the Executive’s status, title, position or responsibilities (including reporting responsibilities) which represents an adverse   Page 13 of    Employment Agreement 16 Pages    Peoples BancTrust - Peoples Bank - Giardina -------------------------------------------------------------------------------- change from his status, title, position or responsibilities as in effect at any time within ninety (90) days preceding the date of a Change in Control or at any time thereafter; the assignment to the Executive of any duties or responsibilities which are inconsistent with his status, title, position or responsibilities as in effect at any time within ninety (90) days preceding the date of a Change in Control or at any time thereafter; any removal of the Executive from or failure to reappoint or reelect him to any of such offices or positions, except in connection with the termination of his employment for Disability, Cause, as a result of his death or by the Executive other than for Good Reason, or any other change in condition or circumstances that makes it materially more difficult for the Executive to carry out the duties and responsibilities of his office than existed at any time within ninety (90) days preceding the date of Change in Control or at any time thereafter; (ii) a reduction in the Executive’s base salary or any failure to pay the Executive any compensation or benefits to which he is entitled within five (5) days of the date due; (iii) the Company’s requiring the Executive to be based at any place outside a 90-mile radius from the executive offices occupied by the Executive immediately prior to the Change in Control, except for reasonably required travel on the Company’s business which is not materially greater than such travel requirements prior to the Change in Control; (iv) the failure by the Company to (A) continue in effect (without reduction in benefit level and/or reward opportunities) any material compensation or employee benefit plan in which the Executive was participating at any time within ninety days preceding the date of a Change in Control or at any time thereafter, unless such plan is replaced with a plan that provides substantially equivalent compensation or benefits to the Executive or (B) provide the Executive with compensation and benefits, in the aggregate, at least equal (in terms of benefit levels and/or reward opportunities) to those provided for under each other employee benefit plan, program and practice in which the Executive was participating at any time within ninety days preceding the date of a Change in Control or at any time thereafter; (v) the insolvency or the filing (by any party, including the Company) of a petition for bankruptcy of the Company, which petition is not dismissed within sixty days; (vi) any material breach by the Company of any provision of this Agreement; (vii) any purported termination of the Executive’s employment for Cause by the Company which does not comply with the terms of this Agreement; or (viii) the failure of the Company to obtain an agreement, satisfactory to the Executive, from any Successors and Assigns to assume and agree to perform this Agreement.   Page 14 of    Employment Agreement 16 Pages    Peoples BancTrust - Peoples Bank - Giardina -------------------------------------------------------------------------------- Any event or condition described in clause (i) through (viii) above which occurs prior to a Change in Control but which the Executive reasonably demonstrates (A) was at the request of a Third Party, or (B) otherwise arose in connection with, or in anticipation of, a Change in Control which actually occurs, shall constitute Good Reason for purposes of this Agreement, notwithstanding that it occurred prior to the Change in Control. The Executive’s right to terminate his employment for Good Reason shall not be affected by his incapacity due to physical or mental illness. (j) “Notice of Termination” shall mean a written notice of termination from the Company or the Executive which specifies an effective date of termination, indicates the specific termination provision in this Agreement relied upon, and sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision of indicated. (k) “Incentive Stock Option Plan” shall mean any Incentive Stock Option Plan adopted by the Company’s Board of Directors. (l) “Pro Rata Bonus” shall mean an amount equal to the Bonus Amount multiplied by a fraction the numerator of which is the number of days in the applicable year through the Termination Date and the denominator of which is 365. (m) “Successors and Assigns” shall mean a corporation, or other entity, or person acquiring all or substantially all the assets and business of the Company (including this Agreement), whether by operation of law or otherwise. (n) “Termination Date” shall mean, in the case of the Executive’s death, his date of death, and in all other cases, the date specified in the Notice of Termination. (o) “Trade Secrets” shall mean any information, including but not limited to technical or non-technical data, a formula, a pattern, a compilation, a program, a device, a method, a technique, a drawing, a process, financial data, financial plans, product plans, information on customers, or a list of actual or potential customers or suppliers, which: (i) derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. [Remainder of Page Intentionally Left Blank]   Page 15 of    Employment Agreement 16 Pages    Peoples BancTrust - Peoples Bank - Giardina -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the Company has caused this Agreement to be executed and its seal to be affixed hereunto by its officers thereunto duly authorized, and the Executive has signed and sealed this Agreement, effective as of the date first above written.     THE PEOPLES BANCTRUST COMPANY, INC.   By:   /s/ Ted M. Henry     Ted M. Henry     Chairman of the Board (Corporate Seal)       By:   /s/ M. Scott Patterson     M. Scott Patterson     Secretary   THE PEOPLES BANK AND TRUST COMPANY   By:   /s/ Ted M. Henry     Ted M. Henry     Chairman of the Board (Corporate Seal)       By:   /s/ M. Scott Patterson     M. Scott Patterson     Secretary   /s/ Don J. Giardina   Executive: Don J. Giardina   Page 16 of    Employment Agreement 16 Pages    Peoples BancTrust - Peoples Bank - Giardina

EXHIBIT 10.8   REGISTRATION RIGHTS AGREEMENT   This REGISTRATION RIGHTS AGREEMENT, dated as of March 8, 2006, is made by and among DynTek, Inc., a Delaware corporation, with headquarters located at 19700 Fairchild Road, Suite 230, Irvine, California 92612 (the “Company”), and the investors named on the signature pages hereto (the “Initial Investors”).   RECITALS:   A.            In connection with the Securities Purchase Agreement dated March 8, 2006 between the Initial Investors and the Company (the “Purchase Agreement”), the Company has agreed, upon the terms and subject to the conditions of the Purchase Agreement, to issue and sell to the Initial Investors such number of shares of the Company’s Common Stock (the “Common Shares”) and warrants to purchase shares of the Company’s Common Stock as set forth in the Purchase Agreement (the “Warrants” and, collectively with the Common Shares, the “Securities”).   B.            In order to induce the Initial Investors to execute and deliver the Purchase Agreement, the Company has agreed to provide certain registration rights under the Securities Act and applicable state securities laws with respect to the Securities.   In consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Initial Investors hereby agree as follows:   ARTICLE I DEFINITIONS   Capitalized terms used and not otherwise defined herein have the respective meanings given them set forth in the Purchase Agreement.  In addition, as used in this Agreement, the following terms have the following meanings:   1.1           “CLOSING DATE” MEANS THE DATE ON WHICH THE INITIAL PURCHASE OF THE SECURITIES IS CONSUMMATED PURSUANT TO THE PURCHASE AGREEMENT.   1.2           “COMMON SHARES” MEANS THE SHARES OF COMMON STOCK SOLD PURSUANT TO THE PURCHASE AGREEMENT.   1.3           “INVESTORS” MEANS THE INITIAL INVESTORS AND ANY OF THEIR TRANSFEREES OR ASSIGNEES WHO AGREE TO BECOME BOUND BY THE PROVISIONS OF THIS AGREEMENT IN ACCORDANCE WITH ARTICLE IX HEREOF.   1.4           “REGISTRABLE SECURITIES” MEANS THE COMMON SHARES AND THE WARRANT SHARES, AND ANY SHARES OF CAPITAL STOCK ISSUED OR ISSUABLE FROM TIME TO TIME (WITH ANY ADJUSTMENTS) IN EXCHANGE FOR OR OTHERWISE WITH RESPECT TO THE COMMON SHARES OR WARRANT SHARES (INCLUDING SHARES ISSUED PURSUANT TO SECTION 2.2 HEREOF).   1.5           “REGISTRATION PERIOD” MEANS THE PERIOD BETWEEN THE DATE OF THIS AGREEMENT AND THE EARLIER OF (I) THE DATE ON WHICH (X) ALL OF THE REGISTRABLE SECURITIES HAVE BEEN SOLD BY THE INVESTORS PURSUANT TO THE REGISTRATION STATEMENT AND (Y) ARE FREELY TRADABLE UNDER THE SECURITIES ACT (EXCEPT THAT THIS CLAUSE (Y) SHALL NOT APPLY WITH RESPECT TO SHARES SOLD TO AFFILIATES), (II) THE SECOND   --------------------------------------------------------------------------------   ANNIVERSARY OF THE LAST DATE ON WHICH WARRANT SHARES ARE PURCHASED UNDER ANY THEN-OUTSTANDING WARRANTS, OR (III) THE DATE ON WHICH ALL THE REGISTRABLE SECURITIES MAY BE IMMEDIATELY SOLD BY THE INVESTORS WITHOUT REGISTRATION AND WITHOUT RESTRICTION AS TO THE NUMBER OF REGISTRABLE SECURITIES TO BE SOLD, PURSUANT TO RULE 144 OR OTHERWISE.   1.6           “REGISTRATION STATEMENT” MEANS A REGISTRATION STATEMENT OF THE COMPANY FILED UNDER THE SECURITIES ACT.   1.7           THE TERMS “REGISTER,” “REGISTERED,” AND “REGISTRATION” REFER TO A REGISTRATION EFFECTED BY PREPARING AND FILING A REGISTRATION STATEMENT OR STATEMENTS IN COMPLIANCE WITH THE SECURITIES ACT AND PURSUANT TO RULE 415 AND THE DECLARATION OR ORDERING OF EFFECTIVENESS OF SUCH REGISTRATION STATEMENT BY THE SEC.   1.8           “RULE 415” MEANS RULE 415 UNDER THE SECURITIES ACT, OR ANY SUCCESSOR RULE PROVIDING FOR OFFERING SECURITIES ON A CONTINUOUS BASIS, AND APPLICABLE RULES AND REGULATIONS THEREUNDER.   1.9           “SECOND CLOSING DATE” SHALL HAVE THE MEANING SUBSCRIBED TO IT IN THE PURCHASE AGREEMENT.   1.10         “SECURITIES” MEANS THE COMMON SHARES AND THE WARRANTS SOLD PURSUANT TO THE PURCHASE AGREEMENT.   1.11         “WARRANTS” MEANS THE WARRANTS TO PURCHASE SHARES OF THE COMPANY’S COMMON STOCK SOLD PURSUANT TO THE PURCHASE AGREEMENT.   1.12         “WARRANT SHARES” MEANS THE SHARES OF THE COMPANY’S COMMON STOCK THAT MAY BE PURCHASED UPON EXERCISE OF THE WARRANTS.   ARTICLE II REGISTRATION   2.1           MANDATORY REGISTRATION.  THE COMPANY SHALL FILE WITH THE SEC A REGISTRATION STATEMENT ON FORM S-1, OR SUCH OTHER FORM AS MAY THEN BE AVAILABLE TO EFFECT A REGISTRATION OF ALL OF THE REGISTRABLE SECURITIES, REGISTERING ALL OF THE REGISTRABLE SECURITIES FOR RESALE PRIOR TO THE EARLIER OF (I) 30 DAYS AFTER THE SECOND CLOSING DATE UNDER THE PURCHASE AGREEMENT OR (II) JUNE 30, 2006 (THE “REQUIRED FILING DATE”).   2.2           EFFECTIVENESS OF THE REGISTRATION STATEMENT.  THE COMPANY WILL USE ITS BEST EFFORTS TO CAUSE THE REGISTRATION STATEMENT TO BE DECLARED EFFECTIVE BY THE SEC AS SOON AS PRACTICABLE AFTER FILING, AND IN ANY EVENT NO LATER THAN THE 60TH DAY AFTER THE REQUIRED FILING DATE (THE “REQUIRED EFFECTIVE DATE”).  HOWEVER, SO LONG AS THE COMPANY FILED THE REGISTRATION STATEMENT BY THE REQUIRED FILING DATE, (A) IF THE SEC TAKES THE POSITION THAT REGISTRATION OF THE RESALE OF THE REGISTRABLE SECURITIES BY THE INVESTORS IS NOT AVAILABLE UNDER APPLICABLE LAWS, RULES AND REGULATIONS AND THAT THE COMPANY MUST REGISTER THE OFFERING OF THE REGISTRABLE SECURITIES AS A PRIMARY OFFERING BY THE COMPANY, OR (B) IF THE REGISTRATION STATEMENT RECEIVES SEC REVIEW, THEN THE REQUIRED EFFECTIVE DATE WILL BE THE 120TH DAY AFTER THE REQUIRED FILING DATE.  IN THE CASE OF AN SEC RESPONSE DESCRIBED IN CLAUSE (A), THE COMPANY WILL, WITHIN 40 BUSINESS DAYS AFTER THE DATE THE COMPANY RECEIVES SUCH SEC RESPONSE, FILE A REGISTRATION STATEMENT AS A PRIMARY OFFERING.  THE COMPANY’S BEST EFFORTS WILL   2 --------------------------------------------------------------------------------   INCLUDE, BUT NOT BE LIMITED TO, PROMPTLY RESPONDING TO ALL COMMENTS RECEIVED FROM THE STAFF OF THE SEC.  IF THE COMPANY RECEIVES NOTIFICATION FROM THE SEC THAT THE REGISTRATION STATEMENT WILL RECEIVE NO ACTION OR REVIEW FROM THE SEC, THEN THE COMPANY WILL CAUSE THE REGISTRATION STATEMENT TO BECOME EFFECTIVE WITHIN FIVE BUSINESS DAYS AFTER SUCH SEC NOTIFICATION.  ONCE THE REGISTRATION STATEMENT IS DECLARED EFFECTIVE BY THE SEC, THE COMPANY WILL CAUSE THE REGISTRATION STATEMENT TO REMAIN EFFECTIVE THROUGHOUT THE REGISTRATION PERIOD, EXCEPT AS PERMITTED UNDER SECTION 3.  ON THE DATE OF EACH MONTHLY ANNIVERSARY OF THE DATE ON WHICH ANY BREACH OF THIS SECTION 2.2 FIRST OCCURS (INCLUDING FAILURE TO FILE A REGISTRATION STATEMENT OR TO CAUSE A REGISTRATION STATEMENT TO BE DECLARED EFFECTIVE WITHIN THE TIME PERIODS SET FORTH HEREIN) UNTIL THE APPLICABLE DEFAULT IS CURED (EACH, A “PAYMENT DATE”), THE COMPANY SHALL PAY TO EACH INVESTOR AS DAMAGES ADDITIONAL SHARES OF THE COMPANY’S COMMON STOCK EQUAL TO 2.0% OF THE COMMON SHARES PURCHASED BY SUCH INVESTOR PURSUANT TO THE PURCHASE AGREEMENT AND ALL SUCH SHARES SHALL BECOME REGISTRABLE SECURITIES; PROVIDED, THAT THE TOTAL NUMBER OF SHARES OF THE COMPANY’S COMMON STOCK PAYABLE PURSUANT TO THIS SECTION 2.2 TO ANY INVESTOR SHALL NOT EXCEED THE AGGREGATE NUMBER OF COMMON SHARES PURCHASED PURSUANT TO THE PURCHASE AGREEMENT BY SUCH INVESTOR.  IN ADDITION, SHOULD A REGISTRATION STATEMENT NOT BE FILED BY JUNE 30, 2006, THE EXERCISE PRICE OF THE WARRANTS WILL BE REDUCED TO $0.01 PER SHARE.   2.3           PIGGYBACK REGISTRATIONS.   (A)           IF, AT ANY TIME PRIOR TO THE EXPIRATION OF THE REGISTRATION PERIOD, THE REGISTRATION STATEMENT CONTEMPLATED IN SECTION 2.1 ABOVE IS NOT DECLARED EFFECTIVE WITH RESPECT TO ALL OF THE REGISTRABLE SECURITIES AND THE COMPANY DECIDES TO REGISTER ANY OF ITS SECURITIES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF OTHERS, THEN THE COMPANY WILL PROMPTLY GIVE THE INVESTORS WRITTEN NOTICE THEREOF AND WILL USE ITS BEST EFFORTS TO INCLUDE IN SUCH REGISTRATION ALL OR ANY PART OF THE REGISTRABLE SECURITIES REQUESTED BY SUCH INVESTORS TO BE INCLUDED THEREIN (EXCLUDING ANY REGISTRABLE SECURITIES PREVIOUSLY INCLUDED IN A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE AND HAS NOT BEEN WITHDRAWN).  THIS REQUIREMENT DOES NOT APPLY TO COMPANY REGISTRATIONS ON FORM S-4 OR S-8 OR THEIR EQUIVALENTS RELATING TO EQUITY SECURITIES TO BE ISSUED SOLELY IN CONNECTION WITH AN ACQUISITION OF ANY ENTITY OR BUSINESS OR EQUITY SECURITIES ISSUABLE IN CONNECTION WITH STOCK OPTION OR OTHER EMPLOYEE BENEFIT PLANS.  EACH INVESTOR MUST GIVE ITS REQUEST FOR REGISTRATION UNDER THIS PARAGRAPH TO THE COMPANY IN WRITING WITHIN 15 DAYS AFTER RECEIPT FROM THE COMPANY OF NOTICE OF SUCH PENDING REGISTRATION.  IF THE REGISTRATION FOR WHICH THE COMPANY GIVES NOTICE IS A PUBLIC OFFERING INVOLVING AN UNDERWRITING, THE COMPANY WILL SO ADVISE THE INVESTORS AS PART OF THE ABOVE-DESCRIBED WRITTEN NOTICE.  IN THAT EVENT, IF THE MANAGING UNDERWRITER(S) OF THE PUBLIC OFFERING IMPOSE A LIMITATION ON THE NUMBER OF SHARES OF COMMON STOCK THAT MAY BE INCLUDED IN THE REGISTRATION STATEMENT BECAUSE, IN SUCH UNDERWRITER(S)’ JUDGMENT, SUCH LIMITATION WOULD BE NECESSARY TO EFFECT AN ORDERLY PUBLIC DISTRIBUTION, THEN THE COMPANY WILL BE OBLIGATED TO INCLUDE ONLY SUCH LIMITED PORTION, IF ANY, OF THE REGISTRABLE SECURITIES WITH RESPECT TO WHICH SUCH INVESTORS HAVE REQUESTED INCLUSION HEREUNDER.  ANY EXCLUSION OF REGISTRABLE SECURITIES WILL BE MADE PRO RATA AMONG ALL HOLDERS OF THE COMPANY’S SECURITIES SEEKING TO INCLUDE SHARES OF COMMON STOCK IN PROPORTION TO THE NUMBER OF SHARES OF COMMON STOCK SOUGHT TO BE INCLUDED BY THOSE HOLDERS.  HOWEVER, THE COMPANY WILL NOT EXCLUDE ANY REGISTRABLE SECURITIES UNLESS THE COMPANY HAS FIRST EXCLUDED ALL OUTSTANDING SECURITIES THE HOLDERS OF WHICH ARE NOT ENTITLED BY RIGHT TO INCLUSION OF SUCH SECURITIES IN SUCH REGISTRATION STATEMENT OR ARE NOT ENTITLED PRO RATA INCLUSION WITH THE REGISTRABLE SECURITIES.   (B)           NO RIGHT TO REGISTRATION OF REGISTRABLE SECURITIES UNDER THIS SECTION 2.3 LIMITS IN ANY WAY THE REGISTRATION REQUIRED UNDER SECTION 2.1 ABOVE.  THE OBLIGATIONS OF THE COMPANY UNDER THIS SECTION 2.3 EXPIRE UPON THE EARLIER OF (I) THE EFFECTIVENESS OF THE REGISTRATION STATEMENT FILED PURSUANT TO SECTION 2.1 ABOVE, (II) AFTER THE COMPANY HAS AFFORDED THE OPPORTUNITY FOR THE INVESTORS   3 --------------------------------------------------------------------------------   TO EXERCISE REGISTRATION RIGHTS UNDER THIS SECTION 2.3 FOR TWO REGISTRATIONS (PROVIDED, HOWEVER, THAT ANY INVESTOR THAT HAS HAD ANY REGISTRABLE SECURITIES EXCLUDED FROM ANY REGISTRATION STATEMENT IN ACCORDANCE WITH THIS SECTION 2.3 MAY INCLUDE IN ANY ADDITIONAL REGISTRATION STATEMENT FILED BY THE COMPANY THE REGISTRABLE SECURITIES SO EXCLUDED) OR (III) WHEN ALL OF THE REGISTRABLE SECURITIES HELD BY ANY INVESTOR MAY BE SOLD BY SUCH INVESTOR UNDER RULE 144 WITHOUT BEING SUBJECT TO ANY VOLUME RESTRICTIONS.   ARTICLE III ADDITIONAL OBLIGATIONS OF THE COMPANY   3.1           CONTINUED EFFECTIVENESS OF REGISTRATION STATEMENT.  SUBJECT TO THE LIMITATIONS SET FORTH IN SECTION 3.6, THE COMPANY WILL KEEP THE REGISTRATION STATEMENT COVERING THE REGISTRABLE SECURITIES EFFECTIVE UNDER RULE 415 AT ALL TIMES DURING THE REGISTRATION PERIOD.  IN THE EVENT THAT THE NUMBER OF SHARES AVAILABLE UNDER A REGISTRATION STATEMENT FILED PURSUANT TO THIS AGREEMENT IS INSUFFICIENT TO COVER ALL OF THE REGISTRABLE SECURITIES ISSUED, THE COMPANY WILL (IF PERMITTED) AMEND THE REGISTRATION STATEMENT OR FILE A NEW REGISTRATION STATEMENT (ON THE SHORT FORM AVAILABLE THEREFOR, IF APPLICABLE), OR BOTH, SO AS TO COVER ALL OF THE REGISTRABLE SECURITIES.  THE COMPANY WILL FILE SUCH AMENDMENT OR NEW REGISTRATION STATEMENT AS SOON AS PRACTICABLE, BUT IN NO EVENT LATER THAN 30 BUSINESS DAYS AFTER THE NECESSITY THEREFOR ARISES (BASED UPON THE MARKET PRICE OF THE COMMON STOCK AND OTHER RELEVANT FACTORS ON WHICH THE COMPANY REASONABLY ELECTS TO RELY).  THE COMPANY WILL USE ITS BEST EFFORTS TO CAUSE SUCH AMENDMENT OR NEW REGISTRATION STATEMENT TO BECOME EFFECTIVE AS SOON AS IS PRACTICABLE AFTER THE FILING THEREOF, BUT IN NO EVENT LATER THAN 90 DAYS AFTER THE DATE ON WHICH THE COMPANY REASONABLY FIRST DETERMINES THE NEED THEREFOR.   3.2           ACCURACY OF REGISTRATION STATEMENT.  ANY REGISTRATION STATEMENT (INCLUDING ANY AMENDMENTS OR SUPPLEMENTS THERETO AND PROSPECTUSES CONTAINED THEREIN) FILED BY THE COMPANY COVERING REGISTRABLE SECURITIES WILL NOT CONTAIN ANY 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 LIGHT OF THE CIRCUMSTANCES IN WHICH THEY WERE MADE, NOT MISLEADING.  THE COMPANY WILL PREPARE AND FILE WITH THE SEC SUCH AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) AND SUPPLEMENTS TO THE REGISTRATION STATEMENT AND THE PROSPECTUS USED IN CONNECTION WITH THE REGISTRATION STATEMENT AS MAY BE NECESSARY TO PERMIT SALES PURSUANT TO THE REGISTRATION STATEMENT AT ALL TIMES DURING THE REGISTRATION PERIOD, AND, DURING SUCH PERIOD, WILL COMPLY WITH THE PROVISIONS OF THE SECURITIES ACT WITH RESPECT TO THE DISPOSITION OF ALL REGISTRABLE SECURITIES OF THE COMPANY COVERED BY THE REGISTRATION STATEMENT UNTIL THE TERMINATION OF THE REGISTRATION PERIOD, OR IF EARLIER, UNTIL SUCH TIME AS ALL OF SUCH REGISTRABLE SECURITIES HAVE BEEN DISPOSED OF IN ACCORDANCE WITH THE INTENDED METHODS OF DISPOSITION BY THE SELLER OR SELLERS THEREOF AS SET FORTH IN THE REGISTRATION STATEMENT.   3.3           FURNISHING DOCUMENTATION.  THE COMPANY WILL FURNISH TO EACH INVESTOR WHOSE REGISTRABLE SECURITIES ARE INCLUDED IN A REGISTRATION STATEMENT, OR TO ITS LEGAL COUNSEL, (A) PROMPTLY AFTER SUCH DOCUMENT IS FILED WITH THE SEC, ONE COPY OF ANY REGISTRATION STATEMENT FILED PURSUANT TO THIS AGREEMENT AND ANY AMENDMENTS THERETO, EACH PRELIMINARY PROSPECTUS AND FINAL PROSPECTUS AND EACH AMENDMENT OR SUPPLEMENT THERETO; AND (B) A NUMBER OF COPIES OF A PROSPECTUS, INCLUDING A PRELIMINARY PROSPECTUS, AND ALL AMENDMENTS AND SUPPLEMENTS THERETO, AND SUCH OTHER DOCUMENTS AS THE INVESTOR MAY REASONABLY REQUEST IN ORDER TO FACILITATE THE DISPOSITION OF THE REGISTRABLE SECURITIES OWNED BY THE INVESTOR.  THE COMPANY WILL PROMPTLY NOTIFY BY FACSIMILE OR EMAIL EACH INVESTOR WHOSE REGISTRABLE SECURITIES ARE INCLUDED IN ANY REGISTRATION STATEMENT OF THE EFFECTIVENESS OF THE REGISTRATION STATEMENT AND ANY POST-EFFECTIVE AMENDMENT.   4 --------------------------------------------------------------------------------   3.4           ADDITIONAL OBLIGATIONS.  THE COMPANY WILL USE ITS BEST EFFORTS TO (A) REGISTER AND QUALIFY THE REGISTRABLE SECURITIES COVERED BY A REGISTRATION STATEMENT UNDER SUCH OTHER SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTIONS AS EACH INVESTOR WHO HOLDS (OR HAS THE RIGHT TO HOLD) REGISTRABLE SECURITIES BEING OFFERED REASONABLY REQUESTS, (B) PREPARE AND FILE IN THOSE JURISDICTIONS ANY AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) AND SUPPLEMENTS TO SUCH REGISTRATIONS AND QUALIFICATIONS AS MAY BE NECESSARY TO MAINTAIN THEIR EFFECTIVENESS DURING THE REGISTRATION PERIOD, (C) TAKE ANY OTHER ACTIONS NECESSARY TO MAINTAIN SUCH REGISTRATIONS AND QUALIFICATIONS IN EFFECT AT ALL TIMES DURING THE REGISTRATION PERIOD, AND (D) TAKE ANY OTHER ACTIONS REASONABLY NECESSARY OR ADVISABLE TO QUALIFY THE REGISTRABLE SECURITIES FOR SALE IN SUCH JURISDICTIONS.  NOTWITHSTANDING THE FOREGOING, THE COMPANY IS NOT REQUIRED, IN CONNECTION WITH SUCH OBLIGATIONS, TO (I) QUALIFY TO DO BUSINESS IN ANY JURISDICTION WHERE IT WOULD NOT OTHERWISE BE REQUIRED TO QUALIFY BUT FOR THIS SECTION 3.4, (II) SUBJECT ITSELF TO GENERAL TAXATION IN ANY SUCH JURISDICTION, (III) FILE A GENERAL CONSENT TO SERVICE OF PROCESS IN ANY SUCH JURISDICTION, (IV) PROVIDE ANY UNDERTAKINGS THAT CAUSE MATERIAL EXPENSE OR MATERIAL BURDEN TO THE COMPANY, OR (V) MAKE ANY CHANGE IN ITS CHARTER OR BYLAWS, WHICH IN EACH CASE THE BOARD OF DIRECTORS OF THE COMPANY DETERMINES TO BE CONTRARY TO THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS.   3.5           UNDERWRITTEN OFFERINGS.  IF THE INVESTORS WHO HOLD A MAJORITY IN INTEREST OF THE REGISTRABLE SECURITIES BEING OFFERED IN AN OFFERING PURSUANT TO A REGISTRATION STATEMENT OR ANY AMENDMENT OR SUPPLEMENT THERETO UNDER THIS AGREEMENT SELECT UNDERWRITERS REASONABLY ACCEPTABLE TO THE COMPANY FOR SUCH OFFERING, THE COMPANY WILL ENTER INTO AND PERFORM ITS OBLIGATIONS UNDER AN UNDERWRITING AGREEMENT IN USUAL AND CUSTOMARY FORM INCLUDING, WITHOUT LIMITATION, CUSTOMARY INDEMNIFICATION AND CONTRIBUTION OBLIGATIONS, WITH THE MANAGING UNDERWRITER OF SUCH OFFERING.   3.6           SUSPENSION OF REGISTRATION.   (A)           THE COMPANY WILL NOTIFY (BY TELEPHONE AND ALSO BY FACSIMILE AND REPUTABLE OVERNIGHT COURIER) EACH INVESTOR WHO HOLDS REGISTRABLE SECURITIES BEING SOLD PURSUANT TO A REGISTRATION STATEMENT OF THE HAPPENING OF ANY EVENT OF WHICH THE COMPANY HAS KNOWLEDGE AS A RESULT OF WHICH THE PROSPECTUS INCLUDED IN THE REGISTRATION STATEMENT AS THEN IN EFFECT INCLUDES AN UNTRUE STATEMENT OF A MATERIAL FACT OR OMITS TO STATE A MATERIAL FACT REQUIRED TO BE STATED THEREIN OR NECESSARY TO MAKE THE STATEMENTS THEREIN, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING.  THE COMPANY WILL MAKE SUCH NOTIFICATION AS PROMPTLY AS PRACTICABLE (BUT IN NO EVENT MORE THAN TWO BUSINESS DAYS) AFTER THE COMPANY BECOMES AWARE OF THE EVENT, WILL PROMPTLY (BUT IN NO EVENT MORE THAN TEN BUSINESS DAYS) PREPARE AND FILE A SUPPLEMENT OR AMENDMENT TO THE REGISTRATION STATEMENT TO CORRECT SUCH UNTRUE STATEMENT OR OMISSION, AND WILL DELIVER A NUMBER OF COPIES OF SUCH SUPPLEMENT OR AMENDMENT TO EACH INVESTOR AS SUCH INVESTOR MAY REASONABLY REQUEST.   (B)           NOTWITHSTANDING THE OBLIGATIONS UNDER SECTION 3.6(A), IF IN THE GOOD FAITH JUDGMENT OF THE COMPANY, FOLLOWING CONSULTATION WITH LEGAL COUNSEL, IT WOULD BE DETRIMENTAL TO THE COMPANY AND ITS STOCKHOLDERS FOR RESALES OF REGISTRABLE SECURITIES TO BE MADE PURSUANT TO THE REGISTRATION STATEMENT DUE TO THE EXISTENCE OF A MATERIAL DEVELOPMENT OR POTENTIAL MATERIAL DEVELOPMENT INVOLVING THE COMPANY WHICH THE COMPANY WOULD BE OBLIGATED TO DISCLOSE IN THE REGISTRATION STATEMENT, BUT WHICH DISCLOSURE WOULD BE PREMATURE OR OTHERWISE INADVISABLE AT SUCH TIME OR WOULD REASONABLY BE EXPECTED TO HAVE A MATERIAL ADVERSE EFFECT UPON THE COMPANY AND ITS STOCKHOLDERS, THE COMPANY WILL HAVE THE RIGHT TO SUSPEND THE USE OF THE REGISTRATION STATEMENT FOR A PERIOD OF NOT MORE THAN FORTY-FIVE DAYS, PROVIDED, HOWEVER, THAT THE COMPANY MAY SO DEFER OR SUSPEND THE USE OF THE REGISTRATION STATEMENT NO MORE THAN ONE TIME IN ANY TWELVE-MONTH PERIOD.   5 --------------------------------------------------------------------------------   (C)           SUBJECT TO THE COMPANY’S RIGHTS UNDER THIS SECTION 3, THE COMPANY WILL USE ITS BEST EFFORTS TO PREVENT THE ISSUANCE OF ANY STOP ORDER OR OTHER SUSPENSION OF EFFECTIVENESS OF A REGISTRATION STATEMENT AND, IF SUCH AN ORDER IS ISSUED, WILL USE ITS BEST EFFORTS TO OBTAIN THE WITHDRAWAL OF SUCH ORDER AT THE EARLIEST POSSIBLE TIME AND TO NOTIFY EACH INVESTOR THAT HOLDS REGISTRABLE SECURITIES BEING SOLD (OR, IN THE EVENT OF AN UNDERWRITTEN OFFERING, THE MANAGING UNDERWRITERS) OF THE ISSUANCE OF SUCH ORDER AND THE RESOLUTION THEREOF.   (D)           NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN OR IN THE PURCHASE AGREEMENT, IF THE USE OF THE REGISTRATION STATEMENT IS SUSPENDED BY THE COMPANY, THE COMPANY WILL PROMPTLY (BUT IN NO EVENT MORE THAN TWO BUSINESS DAYS) GIVE NOTICE OF THE SUSPENSION TO ALL INVESTORS WHOSE SECURITIES ARE COVERED BY THE REGISTRATION STATEMENT, AND WILL PROMPTLY (BUT IN NO EVENT MORE THAN TWO BUSINESS DAYS) NOTIFY EACH SUCH INVESTOR AS SOON AS THE USE OF THE REGISTRATION STATEMENT MAY BE RESUMED.  NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN OR IN THE PURCHASE AGREEMENT, THE COMPANY WILL CAUSE THE TRANSFER AGENT TO DELIVER UNLEGENDED SHARES OF COMMON STOCK TO A TRANSFEREE OF AN INVESTOR IN ACCORDANCE WITH THE TERMS OF THE PURCHASE AGREEMENT IN CONNECTION WITH ANY SALE OF REGISTRABLE SECURITIES WITH RESPECT TO WHICH SUCH INVESTOR HAS ENTERED INTO A CONTRACT FOR SALE PRIOR TO RECEIPT OF NOTICE OF SUCH SUSPENSION AND FOR WHICH SUCH INVESTOR HAS NOT YET SETTLED, UNLESS OTHERWISE PROHIBITED BY LAW.   3.7           REVIEW BY THE INVESTORS.  THE COMPANY WILL PERMIT A SINGLE FIRM OF LEGAL COUNSEL, DESIGNATED BY THE INVESTORS WHO HOLD A MAJORITY IN INTEREST OF THE REGISTRABLE SECURITIES BEING SOLD PURSUANT TO A REGISTRATION STATEMENT (“INVESTOR’S COUNSEL”), TO REVIEW THE REGISTRATION STATEMENT AND ALL AMENDMENTS AND SUPPLEMENTS THERETO A REASONABLE AMOUNT OF TIME (NOT TO EXCEED FIVE (5) DAYS) PRIOR TO THEIR FILING WITH THE SEC, AND WILL NOT FILE ANY DOCUMENT IN A FORM TO WHICH SUCH COUNSEL REASONABLY OBJECTS, UNLESS OTHERWISE REQUIRED BY LAW IN THE OPINION OF THE COMPANY’S COUNSEL.  THE SECTIONS OF ANY SUCH REGISTRATION STATEMENT INCLUDING INFORMATION WITH RESPECT TO THE INVESTORS, THE INVESTORS’ BENEFICIAL OWNERSHIP OF SECURITIES OF THE COMPANY OR THE INVESTORS’ INTENDED METHOD OF DISPOSITION OF REGISTRABLE SECURITIES MUST CONFORM TO THE INFORMATION PROVIDED TO THE COMPANY BY EACH OF THE INVESTORS OR INVESTORS COUNSEL.   3.8           COMFORT LETTER; LEGAL OPINION.  AT THE REQUEST OF THE INVESTORS WHO HOLD A MAJORITY IN INTEREST OF THE REGISTRABLE SECURITIES BEING SOLD PURSUANT TO A REGISTRATION STATEMENT, AND ON THE DATE THAT REGISTRABLE SECURITIES ARE DELIVERED TO AN UNDERWRITER FOR SALE IN CONNECTION WITH THE REGISTRATION STATEMENT, THE COMPANY WILL FURNISH TO THE INVESTORS AND THE UNDERWRITERS (I) A LETTER, DATED SUCH DATE, FROM THE COMPANY’S INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS, IN FORM AND SUBSTANCE AS IS CUSTOMARILY GIVEN BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS TO UNDERWRITERS IN AN UNDERWRITTEN PUBLIC OFFERING, ADDRESSED TO THE UNDERWRITERS; AND (II) AN OPINION, DATED SUCH DATE, FROM COUNSEL REPRESENTING THE COMPANY FOR PURPOSES OF THE REGISTRATION STATEMENT, IN FORM AND SUBSTANCE AS IS CUSTOMARILY GIVEN IN AN UNDERWRITTEN PUBLIC OFFERING, ADDRESSED TO THE UNDERWRITERS AND INVESTORS.   3.9           DUE DILIGENCE; CONFIDENTIALITY.   (A)           THE COMPANY WILL MAKE AVAILABLE FOR INSPECTION BY ANY INVESTOR WHOSE REGISTRABLE SECURITIES ARE BEING SOLD PURSUANT TO A REGISTRATION STATEMENT, ANY UNDERWRITER PARTICIPATING IN ANY DISPOSITION PURSUANT TO THE REGISTRATION STATEMENT, AND ANY ATTORNEY, ACCOUNTANT OR OTHER AGENT RETAINED BY ANY SUCH INVESTOR OR UNDERWRITER (COLLECTIVELY, THE “INSPECTORS”), ALL PERTINENT FINANCIAL AND OTHER RECORDS, PERTINENT CORPORATE DOCUMENTS AND PROPERTIES OF THE COMPANY (COLLECTIVELY, THE “RECORDS”), AS EACH INSPECTOR REASONABLY DEEMS NECESSARY TO ENABLE THE INSPECTOR   6 --------------------------------------------------------------------------------   TO EXERCISE ITS DUE DILIGENCE RESPONSIBILITY.  THE COMPANY WILL CAUSE ITS OFFICERS, DIRECTORS AND EMPLOYEES TO SUPPLY ALL INFORMATION THAT ANY INSPECTOR MAY REASONABLY REQUEST FOR PURPOSES OF PERFORMING SUCH DUE DILIGENCE.   (B)           EACH INSPECTOR WILL HOLD IN CONFIDENCE, AND WILL NOT MAKE ANY DISCLOSURE (EXCEPT TO AN INVESTOR) OF, ANY RECORDS OR OTHER INFORMATION THAT THE COMPANY DETERMINES IN GOOD FAITH TO BE CONFIDENTIAL, AND OF WHICH DETERMINATION THE INSPECTORS ARE SO NOTIFIED, UNLESS (I) THE DISCLOSURE OF SUCH RECORDS IS NECESSARY TO AVOID OR CORRECT A MISSTATEMENT OR OMISSION IN ANY REGISTRATION STATEMENT, (II) THE RELEASE OF SUCH RECORDS IS ORDERED PURSUANT TO A SUBPOENA OR OTHER ORDER FROM A COURT OR GOVERNMENT BODY OF COMPETENT JURISDICTION, (III) THE INFORMATION IN SUCH RECORDS HAS BEEN MADE GENERALLY AVAILABLE TO THE PUBLIC OTHER THAN BY DISCLOSURE IN VIOLATION OF THIS OR ANY OTHER AGREEMENT (TO THE KNOWLEDGE OF THE RELEVANT INSPECTOR), (IV) THE RECORDS OR OTHER INFORMATION WAS DEVELOPED INDEPENDENTLY BY AN INSPECTOR WITHOUT BREACH OF THIS AGREEMENT, (V) THE INFORMATION WAS KNOWN TO THE INSPECTOR BEFORE RECEIPT OF SUCH INFORMATION FROM THE COMPANY, OR (VI) THE INFORMATION WAS DISCLOSED TO THE INSPECTOR BY A THIRD PARTY WITHOUT RESTRICTION.  THE COMPANY IS NOT REQUIRED TO DISCLOSE ANY CONFIDENTIAL INFORMATION IN THE RECORDS TO ANY INSPECTOR UNLESS AND UNTIL SUCH INSPECTOR HAS ENTERED INTO A CONFIDENTIALITY AGREEMENT (IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY) WITH THE COMPANY WITH RESPECT THERETO, SUBSTANTIALLY IN THE SUBSTANCE OF THIS SECTION 3.9(B).  EACH INVESTOR WILL, UPON LEARNING THAT DISCLOSURE OF RECORDS CONTAINING CONFIDENTIAL INFORMATION IS SOUGHT IN OR BY A COURT OR GOVERNMENTAL BODY OF COMPETENT JURISDICTION OR THROUGH OTHER MEANS, GIVE PROMPT NOTICE TO THE COMPANY AND ALLOW THE COMPANY, AT THE COMPANY’S EXPENSE, TO UNDERTAKE APPROPRIATE ACTION TO PREVENT DISCLOSURE OF, OR TO OBTAIN A PROTECTIVE ORDER FOR, THE RECORDS DEEMED CONFIDENTIAL.  NOTHING HEREIN WILL BE DEEMED TO LIMIT THE INVESTOR’S ABILITY TO SELL REGISTRABLE SECURITIES IN A MANNER THAT IS OTHERWISE CONSISTENT WITH APPLICABLE LAWS AND REGULATIONS.   (C)           THE COMPANY WILL HOLD IN CONFIDENCE, AND WILL NOT MAKE ANY DISCLOSURE OF, INFORMATION CONCERNING AN INVESTOR PROVIDED TO THE COMPANY UNDER THIS AGREEMENT UNLESS (I) DISCLOSURE OF SUCH INFORMATION IS NECESSARY TO COMPLY WITH FEDERAL OR STATE SECURITIES LAWS, (II) THE DISCLOSURE OF SUCH INFORMATION IS NECESSARY TO AVOID OR CORRECT A MISSTATEMENT OR OMISSION IN ANY REGISTRATION STATEMENT, (III) THE RELEASE OF SUCH INFORMATION IS ORDERED PURSUANT TO A SUBPOENA OR OTHER ORDER FROM A COURT OR GOVERNMENTAL BODY OF COMPETENT JURISDICTION, (IV) SUCH INFORMATION HAS BEEN MADE GENERALLY AVAILABLE TO THE PUBLIC OTHER THAN BY DISCLOSURE IN VIOLATION OF THIS AGREEMENT OR ANY OTHER AGREEMENT, (V) THE INFORMATION WAS DISCLOSED TO THE COMPANY BY A THIRD PARTY WITHOUT RESTRICTION OR (VI) SUCH INVESTOR CONSENTS TO THE FORM AND CONTENT OF ANY SUCH DISCLOSURE.  IF THE COMPANY LEARNS THAT DISCLOSURE OF SUCH INFORMATION CONCERNING AN INVESTOR IS SOUGHT IN OR BY A COURT OR GOVERNMENTAL BODY OF COMPETENT JURISDICTION OR THROUGH OTHER MEANS, THE COMPANY WILL GIVE PROMPT NOTICE TO SUCH INVESTOR PRIOR TO MAKING SUCH DISCLOSURE AND ALLOW SUCH INVESTOR, AT ITS EXPENSE, TO UNDERTAKE APPROPRIATE ACTION TO PREVENT DISCLOSURE OF, OR TO OBTAIN A PROTECTIVE ORDER FOR, SUCH INFORMATION.   3.10         TRANSFER AGENT; REGISTRAR.  THE COMPANY WILL PROVIDE A TRANSFER AGENT AND REGISTRAR, WHICH MAY BE A SINGLE ENTITY, FOR THE REGISTRABLE SECURITIES NOT LATER THAN THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT.   3.11         SHARE CERTIFICATES.  THE COMPANY WILL COOPERATE WITH THE INVESTORS WHO HOLD REGISTRABLE SECURITIES BEING SOLD AND WITH THE MANAGING UNDERWRITER(S), IF ANY, TO FACILITATE THE TIMELY PREPARATION AND DELIVERY OF CERTIFICATES (NOT BEARING ANY RESTRICTIVE LEGENDS) REPRESENTING REGISTRABLE SECURITIES TO BE OFFERED PURSUANT TO A REGISTRATION STATEMENT AND WILL ENABLE SUCH CERTIFICATES TO BE IN SUCH DENOMINATIONS OR AMOUNTS AS THE CASE MAY BE, AND REGISTERED IN SUCH NAMES AS THE INVESTORS OR   7 --------------------------------------------------------------------------------   THE MANAGING UNDERWRITER(S), IF ANY, MAY REASONABLY REQUEST, ALL IN ACCORDANCE WITH ARTICLE V OF THE PURCHASE AGREEMENT.   3.12         PLAN OF DISTRIBUTION.  AT THE REQUEST OF THE INVESTORS HOLDING A MAJORITY IN INTEREST OF THE REGISTRABLE SECURITIES REGISTERED PURSUANT TO A REGISTRATION STATEMENT, THE COMPANY WILL PROMPTLY PREPARE AND FILE WITH THE SEC SUCH AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) AND SUPPLEMENTS TO THE REGISTRATION STATEMENT, AND THE PROSPECTUS USED IN CONNECTION WITH THE REGISTRATION STATEMENT, AS MAY BE NECESSARY IN ORDER TO CHANGE THE PLAN OF DISTRIBUTION SET FORTH IN SUCH REGISTRATION STATEMENT.   3.13         SECURITIES LAWS COMPLIANCE.  THE COMPANY WILL COMPLY WITH ALL APPLICABLE LAWS RELATED TO ANY REGISTRATION STATEMENT RELATING TO THE OFFER AND SALE OF REGISTRABLE SECURITIES AND WITH ALL APPLICABLE RULES AND REGULATIONS OF GOVERNMENTAL AUTHORITIES IN CONNECTION THEREWITH (INCLUDING, WITHOUT LIMITATION, THE SECURITIES ACT, THE EXCHANGE ACT AND THE RULES AND REGULATIONS PROMULGATED BY THE SEC).   3.14         FURTHER ASSURANCES.  THE COMPANY WILL TAKE ALL OTHER REASONABLE ACTIONS AS ANY INVESTOR OR THE UNDERWRITERS, IF ANY, MAY REASONABLY REQUEST TO EXPEDITE AND FACILITATE DISPOSITION BY SUCH INVESTOR OF THE REGISTRABLE SECURITIES PURSUANT TO THE REGISTRATION STATEMENT.   ARTICLE IV OBLIGATIONS OF THE INVESTORS   4.1           INVESTOR INFORMATION.  AS A CONDITION TO THE OBLIGATIONS OF THE COMPANY TO COMPLETE ANY REGISTRATION PURSUANT TO THIS AGREEMENT WITH RESPECT TO THE REGISTRABLE SECURITIES OF EACH INVESTOR, SUCH INVESTOR SHALL FURNISH TO THE COMPANY SUCH INFORMATION REGARDING ITSELF, THE REGISTRABLE SECURITIES HELD BY IT AND THE INTENDED METHOD OF DISPOSITION OF THE REGISTRABLE SECURITIES HELD BY IT AS IS REASONABLY REQUIRED BY THE COMPANY TO EFFECT THE REGISTRATION OF THE REGISTRABLE SECURITIES.  AT LEAST TEN BUSINESS DAYS PRIOR TO THE FIRST ANTICIPATED FILING DATE OF A REGISTRATION STATEMENT FOR ANY REGISTRATION UNDER THIS AGREEMENT, THE COMPANY WILL NOTIFY EACH INVESTOR OF THE INFORMATION THE COMPANY REQUIRES FROM THAT INVESTOR IF THE INVESTOR ELECTS TO HAVE ANY OF ITS REGISTRABLE SECURITIES INCLUDED IN THE REGISTRATION STATEMENT, OTHER THAN INFORMATION CONTAINED IN THE SELLING SECURITYHOLDER NOTICE AND QUESTIONNAIRE ATTACHED HERETO AS ANNEX A, WHICH SHALL BE COMPLETED AND DELIVERED TO THE COMPANY NO LATER THAN FIVE DAYS AFTER THE CLOSING DATE OR SECOND CLOSING DATE, AS APPLICABLE.  IF, WITHIN TWO BUSINESS DAYS PRIOR TO THE FILING DATE, THE COMPANY HAS NOT RECEIVED THE REQUESTED INFORMATION FROM AN INVESTOR, THEN THE COMPANY MAY FILE THE REGISTRATION STATEMENT WITHOUT INCLUDING REGISTRABLE SECURITIES OF THAT INVESTOR.   4.2           FURTHER ASSURANCES.  EACH INVESTOR WILL COOPERATE WITH THE COMPANY, AS REASONABLY REQUESTED BY THE COMPANY, IN CONNECTION WITH THE PREPARATION AND FILING OF ANY REGISTRATION STATEMENT HEREUNDER, UNLESS SUCH INVESTOR HAS NOTIFIED THE COMPANY IN WRITING OF SUCH INVESTOR’S ELECTION TO EXCLUDE ALL OF SUCH INVESTOR’S REGISTRABLE SECURITIES FROM THE REGISTRATION STATEMENT.   4.3           SUSPENSION OF SALES.  UPON RECEIPT OF ANY NOTICE FROM THE COMPANY OF THE HAPPENING OF ANY EVENT OF THE KIND DESCRIBED IN SECTION 3.6, EACH INVESTOR WILL IMMEDIATELY DISCONTINUE DISPOSITION OF REGISTRABLE SECURITIES PURSUANT TO THE REGISTRATION STATEMENT COVERING SUCH REGISTRABLE SECURITIES UNTIL IT RECEIVES COPIES OF THE SUPPLEMENTED OR AMENDED PROSPECTUS CONTEMPLATED BY SECTION 3.6.  IF SO DIRECTED BY THE COMPANY, EACH INVESTOR WILL DELIVER TO THE COMPANY (AT THE EXPENSE OF THE COMPANY) OR DESTROY (AND DELIVER TO THE COMPANY A CERTIFICATE OF DESTRUCTION) ALL   8 --------------------------------------------------------------------------------   COPIES IN THE INVESTOR’S POSSESSION (OTHER THAN A LIMITED NUMBER OF FILE COPIES) OF THE PROSPECTUS COVERING SUCH REGISTRABLE SECURITIES THAT IS CURRENT AT THE TIME OF RECEIPT OF SUCH NOTICE.   4.4           UNDERWRITTEN OFFERINGS.   (A)           IF INVESTORS HOLDING A MAJORITY IN INTEREST OF THE REGISTRABLE SECURITIES BEING REGISTERED (WITH THE APPROVAL OF THE INITIAL INVESTORS) DETERMINE TO ENGAGE THE SERVICES OF AN UNDERWRITER, EACH INVESTOR WILL ENTER INTO AND PERFORM SUCH INVESTOR’S OBLIGATIONS UNDER AN UNDERWRITING AGREEMENT, IN USUAL AND CUSTOMARY FORM, INCLUDING, WITHOUT LIMITATION, CUSTOMARY INDEMNIFICATION AND CONTRIBUTION OBLIGATIONS, WITH THE MANAGING UNDERWRITER OF SUCH OFFERING, AND WILL TAKE SUCH OTHER ACTIONS AS ARE REASONABLY REQUIRED IN ORDER TO EXPEDITE OR FACILITATE THE DISPOSITION OF THE REGISTRABLE SECURITIES, UNLESS SUCH INVESTOR HAS NOTIFIED THE COMPANY IN WRITING OF SUCH INVESTOR’S ELECTION TO EXCLUDE ALL OF ITS REGISTRABLE SECURITIES FROM SUCH REGISTRATION STATEMENT.   (B)           WITHOUT LIMITING ANY INVESTOR’S RIGHTS UNDER SECTION 2.1 HEREOF, NO INVESTOR MAY PARTICIPATE IN ANY UNDERWRITTEN DISTRIBUTION HEREUNDER UNLESS SUCH INVESTOR (A) AGREES TO SELL SUCH INVESTOR’S REGISTRABLE SECURITIES ON THE BASIS PROVIDED IN ANY UNDERWRITING ARRANGEMENTS APPROVED BY THE INVESTORS ENTITLED HEREUNDER TO APPROVE SUCH ARRANGEMENTS, (B) COMPLETES AND EXECUTES ALL QUESTIONNAIRES, POWERS OF ATTORNEY, INDEMNITIES, UNDERWRITING AGREEMENTS AND OTHER DOCUMENTS REASONABLY REQUIRED UNDER THE TERMS OF SUCH UNDERWRITING ARRANGEMENTS, AND (C) AGREES TO PAY ITS PRO RATA SHARE OF ALL UNDERWRITING DISCOUNTS AND COMMISSIONS APPLICABLE WITH RESPECT TO ITS REGISTRABLE SECURITIES.   ARTICLE V EXPENSES OF REGISTRATION   The Company will bear all reasonable expenses, other than underwriting discounts and commissions, and transfer taxes, if any, incurred in connection with registrations, filings or qualifications pursuant to Articles II and III of this Agreement, including, without limitation, all registration, listing and qualifications fees, printers and accounting fees, the fees and disbursements of counsel for the Company, and the reasonable fees and disbursements of one firm of legal counsel selected by the Initial Investors pursuant to Section 3.7 hereof.   9 --------------------------------------------------------------------------------   ARTICLE VI INDEMNIFICATION   In the event that any Registrable Securities are included in a Registration Statement under this Agreement:   6.1           TO THE EXTENT PERMITTED BY LAW, THE COMPANY WILL INDEMNIFY, DEFEND AND HOLD HARMLESS EACH INVESTOR THAT HOLDS SUCH REGISTRABLE SECURITIES, AND AGENTS, EMPLOYEES, ATTORNEYS, ACCOUNTANTS, UNDERWRITERS (AS DEFINED IN THE SECURITIES ACT) FOR SUCH INVESTORS AND ANY DIRECTORS OR OFFICERS OF SUCH INVESTOR OR SUCH UNDERWRITER AND ANY PERSON WHO CONTROLS SUCH INVESTOR OR SUCH UNDERWRITER WITHIN THE MEANING OF THE SECURITIES ACT OR THE EXCHANGE ACT (EACH, AN “INVESTOR INDEMNIFIED PERSON”) AGAINST ANY LOSSES, CLAIMS, DAMAGES, EXPENSES OR LIABILITIES (COLLECTIVELY, AND TOGETHER WITH ACTIONS, PROCEEDINGS OR INQUIRIES BY ANY REGULATORY OR SELF-REGULATORY ORGANIZATION, WHETHER COMMENCED OR THREATENED IN RESPECT THEREOF, “CLAIMS”) TO WHICH ANY OF THEM BECOME SUBJECT UNDER THE SECURITIES ACT, THE EXCHANGE ACT OR OTHERWISE, INSOFAR AS SUCH CLAIMS ARISE OUT OF OR ARE BASED UPON ANY OF THE FOLLOWING STATEMENTS, OMISSIONS OR VIOLATIONS IN A REGISTRATION STATEMENT FILED PURSUANT TO THIS AGREEMENT, ANY POST-EFFECTIVE AMENDMENT THEREOF OR ANY PROSPECTUS INCLUDED THEREIN:  (A) ANY UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OF A MATERIAL FACT CONTAINED IN THE REGISTRATION STATEMENT OR ANY POST-EFFECTIVE AMENDMENT THEREOF OR THE OMISSION OR ALLEGED OMISSION TO STATE THEREIN A MATERIAL FACT REQUIRED TO BE STATED THEREIN OR NECESSARY TO MAKE THE STATEMENTS THEREIN NOT MISLEADING, (B) ANY UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OF A MATERIAL FACT CONTAINED IN THE PROSPECTUS OR ANY PRELIMINARY PROSPECTUS (AS IT MAY BE AMENDED OR SUPPLEMENTED) OR THE OMISSION OR ALLEGED OMISSION TO STATE THEREIN ANY MATERIAL FACT NECESSARY TO MAKE THE STATEMENTS MADE THEREIN, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THE STATEMENTS THEREIN WERE MADE, NOT MISLEADING, OR (C) ANY VIOLATION OR ALLEGED VIOLATION BY THE COMPANY OF THE SECURITIES ACT, THE EXCHANGE ACT OR ANY OTHER LAW, INCLUDING WITHOUT LIMITATION ANY STATE SECURITIES LAW OR ANY RULE OR REGULATION THEREUNDER (THE MATTERS IN THE FOREGOING CLAUSES (A) THROUGH (C) BEING, COLLECTIVELY, “VIOLATIONS”).  SUBJECT TO THE RESTRICTIONS SET FORTH IN SECTION 6.4 WITH RESPECT TO THE NUMBER OF LEGAL COUNSEL, THE COMPANY WILL REIMBURSE THE INVESTORS AND EACH SUCH ATTORNEY, ACCOUNTANT, UNDERWRITER OR CONTROLLING PERSON AND EACH SUCH OTHER INVESTOR INDEMNIFIED PERSON, PROMPTLY AS SUCH EXPENSES ARE INCURRED AND ARE DUE AND PAYABLE, FOR ANY LEGAL FEES OR OTHER REASONABLE EXPENSES INCURRED BY THEM IN CONNECTION WITH INVESTIGATING OR DEFENDING ANY CLAIM.  NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN, THE INDEMNIFICATION AGREEMENT CONTAINED IN THIS SECTION 6.1 (I) DOES NOT APPLY TO A CLAIM BY AN INVESTOR INDEMNIFIED PERSON ARISING OUT OF OR BASED UPON A VIOLATION THAT OCCURS IN RELIANCE UPON AND IN CONFORMITY WITH INFORMATION FURNISHED IN WRITING TO THE COMPANY BY SUCH INVESTOR INDEMNIFIED PERSON EXPRESSLY FOR USE IN THE REGISTRATION STATEMENT OR ANY SUCH AMENDMENT THEREOF OR SUPPLEMENT THERETO, IF SUCH PROSPECTUS OR SUPPLEMENT THERETO WAS TIMELY MADE AVAILABLE BY THE COMPANY PURSUANT TO SECTION 3.3 HEREOF; AND (II) DOES NOT APPLY TO AMOUNTS PAID IN SETTLEMENT OF ANY CLAIM IF SUCH SETTLEMENT IS MADE WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMPANY, WHICH CONSENT WILL NOT BE UNREASONABLY WITHHELD. THIS INDEMNITY OBLIGATION WILL REMAIN IN FULL FORCE AND EFFECT REGARDLESS OF ANY INVESTIGATION MADE BY OR ON BEHALF OF THE INDEMNIFIED PERSONS AND WILL SURVIVE THE TRANSFER OF THE REGISTRABLE SECURITIES BY THE INVESTORS UNDER ARTICLE IX OF THIS AGREEMENT.   6.2           IN CONNECTION WITH ANY REGISTRATION STATEMENT IN WHICH AN INVESTOR IS PARTICIPATING, EACH SUCH INVESTOR WILL INDEMNIFY AND HOLD HARMLESS, TO THE SAME EXTENT AND IN THE SAME MANNER SET FORTH IN SECTION 6.1 ABOVE, THE COMPANY, EACH OF ITS DIRECTORS, EACH OF ITS OFFICERS WHO SIGNS THE REGISTRATION STATEMENT, EACH PERSON, IF ANY, WHO CONTROLS THE COMPANY WITHIN THE MEANING OF THE SECURITIES ACT OR THE EXCHANGE ACT, AND ANY OTHER STOCKHOLDER SELLING SECURITIES PURSUANT TO THE REGISTRATION STATEMENT OR ANY OF ITS DIRECTORS OR OFFICERS OR ANY PERSON WHO CONTROLS SUCH STOCKHOLDER   10 --------------------------------------------------------------------------------   WITHIN THE MEANING OF THE SECURITIES ACT OR THE EXCHANGE ACT (EACH A “COMPANY INDEMNIFIED PERSON”) AGAINST ANY CLAIM TO WHICH ANY OF THEM MAY BECOME SUBJECT UNDER THE SECURITIES ACT, THE EXCHANGE ACT OR OTHERWISE, INSOFAR AS SUCH CLAIM ARISES OUT OF OR IS BASED UPON ANY VIOLATION, IN EACH CASE TO THE EXTENT (AND ONLY TO THE EXTENT) THAT SUCH VIOLATION OCCURS IN RELIANCE UPON AND IN CONFORMITY WITH WRITTEN INFORMATION FURNISHED TO THE COMPANY BY SUCH INVESTOR EXPRESSLY FOR USE IN SUCH REGISTRATION STATEMENT.  SUBJECT TO THE RESTRICTIONS SET FORTH IN SECTION 6.4 WITH RESPECT TO THE NUMBER OF LEGAL COUNSEL, SUCH INVESTOR WILL PROMPTLY REIMBURSE EACH COMPANY INDEMNIFIED PERSON FOR ANY LEGAL OR OTHER EXPENSES (PROMPTLY AS SUCH EXPENSES ARE INCURRED AND DUE AND PAYABLE) REASONABLY INCURRED BY THEM IN CONNECTION WITH INVESTIGATING OR DEFENDING ANY SUCH CLAIM.   HOWEVER, THE INDEMNITY AGREEMENT CONTAINED IN THIS SECTION 6.2 DOES NOT APPLY TO AMOUNTS PAID IN SETTLEMENT OF ANY CLAIM IF SUCH SETTLEMENT IS EFFECTED WITHOUT THE PRIOR WRITTEN CONSENT OF SUCH INVESTOR, WHICH CONSENT WILL NOT BE UNREASONABLY WITHHELD, AND NO INVESTOR WILL BE LIABLE UNDER THIS AGREEMENT (INCLUDING THIS SECTION 6.2 AND ARTICLE VII) FOR THE AMOUNT OF ANY CLAIM THAT EXCEEDS THE NET PROCEEDS ACTUALLY RECEIVED BY SUCH INVESTOR AS A RESULT OF THE SALE OF REGISTRABLE SECURITIES PURSUANT TO SUCH REGISTRATION STATEMENT.  THIS INDEMNITY WILL REMAIN IN FULL FORCE AND EFFECT REGARDLESS OF ANY INVESTIGATION MADE BY OR ON BEHALF OF A COMPANY INDEMNIFIED PARTY AND WILL SURVIVE THE TRANSFER OF THE REGISTRABLE SECURITIES BY THE INVESTORS UNDER ARTICLE IX OF THIS AGREEMENT.   6.3           IF ANY PROCEEDING SHALL BE BROUGHT OR ANY CLAIM ASSERTED AGAINST ANY PERSON ENTITLED TO INDEMNITY UNDER SECTIONS 6.1 OR 6.2 HEREOF (AN “INDEMNIFIED PARTY”), SUCH INDEMNIFIED PARTY PROMPTLY SHALL NOTIFY THE PERSON FROM WHOM INDEMNITY IS SOUGHT (THE “INDEMNIFYING PARTY”) IN WRITING, AND THE INDEMNIFYING PARTY SHALL ASSUME THE DEFENSE THEREOF, INCLUDING THE EMPLOYMENT OF COUNSEL REASONABLY SATISFACTORY TO THE INDEMNIFIED PARTY AND THE PAYMENT OF ALL REASONABLE FEES AND EXPENSES INCURRED IN CONNECTION WITH DEFENSE THEREOF; PROVIDED, HOWEVER, THAT THE FAILURE OF ANY INDEMNIFIED PARTY TO GIVE SUCH NOTICE SHALL NOT RELIEVE THE INDEMNIFYING PARTY OF ITS OBLIGATIONS OR LIABILITIES PURSUANT TO THIS AGREEMENT, EXCEPT (AND ONLY) TO THE EXTENT THAT SUCH FAILURE SHALL HAVE PROXIMATELY AND MATERIALLY ADVERSELY PREJUDICED THE INDEMNIFYING PARTY.   6.4           AN INDEMNIFIED PARTY SHALL HAVE THE RIGHT TO EMPLOY SEPARATE COUNSEL IN ANY SUCH PROCEEDING AND TO PARTICIPATE IN THE DEFENSE THEREOF, BUT THE FEES AND EXPENSES OF SUCH COUNSEL SHALL BE AT THE EXPENSE OF SUCH INDEMNIFIED PARTY OR INDEMNIFIED PARTIES UNLESS: (I) THE INDEMNIFYING PARTY HAS AGREED IN WRITING TO PAY SUCH FEES AND EXPENSES; (II) THE INDEMNIFYING PARTY SHALL HAVE FAILED PROMPTLY TO ASSUME THE DEFENSE OF SUCH PROCEEDING AND TO EMPLOY COUNSEL REASONABLY SATISFACTORY TO SUCH INDEMNIFIED PARTY IN ANY SUCH PROCEEDING; OR (III) THE NAMED PARTIES TO ANY SUCH PROCEEDING (INCLUDING ANY IMPLEADED PARTIES) INCLUDE BOTH SUCH INDEMNIFIED PARTY AND THE INDEMNIFYING PARTY, AND SUCH INDEMNIFIED PARTY SHALL HAVE BEEN ADVISED BY COUNSEL THAT A CONFLICT OF INTEREST IS LIKELY TO EXIST IF THE SAME COUNSEL WERE TO REPRESENT SUCH INDEMNIFIED PARTY AND THE INDEMNIFYING PARTY (IN WHICH CASE, IF SUCH INDEMNIFIED PARTY NOTIFIES THE INDEMNIFYING PARTY IN WRITING THAT IT ELECTS TO EMPLOY SEPARATE COUNSEL AT THE EXPENSE OF THE INDEMNIFYING PARTY, THE INDEMNIFYING PARTY SHALL NOT HAVE THE RIGHT TO ASSUME THE DEFENSE THEREOF AND SUCH COUNSEL SHALL BE AT THE REASONABLE EXPENSE OF THE INDEMNIFYING PARTY; PROVIDED, HOWEVER, THAT IN NO EVENT SHALL THE INDEMNIFYING PARTY BE RESPONSIBLE FOR THE FEES AND EXPENSES OF MORE THAN ONE SEPARATE COUNSEL).  THE INDEMNIFYING PARTY SHALL NOT BE LIABLE FOR ANY SETTLEMENT OF ANY SUCH PROCEEDING EFFECTED WITHOUT ITS WRITTEN CONSENT, WHICH CONSENT SHALL NOT BE UNREASONABLY WITHHELD.  NO INDEMNIFYING PARTY SHALL, WITHOUT THE PRIOR WRITTEN CONSENT OF THE INDEMNIFIED PARTY, EFFECT ANY SETTLEMENT OF ANY PENDING PROCEEDING IN RESPECT OF WHICH ANY INDEMNIFIED PARTY IS A PARTY, UNLESS SUCH SETTLEMENT INCLUDES AN UNCONDITIONAL RELEASE OF SUCH INDEMNIFIED PARTY FROM ALL LIABILITY ON CLAIMS THAT ARE THE SUBJECT MATTER OF SUCH PROCEEDING.   11 --------------------------------------------------------------------------------   6.5           SUBJECT TO THE FOREGOING, ALL REASONABLE FEES AND EXPENSES OF THE INDEMNIFIED PARTY (INCLUDING FEES AND EXPENSES TO THE EXTENT INCURRED IN CONNECTION WITH INVESTIGATING OR PREPARING TO DEFEND SUCH PROCEEDING IN A MANNER NOT INCONSISTENT WITH THIS SECTION) SHALL BE PAID TO THE INDEMNIFIED PARTY, AS INCURRED, WITHIN TEN (10) BUSINESS DAYS OF WRITTEN NOTICE THEREOF TO THE INDEMNIFYING PARTY, WHICH NOTICE SHALL BE DELIVERED NO MORE FREQUENTLY THAN ON A MONTHLY BASIS (REGARDLESS OF WHETHER IT IS ULTIMATELY DETERMINED THAT AN INDEMNIFIED PARTY IS NOT ENTITLED TO INDEMNIFICATION HEREUNDER; PROVIDED, THAT THE INDEMNIFYING PARTY MAY REQUIRE SUCH INDEMNIFIED PARTY TO UNDERTAKE TO REIMBURSE ALL SUCH FEES AND EXPENSES TO THE EXTENT IT IS FINALLY JUDICIALLY DETERMINED THAT SUCH INDEMNIFIED PARTY IS NOT ENTITLED TO INDEMNIFICATION HEREUNDER).   ARTICLE VII CONTRIBUTION   If the indemnification provided for in Article VI is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage or expense referred to herein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party, on the one hand, and of the indemnified party, on the other, in connection with the statements or omissions that resulted in such loss, liability, claim, damage or expense, as well as any other relevant equitable considerations; provided, that in no event shall any contribution by a Investor under this Article VII exceed the net proceeds from the offering received by such Investor, except in the case of fraud by such Investor.  The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties’ relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission.   ARTICLE VIII EXCHANGE ACT REPORTING   In order to make available to the Investors the benefits of Rule 144 or any similar rule or regulation of the SEC that may at any time permit the Investors to sell securities of the Company to the public without registration, the Company will:   (A)           FILE WITH THE SEC IN A TIMELY MANNER, AND MAKE AND KEEP AVAILABLE, ALL REPORTS AND OTHER DOCUMENTS REQUIRED OF THE COMPANY UNDER THE SECURITIES ACT AND THE EXCHANGE ACT SO LONG AS THE COMPANY REMAINS SUBJECT TO SUCH REQUIREMENTS AND FILE AND MAKE AVAILABLE OF SUCH REPORTS AND OTHER DOCUMENTS AS REQUIRED FOR THE APPLICABLE PROVISIONS OF RULE 144; AND   (B)           FURNISH TO EACH INVESTOR, SO LONG AS SUCH INVESTOR HOLDS REGISTRABLE SECURITIES, PROMPTLY UPON THE INVESTOR’S REQUEST, (I) A WRITTEN STATEMENT BY THE COMPANY THAT IT HAS COMPLIED WITH THE REPORTING REQUIREMENTS OF RULE 144, THE SECURITIES ACT AND THE EXCHANGE ACT, (II) A COPY OF THE MOST RECENT ANNUAL OR QUARTERLY REPORT OF THE COMPANY AND SUCH OTHER REPORTS AND DOCUMENTS FILED BY THE COMPANY WITH THE SEC, AND (III) SUCH OTHER INFORMATION AS MAY BE REASONABLY REQUESTED TO PERMIT THE INVESTORS TO SELL SUCH SECURITIES PURSUANT TO RULE 144 WITHOUT REGISTRATION.   12 --------------------------------------------------------------------------------   ARTICLE IX ASSIGNMENT OF REGISTRATION RIGHTS   The rights of the Initial Investors hereunder, including the right to have the Company register Registrable Securities pursuant to this Agreement, may be assigned by the Initial Investors to transferees or assignees of all or any portion of the Registrable Securities, but only if (a) the Investor agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment, (b) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being transferred or assigned, (c) after such transfer or assignment, the further disposition of such securities by the transferee or assignee is restricted under the Securities Act and applicable state securities laws, (d) at or before the time the Company received the written notice contemplated by clause (b) of this sentence, the transferee or assignee agrees in writing with the Company to be bound by all of the provisions contained herein, (e) such transfer is made in accordance with the applicable requirements of the Purchase Agreement, and (f) the transferee is an “accredited investor” as that term is defined in Rule 501 of Regulation D.   ARTICLE X AMENDMENT OF REGISTRATION RIGHTS   This Agreement may be amended and the obligations hereunder may be waived (either generally or in a particular instance, and either retroactively or prospectively) only with the written consent of the Company and of the Investors who then hold a majority of the Registrable Securities.  Any amendment or waiver effected in accordance with this Article X is binding upon each Investor and the Company.   ARTICLE XI MISCELLANEOUS   11.1         CONFLICTING INSTRUCTIONS.  A PERSON OR ENTITY IS DEEMED TO BE A HOLDER OF REGISTRABLE SECURITIES WHENEVER SUCH PERSON OR ENTITY OWNS OF RECORD SUCH REGISTRABLE SECURITIES.  IF THE COMPANY RECEIVES CONFLICTING INSTRUCTIONS, NOTICES OR ELECTIONS FROM TWO OR MORE PERSONS OR ENTITIES WITH RESPECT TO THE SAME REGISTRABLE SECURITIES, THE COMPANY WILL ACT UPON THE BASIS OF INSTRUCTIONS, NOTICE OR ELECTION RECEIVED FROM THE REGISTERED OWNER OF SUCH REGISTRABLE SECURITIES.   11.2         NOTICES.  ANY NOTICES REQUIRED OR PERMITTED TO BE GIVEN UNDER THE TERMS OF THIS AGREEMENT WILL BE GIVEN AS SET FORTH IN THE PURCHASE AGREEMENT.   11.3         WAIVER.  FAILURE OF ANY PARTY TO EXERCISE ANY RIGHT OR REMEDY UNDER THIS AGREEMENT OR OTHERWISE, OR DELAY BY A PARTY IN EXERCISING SUCH RIGHT OR REMEDY, DOES NOT OPERATE AS A WAIVER THEREOF.   11.4         GOVERNING LAW.  THIS AGREEMENT WILL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE FEDERAL SECURITIES LAWS AND THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS.  THE PARTIES HERETO HEREBY SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL AND STATE COURTS LOCATED IN THE COUNTY OF ORANGE, STATE OF CALIFORNIA WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS AGREEMENT, THE AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY HEREBY IRREVOCABLY WAIVES   13 --------------------------------------------------------------------------------   ANY RIGHT THAT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY.   11.5         SEVERABILITY.  IF ANY PROVISION OF THIS AGREEMENT IS INVALID OR UNENFORCEABLE UNDER ANY APPLICABLE STATUTE OR RULE OF LAW, THEN SUCH PROVISION WILL BE DEEMED MODIFIED IN ORDER TO CONFORM WITH SUCH STATUTE OR RULE OF LAW.  ANY PROVISION HEREOF THAT MAY PROVE INVALID OR UNENFORCEABLE UNDER ANY LAW WILL NOT AFFECT THE VALIDITY OR ENFORCEABILITY OF ANY OTHER PROVISION HEREOF.   11.6         ENTIRE AGREEMENT.  THIS AGREEMENT AND THE PURCHASE AGREEMENT (INCLUDING ALL SCHEDULES AND EXHIBITS THERETO) CONSTITUTE THE ENTIRE AGREEMENT AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND THEREOF.  THERE ARE NO RESTRICTIONS, PROMISES, WARRANTIES OR UNDERTAKINGS, OTHER THAN THOSE SET FORTH OR REFERRED TO HEREIN OR THEREIN.  THIS AGREEMENT SUPERSEDES ALL PRIOR AGREEMENTS AND UNDERSTANDINGS AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF.   11.7         SUCCESSORS AND ASSIGNS.  SUBJECT TO THE REQUIREMENTS OF ARTICLE IX HEREOF, THIS AGREEMENT INURES TO THE BENEFIT OF AND IS BINDING UPON THE SUCCESSORS AND ASSIGNS OF EACH OF THE PARTIES HERETO.  NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN, INCLUDING, WITHOUT LIMITATION, ARTICLE IX, THE RIGHTS OF AN INVESTOR HEREUNDER ARE ASSIGNABLE TO AND EXERCISABLE BY A BONA FIDE PLEDGEE OF THE REGISTRABLE SECURITIES IN CONNECTION WITH AN INVESTOR’S MARGIN OR BROKERAGE ACCOUNTS.   11.8         HEADINGS.  THE HEADINGS OF THIS AGREEMENT ARE FOR CONVENIENCE OF REFERENCE ONLY, ARE NOT PART OF THIS AGREEMENT AND DO NOT AFFECT ITS INTERPRETATION.   11.9         COUNTERPARTS.  THIS AGREEMENT MAY BE EXECUTED IN TWO OR MORE COUNTERPARTS, EACH OF WHICH IS DEEMED AN ORIGINAL BUT ALL OF WHICH CONSTITUTE ONE AND THE SAME AGREEMENT.  THIS AGREEMENT, ONCE EXECUTED BY A PARTY, MAY BE DELIVERED TO THE OTHER PARTY HERETO BY FACSIMILE TRANSMISSION, AND FACSIMILE SIGNATURES ARE BINDING ON THE PARTIES HERETO.   11.10       FURTHER ASSURANCES.  EACH PARTY WILL DO AND PERFORM, OR CAUSE TO BE DONE AND PERFORMED, ALL SUCH FURTHER ACTS AND THINGS, AND WILL EXECUTE AND DELIVER ALL OTHER AGREEMENTS, CERTIFICATES, INSTRUMENTS AND DOCUMENTS, AS ANOTHER PARTY MAY REASONABLY REQUEST IN ORDER TO CARRY OUT THE INTENT AND ACCOMPLISH THE PURPOSES OF THIS AGREEMENT AND THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED HEREBY.   11.11       CONSENTS.  UNLESS OTHERWISE PROVIDED IN THIS AGREEMENT, ALL CONSENTS AND OTHER DETERMINATIONS TO BE MADE BY THE INVESTORS PURSUANT TO THIS AGREEMENT WILL BE MADE BY THE INVESTORS HOLDING A MAJORITY IN INTEREST OF THE REGISTRABLE SECURITIES.   11.12       NO STRICT CONSTRUCTION.  THE LANGUAGE USED IN THIS AGREEMENT IS DEEMED TO BE THE LANGUAGE CHOSEN BY THE PARTIES TO EXPRESS THEIR MUTUAL INTENT, AND NO RULES OF STRICT CONSTRUCTION WILL BE APPLIED AGAINST ANY PARTY.   [SIGNATURES ON FOLLOWING PAGE]   14 --------------------------------------------------------------------------------   IN WITNESS WHEREOF, the undersigned Investors and the Company have caused this Registration Rights Agreement to be duly executed as of the date first above written.     COMPANY:       DYNTEK, INC.           By: /s/ Casper Zublin, Jr.   Name: Casper Zublin, Jr.   Title: Chief Executive Officer   15 --------------------------------------------------------------------------------   OMNIBUS SIGNATURE PAGE TO DYNTEK, INC. REGISTRATION RIGHTS AGREEMENT   The undersigned hereby executes and delivers the Registration Rights Agreement to which this Signature Page is attached, which, together with all counterparts of the Agreement and Signature Pages of the other parties named in said Agreement, shall constitute one and the same document in accordance with the terms of the Agreement.     Investor Name:           Sign Name:           Print Name:           Address:                                   Telephone:           Facsimile:         Number of Common Shares:           Number of Warrant Shares:     i --------------------------------------------------------------------------------

Exhibit 10.1   AMENDMENT NO. 3 TO MARKETING REPRESENTATION AGREEMENT   This Amendment No. 3 to Marketing Representation Agreement (the “Amendment No. 3”) is made this 27th day of January, 2006, by and among (i) Novoste Corporation, a Florida corporation with its principal place of business at 4350 International Boulevard, Norcross, Georgia 30093 (“Novoste”), (ii) Best Vascular, Inc., a Delaware corporation with its principal place of business at 7643 Fullerton Road, Springfield, Virginia 22153 (“Representative”), and (iii) Best Medical International, Inc., a Virginia corporation which is an affiliate of Representative, with its principal place of business at 7643 Fullerton Road, Springfield, Virginia 22153 (“BMI”);   WHEREAS, Novoste, Representative and BMI entered into that certain Marketing Representation Agreement, dated as of August 25, 2005, as amended October 12, 2005 pursuant to Amendment No. 1 to Marketing Representation Agreement and as further amended November 30, 2005 pursuant to Amendment No. 2 to Marketing Representation Agreement (as amended, the “Marketing Representation Agreement”), pursuant to which Novoste engaged Representative to market, demonstrate and solicit orders for various products with respect to Seller’s VBT Business; and   WHEREAS, Novoste, Representative and BMI desire to amend the provisions of the Marketing Representation Agreement relating to its term; and   WHEREAS, the parties hereto are concurrently with this Amendment No. 3 entering into an amendment to the Amended and Restated Asset Purchase Agreement, dated as of October 12, 2005, as amended November 30, 2005; and   WHEREAS, for purposes of this Amendment No. 3, capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Marketing Representation Agreement;   NOW, THEREFORE, in consideration of the mutual promises contained herein, the recitals set forth above, which are hereby incorporated by reference, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:   1. Term. Section 7.1(c) shall be amended by deleting the date “February 15, 2006” and inserting in lieu thereof the date “March 31, 2006”.   2. Other Terms Unchanged. The Marketing Representation Agreement, as amended by this Amendment No. 3, shall remain and continue in full -------------------------------------------------------------------------------- force and effect, shall constitute a legal, valid and binding obligation of Novoste, Representative and BMI and is in all respects agreed to, ratified and confirmed hereby. Any reference to the Marketing Representation Agreement after the date first set forth above shall be deemed to be a reference to the Marketing Representation Agreement, as amended by this Amendment No. 3.   3. Governing Law. This Amendment No. 3 shall be governed by the substantive laws of the State of Georgia, without regard to conflict-of-laws issues.   4. Counterparts. This Amendment No. 3 may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same document.   5. Titles and Captions. Section headings are used for convenience and shall not affect the interpretation or construction of any provision of this Amendment No. 3.   [Remainder of Page Intentionally Left Blank] -------------------------------------------------------------------------------- Accepted and agreed to by the parties by their duly authorized representatives as of the date first set forth above.   NOVOSTE CORPORATION   BEST VASCULAR, INC. By:   /s/ Alfred J. Novak --------------------------------------------------------------------------------   By:   /s/ Shawn R. Weingast -------------------------------------------------------------------------------- Title:   President and Chief Executive Officer   Title:   General Counsel Date:   January 27, 2006   Date:   January 27, 2006 BEST MEDICAL INTERNATIONAL, INC.         By:   /s/ Alfred J. Novak --------------------------------------------------------------------------------         Title:   General Counsel         Date:   January 27, 2006        

EXECUTION VERSION CREDIT AGREEMENT among LENNAR CORPORATION and the Lenders Party Hereto and JPMORGAN CHASE BANK, N.A., as Administrative Agent, and BANK OF AMERICA, N.A. BARCLAYS BANK PLC CALYON NEW YORK BRANCH THE ROYAL BANK OF SCOTLAND PLC and WACHOVIA BANK, N.A. as Documentation Agents, and LLOYDS TSB BANK PLC UBS LOAN FINANCE LLC BNP PARIBAS and SUNTRUST BANK as Senior Managing Agents, and CITICORP NORTH AMERICA, INC. HSCS BANK USA, N.A. COMERICA BANK GUARANTY BANK and U.S. BANK NATIONAL ASSOCIATION as Managing Agents, and WASHINGTON MUTUAL BANK BANKUNITED, FSB PNC BANK, NATIONAL ASSOCIATION SOCIETE GENERALE and SUMITOMO MITSUI BANKING CORPORATION as Co-Agents _____________________________________________________ DEUTSCHE BANK SECURITIES, INC., as Syndication Agent, and J.P. MORGAN SECURITIES INC. and DEUTSCHE BANK SECURITIES, INC., as Joint Lead Arrangers and Joint Bookrunners Dated: July 21, 2006 -------------------------------------------------------------------------------- Table of Contents ARTICLE I     CERTAIN DEFINED TERMS 1 SECTION 1.01. Certain Defined Terms 1 SECTION 1.02. Computation of Time Periods 23 SECTION 1.03. Accounting Terms. 24     ARTICLE II     THE CREDITS 24 SECTION 2.01. Commitment. 24 SECTION 2.02. Types of Advances 25 SECTION 2.03. Principal Payments. 25 SECTION 2.04. Facility Fees; Reductions of Commitments. 26 SECTION 2.05. Method of Borrowing 26 SECTION 2.06. Method of Selecting Types and Interest Periods for Revolving Advances. 26 SECTION 2.07. Method of Selecting Types and Interest Periods for Conversion and Continuation of Revolving Advances. 27 SECTION 2.08. Minimum Amount of Each Revolving Advance 28 SECTION 2.09. Competitive Bid Procedure. 28 SECTION 2.10. Swing Line Loans. 31 SECTION 2.11. Rate after Maturity 32 SECTION 2.12. Method of Payment 32 SECTION 2.13. Notes; Telephonic Notices. 33 SECTION 2.14. Interest Payment Dates; Interest and Fee Basis 33 SECTION 2.15. Notification of Advances, Interest Rates, Prepayments and Commitment Reductions 34 SECTION 2.16. Lending Installations 34 SECTION 2.17. Increase in Aggregate Commitment. 34 SECTION 2.18. Facility Letters of Credit. 35 SECTION 2.19. Non-Receipt of Funds by the Administrative Agent 42 SECTION 2.20. Withholding Tax Exemption 43 SECTION 2.21. Unconditional Obligation to Make Payment 43 SECTION 2.22. Compensating Balances 43 SECTION 2.23. Extension of Termination Date 44 SECTION 2.24. Replacement of Certain Lenders 44     ARTICLE III     CHANGE IN CIRCUMSTANCES 45 SECTION 3.01. Yield-Protection 45 SECTION 3.02. Changes in Capital Adequacy Regulation 46 SECTION 3.03. Availability of Types of Advances 46 SECTION 3.04. Funding Indemnification 47 SECTION 3.05. Lender Statements Survival of Indemnity 47     ARTICLE IV     REPRESENTATIONS AND WARRANTIES 47 SECTION 4.01. Organization, Powers, etc 47 SECTION 4.02. Authorization and Validity of this Agreement, etc 48 SECTION 4.03. Financial Statements 48 SECTION 4.04. No Material Adverse Effect 48 SECTION 4.05. Title to Properties 49 SECTION 4.06. Litigation 49 SECTION 4.07. Payment of Taxes 49 SECTION 4.08. Agreements 50     i --------------------------------------------------------------------------------     SECTION 4.09. Foreign Direct Investment Regulations 50 SECTION 4.10. Federal Reserve Regulations. 50 SECTION 4.11. Consents, etc 50 SECTION 4.12. Compliance with Applicable Laws 51 SECTION 4.13. Relationship of the Loan Parties 51 SECTION 4.14. Subsidiaries; Joint Ventures 51 SECTION 4.15. ERISA 51 SECTION 4.16. Investment Company Act 52 SECTION 4.17. Public Utility Holding Company Act 52 SECTION 4.18. Subordinated Debt 52 SECTION 4.19. Post-Retirement Benefits 52 SECTION 4.20. Insurance 52 SECTION 4.21. Environmental Representations 52 SECTION 4.22. Minimum Adjusted Consolidated Tangible Net Worth 53 SECTION 4.23. No Misrepresentation 53     ARTICLE V     CONDITIONS PRECEDENT 53 SECTION 5.01. Conditions of Effectiveness 53 SECTION 5.02. Conditions Precedent to All Advances and Facility Letters of Credit. 54     ARTICLE VI     AFFIRMATIVE COVENANTS 56 SECTION 6.01. Existence, Properties, etc 56 SECTION 6.02. Notice 56 SECTION 6.03. Payments of Debts, Taxes, etc 56 SECTION 6.04. Accounts and Reports 57 SECTION 6.05. Access to Premises and Records 60 SECTION 6.06. Maintenance of Properties and Insurance 60 SECTION 6.07. Financing; New Investing 60 SECTION 6.08. Compliance with Applicable Laws 61 SECTION 6.09. Advances to the Mortgage Banking Subsidiaries 61 SECTION 6.10. Use of Proceeds 62 SECTION 6.11. REIT Subsidiary 62     ARTICLE VII     NEGATIVE COVENANTS 62 SECTION 7.01. Minimum Adjusted Consolidated Tangible Net Worth 62 SECTION 7.02. Limitation on Indebtedness. 62 SECTION 7.03. Guaranties 63 SECTION 7.04. Sale of Assets; Acquisitions; Merger. 63 SECTION 7.05. Investments 64 SECTION 7.06. Disposition; Encumbrance or Issuance of Certain Stock 64 SECTION 7.07. Subordinated Debt 64 SECTION 7.08. Housing Units 64 SECTION 7.09. Construction in Progress 65 SECTION 7.10. No Margin Stock 65 SECTION 7.11. Mortgage Banking Subsidiaries’ Capital Ratio 65 SECTION 7.12. Transactions with Affiliates 65 SECTION 7.13. Restrictions on Advances to Mortgage Banking Subsidiaries 65 SECTION 7.14. Mortgage Banking Subsidiaries Adjusted Net Worth 66 SECTION 7.15. Investments in Land 66 SECTION 7.16. Liens and Encumbrances. 66     ii --------------------------------------------------------------------------------       ARTICLE VIII     PLEDGE OF MORTGAGE BANKING SUBSIDIARIES NOTE 66 SECTION 8.01. Mortgage Banking Subsidiaries Note. 67     ARTICLE IX     EVENTS OF DEFAULT 68 SECTION 9.01. Events of Default 68 SECTION 9.02. Remedies. 69 SECTION 9.03. Application of Payments 70     ARTICLE X     THE ADMINISTRATIVE AGENT 71 SECTION 10.01. Appointment 71 SECTION 10.02. Powers 71 SECTION 10.03. General Immunity 71 SECTION 10.04. No Responsibility for Loans, Recitals, Etc 71 SECTION 10.05. Employment of Agents and Counsel 72 SECTION 10.06. Reliance on Documents; Counsel 72 SECTION 10.07. No Waiver of Rights 72 SECTION 10.08. Knowledge of Event of Default 72 SECTION 10.09. Administrative Agent’s Reimbursement and Indemnification 73 SECTION 10.10. Notices to the Borrower 73 SECTION 10.11. Action on Instructions of Lenders 73 SECTION 10.12. Lender Credit Decision 73 SECTION 10.13. Mortgage Banking Subsidiaries Note. 74 SECTION 10.14. Resignation or Removal of the Administrative Agent 74 SECTION 10.15. Benefits of Article X 75     ARTICLE XI     SETOFF; RATABLE PAYMENTS 75 SECTION 11.01. Set-off 75 SECTION 11.02. Ratable Payments 75     ARTICLE XII     BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS 75 SECTION 12.01. Successors and Assigns 76 SECTION 12.02. Assignments. 76 SECTION 12.03. Participations. 77 SECTION 12.04. Pledge to Federal Reserve Bank 77     ARTICLE XIII     MISCELLANEOUS 77 SECTION 13.01. Notice. 78 SECTION 13.02. Survival of Representations 78 SECTION 13.03. Expenses 78 SECTION 13.04. Indemnification of the Lenders and the Administrative Agent 78 SECTION 13.05. Maximum Interest Rate 79 SECTION 13.06. Modification of Agreement. 79 SECTION 13.07. Register 80 SECTION 13.08. Preservation of Rights 81 SECTION 13.09. Several Obligations of Lenders 81 SECTION 13.10. Severability 81 SECTION 13.11. Counterparts 81 SECTION 13.12. Loss, etc., Notes 81 SECTION 13.13. Governmental Regulation 82 SECTION 13.14. Taxes 82 SECTION 13.15. Headings 82 SECTION 13.16. USA PATRIOT ACT 82 SECTION 13.17. Entire Agreement 82 SECTION 13.18. CHOICE OF LAW 82 SECTION 13.19. CONSENT TO JURISDICTION 82 SECTION 13.20. WAIVER OF JURY TRIAL 83 iii -------------------------------------------------------------------------------- SCHEDULES   Schedule Description References       I Commitments Definitions of Commitment and Lenders       II Existing Letters Of Credit Definitions of “Existing Letters Of Credit” and “Issuer”       III Intentionally Deleted         IV Permitted Liens Definition       V Consents Section 4.11       VI Subsidiaries and Joint Ventures Sections 4.14 and 6.04(n)       VII Guarantors Definition       VIII Subordinated Debt Section 4.18       -------------------------------------------------------------------------------- EXHIBITS   Exhibit Description Reference       A Requirements for Entitled Land Definition of “Entitled Land”       B Competitive Loan Note Definition       C Revolving Loan Note Definition       D Swing Line Note Definition       E Guaranty Definition       F Pricing Grid Definition       G Commitment and Acceptance Section 2.17(a)       H Compliance Report Section 6.04(i)       I Assignment and Assumption Section 12.02(b)(ii) --------------------------------------------------------------------------------   This CREDIT AGREEMENT, dated as of July 21, 2006, among LENNAR CORPORATION, a corporation organized and existing under the laws of the State of Delaware (the “Borrower”), the lenders that are identified on the signature pages hereto (hereinafter collectively referred to as the “Lenders”), and JPMORGAN CHASE BANK, N.A., as Administrative Agent (the “Administrative Agent”). RECITALS WHEREAS, the Borrower, certain of the Lenders (and certain other lenders) and Administrative Agent are parties to that certain Credit Agreement dated as of June 17, 2005 (as amended, the “Existing Credit Agreement”); WHEREAS, the parties hereto desire to replace the Existing Credit Agreement. NOW, THEREFORE, the parties hereto hereby agree as follows: AGREEMENT ARTICLE I   CERTAIN DEFINED TERMS SECTION 1.01. Certain Defined Terms. As used herein, each of the following terms shall have the meaning ascribed to it below, which meaning shall be applicable to both the singular and plural forms of the terms defined: “ABR Advance” means a Revolving Advance which bears interest at the Alternate Base Rate. “ABR Loan” means a Revolving Loan which bears interest at the Alternate Base Rate. “Acquisition” means any transaction, or any series of related transactions, consummated after the Closing Date, by which the Borrower or any of its Subsidiaries (a) acquires any going business or all or substantially all of the assets of any firm, corporation or division thereof, whether through purchase of assets, merger or otherwise or (b) directly or indirectly acquires (in one transaction or as the most recent transaction in a series of transactions) at least a majority (in the number of votes) of the Securities of a corporation which have ordinary voting power for the election of directors (other than Securities having such power only by reason of the happening of a contingency) or a majority (by percentage of voting power) of the outstanding equity interests of another Person. “Adjusted Consolidated Tangible Net Worth” means, at any date, Consolidated Tangible Net Worth at such date less, to the extent not already deducted in the definition of Consolidated Tangible Net Worth, the consolidated stockholders’ equity of the Mortgage Banking Subsidiaries. -------------------------------------------------------------------------------- “Adjusted LIBO Rate” means, with respect to any Eurodollar Advance for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/100 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate. “Administrative Agent” means JPMorgan Chase Bank, N.A. in its capacity as Administrative Agent for the Lenders pursuant to Article X, and not in its individual capacity as a Lender, and any successor Administrative Agent appointed pursuant to Article X. “Advance” means (a) any Revolving Advance, (b) any Competitive Loan and (c) any Swing Line Loan. “Affiliate” of any Person means any other Person directly or indirectly controlling, controlled by or under common control with such Person. Solely for purposes of this definition, a Person shall be deemed to control another Person if the controlling Person owns 50% or more of any class of voting securities (or other ownership interests) of the controlled Person or possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the controlled Person, whether through ownership of stock, by contract or otherwise. “AFSI” means Ameristar Financial Services, Inc. “Aggregate Commitment” means $2,700,000,000 as such amount may be increased from time to time pursuant to Section 2.17 hereof or reduced from time to time pursuant to the terms of this Agreement. “Aggregate Credit Exposure” means at any time the sum of the outstanding principal balance of all Revolving Advances, the outstanding principal balance of all Competitive Loans, the outstanding principal balance of all Swing Line Loans and all Facility Letter of Credit Obligations. “Aggregate Letter of Credit Commitment” means $1,000,000,000, as such amount may be reduced from time to time pursuant to the terms hereof. “Agreement” means this Credit Agreement, including the exhibits and schedules hereto, as it may be amended, renewed, modified or restated and in effect from time to time. “Agreement Date” means July 21, 2006. “Alternate Base Rate” means, for any day, a rate per annum equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on such day plus ½ of 1%. Any change in the Alternate Base Rate due to a change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate shall be effective from and including the effective date of such change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate, respectively. “Applicable Facility Fee Rate” means a rate per annum equal to the “Facility Fee” as determined from time to time pursuant to the Pricing Grid. 2 -------------------------------------------------------------------------------- “Applicable Margin” means a rate per annum equal to the “Applicable Margin for Eurodollar Loans” as determined from time to time pursuant to the Pricing Grid. “Approved Fund” means any Person (other than a natural person) that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary course of its business and that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender. “Article” means an article of this Agreement unless another document is specifically referenced. “Assessment Rate” means, for any day, the annual assessment rate in effect on such day that is payable by a member of the Bank Insurance Fund classified as “well-capitalized” and within supervisory subgroup “B” (or a comparable successor risk classification) within the meaning of 12 C.F.R. Part 327 (or any successor provision) to the Federal Deposit Insurance Corporation for insurance by such Corporation of time deposits made in dollars at the offices of such member in the United States; provided that if, as a result of any change in any law, rule or regulation, it is no longer possible to determine the Assessment Rate as aforesaid, then the Assessment Rate shall be such annual rate as shall be determined by the Administrative Agent to be representative of the cost of such insurance to the Lenders. “Assignment and Assumption” is defined in Section 12.02(b)(ii). “Authorized Financial Officer” means any of the chief financial officer, treasurer or controller of the Borrower. “Authorized Officer” means any of an Authorized Financial Officer, chief executive officer, president or general counsel of the Borrower, or any duly appointed successors to them or other Person duly designated by the Borrower, in each case designated by the Borrower in writing to act as an Authorized Officer hereunder, acting singly. “Base CD Rate” means the sum of (a) the Three-Month Secondary CD Rate multiplied by the Statutory Reserve Rate plus (b) the Assessment Rate. “Board” means the Board of Governors of the Federal Reserve System of the United States of America. “Borrower” is defined in the introductory paragraph of this Agreement. “Borrower Audited Financial Statements” is defined in Section 4.03. “Borrower Unaudited Financial Statements” is defined in Section 4.03. 3 -------------------------------------------------------------------------------- “Borrowing Base” means, from time to time, the sum of the following amounts, all as reflected from time to time in accordance with GAAP consistently applied in the consolidated balance sheet of the Borrower: (a) 100% of the Loan Parties’ unrestricted cash up to a maximum of $30,000,000 (with any excess cash being excluded from the Borrowing Base); (b) 100% of the Net Housing Unit Proceeds due to any Loan Party at closing as a result of the consummation of the sale of any Housing Unit, which Net Housing Unit Proceeds have been paid to the closing agent handling such sale but which have not yet been received by such Loan Party; provided, however, that if, and to the extent that, such Net Housing Unit Proceeds which are reported as outstanding on the last day of any fiscal quarter of the Borrower are not received by such Loan Party on or before the tenth (10th) day following the end of any such fiscal quarter, such Net Housing Unit Proceeds shall not be included in the Borrowing Base; (c) 90% of the Net Book Value of all Housing Units Under Contract; (d) 75% of the Net Book Value of all Housing Units (including, without limitation, model Housing Units) that are not subject to a contract for sale; (e) 70% of the Net Book Value of all Finished Lots; (f) 50% of the Net Book Value of all Land Under Development; and (g) 30% of the Net Book Value of all Unimproved Entitled Land, provided that the sum of the amounts determined pursuant to clauses (f) and (g) shall not exceed 40% of the Borrowing Base (with any excess being excluded from the Borrowing Base); provided further, that notwithstanding anything to the contrary provided herein, any asset which is encumbered by a Lien (other than a Lien described in clauses (b), (c), (e) or (j) of the definition of “Permitted Liens”) shall not be included in the calculation of the Borrowing Base pursuant to clauses (a) through (g) above. “Borrowing Base Debt” means all Consolidated Indebtedness, including without limitation the Obligations but excluding (a) any Subordinated Debt of the Borrower and (b) any Non-Recourse Indebtedness secured solely by Real Estate that is owned by any Loan Party and that, if the same did not secure such Indebtedness, would be included in the determination of the Borrowing Base. “Borrowing Base Limitation” is defined in Section 7.02. “Borrowing Date” means a date on which an Advance is made hereunder. “Borrowing Notice” is defined in Section 2.06. “Business Day” means (a) with respect to any borrowing, payment or rate selection of Eurodollar Advances, a day (other than a Saturday or Sunday) on which banks are open for business in Chicago, Illinois and New York, New York and on which dealings in United States dollars are carried on in the London interbank market, (b) with respect to Facility Letters of Credit, a day (other than a Saturday or Sunday) on which banks are open for business in Chicago, Illinois, New York, New York, and the city in which the office of the applicable Issuer is located and (c) for all other purposes, a day (other than a Saturday or Sunday) on which banks are open for business in Chicago, Illinois and New York, New York. “Capitalized Lease” of a Person means any lease of property by such Person as lessee which would be capitalized on a balance sheet of such Person prepared in accordance with GAAP. “Capitalized Lease Obligations” of a Person means the amount of the obligations of such Person under Capitalized Leases which would be shown as a liability on a balance sheet of such Person prepared in accordance with GAAP. 4 -------------------------------------------------------------------------------- “Capitalized Mortgage Servicing” of the Mortgaged Banking Subsidiaries means, at any date, the following capitalized assets of the Mortgaged Banking Subsidiaries net of any amortization or write downs with respect thereto, all as determined in accordance with GAAP: (a) purchased mortgage servicing rights, (b) originated mortgage servicing rights and (c) excess servicing. “Capital Stock” means, with respect to any corporation, any and all shares, interests, rights to purchase (other than convertible or exchangeable Indebtedness), warrants, options, participations or other equivalents of or interests (however designated) in stock issued by that corporation. “Change in Control” means the acquisition by any Person, or two or more Persons acting in concert, of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended) of the outstanding shares of voting stock of the Borrower that hold in excess of 50% of the voting rights held by all stockholders of all classes of common stock of the Borrower. “Change in Status” means an event that results in a Subsidiary that was a Guarantor (a “Status Capacity”), for legitimate business reasons, without any intent to avoid any requirements of this Agreement, ceasing to have an obligation under this Agreement to be a Guarantor, which legitimate business reasons may include (i) a former wholly-owned Subsidiary of Borrower ceasing, for legitimate business reasons, to be wholly-owned by Borrower, including as a result of (A) a Person that is not a wholly-owned Subsidiary of Borrower acquiring an ownership interest in such wholly-owned Subsidiary of Borrower in a bona fide transaction, or (B) the dissolution of such wholly-owned Subsidiary, (ii) the entry by such Subsidiary into a bona fide agreement with an unaffiliated third person for legitimate business reasons as a result of which a wholly-owned Subsidiary that was a Guarantor is required not to be a Guarantor or (iii) a Guarantor ceasing to be a Material Subsidiary. “Closing Date” means the date on which the Lenders shall first become obligated to make Advances after satisfaction or waiver of all of the conditions precedent set forth in Sections 5.01 and 5.02. “Code” means the Internal Revenue Code of 1986, as amended, reformed or otherwise modified from time to time. “Commitment” means, for each of the Lenders, the obligation of such Lender to make Revolving Loans hereunder and to purchase participations in Facility Letters of Credit hereunder in the aggregate not exceeding the amount set forth on Schedule 1 hereto as its “Commitment,” as such amount may be decreased from time to time pursuant to the terms hereof or increased pursuant to Section 2.17 hereof; provided, however, that the Commitment of a Lender may not be increased without its prior written approval. “Commitment and Acceptance” is defined in Section 2.17(a). “Commitment Increase” is defined in Section 2.17(a). 5 -------------------------------------------------------------------------------- “Competitive Bid” means an offer by a Lender to make a Competitive Loan in accordance with Section 2.09. “Competitive Bid Rate” means, with respect to any Competitive Bid, the fixed rate of interest per annum offered by the Lender making such Competitive Bid. “Competitive Bid Request” means a request by the Borrower for Competitive Bids in accordance with Section 2.09. “Competitive Loan” means a Loan made pursuant to Section 2.09. “Competitive Loan Note” means a promissory note in substantially the form of Exhibit B hereto payable to the order of a Lender evidencing any Competitive Loan made by such Lender, including any amendment, modification, renewal, restatement or replacement of such note. “Completed Housing Unit” means, at any time, a Housing Unit the construction of which was commenced more than 10 months, in the case of a single family home, more than 12 months, in the case of a townhouse, or more than 18 months, in the case of a condominium, before that time or was completed prior to the expiration of the applicable period. “Consolidated EBITDA” means, for any period, the Consolidated Net Income of the Loan Parties plus, to the extent deducted from revenues in determining Consolidated Net Income, (a) Consolidated Interest Expense, (b) expense for income taxes paid or accrued, (c) depreciation, (d) amortization and (e) extraordinary losses incurred other than in the ordinary course of business, minus, to the extent included in Consolidated Net Income, extraordinary gains realized other than in the ordinary course of business, all calculated for the Loan Parties (and excluding the Mortgage Banking Subsidiaries and any other Subsidiary of the Borrower that is not a Loan Party) on a consolidated basis. “Consolidated Indebtedness” means the Indebtedness of the Borrower and its Subsidiaries on a consolidated basis, and shall not include (i) Indebtedness of any Mortgage Banking Subsidiary, (ii) Indebtedness of a Loan Party to the REIT Subsidiary or (iii) any other Indebtedness of a Loan Party to another Loan Party. “Consolidated Interest Expense” means, for any period, the interest charged to cost of sales of the Loan Parties (and excluding the Mortgage Banking Subsidiaries and any other Subsidiary of the Borrower that is not a Loan Party) calculated on a consolidated basis for such period. 6 -------------------------------------------------------------------------------- “Consolidated Interest Incurred” means, for any period, the aggregate amount (without duplication and determined in each case in accordance with GAAP) of (a) interest (excluding interest on Indebtedness of a Loan Party to another Loan Party) incurred, whether such interest was expensed or capitalized, paid, accrued, or scheduled to be paid or accrued by any of the Loan Parties (and excluding the Mortgage Banking Subsidiaries and any other Subsidiary of the Borrower that is not a Loan Party) during such period, including (i) original issue discount and non-cash interest payments or accruals, (ii) the interest portion of all deferred payment obligations, and (iii) all commissions, discounts and other fees and charges owed with respect to bankers’ acceptances and letter of credit financings and interest swap and Hedging Obligations, in each case to the extent attributable to such period plus (b) the amount of dividends accrued or payable by the Loan Parties (and excluding the Mortgage Banking Subsidiaries and any other Subsidiary of the Borrower that is not a Loan Party) in respect of Disqualified Capital Stock (excluding any amount payable to any Loan Party), which amount shall be “grossed up” to include applicable taxes on income that would be used to pay such dividends, provided, however, that interest, dividends or other payments or accruals of a consolidated Subsidiary that is not wholly owned shall be included only to the extent of the interest of such Person in such Subsidiary. For purposes of this definition, (x) interest on Capitalized Lease Obligations shall be deemed to accrue at an interest rate reasonably determined by the Borrower to be the rate of interest implicit in such Capitalized Lease Obligations in accordance with GAAP and (y) interest expense attributable to any Indebtedness represented by the guaranty of an obligation of another Person shall be deemed to be the interest expense attributable to the Indebtedness guaranteed. “Consolidated Net Income” means, with respect to any Person for any period, the net income (or loss) of such Person and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP; provided, that (a) the net income (or loss) of any other Person acquired by such specified Person or a Subsidiary of such Person in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded, (b) all gains and losses which are either extraordinary (as determined in accordance with GAAP) or are either unusual or nonrecurring (including any gain from the sale or other disposition of assets outside the ordinary course of business or from the issuance or sale of any Capital Stock), shall be excluded, and (c) the net income, if positive, of any of such Person’s consolidated Subsidiaries (other than non-guarantor Subsidiaries) to the extent that the declaration or payment of dividends or similar distributions is not at the time permitted by operation of the terms of its charter or bylaws or any other agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to such consolidated Subsidiary shall be excluded, provided, however, in the case of exclusions from Consolidated Net Income set forth in clauses (a), (b) and (c) above, such amounts shall be excluded only to the extent included in computing such net income (or loss) in accordance with GAAP and without duplication; provided further, however, that for purposes of determining Consolidated Net Income of the Loan Parties, the net income of the Mortgage Banking Subsidiaries and any other Subsidiary of the Borrower that is not a Loan Party shall be excluded. “Consolidated Tangible Net Worth” means, at any date, the Net Worth of the Borrower and its Subsidiaries less the aggregate amount of all goodwill and other assets that are properly classified as “intangible assets” at such date in accordance with GAAP. “Contingent Obligation” of a Person means any agreement, undertaking or arrangement by which such Person assumes, guarantees, endorses, contingently agrees to purchase or provide funds for the payment of, or otherwise becomes or is contingently liable upon, the obligation or liability of any other Person, or agrees to maintain the net worth or working capital or other financial condition of any other Person, or otherwise assures any creditor of such other Person against loss, including, without limitation, any comfort letter, operating agreement, take-or-pay contract, “put” agreement or other similar arrangement, but excluding Repurchase Guaranties. With respect to the Borrower and its Subsidiaries (other than the Mortgage Banking Subsidiaries), Contingent Obligation includes, without limitation of the foregoing, obligations under reimbursement agreements with financial institutions (including the Lenders) relating to Letters of Credit (other than Performance Letters of Credit) issued by such financial institutions for the account of such Person and does not include reimbursement obligations to an issuer of a performance bond. 7 -------------------------------------------------------------------------------- “Controlled Group” means all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower or any of its Subsidiaries, are treated as a single employer under Section 414 of the Code. “Conversion/Continuation Notice” is defined in Section 2.07(d). “Default Rate” means, for any day, a rate per annum equal to the sum of (a) the Alternate Base Rate for such date plus (b) two percent (2%) per annum. “Disqualified Capital Stock” means (a) except as set forth in clause (b) below, with respect to any Person, Capital Stock of such Person that, by its terms or by the terms of any security into which it is convertible, exercisable or exchangeable, is, or upon the happening of an event or the passage of time would be, required to be redeemed or repurchased (including at the option of the holder thereof) by such Person or any of its Subsidiaries, in whole or in part, on or prior to the stated maturity of the securities, and (b) with respect to any Subsidiary of such Person (including with respect to any Subsidiary of the Borrower), any Capital Stock other than any common stock with no preference, privileges, or redemption or repayment provisions. “Dollars” and the sign “$” each means lawful money of the United States of America. “Eligible Assignee” means a commercial bank, financial institution, other “accredited investor” (as defined in Regulation D of the Securities Act) or a “qualified institutional buyer” as defined in Rule 144A of the Securities Act. “Entitled Land” means a parcel of Real Estate owned by a Loan Party which is to be developed primarily for residential dwelling units and which satisfies the requirements for the state and county wherein it is located as more particularly described in the Requirements for Entitled Land attached hereto as Exhibit A. “Environmental Laws” means any and all federal, state, local and foreign statutes, laws, judicial decisions, regulations, ordinances, rules, judgments, orders, decrees, plans, injunctions, permits, concessions, grants, franchises, licenses, agreements and other governmental restrictions relating to (a) the protection of the environment, (b) the effect of the environment on human health, (c) emissions, discharges or releases of pollutants, contaminants, Hazardous Substances or wastes into surface water, ground water or land, or (d) the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, Hazardous Substances or wastes or the clean-up or other remediation thereof. “Equity Investment” means the ownership of, or participation in the ownership of, an equity interest in Real Estate or an equity interest in a Person in the business of owning, developing, improving, operating or managing Real Estate. 8 -------------------------------------------------------------------------------- “ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any rule or regulation issued thereunder. “Eurodollar Advance” means a Revolving Advance which bears interest at a Eurodollar Rate. “Eurodollar Loan” means a Revolving Loan which bears interest at a Eurodollar Rate. “Eurodollar Rate” means, with respect to a Eurodollar Advance for the relevant Interest Period, the sum of (a) the Adjusted LIBO Rate applicable to such Interest Period plus (b) the Applicable Margin. “Event” means an event, circumstance, condition or state of facts. “Event of Default” is defined in Section 9.01. “Excluded Subsidiaries” means the following Subsidiaries of Borrower (none of which is required to be a Guarantor hereunder): (a) the Mortgage Banking Subsidiaries; (b) any Joint Venture Subsidiary with respect to which the terms of the agreement creating such Joint Venture prohibit the joint venturers therein from being or becoming liable for any Indebtedness other than Indebtedness of such Joint Venture; (c) any Subsidiary that under applicable laws or regulations (such as, by way of example, laws regulating insurance companies or providers of cable services) is prohibited from delivering a Guaranty; and (d) any Subsidiary that is not a Wholly-Owned Subsidiary. “Existing Borrower Public Debt” means the Borrower’s 7-5/8% Senior Notes due 2009, 5.95% Senior Notes due 2013, 5.5% Senior Notes due 2014, 5.6% Senior Notes due 2015, Senior Floating Rate Notes due 2007, Senior Floating-Rate Note due 2009, 5.125% Senior Notes due 2010, 5.95% Senior Notes due 2016 and 6.50% Senior Notes due 2016. “Existing Credit Agreement” is defined in the Recitals. “Existing Letters of Credit” means the outstanding Letters of Credit listed in Schedule II hereto issued for the account of the Borrower prior to the Agreement Date by the applicable Lender identified in Schedule II. “Extension Request” is defined in Section 2.23. “Facility Fee” means the fee provided for in Section 2.04(a). “Facility Letter of Credit” means (a) each of the Existing Letters of Credit and (b) a Letter of Credit issued by an Issuer pursuant to Section 2.18. “Facility Letter of Credit Fee” is defined in Section 2.18(f). “Facility Letter of Credit Fee Rate” means a rate per annum equal to the Applicable Margin in effect from time to time during the term of any Facility Letter of Credit. 9 -------------------------------------------------------------------------------- “Facility Letter of Credit Obligations” means, as at the time of determination thereof, without duplication, an amount equal to the sum of (a) the aggregate of the amount then available for drawing under each of the Facility Letters of Credit, (b) the face amount of all outstanding drafts on Facility Letters of Credit, which drafts have been honored by the applicable Issuer, (c) the aggregate amount of all Reimbursement Obligations at such time and (d) the face amount of all Facility Letters of Credit requested by the Borrower but not yet issued (unless the request for an unissued Facility Letter of Credit has been denied or revoked). “Federal Funds Effective Rate” means, for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. “Fee Letter” means that certain letter dated June 13, 2006 from JPMSI and the Administrative Agent to the Borrower, and accepted by the Borrower on June 13, 2006. “Finished Lot” means a parcel of Entitled Land which satisfies the requirements for Land Under Development and in which the owner (including any prior owner) thereof has invested 85% or more of the cost to complete the Improvements thereon, and which constitutes a valid, legally subdivided lot within the meanings of the applicable laws of the states, county and/or municipality within which it is located, and other requirements governing the subdivision of land and constitutes a lot reflected on a duly recorded plat, subdivision map or parcel map in compliance with the requirements of all applicable laws and other requirements governing the subdivision of land and approved by the appropriate Governmental Authority. “Fitch” means Fitch, Inc. or any Person succeeding to the securities rating business of such company. “GAAP” means United States generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession as in effect as of the Agreement Date, applied on a consistent basis from time to time. “Governmental Authority” means any foreign governmental authority, the United States of America, any state of the United States of America and any subdivision of any of the foregoing, and any agency, department, commission, board, authority or instrumentality, bureau or court having jurisdiction over the Lender, the Borrower, any Subsidiaries of the Borrower or any of their respective properties. 10 -------------------------------------------------------------------------------- “Guarantor” means each Subsidiary of the Borrower that executes a Guaranty (including, if applicable, a Supplemental Guaranty) pursuant to Section 5.01(b) or Section 6.07 of this Agreement. The Guarantors as of the Closing Date are listed in Schedule VII hereto. “Guaranty” means each of those certain guaranties executed pursuant to Section 5.01(b) on the Closing Date or from time to time after the Closing Date pursuant to Section 6.07 by Subsidiaries of the Borrower, in substantially the form of Exhibit E hereto, in each case in favor of the Administrative Agent, for the benefit of the Lenders, as any such guaranties may be amended, restated, supplemented (including by delivery of a Supplemental Guaranty) or otherwise modified from time to time. “Hazardous Substances” means any toxic or hazardous wastes, pollutants or substances, including, without limitation, asbestos, PCBs, petroleum products and by-products, substances defined or listed as “hazardous substances” or “toxic substances” or similarly identified in or pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. § 9061 et seq., hazardous materials identified in or pursuant to the Hazardous Materials Transportation Act 49 U.S.C. § 1802 et seq., hazardous wastes identified in or pursuant to The Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et seq., any chemical substance or mixture regulated under the Toxic Substance Control Act of 1976, as amended, 15 U.S.C. § 2601 et seq., any “toxic pollutant” under the Clean Water Act, 33 U.S.C. § 466 et seq., as amended, any hazardous air pollutant under the Clean Air Act, 42 U.S.C. § 7401 et seq., and any hazardous or toxic substance or pollutant regulated under any other applicable federal, state or local Environmental Laws. “Hedging Obligations” of a Person means any and all obligations of such Person, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor), under (a) any and all agreements, devices or arrangements designed to protect at least one of the parties thereto from the fluctuations of interest rates, commodity prices, exchange rates or forward rates applicable to such party’s assets, liabilities or exchange transactions, including, but not limited to, dollar-denominated or cross-currency interest rate exchange agreements, forward currency exchange agreements, interest rate cap or collar protection agreements, forward rate currency or interest rate options, puts and warrants, and (b) any and all cancellations, buy backs, reversals, terminations or assignments of any of the foregoing. “Housing Unit” means a residential housing unit owned by a Loan Party that is (or, upon completion of construction thereof, will be) available for sale. “Housing Unit Closing” means a closing of the sale of a Housing Unit by a Loan Party to a bona fide purchaser for value that is not an Affiliate of a Loan Party. “Housing Unit Under Contract” means a Housing Unit owned by a Loan Party as to which such Loan Party has a bona fide contract of sale, in a form customarily employed by such Loan Party and reasonably satisfactory to the Administrative Agent, entered into not more than 15 months prior to the date of determination with a Person who is not an Affiliate of a Loan Party, under which contract no defaults then exist; provided, however, that in the case of any Housing Unit the purchase of which is to be financed in whole or in part by a loan insured by the Federal Housing Administration or guaranteed by the Veterans Administration, the minimum down payment shall be the amount (if any) required under the rules of the relevant agency. 11 -------------------------------------------------------------------------------- “Improvements” means on and off-site development work, including but not limited to filling to grade, main water distribution and sewer collection systems and drainage system installation, paving, and other improvements necessary for the use of residential dwelling units and as required pursuant to development agreements which may have been entered into with Governmental Authorities. “Indebtedness” of any Person means, without duplication, (a) all liabilities and obligations, contingent or otherwise, of such Person, (i) in respect of borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof), (ii) evidenced by bonds, notes, debentures or similar instruments, (iii) representing the balance deferred and unpaid of the purchase price of any property or services, except those incurred in the ordinary course of its business that would constitute ordinarily a trade payable to trade creditors (but specifically excluding from such exception the deferred purchase price of Real Estate), (iv) evidenced by bankers’ acceptances, (v) consisting of obligations, whether or not assumed, secured by Liens or payable out of the proceeds or production from property now or hereafter owned or acquired by such Person, (vi) consisting of Capitalized Lease Obligations (including any Capitalized Leases entered into as a part of a sale/leaseback transaction), (vii) consisting of liabilities and obligations under any receivable sales transactions, (viii) consisting of a Letter of Credit, other than a Performance Letter of Credit, or a reimbursement obligation of such Person with respect to any Letter of Credit, (ix) consisting of Hedging Obligations, (x) consisting of Off-Balance Sheet Liabilities or (xi) consisting of Contingent Obligations; and (b) obligations of such Person to purchase Securities or other property arising out of or in connection with the sale of the same or substantially similar securities or property. With respect to the Borrower, Indebtedness includes, without limitation of the foregoing, (x) the Loans and (y) the Borrower’s and any Subsidiary’s pro rata shares of the Indebtedness of any Joint Venture. “Interest Coverage Ratio” on any date means the ratio of (a) Consolidated EBITDA for the four fiscal quarters ended on such date to (b) total Consolidated Interest Incurred for such fiscal quarters. “Interest Period” means (a) with respect to any Eurodollar Advance, the period commencing on the date of such Eurodollar Advance and ending seven days or fourteen days thereafter or on the numerically corresponding day in the calendar month that is one, two, three or six months thereafter, as the Borrower may elect, and (b) with respect to any Competitive Loan, the period (which shall not be less than five days or more than thirty days) commencing on the date of such Competitive Loan and ending on the date specified in the applicable Competitive Bid Request; provided, that (i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless (but only in the case of a Eurodollar Advance for an Interest Period in excess of fourteen days) such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (ii) any Interest Period in excess of fourteen days pertaining to a Eurodollar Advance that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the date of an Advance initially shall be the date on which such Advance is made and, in the case of a Revolving Advance, thereafter shall be the effective date of the most recent conversion or continuation of such Advance. 12 -------------------------------------------------------------------------------- “Investment” of a Person means any loan, advance (other than commission, travel and similar advances to officers and employees made in the ordinary course of business), extension of credit (other than accounts receivable arising in the ordinary course of business on terms customary in the trade), deposit account or contribution of capital by such Person to any other Person or any investment in, or purchase or other acquisition of, the stock, partnership interests, membership interests, notes, debentures or other securities of any other Person made by such Person. “Investment Grade Rating” means a senior unsecured public debt rating of BBB- or higher or Baa3 or higher. “Issuance Date” is defined in Section 2.18(c)(i)(B). “Issuance Notice” is defined in Section 2.18(c)(iii). “Issuer” means, with respect to each Existing Letter of Credit, the Issuer thereof identified in Schedule II, and with respect to each Facility Letter of Credit issued on or after the Closing Date, JPMorgan Chase Bank or such other Lender selected by the Borrower with the approval of the Administrative Agent, to issue such Facility Letter of Credit, provided such other Lender consents to act in such capacity. An Issuer may, in its discretion, arrange for one or more Facility Letters of Credit to be issued by Affiliates of such Issuer, in which case the term “Issuer” shall include any such Affiliate with respect to Facility Letters of Credit issued by such Affiliate. “Joint Lead Arrangers” means JPMSI and Deutsche Bank Securities, Inc. “Joint Venture” means a joint venture (whether in the form of a corporation, a partnership, limited liability company or otherwise) (a) to which the Borrower or a Joint Venture Subsidiary is or becomes a party (other than tenancies in common), (b) whether or not Borrower is required to consolidate the joint venture in its financial statements in accordance with GAAP, and (c) in which the Borrower or any Joint Venture Subsidiary has or will have a total investment exceeding $25,000 or which has total assets plus contingent liabilities exceeding $100,000. For the purposes of this definition, the Borrower’s or Joint Venture Subsidiary’s investment in a joint venture shall be deemed to include any Securities of the joint venture owned by the Borrower or any Joint Venture Subsidiary, any loans, advances or accounts payable to the Borrower or any Joint Venture Subsidiary from the joint venture, any commitment, arrangement or other agreement by the Borrower or any Joint Venture Subsidiary to provide funds or credit to the joint venture and the Borrower’s or Joint Venture Subsidiary’s share of the undistributed profits of the joint venture. “Joint Venture Subsidiary” means a Subsidiary of the Borrower which is a partner, shareholder or other equity owner in a Joint Venture which is not a Loan Party. 13 -------------------------------------------------------------------------------- “JPMorgan Chase Bank” means JPMorgan Chase Bank, N.A., in its individual capacity, and its successors. “JPMSI” means J.P. Morgan Securities Inc., one of the Joint Lead Arrangers hereunder. “Land Under Development” means Entitled Land upon which construction of Improvements has commenced but not been completed and for which: (a) to the extent required, a performance bond, surety or other security has been issued to and in favor of and unconditionally accepted by each local agency and all relevant Governmental Authorities, including any municipal utility district in which the Real Estate is situated with regard to all work to be performed pursuant to each and all of said subdivision improvement agreements or other agreements; (b) all necessary plans have been approved by all relevant Governmental Authorities for the installation of any and all Improvements required to be installed upon such Real Estate; (c) all necessary permits have been issued for the installation of said Improvements; and (d) utility services necessary for construction of Improvements and residential dwelling units and the operation thereon for the purpose intended will be available to such Real Estate upon completion of the Improvements and there exists a binding obligation on the part of each and every utility company to deliver necessary utility services to such Real Estate. “Lenders” means the Persons listed on Schedule I and any other Person that shall have become a party hereto pursuant to a Commitment and Acceptance or an Assignment and Assumption, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Assumption. Unless the context otherwise requires, the term “Lenders” includes the Swing Line Lender. “Lending Installation” means, with respect to a Lender or the Administrative Agent, any office, branch, subsidiary or affiliate of such Lender or the Administrative Agent. “Letter of Credit” of a Person means a letter of credit or similar instrument which is issued upon the application of such Person or upon which such Person is an account party or for which such Person is in any way liable. “Letter of Credit Collateral Account” is defined in Section 2.18(h). “Letter of Credit Commitment” means, for each Lender, the obligation of such Lender to participate in Facility Letters of Credit in an amount not exceeding the lesser of (a) its Pro Rata Share of the Aggregate Letter of Credit Commitment or (b) its Unused Commitment. “Letter of Credit Request” is defined in Section 2.18(c)(i). “Leverage Ratio” means a fraction (expressed as the percentage equivalent), the numerator of which is the sum of (i) all Consolidated Indebtedness, less (ii) the lesser of (A) $500,000,000 and (B) unrestricted cash of the Loan Parties in excess of $15,000,000, and the denominator of which is the sum of (x) all Consolidated Indebtedness plus (y) Adjusted Consolidated Tangible Net Worth plus (z) the lesser of (A) fifty percent (50%) of Subordinated Debt and (B) $300,000,000. 14 -------------------------------------------------------------------------------- “LIBO Rate” means, with respect to any Eurodollar Advance for any Interest Period, the rate appearing on Telerate Page 3750 (formerly the Dow Jones Market Service), or on any successor or substitute page of such service, or any successor to or substitute for such service, providing rate quotations comparable to those currently provided on such page of such service, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market, at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period. In the event that such rate is not available at such time for any reason, then the “LIBO Rate” with respect to such Eurodollar Advance for such Interest Period shall be the rate at which dollar deposits of $5,000,000 and for a maturity comparable to such Interest Period are offered by the principal London office of the Administrative Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period. “Lien” means any lien (statutory or other), mortgage (including, without limitation, purchase money mortgages), pledge, hypothecation, assignment, deposit arrangement, encumbrance or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, the interest of a vendor or lessor under any conditional sale, Capitalized Lease or other title retention agreement or any financing lease having substantially the same economic effect as any of the foregoing) and, in the case of Securities, any purchase option, call or similar right of any Person (other than the issuer of such Securities) with respect to such Securities. “Loan Documents” means (a) this Agreement, the Notes, the Guaranties, and (if and when delivered) the Mortgage Banking Subsidiaries Note Pledge Agreement and (b) any and all other instruments or documents delivered or to be delivered by the Loan Parties pursuant hereto or pursuant to any of the other documents described in clause (a) above, as such documents in clause (a) or (b) may be amended or modified and in effect from time to time. “Loan Parties” means the Borrower and the Guarantors (including any Subsidiary that executes and delivers a Guaranty after the Closing Date); “Loan Party” means any of the Loan Parties. “Loans” means (a) the Revolving Loans, (b) the Competitive Loans and (c) the Swing Line Loans. “Loan” means any of the Loans. “Material Adverse Effect” means a material adverse effect on (a) the business, properties, assets, condition (financial or otherwise), results of operations, or prospects of (i) the Loan Parties, taken as a whole, or (ii) if so specified, the Borrower or any Guarantor, (b) the ability of any Loan Party to perform any of its obligations under the Loan Documents, or (c) the validity or enforceability of any of the Loan Documents or the rights or remedies of the Administrative Agent or the Lenders thereunder. “Material Subsidiary” means any Subsidiary of the Borrower (other than an Excluded Subsidiary), now owned or hereafter acquired, that has a Net Worth of $10,000,000 or greater, provided that, in no event may there exist Subsidiaries of the Borrower (other than the Excluded Subsidiaries) that have, in the aggregate, a Net Worth in excess of $50,000,000 that are not Guarantors. 15 -------------------------------------------------------------------------------- “Maturity Date” means the date upon which the outstanding principal amount of all of the Loans, all accrued and unpaid interest thereon, and all other Obligations become due and payable, whether as a result of the occurrence of the stated maturity date or the acceleration of maturity pursuant to the terms of any of the Loan Documents. “Monthly Payment Date” means the first Business Day of each calendar month, commencing in August, 2006. “Moody’s” means Moody’s Investors Service, Inc. or any Person succeeding to the securities rating business of such company. “Mortgage” means any mortgage, deed of trust or other security deed in Real Estate, or in rights or interests, including leasehold interests, in Real Estate. “Mortgage Banking Subsidiaries Adjusted Net Worth” means, at any date, the Net Worth of the Mortgage Banking Subsidiaries on a consolidated basis as determined in accordance with GAAP (including in the assets used to determine Net Worth the amount of the Capitalized Mortgage Servicing as of such date), less the amount of all goodwill and other assets that are properly classified as “intangible assets” at such date in accordance with GAAP. “Mortgage Banking Subsidiaries Note” means a promissory note executed by the Mortgage Banking Subsidiaries as joint makers payable to the order of the Borrower and each Guarantor that lends funds to any of the Mortgage Banking Subsidiaries evidencing such loans. “Mortgage Banking Subsidiaries Note Pledge Agreement” is defined in Section 8.01(a)(i), and includes any amendment, supplement, restatement or other modification of such agreement. “Mortgage Banking Subsidiary” means a Subsidiary of the Borrower which is engaged or hereafter engages in the mortgage banking business, including the origination, servicing, packaging and/or selling of mortgages on residential single- and multi-family dwellings and/or commercial property, and in any event shall include AFSI, UAMC, UAMC Asset Corp. II, Universal American Mortgage Corporation of California and Eagle Home Mortgage, Inc. “Multiemployer Plan” means a Plan maintained pursuant to a collective bargaining agreement or any other arrangement to which the Borrower or any member of the Controlled Group is a party to which more than one employer is obligated to make contributions. “Net Book Value” means, with respect to an asset owned by a Loan Party, the gross investment of such Loan Party in the asset, less all reserves (including loss reserves and reserves for depreciation) attributable to that asset, all determined in accordance with GAAP consistently applied, including, in the case of Unimproved Entitled Land, any unamortized land credits. “Net Housing Unit Proceeds” means, in connection with the sale of any Housing Unit by a Loan Party, the gross sales price less (a) all bona fide prorations and adjustments to the sales price required to be made pursuant to the terms of the sales contract and (b) the aggregate amount of bona fide closing costs due to any Person, provided that, if such closing costs are due to an Affiliate of a Loan Party, such costs comply with Section 7.12. 16 -------------------------------------------------------------------------------- “Net Worth” means, at any date, with respect to any Person the amount of consolidated stockholders’ equity of such Person and its consolidated Subsidiaries as shown on its balance sheet as of such date in accordance with GAAP. “New Lender” means either a Lender or an Eligible Assignee, in each case approved by the Borrower and the Administrative Agent, that agrees to become a Lender or that agrees to increase its Commitment, in accordance with the provisions of Section 2.17. “Non-Consenting Lender” is defined in Section 2.23. “Non-Recourse Indebtedness” means Indebtedness of a Loan Party for which its liability is limited to the Real Estate upon which it grants a Lien to the holder of such Indebtedness as security for such Indebtedness, but only to the extent that the amount of such Indebtedness does not exceed such Loan Party’s original cost of purchase of such Real Estate or the most current appraised value of such Real Estate. “Notes” means the Revolving Loan Notes, the Competitive Loan Notes and the Swing Line Note. “Obligations” means all Loans, Facility Letter of Credit Obligations, advances, debts, liabilities, obligations, covenants and duties owing by any Loan Party to the Administrative Agent, any Lender, the Swing Line Bank, the Joint Lead Arrangers, any Affiliate of the Administrative Agent or any Lender, any Issuer or any Person entitled to indemnification by any Loan Party under this Agreement or any other Loan Document, of any kind or nature, present or future, arising under this Agreement or any other Loan Documents, whether or not evidenced by any note, guaranty or other instrument, whether or not for the payment of money, whether arising by reason of an extension of credit, loan, guaranty, indemnification, or in any other manner, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising and however acquired. The term includes, without limitation, all interest, charges, expenses, fees, reasonable attorneys’ fees and disbursements, reasonable paralegals’ fees and any other sum chargeable to any Loan Party under this Agreement or any other Loan Document. “Off-Balance Sheet Liabilities” of a Person means (a) any repurchase obligation or liability of such Person or any of its Subsidiaries with respect to accounts or notes receivable sold by such Person or any of its Subsidiaries, (b) any liability of such Person or any of its Subsidiaries under any financing lease, any synthetic lease (under which all or a portion of the rent payments made by the lessee are treated, for tax purposes, as payments of interest, notwithstanding that the lease may constitute an operating lease under GAAP) or any other similar lease transaction, or (c) any obligations of such Person or any of its Subsidiaries arising with respect to any other transaction which is the functional equivalent of or takes the place of borrowing and which has an actual or implied interest component but which does not constitute a liability on the consolidated balance sheets of such Person and its Subsidiaries. 17 -------------------------------------------------------------------------------- “Participants” is defined in Section 12.03. “PBGC” means the Pension Benefit Guaranty Corporation, or any successor thereto. “Performance Letter of Credit” means a Letter of Credit issued to a Governmental Authority or a quasi-governmental agency to insure the completion by a Loan Party of a development of land improvements or to insure payment by a Loan Party of escrow accounts. “Permitted Liens” means (a) Liens existing on the date of this Agreement and described on Schedule IV hereto; (b) Liens imposed by governmental authorities for taxes, assessments or other charges not yet subject to penalty or which are being contested in good faith and by appropriate proceedings, if adequate reserves with respect thereto are maintained on the books of the Borrower in accordance with GAAP; (c) statutory liens of carriers, warehousemen, mechanics, materialmen, landlords, repairmen or other like Liens arising by operation of law in the ordinary course of business provided that (i) the underlying obligations are not overdue for a period of more than 30 days or (ii) such Liens are being contested in good faith and by appropriate proceedings and adequate reserves with respect thereto are maintained on the books of the Borrower in accordance with GAAP; (d) Liens securing the performance of bids, trade contracts (other than borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (e) easements, rights-of-way, zoning restrictions, assessment district or similar Liens in connection with municipal financing, and similar restrictions, encumbrances or title defects which, singly or in the aggregate, do not in any case materially detract from the value of the Real Estate subject thereto (as such Real Estate is used by the Borrower or any of its Subsidiaries) or interfere with the ordinary conduct of the business of the Borrower or any of its Subsidiaries; (f) Liens arising by operation of law in connection with judgments, only to the extent, for an amount and for a period not resulting in a default with respect thereto; (g) pledges or deposits made in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other types of social security legislation; (h) Liens securing Indebtedness of a Person existing at the time such Person becomes a Subsidiary or is merged with or into the Borrower or a Subsidiary or Liens securing Indebtedness incurred in connection with an acquisition of Real Estate, provided that (1) such Liens were in existence prior to the date of such acquisition, merger or consolidation, were not incurred in anticipation thereof, and do not extend to any other assets or (2) such Liens are granted to the seller of such Real Estate to secure the purchase price therefor; (i) Liens securing Indebtedness incurred to refinance any Indebtedness that was previously so secured and permitted hereunder (which refinancing Indebtedness may exceed the amount refinanced, provided such refinancing Indebtedness is otherwise permitted under this Agreement) in a manner no more adverse to the Lenders than the terms of the Liens securing such refinanced Indebtedness, provided, however, that, Liens securing refinancing of the Indebtedness held by the REIT Subsidiary (as described in clause (j) below) shall not be permitted; (j) mortgages, deeds of trust and other similar instruments granted by any Loan Party to the REIT Subsidiary and held by the REIT Subsidiary as security for Indebtedness of such Loan Party to the REIT Subsidiary, provided that (i) the REIT Subsidiary is a Guarantor, (ii) such mortgages, deeds of trust and similar instruments are in a form reasonably approved by Administrative Agent and are not recorded or filed in any real property records or other public or official records and (iii) the REIT Subsidiary executes and delivers to Administrative Agent an agreement reasonably satisfactory to Administrative Agent subordinating to the Obligations, the REIT Subsidiary’s rights, liens and claims against the Borrower and the other Loan Parties, together with certified resolutions, opinions of counsel and other supporting documentation with respect to such subordination reasonably satisfactory to Administrative Agent, and (k) a Lien, solely against the ownership interest of the Borrower or any Subsidiary in a Joint Venture or Subsidiary that is not a Guarantor, granted under the limited partnership agreement, joint venture agreement or limited liability company agreement for such Joint Venture or Subsidiary, solely to secure the obligation of the Borrower or the Subsidiary to make capital contributions pursuant to such agreement; provided, however, that such Lien shall be a Permitted Lien only as long as there are no outstanding obligations secured thereby. 18 -------------------------------------------------------------------------------- “Person” means any natural person, corporation, firm, enterprise, trust, association, company, partnership, limited liability company, joint venture or other entity or organization, or any government or political subdivision or any agency, department, or instrumentality thereof. “Plan” means an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code as to which the Borrower or any member of the Controlled Group may have any liability. “Pricing Grid” means the pricing grid attached hereto as Exhibit F. “Prime Rate” means the rate of interest per annum publicly announced from time to time by JPMorgan Chase Bank, N.A. as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective. “Project” means a parcel of Real Estate owned by a Loan Party which is to be developed or sold as part of a common scheme. “Pro Rata Share” means, at any time for any Lender, the ratio that such Lender’s Commitment bears to the Aggregate Commitment. “Qualified Finished Lots” means, at any date, the sum of (a) the Net Book Value of Finished Lots that are under a bona fide contract for sale by a Loan Party to a Person that is not an Affiliate of a Loan Party and (b) the lesser of (i) the product of (A) the total number of Housing Units with respect to which the Loan Parties entered into such contracts during the period of six consecutive calendar months most recently ended at such date, provided that Housing Units shall include housing units of entities that were acquired and became Loan Parties during the applicable period, multiplied by (B) the average Net Book Value of all Finished Lots as of the end of such six-month period and (ii) an amount equal to 40% of Adjusted Consolidated Tangible Net Worth at such date. “Quarterly Payment Date” means the first Business Day of each January, April, July and October, commencing in October, 2006. “Rating Agency” means any one of Fitch, Moody’s or S&P. “Real Estate” means land, rights in land and interests therein (including, without limitation, leasehold interests), and equipment, structures, improvements, furnishings, fixtures and buildings (including a mobile home of the type usually installed on a developed site) located on or used in connection with land, rights in land or interests therein (including leasehold interests), but shall not include Mortgages or interests therein. 19 -------------------------------------------------------------------------------- “Real Estate Business” means homebuilding, housing construction, home sales, real estate development or construction, a plant/tree nursery for landscaping of Housing Units, and related real estate activities, including the provision of mortgage financing, title insurance and other goods and services to home buyers, home owners and other occupants of homes, including without limitation, cable TV services, home security, home design, broadband communications and other communications services and home office support services. “Recent Balance Sheet” is defined in Section 4.05. “Register” is defined in Section 13.07. “Regulation D” means Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor thereto or other regulation or official interpretation of said Board of Governors relating to reserve requirements applicable to member banks of the Federal Reserve System. “Regulation U” means Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor or other regulation or official interpretation of said Board of Governors relating to the extension of credit by banks for the purpose of purchasing or carrying margin stocks applicable to member banks of the Federal Reserve System. “Reimbursement Obligations” means at any time, the aggregate of the Obligations of the Borrower to the Lenders, the Issuers and the Administrative Agent in respect of all unreimbursed payments or disbursements made by the Lenders, the Issuers and the Administrative Agent under or in respect of the Facility Letters of Credit. “REIT Subsidiary” means a corporation or business trust that the Borrower has caused or may hereafter cause to be organized as an indirect Subsidiary of the Borrower and that elects to be treated as a “qualified real estate investment trust” in accordance with Section 856 of the Code, the business purpose of which Subsidiary is to centralize the internal financing of the Borrower’s real estate development and construction activities. “Replacement Lender” is defined in Section 2.24. “Reply Date” is defined in Section 2.23. “Reportable Event” means a reportable event as defined in Section 4043 of ERISA and the regulations issued under such section, with respect to a Plan, excluding, however, such events as to which the PBGC by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event, provided, however, that a failure to meet the minimum funding standard of Section 412 of the Code and of Section 302 of ERISA shall be a Reportable Event regardless of the issuance of any such waiver of the notice requirement in accordance with either Section 4043(a) of ERISA or Section 412(d) of the Code. 20 -------------------------------------------------------------------------------- “Repurchase Guaranty” means a guaranty by Borrower or any other Loan Party of the obligations of any Mortgage Banking Subsidiary (i) as seller under an agreement for the sale of mortgage loans to a special purpose entity in connection with the securitization of such mortgage loans and (ii) as servicer of such mortgage loans following such sale, provided, however, that such obligations shall not include any guaranty of the obligations of any obligor under any mortgage loan. “Required Lenders” means, subject to the provisions of Section 13.06(c), Lenders whose Pro Rata Shares, in the aggregate, are greater than 66-2/3%; provided, however, that if all of the Commitments have been terminated pursuant to the terms of this Agreement, “Required Lenders” means Lenders whose aggregate ratable shares (stated as a percentage) of the aggregate outstanding principal balance of all Loans and Facility Letter of Credit Obligations are greater than 66-2/3%. “Reserve Requirement” means, with respect to a Interest Period, the maximum aggregate reserve requirement (including all basic, supplemental, marginal and other reserves) which is imposed under Regulation D on Eurocurrency liabilities. “Revolving Advance” means a borrowing under Section 2.01 (or the conversion or continuation of any such borrowing) consisting of the aggregate amount of the several Revolving Loans made by the Lenders to the Borrower of the same Type and, in the case of Eurodollar Advances, for the same Interest Period. “Revolving Credit Exposure” means, with respect to any Lender at any time (without duplication), the sum of the outstanding principal amount of such Lender’s Revolving Loans, its Pro Rata Share of all outstanding Swing Line Loans and its Pro Rata Share of all Facility Letter of Credit Obligations at such time. “Revolving Loan” means, with respect to a Lender, a loan made by such Lender pursuant to Section 2.01 and any conversion or continuation thereof. “Revolving Loan Note” means a promissory note in substantially the form of Exhibit C hereto executed by the Borrower payable to the order of a Lender in the amount of its Commitment, including any amendment, modification, renewal, restatement or replacement of such note. “Section” means a numbered section of this Agreement, unless another document is specifically referenced. “Securities” of any Person means equity securities and debt securities and any other instrument commonly understood to be a security issued by that Person. “Securities Act” is defined in Section 6.04(g). “Single Employer Plan” means a Plan maintained by the Borrower or any member of the Controlled Group for employees of the Borrower or any member of the Controlled Group. 21 -------------------------------------------------------------------------------- “S&P” means Standard & Poor’s Ratings Services, a division of The McGraw Hill Companies, Inc., or any Person succeeding to the securities rating business of such company. “Statutory Reserve Rate” means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the Administrative Agent is subject (a) with respect to the Base CD Rate, for new negotiable nonpersonal time deposits in dollars of over $100,000 with maturities approximately equal to three months and (b) with respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. “Subordinated Debt” means any Indebtedness of the Borrower which by its terms is subordinated, in form and substance and in a manner satisfactory to the Administrative Agent, in time and right of payment to the prior payment in full of the Obligations, but which in any event matures not earlier than twelve months after the Termination Date. “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 or by one or more of its Subsidiaries or by such Person and 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 so owned or controlled. “Subsidiary Unmatured Defaults” is defined in Section 2.07(c). “Supplemental Guaranty” means a “Supplemental Guaranty” in the form provided for and as defined in the form of Guaranty attached hereto as Exhibit E. “Swing Line Bank” means JPMorgan Chase Bank or any other Lender as a successor Swing Line Bank. “Swing Line Commitment” means the obligation of the Swing Line Bank to make Swing Line Loans up to a maximum of $150,000,000 at any one time outstanding. “Swing Line Loan” means a Loan made available to the Borrower by the Swing Line Bank pursuant to Section 2.10 hereof. “Swing Line Note” means the promissory note in substantially the form of Exhibit D hereto executed by the Borrower payable to the order of the Swing Line Bank in the amount of the Swing Line Commitment, including any amendment, modification, renewal, restatement or replacement of such note. 22 -------------------------------------------------------------------------------- “Termination Date” means July 20, 2011, or such later date, if any, to which the Termination Date may be extended pursuant to Section 2.23, subject, however, to earlier termination in whole of the Aggregate Commitment pursuant to the terms of this Agreement. “Three-Month Secondary CD Rate” means, for any day, the secondary market rate for three-month certificates of deposit reported as being in effect on such day (or, if such day is not a Business Day, the next preceding Business Day) by the Board through the public information telephone line of the Federal Reserve Bank of New York (which rate will, under the current practices of the Board, be published in Federal Reserve Statistical Release H.15(519) during the week following such day) or, if such rate is not so reported on such day or such next preceding Business Day, the average of the secondary market quotations for three-month certificates of deposit of major money center banks in New York City received at approximately 10:00 a.m., New York City time, on such day (or, if such day is not a Business Day, on the next preceding Business Day) by the Administrative Agent from three negotiable certificate of deposit dealers of recognized standing selected by it. “Type” means, with respect to any Revolving Advance, its nature as an ABR Advance or Eurodollar Advance. “UAMC” means Universal American Mortgage Company, LLC. “Unfunded Liabilities” means the amount (if any) by which the present value of all vested nonforfeitable benefits under all Single Employer Plans exceeds the fair market value of all such Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plans. “Unimproved Entitled Land” means Entitled Land upon which no Improvements have been commenced. “Unmatured Default” means an event, act or condition which but for the lapse of time or the giving of notice, or both, would constitute an Event of Default. “Unused Commitment” means, at any date, with respect to each Lender, the amount by which its Commitment exceeds the sum of the outstanding balance of its Revolving Loans and its Pro Rata Share of the aggregate amount then available for drawing under the Facility Letters of Credit. “Wholly-Owned Subsidiary” of a Person means (i) any Subsidiary all of the outstanding voting securities of which shall at the time be owned or controlled, directly or indirectly, by such Person or one or more Wholly-Owned Subsidiaries of such Person, or by such Person and one or more Wholly-Owned Subsidiaries of such Person, or (ii) any partnership, association, joint venture or similar business organization 100% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. SECTION 1.02. Computation of Time Periods. For the purposes of this Agreement, in the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including”, the words “to” and “until” each means “to but excluding” and the word “through” means “to and including”.   23 -------------------------------------------------------------------------------- SECTION 1.03. Accounting Terms.  (a) All accounting terms used and not specifically defined herein shall be construed in accordance with GAAP. All references herein to GAAP shall be deemed to refer to those principles; provided, however, that notwithstanding the requirements imposed by GAAP which require the consolidation of the operations of the Mortgage Banking Subsidiaries with the operations of the Borrower, for the purposes of the calculations set forth in Article VII hereof, the operations of such Subsidiary shall be so included only as specifically provided for herein. (b) In the event that the Borrower shall acquire, pursuant to a transaction permitted under this Agreement, all of the equity Securities of a corporation (the “Acquired Company”) which have ordinary voting power for the election of directors of the Acquired Company and, provided that (i) the Borrower shall have furnished to the Administrative Agent, and the Administrative Agent shall have approved (A) consolidated balance sheets and related consolidated statements of earnings, stockholders’ equity and cash flows of the Acquired Company for the most recently concluded fiscal year of the Acquired Company, prepared in accordance with GAAP consistently applied and audited and reported upon by a firm of independent certified public accountants of recognized standing acceptable to the Administrative Agent (such audit to be unqualified) and (B) for any quarters of the next succeeding fiscal year that are concluded as of the date of such Acquisition, a consolidated balance sheet of the Acquired Company as of the end of the most recent quarter, and the related consolidated statement of earnings and cash flows of the Acquired Company for the period from the beginning of the current fiscal year to the end of that quarter, all prepared in accordance with GAAP consistently applied, unaudited but certified to be true and accurate, subject to normal year-end audit adjustments, by the chief financial officer of the Acquired Company and (ii) the Acquired Company shall either become or be merged into a Guarantor hereunder, then, from and after such Acquisition, the Borrower shall include in the determination of Consolidated EBITDA, Consolidated Interest Expense, Consolidated Interest Incurred and Consolidated Net Income, for any applicable period for which such amounts are to be determined pursuant to this Agreement, such Acquired Company as if such Acquired Company had been a Loan Party during such period. ARTICLE II   THE CREDITS SECTION 2.01. Commitment. (a) Revolving Credit Advances. On and after the Closing Date and prior to the Termination Date, upon the terms and conditions set forth in this Agreement and in reliance upon the representations and warranties of the Borrower herein set forth, each Lender severally agrees to make Revolving Loans to the Borrower from time to time in amounts not to exceed in the aggregate at any one time outstanding the amount of its Commitment, provided that in no event may the Aggregate Credit Exposure exceed the Aggregate Commitment. Subject to the terms of this Agreement, the Borrower may borrow, repay and reborrow under this Agreement at any time prior to the Termination Date. The Commitments to lend hereunder shall expire on the Termination Date. 24 -------------------------------------------------------------------------------- (b) Letter of Credit Commitment. On and after the Closing Date and prior to the Termination Date, each Lender severally agrees, on the terms and conditions set forth in this Agreement and in reliance upon the representations and warranties of the Borrower herein set forth, to participate in the Existing Letters of Credit and in other Facility Letters of Credit issued pursuant to Section 2.18 for the account of the Borrower, provided that in no event may the aggregate amount of all Facility Letter of Credit Obligations exceed the lesser of (A) the Aggregate Letter of Credit Commitment and (B) the amount by which the Aggregate Commitment exceeds the Aggregate Credit Exposure. (c) Revolving Advances and Participations Pro Rata. Revolving Advances hereunder shall be made ratably by the several Lenders in accordance with their respective Pro Rata Shares. Participations in Facility Letters of Credit hereunder shall be ratable among the several Lenders in accordance with their respective Pro Rata Shares. (d) Maturity. All Obligations shall be due and payable by the Borrower on the Termination Date unless such Obligations shall sooner become due and payable pursuant to Section 9.02 or as otherwise provided in this Agreement. SECTION 2.02. Types of Advances. The Revolving Advances may be ABR Advances, or Eurodollar Advances, or a combination thereof, selected by the Borrower in accordance with Section 2.06; provided, however, that there shall not be more than five Eurodollar Advances outstanding at any time. SECTION 2.03. Principal Payments. (a) Optional Principal Payments. The Borrower may from time to time pay, without penalty or premium, all outstanding ABR Advances, or, in a minimum aggregate amount of $5,000,000 or any integral multiple of $1,000,000 in excess thereof, any portion of the outstanding ABR Advances upon notice to the Administrative Agent not later than 11:00 a.m. New York time) on the date of payment, and (ii) the Borrower may, upon three Business Days’ prior notice to the Administrative Agent, (A) pay any Eurodollar Advance in full on the last day of the Interest Period for such Eurodollar Advance, and (B) prepay any Eurodollar Advance in full prior to the last day of the Interest Period for such Eurodollar Advance. (b) Payments of Mortgage Banking Subsidiaries Note. The Borrower shall prepay the principal of the Loans in the amount, and promptly upon its receipt, of any principal payment made with respect to the Mortgage Banking Subsidiaries Note from and after the date the Administrative Agent is granted a security interest therein pursuant to Section 8.01. (c) Funding Indemnification. The provisions of Section 3.04 shall apply to any payment or prepayment provided for in this Section 2.03. (d) Application of Payments. Unless this Agreement specifically provides for the application of principal payments to specified Obligations, the Borrower may, as long as no Event of Default has occurred that is continuing, direct the Administrative Agent to apply prepayments of the principal amount of the Obligations against any Swing Line Loans, any Competitive Bid Loans or any Revolving Advances.   25 -------------------------------------------------------------------------------- SECTION 2.04. Facility Fees; Reductions of Commitments. (a) Facility Fees. The Borrower agrees to pay to the Administrative Agent for the account of each Lender a Facility Fee, at a rate per annum equal to the Applicable Facility Fee Rate on the daily amount of such Lender’s Commitment (whether used or unused) from the date hereof to and including the date on which such Commitment terminates; provided that, if such Lender continues to have any Revolving Credit Exposure after its Commitment terminates, then such Facility Fee shall continue to accrue on the daily amount of such Lender’s Revolving Credit Exposure from and including the date on which its Commitment terminates to the date on which such Lender ceases to have any Revolving Credit Exposure. Accrued Facility Fees shall be payable in arrears on each Quarterly Payment Date and on the date on which the Commitments terminate, commencing on the first such date to occur after the date hereof; provided that any Facility Fees accruing after the date on which the Commitments terminate shall be payable on demand. The fees payable under this Section 2.04, once paid, shall not be refundable for any reason. (b) Voluntary Reduction of Commitments. The Borrower may permanently reduce the Aggregate Commitment in whole, or in part ratably among the Lenders in the minimum amount of $5,000,000, and, if in excess thereof, in integral multiples of $1,000,000, upon at least three Business Days’ written notice to the Administrative Agent, which notice shall specify the amount of any such reduction, provided, however, that the amount of the Aggregate Commitment may not be reduced below the Aggregate Credit Exposure. SECTION 2.05. Method of Borrowing. Not later than 1:00 p.m. (New York time) on each Borrowing Date, each Lender shall make available its Revolving Loan, in funds immediately available to the Administrative Agent at its address specified pursuant to Section 13.01. The Administrative Agent will make the funds so received from the Lenders available to the Borrower by deposit into an account maintained by the Borrower at JPMorgan Chase Bank. SECTION 2.06. Method of Selecting Types and Interest Periods for Revolving Advances. (a) Borrowing Notices. The Borrower shall select the Type of each Revolving Advance and, in the case of each Eurodollar Advance, the Interest Period applicable to each Advance from time to time. The Borrower shall give the Administrative Agent irrevocable notice (a “Borrowing Notice”) not later than 11:00 a.m. (New York time) on the Borrowing Date for each ABR Advance and prior to 11:00 a.m. (New York time) on the date which is two Business Days before the Borrowing Date for each Eurodollar Advance, specifying: (i) the Borrowing Date, which shall be a Business Day, of such Revolving Advance, (ii) the aggregate amount of such Revolving Advance, (iii) the Type of Revolving Advance selected, and (iv) in the case of each Eurodollar Advance, the Interest Period applicable thereto. 26 -------------------------------------------------------------------------------- The Borrower shall be entitled to obtain, on the Closing Date, only one Revolving Advance and, on any single Business Day after the Closing Date, only one Revolving Advance, each of which Revolving Advances may (subject to the provisions of Section 2.02) be comprised in whole or in part of any Eurodollar Advance. Changes in the rate of interest on that portion of any Revolving Advance maintained as a ABR Advance will take effect simultaneously with each change in the Alternate Base Rate. Each Eurodollar Advance shall bear interest from and including the first day of the Interest Period applicable thereto to (but not including) the last day of such Interest Period at the interest rate determined as applicable to such Eurodollar Advance. The Borrower shall select Interest Periods with respect to Eurodollar Advances so that it is not necessary to repay a Eurodollar Advance prior to the last day of the applicable Interest Period in order to make any mandatory payment required to be made pursuant to this Agreement or to repay all Loans in full on the Termination Date. In the case of a Eurodollar Advance made during the continuance of an Subsidiary Unmatured Default, the Interest Period for such Advance may not extend beyond the date on which such Subsidiary Unmatured Default would (if not cured) become an Event of Default. (b) Borrowing Notices Irrevocable. Each Borrowing Notice shall be irrevocable and binding on the Borrower and, in respect of the borrowing specified in the Borrowing Notice, the Borrower shall indemnify each Lender against any loss or expense incurred by that Lender as a result of any failure to fulfill the applicable conditions set forth in Section 5.02 on or before the proposed Borrowing Date specified in the Borrowing Notice, including, without limitation, any loss (including loss of profit) or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any Lender to fund the Loan to be made by that Lender as part of that borrowing when that Loan, as a result of that failure, is not made on that date. SECTION 2.07. Method of Selecting Types and Interest Periods for Conversion and Continuation of Revolving Advances. (a) Right to Convert. The Borrower may elect from time to time, subject to the provisions of Section 2.07(c), to convert all or any part of a Revolving Advance of any Type into any other Type or Types of Revolving Advances; provided that any conversion of any Eurodollar Advance shall be made on, and only on, the last day of the Interest Period applicable thereto. (b) Automatic Conversion and Continuation. ABR Advances shall continue as ABR Advances unless and until such ABR Advances are converted into Eurodollar Advances. Eurodollar Advances of any Type shall continue as Eurodollar Advances of such Type until the end of the then applicable Interest Period therefor, at which time such Eurodollar Advance shall be automatically converted into a ABR Advance unless the Borrower shall have given the Administrative Agent notice in accordance with Section 2.07(d), requesting that, at the end of such Interest Period, such Eurodollar Advance either continue as a Eurodollar Advance of such Type for the same or another Interest Period or be converted into a Revolving Advance of another Type. 27 -------------------------------------------------------------------------------- (c) No Conversion in Case of an Event of Default or Unmatured Default. Notwithstanding anything to the contrary contained in Section 2.07(a) or 2.07(b), no Revolving Advance may be converted into or continued as a Eurodollar Advance (except with the consent of the Required Lenders) when there has occurred and is continuing any Event of Default or Unmatured Default, except for Unmatured Defaults (other than the failure to pay any Obligation) that with respect to Subsidiaries of the Borrower whose assets constitute in the aggregate less than 5% of the assets of the Borrower and its Subsidiaries (other than the Mortgage Banking Subsidiaries) on a consolidated basis (calculated as at the Borrower’s then most recent fiscal quarter end) (“Subsidiary Unmatured Defaults”); provided the Borrower certifies (either in the Conversion/Continuation Notice or in a separate certificate addressed to the Administrative Agent for the benefit of the Lenders) that (a) such Subsidiary Unmatured Defaults are not reasonably likely to have a Material Adverse Effect and (b) the Borrower reasonably expects to cure such Subsidiary Unmatured Defaults before the date on which the same becomes an Event of Default, which certificate shall provide reasonable detail regarding the Subsidiary Unmatured Defaults and the Borrower’s proposed cure thereof. The Administrative Agent shall furnish a copy of such certification to the Lenders. (d) Conversion/Continuation Notice. The Borrower shall give the Administrative Agent irrevocable notice (a “Conversion/Continuation Notice”) of each conversion of a Revolving Advance or continuation of a Eurodollar Advance not later than 11:00 a.m. (New York time) on the day of any conversion into an ABR Advance or prior to 11:00 a.m. (New York time) on the date which is two Business Days prior to the date of the requested conversion into or continuation of a Eurodollar Advance, specifying: (i) the requested date (which shall be a Business Day) of such conversion or continuation; (ii) the amount and Type of the Revolving Advance to be converted or continued; and (iii) the amount and Type(s) of Revolving Advance(s) into which such Revolving Advance is to be converted or continued and, in the case of a conversion into or continuation of a Eurodollar Advance, the duration of the Interest Period applicable thereto. In the case of a conversion or continuation of Eurodollar Advance made during the continuance of an Subsidiary Unmatured Default, the Interest Period for such Advance may not extend beyond the date on which such Subsidiary Unmatured Default would (if not cured) become an Event of Default. SECTION 2.08. Minimum Amount of Each Revolving Advance. Each Revolving Advance shall be in the minimum amount of $5,000,000 (and in multiples of $1,000,000 if in excess thereof) provided, however, that any ABR Advance may be in the amount by which the Aggregate Commitment exceeds the Aggregate Credit Exposure.   SECTION 2.09. Competitive Bid Procedure.  28 -------------------------------------------------------------------------------- (a) Competitive Bid Request. Subject to the terms and conditions set forth herein, from time to time prior to the Termination Date, the Borrower may request Competitive Bids and may (but shall not have any obligation to) accept Competitive Bids and borrow Competitive Loans, provided that (i) in no event may the aggregate principal balance of all outstanding Competitive Loans exceed $300,000,000 and (ii) in no event may the Aggregate Credit Exposure exceed the Aggregate Commitment. To request Competitive Bids, the Borrower shall notify the Administrative Agent of such request by telephone not later than 11:00 a.m., New York time, one Business Day before the date of the proposed Competitive Loan; provided that the Borrower may submit up to (but not more than) three (3) Competitive Bid Requests on the same day, but a Competitive Bid Request shall not be made within five Business Days after the date of any previous Competitive Bid Request, unless any and all such previous Competitive Bid Requests shall have been withdrawn or all Competitive Bids received in response thereto rejected. Each such telephonic Competitive Bid Request shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Competitive Bid Request in a form approved by the Administrative Agent and signed by the Borrower. Each such telephonic and written Competitive Bid Request shall specify the following information: (i) the aggregate amount of the requested Competitive Loan; (ii) the Borrowing Date of such Competitive Loan, which shall be a Business Day; (iii) the Interest Period to be applicable to such Competitive Loan, which shall be a period contemplated by the definition of the term “Interest Period”; and (iv) the location and number of the Borrower’s account to which funds are to be disbursed, which shall comply with the requirements of Section 2.05. Promptly following receipt of a Competitive Bid Request in accordance with this Section, the Administrative Agent shall notify the Lenders of the details thereof by telecopy, inviting the Lenders to submit Competitive Bids. (b) Competitive Bid. Each Lender may (but shall not have any obligation to) make one or more Competitive Bids to the Borrower in response to a Competitive Bid Request. Each Competitive Bid by a Lender must be in a form approved by the Administrative Agent and must be received by the Administrative Agent by telecopy not later than 10:00 a.m., New York time on the proposed date of such Competitive Loan. Competitive Bids that do not conform substantially to the form approved by the Administrative Agent may be rejected by the Administrative Agent, and the Administrative Agent shall notify the applicable Lender as promptly as practicable. Each Competitive Bid shall specify (i) the principal amount (which shall be a minimum of $5,000,000 and an integral multiple of $1,000,000 and which may equal the entire principal amount of the Competitive Loan requested by the Borrower) of the Competitive Loan or Loans that the Lender is willing to make, (ii) the Competitive Bid Rate or Competitive Bid Rates at which the Lender is prepared to make such Competitive Loan or Competitive Loans (expressed as a percentage rate per annum in the form of a decimal to no more than four decimal places) and (iii) the Interest Period applicable to each such Competitive Loan and the last day thereof. (c) Notice of Competitive Bid. The Administrative Agent shall notify the Borrower by telecopy not later than 10:30 a.m., New York time, on the proposed date of the Competitive Loan of the Competitive Bid Rate and the principal amount specified in each Competitive Bid and the identity of the Lender that shall have made such Competitive Bid. 29 -------------------------------------------------------------------------------- (d) Acceptance of Competitive Bid. Subject only to the provisions of this paragraph, the Borrower may accept or reject any Competitive Bid. The Borrower shall notify the Administrative Agent by telephone, confirmed by telecopy in a form approved by the Administrative Agent, whether and to what extent it has decided to accept or reject each Competitive Bid not later than 11:30 a.m., New York time, on the proposed date of the Competitive Loan; provided that (i) the failure of the Borrower to give such notice shall be deemed to be a rejection of each Competitive Bid, (ii) the Borrower shall not accept a Competitive Bid made at a particular Competitive Bid Rate if the Borrower rejects a Competitive Bid made at a lower Competitive Bid Rate, (iii) the aggregate amount of the Competitive Bids accepted by the Borrower shall not exceed the aggregate amount of the requested Competitive Loan specified in the related Competitive Bid Request, (iv) to the extent necessary to comply with clause (iii) above, the Borrower may accept Competitive Bids at the same Competitive Bid Rate in part, which acceptance, in the case of multiple Competitive Bids at such Competitive Bid Rate, shall be made pro rata in accordance with the amount of each such Competitive Bid, and (v) except pursuant to clause (iv) above, no Competitive Bid shall be accepted for a Competitive Loan unless such Competitive Loan is in a minimum principal amount of $5,000,000 and an integral multiple of $1,000,000; provided further that if a Competitive Loan must be in an amount less than $5,000,000 because of the provisions of clause (iv) above, such Competitive Loan may be for a minimum of $1,000,000 or any integral multiple thereof, and in calculating the pro rata allocation of acceptances of portions of multiple Competitive Bids at a particular Competitive Bid Rate pursuant to clause (iv) above the amounts shall be rounded to integral multiples of $1,000,000 in a manner determined by the Borrower. A notice given by the Borrower pursuant to this paragraph shall be irrevocable. (e) Notice of Acceptance of Competitive Bid. The Administrative Agent shall promptly notify each bidding Lender by telecopy whether or not its Competitive Bid has been accepted (and, if so, the amount and Competitive Bid Rate so accepted), and each successful bidder will thereupon become bound, subject to the terms and conditions hereof, to make and, subject to the terms and conditions hereof, shall advance on the Borrowing Date set forth in the applicable Competitive Bid Request the Competitive Loan in respect of which its Competitive Bid has been accepted. (f) Acceptance Irrevocable. The Borrower’s acceptance of a Competitive Bid shall be irrevocable and binding on the Borrower and the Borrower shall indemnify the applicable Lender or Lenders against any loss or expense incurred by such Lender or Lenders as a result of any failure to fulfill the applicable conditions set forth in Section 5.02 on or before the proposed Borrowing Date of such proposed Competitive Loan, including, without limitation, any loss (including loss of profit) or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender or Lenders to fund the Competitive Loan to be made by such Lender or Lenders when that Competitive Loan, as a result of that failure, is not made on that date. (g) Competitive Bids by Administrative Agent. If the Administrative Agent shall elect to submit a Competitive Bid in its capacity as a Lender, it shall submit such Competitive Bid directly to the Borrower at least one quarter of an hour earlier than the time by which the other Lenders are required to submit their Competitive Bids to the Administrative Agent pursuant to paragraph (b) of this Section. 30 -------------------------------------------------------------------------------- (h) No Effect on Commitment. The Commitment of a Lender that makes a Competitive Loan shall not be reduced or otherwise affected by the making of such Competitive Loan.   SECTION 2.10. Swing Line Loans.  (a) Swing Line Commitment. In addition to the Revolving Advances pursuant to Sections 2.01 and Competitive Bid Loans pursuant to Section 2.09, but subject to the terms and conditions of this Agreement (including but not limited to those limitations set forth in Section 2.01), the Swing Line Bank agrees to make the Swing Line Loans to the Borrower in accordance with this Section 2.10 up to the amount of the Swing Line Commitment. Swing Line Loans shall not be limited by the amount of the Swing Line Bank’s Commitment but shall be subject to the limitations set forth in Section 2.10. Amounts borrowed under this Section 2.10 may be borrowed, repaid and reborrowed to, but not including, the Termination Date. All outstanding Swing Line Loans shall bear interest at the Alternate Base Rate. (b) Swing Line Request. The Borrower may request a Swing Line Loan from the Swing Line Bank on any Business Day before the Termination Date by giving the Administrative Agent and the Swing Line Bank notice by 2:00 p.m. (New York time) on such Borrowing Date specifying the aggregate amount of such Swing Line Loan, which shall be an amount not less than $500,000. The Administrative Agent shall promptly notify each Lender of such request. (c) Making of Swing Line Loans. The Swing Line Bank shall, no later than 4:00 p.m. (New York time) on such Borrowing Date, make the funds for such Swing Line Loan available to the Borrower at the Administrative Agent’s address, or at such other place as indicated in written money transfer instructions from the Borrower, signed by an Authorized Officer. (d) Swing Line Note. The Swing Line Loans shall be evidenced by the Swing Line Note and each Swing Line Loan shall be paid in full by the Borrower on or before the earlier of the fifth Business Day after the Borrowing Date for such Swing Line Loan or the Termination Date. 31 -------------------------------------------------------------------------------- (e) Repayment of Swing Line Loans. The Borrower may at any time pay, without penalty or premium, all outstanding Swing Line Loans, or, in a minimum amount of $500,000, any portion of the outstanding Swing Line Loans upon notice to the Administrative Agent and the Swing Line Bank. In addition, the Administrative Agent: (i) may at any time in its sole discretion or (ii) shall on the fifth Business Day after the Borrowing Date for such Swing Line Loan, require the Lenders (including the Swing Line Bank) to make a Revolving Advance at the Alternate Base Rate in an amount up to the amount of Swing Line Loans outstanding on such date for the purpose of repaying Swing Line Loans; provided, however, that the obligation of each Lender to make any such Revolving Advance is subject to the condition that the Swing Line Bank believed in good faith that all conditions under Section 5.02 were satisfied at the time the Swing Line Loan was made. If the Swing Line Bank receives notice from any Lender that a condition under Section 5.02 has not been satisfied, no Swing Line Loan shall be made until (A) such notice is withdrawn by that Lender or (B) the Required Lenders have waived satisfaction of any such condition. The Lenders shall deliver the proceeds of such Revolving Advance to the Administrative Agent by 1:00 p.m. (New York time) on the applicable Borrowing Date for application to the Swing Line Bank’s outstanding Swing Line Loans. Subject to the proviso contained in the second sentence of this Section 2.10(e), each Lender’s obligation to make available its Pro Rata Share of the Revolving Advance referred to in this Section shall be absolute and unconditional and shall not be affected by any circumstances, including without limitation, (1) any set-off, counterclaim, recoupment, defense or other right which such Lender may have against the Swing Line Bank, or anyone else, (2) the occurrence or continuance of an Event of Default or Unmatured Default, (3) any adverse change in the condition (financial or otherwise) of the Borrower or (4) any Event whatsoever. If for any reason a Lender does not make available its Pro Rata Share of the foregoing Revolving Advance, such Lender shall be deemed to have unconditionally and irrevocably purchased from the Swing Line Bank, without recourse or warranty, an undivided interest and participation in each Swing Line Loan then being repaid, equal to its Pro Rata Share of all such Swing Line Loans being repaid, so long as such purchase would not cause such Lender to exceed its Commitment. If any portion of any amount paid (or deemed paid) to the Administrative Agent is recovered by or on behalf of the Borrower from the Administrative Agent in bankruptcy or otherwise, the loss of the amount so recovered shall be shared ratably among all Lenders in accordance with their respective Pro Rata Shares.   SECTION 2.11. Rate after Maturity. Any Loan which is not paid at maturity for such Loan, whether by acceleration or otherwise, shall bear interest until paid in full at a rate per annum equal to the Default Rate.   SECTION 2.12. Method of Payment. All payments of principal, interest, and fees hereunder shall be made, without setoff, deduction, or counterclaim, in immediately available funds to the Administrative Agent at the Administrative Agent’s address specified pursuant to Article XIII, or at any other Lending Installation of the Administrative Agent specified in writing by the Administrative Agent to the Borrower, by 2:00 p.m. (New York time) on the date when due and (except in the case of payments in respect of Swing Line Loans which shall be paid to the Swing Line Bank and payments in respect of Competitive Loans which shall be paid to the Lenders holding such Competitive Loans) shall, upon receipt by the Administrative Agent be paid ratably by the Administrative Agent among the Lenders with respect to their Loans. Each payment delivered to the Administrative Agent for the account of any Lender shall be delivered promptly by the Administrative Agent to such Lender in the same type of funds which the Administrative Agent received at its address specified pursuant to Article XIII or at any Lending Installation specified in a notice received by the Administrative Agent from such Lender. The Administrative Agent is hereby authorized to charge any account of the Borrower maintained with JPMorgan Chase Bank for each payment of principal, interest and fees as it becomes due hereunder. The Administrative Agent shall endeavor in good faith to provide telephonic notice to Borrower prior to any such charge, but the Administrative Agent shall not be liable to Borrower or any other Person if Administrative Agent fails to provide any such notice. If and to the extent payment owed to any Lender is not made by the Borrower to the Administrative Agent or that Lender, as the case may be, when due hereunder or under any Loan held by that Lender, the Borrower further authorizes such Lender to charge from time to time against any or all of the accounts maintained by the Borrower with the Lender, its subsidiaries, affiliates or branches any amount so due, subject to the provisions of Article XI.   32 -------------------------------------------------------------------------------- SECTION 2.13. Notes; Telephonic Notices.  (a) Any Lender may request, by written notice to the Administrative Agent, that any Loans made or to be made by it hereunder each be evidenced by a Note or Notes payable to such Lender, and, in such event, the Borrower shall execute and deliver to the Administrative Agent a Revolving Loan Note or Competitive Loan Note (as the case may be) payable to the order of such Lender. Upon the execution and delivery of (i) a Revolving Loan Note, the Revolving Loans theretofore or thereafter made by such Lender shall be evidenced by the applicable Revolving Loan Note payable to such Lender and (ii) a Competitive Loan Note, the Competitive Loans theretofore or thereafter payable to such Lender shall be evidenced by such Competitive Loan Note. (b) The Borrower hereby authorizes the Administrative Agent to extend, convert or continue Advances, effect selections of Types of Advances and to transfer funds based on telephonic notices made by any person that the Administrative Agent in good faith believes to be an Authorized Officer designated herein or otherwise in writing by the Borrower. All actions taken by the Lenders and the Administrative Agent upon such telephonic notices are hereby approved by the Borrower, and the Lenders and the Administrative Agent shall incur no liability as a result of any such actions. The Borrower agrees to deliver promptly to the Administrative Agent a written confirmation, if such confirmation is requested by the Administrative Agent or any Lender, of each telephonic notice signed by an Authorized Officer. If the written confirmation differs in any material respect from the action taken by the Administrative Agent and the Lenders, the records of the Administrative Agent and the Lenders shall govern absent manifest error.   SECTION 2.14. Interest Payment Dates; Interest and Fee Basis. Interest accrued on each ABR Advance and Swing Line Loan shall be payable on each Monthly Payment Date, commencing with the first such date to occur after the date hereof, on any date on which the ABR Advance or Swing Line Loan is prepaid, whether due to acceleration or otherwise, and on the Termination Date. Interest accrued on that portion of the outstanding principal amount of any ABR Advance converted into a Eurodollar Advance on a day other than a Monthly Payment Date shall be payable on the date of conversion. Interest accrued on each Eurodollar Advance and Competitive Loan shall be payable on the last day of its applicable Interest Period, on any date on which the Eurodollar Advance or Competitive Loan is prepaid, whether by acceleration or otherwise, and at maturity. Interest accrued on each Eurodollar Advance having an Interest Period longer than three months shall also be payable on the last day of each three-month interval during such Interest Period. Interest on ABR Loans, Swing Line Loans and Competitive Loans, Facility Fees and Facility Letter of Credit Fees shall be calculated for actual days elapsed on the basis of a 365-day (or, if applicable, 366-day) year; interest on Eurodollar Advances shall be calculated for actual days elapsed on the basis of a 360-day year. Interest shall be payable for the day an Advance is made but not for the day of any payment on the amount paid if payment is received prior to 2:00 p.m. (New York time) at the place of payment. If any payment of principal of or interest on an Advance shall become due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and, in the case of a principal payment, such extension of time shall be included in computing interest in connection with such payment.   33 -------------------------------------------------------------------------------- SECTION 2.15. Notification of Advances, Interest Rates, Prepayments and Commitment Reductions. Promptly after receipt thereof, the Administrative Agent will notify each Lender of the contents of each notice of reduction of the Aggregate Commitment received by the Administrative Agent and will notify each Lender of the contents of each Borrowing Notice, Conversion/Continuation Notice and repayment notice received by the Administrative Agent hereunder. The Administrative Agent will notify each Lender of the interest rate applicable to each Eurodollar Advance promptly upon determination of such interest rate.   SECTION 2.16. Lending Installations. Each Lender may book its Loans at any Lending Installation selected by such Lender and may change its Lending Installation from time to time. All terms of this Agreement shall apply to any such Lending Installation and the Notes shall be deemed held by each Lender for the benefit of such Lending Installation. Each Lender may, by written or telex notice to the Administrative Agent and the Borrower, designate a Lending Installation through which Loans will be made by it and for whose account Loan payments are to be made.   SECTION 2.17. Increase in Aggregate Commitment.  (a) Request for Increase. The Borrower may, at any time and from time to time, request, by notice to the Administrative Agent, the Administrative Agent’s approval of an increase of the Aggregate Commitment (a “Commitment Increase”) within the limitations hereafter described, which request shall set forth the amount of each such requested Commitment Increase. Within twenty (20) days of such request, the Administrative Agent shall advise the Borrower of its approval or disapproval of such request; failure to so advise the Borrower shall constitute disapproval. If the Administrative Agent approves any such Commitment Increase, then the Aggregate Commitment may be so increased (up to the amount of such approved Commitment Increase) by having one or more New Lenders increase the amount of their then existing Commitments or become Lenders. Any Commitment Increase shall be subject to the following limitations and conditions: (i) any increase (in the aggregate) in the Aggregate Commitment and the amount (in the aggregate) of any new Commitment and/or any amount (in the aggregate) of any increase in the Commitment of any New Lender, shall not be less than $5,000,000 (and shall be in integral multiples of $1,000,000 if in excess thereof); (ii) no Commitment Increase pursuant to this Section 2.17 shall increase the Aggregate Commitment to an amount in excess of $3,200,000,000; (iii) the Borrower and each New Lender shall have executed and delivered a commitment and acceptance (the “Commitment and Acceptance”) substantially in the form of Exhibit G hereto, and the Administrative Agent shall have accepted and executed the same; (iv) the Borrower shall have executed and delivered to the Administrative Agent such Note or Notes as any such New Lender shall request to reflect such Commitment Increase; (v) the Borrower shall have delivered to the Administrative Agent opinions of counsel (substantially similar to the forms of opinions provided for in Section 5.01 modified to apply to the Commitment Increase and each Note and Commitment and Acceptance executed and delivered in connection therewith); (vi) the Guarantors shall have consented in writing to the Commitment Increase and shall have agreed that their Guaranties continue in full force and effect; and (vii) the Borrower and each New Lender shall otherwise have executed and delivered such other instruments and documents as the Administrative Agent shall have reasonably requested in connection with such Commitment Increase. The form and substance of the documents required under clauses (iii) through (vii) above shall be fully acceptable to the Administrative Agent. The Administrative Agent shall provide written notice to all of the Lenders hereunder of any Commitment Increase. 34 -------------------------------------------------------------------------------- (b) Revolving Loans by New Lenders. Upon the effective date of any increase in the Aggregate Commitment pursuant to the provisions hereof, which effective date shall be mutually agreed upon by the Borrower, each New Lender and the Administrative Agent, each New Lender shall make a payment to the Administrative Agent in an amount sufficient, upon the application of such payments by all New Lenders to the reduction of the outstanding Revolving Advances held by the Lenders, to cause the principal amount outstanding under the Revolving Loans made by each Lender (including any New Lender) to be in the amount of its Pro Rata Share (upon the effective date of such increase) of all outstanding Revolving Advances. The Borrower hereby irrevocably authorizes each New Lender to fund to the Administrative Agent the payment required to be made pursuant to the immediately preceding sentence for application to the reduction of the outstanding Revolving Loans held by the other Lenders hereunder. If, as a result of the repayment of the Revolving Advances provided for in this Section 2.17(b), any payment of a Eurodollar Advance occurs on a day which is not the last day of the applicable Interest Period, the Borrower will pay to the Administrative Agent for the benefit of any of the Lenders holding a Eurodollar Loan any loss or cost incurred by such Lender resulting therefrom in accordance with Section 3.04. Upon the effective date of such increase in the Aggregate Commitment, all Revolving Loans outstanding hereunder (including any Revolving Loans made by the New Lenders on such date) shall be ABR Loans, subject to the Borrower’s right to convert the same to Eurodollar Loans on or after such date in accordance with the provisions of Section 2.07. (c) New Lenders’ Participation in Facility Letters of Credit. Upon the effective date of any increase in the Aggregate Commitment and the making of the Revolving Loans by the New Lenders in accordance with the provisions of Section 2.17(b), each New Lender shall also be deemed to have irrevocably and unconditionally purchased and received, without recourse or warranty, from the Lenders party to this Agreement immediately prior to the effective date of such increase, an undivided interest and participation in any Facility Letter of Credit then outstanding, ratably, such that each Lender (including each New Lender) holds a participation interest in each such Facility Letter of Credit in proportion to the ratio that such Lender’s Commitment (upon the effective date of such increase in the Aggregate Commitment) bears to the Aggregate Commitment as so increased. (d) No Obligation to Increase Commitment. Nothing contained herein shall constitute, or otherwise be deemed to be, a commitment or agreement on the part of the Borrower or the Administrative Agent to give or grant any Lender the right to increase its Commitment hereunder at any time or a commitment or agreement on the part of any Lender to increase its Commitment hereunder at any time, and no Commitment of a Lender shall be increased without its prior written approval.   SECTION 2.18. Facility Letters of Credit. 35 -------------------------------------------------------------------------------- (a) Obligation to Issue. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of the Borrower herein set forth, each Issuer hereby agrees to issue upon the request of and for the account of the Borrower, through such of the Issuer’s Lending Installations or Affiliates as the Issuer and the Borrower may jointly agree, one or more Facility Letters of Credit in accordance with this Section 2.18 from time to time during the period commencing on the Closing Date and ending on the fourteenth day prior to the Termination Date. (b) Conditions for Issuance. In addition to being subject to the satisfaction of the conditions contained in Section 5.02, the obligation of an Issuer to issue, and the issuance of, any Facility Letter of Credit is subject to the satisfaction in full of the following conditions: (i) the aggregate maximum amount then available for drawing under Facility Letters of Credit issued by such Issuer, after giving effect to the Facility Letter of Credit requested hereunder, shall not exceed any limit imposed by law or regulation upon such Issuer; (ii) after giving effect to the requested issuance of any Facility Letter of Credit, the Facility Letter of Credit Obligations do not exceed the lesser of (A) the Aggregate Letter of Credit Commitment, or (B) an amount equal to the amount by which the Aggregate Commitment exceeds the sum of all outstanding Revolving Advances, all outstanding Competitive Loans and all outstanding Swing Line Loans; (iii) the Facility Letter of Credit shall be a standby Letter of Credit and not a trade Letter of Credit, shall only provide for drawings by sight draft and shall be issued in U.S. Dollars; (iv) the requested Facility Letter of Credit has an expiration date not later than fourteen days prior to the Termination Date; (v) the Borrower shall have delivered to such Issuer at such times and in such manner as such Issuer may reasonably prescribe such documents and materials as may be required pursuant to the terms of the proposed Facility Letter of Credit, and the proposed Facility Letter of Credit shall be satisfactory to such Issuer as to form and content; and (vi) as of the Issuance Date, no order, judgment or decree of any court, arbitrator or governmental authority shall purport by its terms to enjoin or restrain such Issuer from issuing the Facility Letter of Credit and no law, rule or regulation applicable to such Issuer and no request or directive (whether or not having the force of law) from any governmental authority with jurisdiction over the Issuer shall prohibit or request that such Issuer refrain from the issuance of Letters of Credit generally or the issuance of that Facility Letter of Credit (and in any such case, such Issuer shall promptly notify the Administrative Agent and the Borrower of such fact). (c) Procedure for Issuance. (i) The Borrower shall give an Issuer and the Administrative Agent at least three Business Days’ prior written notice of any requested issuance of a Facility Letter of Credit under this Agreement (a “Letter of Credit Request”). The Letter of Credit Request shall be in a form acceptable to the Administrative Agent, the Issuer and the Borrower and shall specify: 36 --------------------------------------------------------------------------------     (A) the stated amount of the Facility Letter of Credit requested;   (B) the effective date (which day shall be a Business Day) of issuance of such requested Facility Letter of Credit (the “Issuance Date”);   (C) the date on which such requested Facility Letter of Credit is to expire (which date shall comply with the provisions of Section 2.18(b)(iv));   (D) the name of the Issuer chosen by the Borrower to issue the requested Facility Letter of Credit;   (E) the purpose for which such Facility Letter of Credit is to be issued; and   (F) the Person for whose benefit the requested Facility Letter of Credit is to be issued. At the time the Letter of Credit Request is made, the Borrower shall also provide the Administrative Agent and the Issuer with a copy of the form (if specified by the beneficiary) of the Facility Letter of Credit it is requesting be issued. Such Letter of Credit Request, to be effective, must be received by such Issuer and the Administrative Agent not later than 3:00 p.m. (New York time) on the last Business Day on which a Letter of Credit Request can be given under this Section 2.18(c)(i). Promptly after receipt of any Letter of Credit Request, the Issuer shall confirm with the Administrative Agent (by telephone or in writing) that the Administrative Agent has received a copy of such Letter of Credit Request from the Borrower and, if not, the Issuer shall promptly provide the Administrative Agent with a copy thereof. (ii) Subject to the terms and conditions of Section 2.18(b) and provided that (A) the applicable conditions set forth in Sections 5.01 and 5.02 hereof have been satisfied and (B) the Issuer shall have received written or telephonic notice from the Administrative Agent stating that the issuance of such Facility Letter of Credit would not violate Section 2.18(b), such Issuer shall, on the Issuance Date, issue a Facility Letter of Credit on behalf of the Borrower in accordance with the Issuer’s usual and customary business practices unless the Issuer has actually received (1) written notice from the Borrower specifically revoking the Letter of Credit Request with respect to such Facility Letter of Credit or (2) written notice from a Lender, which complies with the provisions of Section 2.18(e)(i). (iii) Each Issuer shall promptly give the Administrative Agent and the Borrower written notice or telex notice, or telephonic notice confirmed promptly thereafter in writing, of the issuance, amendment, extension of cancellation of a Facility Letter of Credit (the “Issuance Notice”), together with (for the Borrower and the Administrative Agent) a copy of such Facility Letter of Credit (or amendment or extension thereof). Notices and copies of Facility Letters of Credit (or amendments or extensions thereof) required to be furnished to the Administrative Agent under this Section 2.18(c)(iii) shall also be delivered to Floro Alcantara, 420 West Van Buren, Floor 2, Mail Code IL1-0236, Chicago, IL 60606. Upon receipt of the Issuance Notice, the Administrative Agent shall notify each Lender of the issuance, amendment, extension or cancellation of such Facility Letter of Credit, which notice shall identify the Issuance Date, the Issuer, the amount and the expiration date of such Facility Letter of Credit (as amended or extended, if applicable). 37 -------------------------------------------------------------------------------- (iv) An Issuer shall not extend or amend any Facility Letter of Credit or allow a Facility Letter of Credit to be automatically extended unless the requirements of this Section 2.18(c) are met as though a new Facility Letter of Credit was being requested and issued. (d) Payment of Reimbursement Obligations; Duties of Issuers (i) Each Issuer shall promptly notify the Borrower and the Administrative Agent (which shall promptly notify the Lenders) of any draw under a Facility Letter of Credit and the Borrower shall reimburse such Issuer in accordance with Section 2.18(d)(iii). Any Reimbursement Obligation with respect to any Facility Letter of Credit shall bear interest from the date on which the Issuer honors a drawing under such Facility Letter of Credit until payment in full is received by such Issuer at (A) the Alternate Base Rate until the second succeeding Business Day after such date and (B) the Default Rate thereafter. (ii) Any action taken or omitted to be taken by an Issuer under or in connection with any Facility Letter of Credit, if taken or omitted in the absence of bad faith, willful misconduct or gross negligence as determined in a final judgment by a court of competent jurisdiction, shall not (A) put that Issuer under any resulting liability to any Lender or (B) assuming that such Issuer has complied with the procedures specified in Section 2.18(c), all conditions to the issuance of a Facility Letter of Credit have been satisfied and any such Lender has not given a notice contemplated by Section 2.18(e)(i) that continues in full force and effect, relieve any such Lender of its obligations hereunder to that Issuer. In determining whether to pay under any Facility Letter of Credit, an Issuer shall have no obligation relative to the Lenders or to the Borrower other than to confirm that any documents required to be delivered under such Facility Letter of Credit have been delivered in compliance and that they comply on their face (including that any draw request has been purportedly executed by an authorized signatory, if and to the extent such a requirement is specified in the related Facility Letter of Credit), with the requirements of such Facility Letter of Credit. 38 -------------------------------------------------------------------------------- (iii) The Borrower agrees to pay to each Issuer the amount of all Reimbursement Obligations, interest and other amounts payable to such Issuer under or in connection with any Facility Letter of Credit immediately when due (and in any event shall reimburse an Issuer for drawings under a Facility Letter of Credit issued by it no later than two (2) Business Days after payment by that Issuer), irrespective of any claim, set-off, defense or other right which the Borrower or any Subsidiary may have at any time against any Issuer or any other Person, under all circumstances, including without limitation, any of the following circumstances:   (A) any lack of validity or enforceability of this Agreement or any of the other Loan Documents;   (B) the existence of any claim, set-off, defense or other right which the Borrower or any Subsidiary may have at any time against a beneficiary named in a Facility Letter of Credit or, if such Facility Letter of Credit is transferable, any transferee of any Facility Letter of Credit (or any Person for whom any such transferee may be acting), the Administrative Agent, the Issuer, any Lender, or any other Person, whether in connection with this Agreement, any Facility Letter of Credit, the transactions contemplated herein or any unrelated transactions (including any underlying transactions between the Borrower or any Subsidiary and the beneficiary named in any Facility Letter of Credit);   (C) any draft, certificate or any other document presented under the Facility Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect (except to the extent any such invalidity or insufficiency is found in a final judgment of a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of such Issuer).   (D) the surrender or impairment of any guaranty or security for the performance or observance of any of the terms of any of the Loan Documents; or   (E) the occurrence of any Event of Default or Unmatured Default. (iv) As among the Borrower, the Issuers, the Administrative Agent and the Lenders, the Borrower assumes all risks of the acts and omissions of, or misuse of the Facility Letters of Credit by, the respective beneficiaries of the Facility Letters of Credit (except such as are found in a final judgment by a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of an Issuer). In furtherance and not in limitation of the foregoing, the Issuers, the Administrative Agent and the Lenders shall not be responsible (absent gross negligence or willful misconduct in connection therewith, as determined by the final judgment of a court of competent jurisdiction) for (A) the forms, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for and issuance of any Facility Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (B) the validity or sufficiency of any instrument transferring or assigning or purporting thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (C) failure of the beneficiary of a Facility Letter of Credit to comply fully with underlying conditions required in order to draw upon such Facility Letter of Credit, so long a such beneficiary has presented the omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise; (E) errors in interpretation of technical terms; (F) misapplication by the beneficiary of a Facility Letter of Credit of the proceeds of any drawing under such Facility Letter of Credit; or (G) any consequences arising from causes beyond the control of any Issuer, the Administrative Agent or any Lender. 39 -------------------------------------------------------------------------------- (e) Participation. (i) Upon the Closing Date, each of the Lenders shall be deemed to have irrevocably and unconditionally purchased and received from the Issuer, without recourse or warranty, an undivided interest and participation equal to its Pro Rata Share of the Existing Letters of Credit (including, without limitation, all rights and obligations of the Issuer with respect thereto) and any security therefor or guaranty pertaining thereto. Immediately upon issuance by an Issuer of any Facility Letter of Credit in accordance with the procedures set forth in Section 2.18(c) each Lender shall be deemed to have irrevocably and unconditionally purchased and received from the Issuer, without recourse or warranty, an undivided interest and participation equal to its Pro Rata Share of such Facility Letter of Credit (including, without limitation, all rights and obligations of the Issuer with respect thereto) and any security therefor or guaranty pertaining thereto, provided, that a Letter of Credit issued by any Issuer shall not be deemed to be a Facility Letter of Credit for purposes of this Agreement if the Administrative Agent and such Issuer shall have received written notice from any Lender on or before the Business Day prior to the date of its issuance of such Letter of Credit that one or more of the conditions contained in Sections 5.01 and 5.02 is not then satisfied, and in the event an Issuer receives such notice, it shall have no further obligation to issue any Facility Letter of Credit until such notice is withdrawn by that Lender or the Issuer receives a notice from the Administrative Agent that such condition has been effectively waived in accordance with the provisions of this Agreement. (ii) In the event that any Issuer makes any payment under any Facility Letter of Credit and the Borrower shall not have repaid such amount to such Issuer pursuant to Section 2.18(d), such Issuer shall promptly notify the Administrative Agent, which shall promptly notify each Lender, of such failure, and each Lender shall promptly and unconditionally pay to the Administrative Agent for the account of such Issuer the amount of such Lender’s Pro Rata Share of the unreimbursed amount of any such payment. The failure of any Lender to make available to the Administrative Agent its Pro Rata Share of the unreimbursed amount of any such payment shall not relieve any other Lender of its obligation hereunder to make available to the Administrative Agent its Pro Rata Share of the unreimbursed amount of any payment on the date such payment is to be made, but no Lender shall be responsible for the failure of any other Lender to make available to the Administrative Agent its Pro Rata Share of the unreimbursed amount of any payment on the date such payment is to be made. (iii) Whenever an Issuer receives a payment on account of a Reimbursement Obligation, including any interest thereon, it shall promptly pay to the Administrative Agent and the Administrative Agent shall promptly pay to each Lender which has funded its participating interest therein, in immediately available funds, an amount equal to its Pro Rata Share thereof. 40 -------------------------------------------------------------------------------- (iv) Upon the request of the Administrative Agent or any Lender, an Issuer shall furnish to such Administrative Agent or Lender copies of any Facility Letter of Credit to which that Issuer is party and such other documentation as may reasonably be requested by the Administrative Agent or Lender. (v) The obligations of a Lender to make payments to the Administrative Agent for the account of an Issuer with respect to a Facility Letter of Credit shall be absolute, unconditional and irrevocable, not subject to any counterclaim, set-off, qualification or exception whatsoever and shall be made in accordance with the terms and conditions of this Agreement under any circumstances. (vi) In the event any payment by the Borrower received by an Issuer with respect to a Facility Letter of Credit and distributed by the Administrative Agent to the Lenders on account of their participations is thereafter set aside, avoided or recovered from that Issuer in connection with any such distribution, such Lender shall, upon demand by that Issuer, contribute such Lender’s Pro Rata Share of the amount set aside, avoided or recovered together with interest at the rate required to be paid by that Issuer upon the amount required to be repaid by it. (f) Compensation for Facility Letters of Credit. (i) The Borrower shall pay to the Administrative Agent, for the account of the Lenders, a fee (the “Facility Letter of Credit Fee”) with respect to each Facility Letter of Credit for the period from the Issuance Date thereof (or, in the case of the Existing Letters of Credit, the Closing Date) to and including the final expiration date thereof, in a per annum amount equal to the product, calculated on a daily basis for each day during such period, of (A) the undrawn amount of such Facility Letter of Credit for such day multiplied by (B) the Facility Letter of Credit Fee Rate for such day, less 0.125% per annum. The Facility Letter of Credit Fees shall be due and payable quarterly in arrears not later than five (5) Business Days following Administrative Agent’s delivery to Borrower of the quarterly statement of Facility Letter of Credit Fees and, to the extent any such fees are then due and unpaid, on the Termination Date. The Administrative Agent shall promptly remit such Facility Letter of Credit Fees, when received by the Administrative Agent, to the Lenders (including the Issuer) in accordance with their Pro Rata Shares thereof. The Facility Letter of Credit Fees, once paid, shall not be refundable for any reason. (ii) The Borrower shall also pay to each Issuer, solely for its own account, as an issuing fee, with respect to each Facility Letter of Credit issued by such Issuer for the period from the Issuance Date thereof (or, in the case of the Existing Letters of Credit, the Closing Date) to and including the final expiration date thereof, in an amount equal to (A) the product, calculated on a daily basis for each day during such period, of (x) the undrawn amount of such Facility Letter of Credit for such day multiplied by (y) 0.125% per annum, plus (B) in the case of any Facility Letter of Credit in a stated amount of less than $10,000.00, an additional fee in an amount to be agreed upon by the Borrower and the Issuer. The foregoing fees payable to the Issuer shall also be due and payable quarterly in arrears on the date on which Facility Letter of Credit Fees are payable and, to the extent any such fees are then due and unpaid, on the Termination Date. The foregoing fees, once paid, shall not be refundable for any reason. Each Issuer shall be entitled to receive its reasonable out-of-pocket costs of issuing and servicing Facility Letters of Credit. 41 -------------------------------------------------------------------------------- (iii) The Administrative Agent shall, with reasonable promptness following receipt from all Issuers of the reports provided for in Section 2.18(g) for the months of March, June, September and December, respectively, deliver to the Borrower a quarterly statement of the Letter of Credit Fees then due and payable. (g) Issuer Reporting Requirements. Each Issuer shall, no later than the third (3rd) Business Day following the last day of each month, provide to the Administrative Agent a schedule of the Facility Letters of Credit issued by it, in form and substance reasonably satisfactory to the Administrative Agent, showing the Issuance Date, account party, original face amount (if any) paid thereunder, expiration date and the reference number of each Facility Letter of Credit outstanding at any time during such month (and whether such Facility Letter of Credit is a Performance Letter of Credit or financial Letter of Credit) and the aggregate amount (if any) payable by the Borrower to such Issuer during the month pursuant to Section 3.02. Copies of such reports shall be provided promptly to each Lender and the Borrower by the Administrative Agent. The reporting requirements hereunder are in addition to those set forth in Section 2.18(c). (h) Letter of Credit Collateral Account. From and after the occurrence and during the continuance of an Event of Default, the Borrower hereby agrees that it will, until the later of the Termination Date or the date on which all Facility Letters of Credit have expired and all Obligations have been paid in full, maintain a special collateral account (the “Letter of Credit Collateral Account”) at the Administrative Agent’s office at the address specified pursuant to Article XIII, in the name of the Borrower but under the sole dominion and control of the Administrative Agent, and hereby grants to the Administrative Agent for the benefit of the Lenders, as security for repayment of the Obligations, a security interest in and to the Letter of Credit Collateral Account and any funds that may hereafter be on deposit in such account pursuant to Section 9.03.   SECTION 2.19. Non-Receipt of Funds by the Administrative Agent. Unless the Borrower or a Lender, as the case may be, notifies the Administrative Agent prior to the date on which it is scheduled to make payment to the Administrative Agent of (a) in the case of a Lender, the proceeds of a Loan or (b) in the case of the Borrower, a payment of principal, interest or fees to the Administrative Agent for the account of any one or more of the Lenders, that it does not intend to make such payment, the Administrative Agent may assume that such payment has been made. The Administrative Agent may, but shall not be obligated to, make the amount of such payment available to the intended recipient in reliance upon such assumption. If such Lender or the Borrower, as the case may be, has not in fact made such payment to the Administrative Agent, the recipient of such payment shall, on demand by the Administrative Agent, repay to the Administrative Agent the amount so made available together with interest thereon in respect of each day during the period commencing on the date such amount was so made available by the Administrative Agent until the date the Administrative Agent recovers such amount at a rate per annum equal to (i) in the case of payment by a Lender, the Federal Funds Effective Rate for such day or (ii) in the case of payment by the Borrower, the interest rate applicable to the relevant Loan.   42 -------------------------------------------------------------------------------- SECTION 2.20. Withholding Tax Exemption. Each Lender that is not incorporated under the laws of the United States of America or a state thereof (each a “Non-U.S. Lender”) agrees that (if it has not done so prior to the Closing Date) it will, not more than five (5) Business Days after the date of this Agreement, (i) deliver to each of the Borrower and the Administrative Agent two duly completed copies of United States Internal Revenue Service Form W-8BEN or W-8ECI (or a successor form) or, in the case of a Lender claiming exemption from withholding of any United States federal income taxes under Section 871(h) or 881(c) of the Code with respect to payments of "portfolio interest," a certificate representing that such Lender is not (i) a "bank" for purposes of Section 881(c) of the Code, (ii) a ten-percent shareholder of the Borrower (within the meaning of Section 871(h)(3)(B) of the Code), or (iii) a controlled foreign corporation related to the Borrower (within the meaning of Section 864(d)(4) of the Code), and a Form W-8BEN (or a successor form), in all cases properly completed and duly executed, certifying in either case that such Lender is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes, and (ii) deliver to each of the Borrower and the Administrative Agent a United States Internal Revenue Form W-8 or W-9, as the case may be, and certify that it is entitled to an exemption from United States backup withholding tax. Each Non-U.S. Lender further undertakes to deliver to each of the Borrower and the Administrative Agent (x) renewals or additional copies of such form (or any successor form) on or before the date that such form expires or becomes obsolete, and (y) after the occurrence of any event requiring a change in the most recent forms so delivered by it, such additional forms or amendments thereto as may be reasonably requested by the Borrower or the Administrative Agent. All forms or amendments described in the preceding sentence shall certify that such Lender is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes, unless an event (including without limitation any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form or amendment with respect to it and such Lender advises the Borrower and the Administrative Agent that it is not capable of receiving payments without any deduction or withholding of United States federal income tax.   SECTION 2.21. Unconditional Obligation to Make Payment. To the fullest extent permitted by law, the Borrower shall make all payments hereunder, under the Notes and under all of the other Loan Documents regardless of any defense or counterclaim, including any defense or counterclaim based on any law, rule or policy which is now or hereafter promulgated by any governmental authority or regulatory body and which may adversely affect the Borrower’s obligations to make, or the right of the holder of any Note to receive, those payments.   SECTION 2.22. Compensating Balances. JPMorgan Chase Bank shall have the right (but no obligation) to enter into a separate agreement with the Borrower which provides for the reduction of the interest rate payable to JPMorgan Chase Bank hereunder in the event that the Borrower maintains collected balances in non-interest bearing accounts at JPMorgan Chase Bank, but in no event shall such agreement affect the amounts payable under this Agreement to any other Lender. Similarly, each other Lender shall have the right (but no obligation) to enter into a separate agreement with the Borrower which provides for the rebate to Borrower of a portion of the interest paid to such Lender under this Agreement in the event that the Borrower maintains collected balances in non-interest bearing accounts at such Lender, but in no event shall any such agreement affect the amounts payable under this Agreement to such Lender.   43 -------------------------------------------------------------------------------- SECTION 2.23. Extension of Termination Date. Not more than once in any fiscal year of the Borrower, the Borrower may request a one-year extension of the Termination Date by submitting a written request for an extension to the Administrative Agent (an “Extension Request”), provided the Extension Request shall be delivered not later than one year before the Termination Date and that the requested Termination Date shall be no more than five (5) years after the date on which the Extension Request is received. Promptly following receipt of a Extension Request, the Administrative Agent shall notify each Lender of the contents thereof, shall request each Lender to approve the Extension Request, and shall specify the date (which must be at least 30 days after the Extension Request is delivered to the Lenders) as of which the Lenders must respond to the Extension Request (the “Reply Date”). If Lenders whose Pro Rata Shares equal or exceed in the aggregate 66-2/3% of all Pro Rata Shares do not consent in writing to such extension on or before the Reply Date, the Extension Request shall be denied. If such written consent is received on or before the Reply Date from Lenders whose Pro Rata Shares equal or exceed in the aggregate 66 2/3% of all Pro Rata Shares, the Termination Date shall be extended by one year as requested in such Extension Request, but such extension shall only apply to the Lenders that have so consented and shall not apply to any Lender that has not so consented (each, a “Non-Consenting Lender”). Except to the extent that a Non-Consenting Lender is replaced (as provided in Section 2.24 hereof) prior to the Termination Date (as determined prior to such Extension Request), then on such date (i) the Commitment of each such Non-Consenting Lender shall terminate, (ii) the Aggregate Commitment shall be reduced by the aggregate amount of such terminated Commitments and (iii) all Loans and other Obligations to each such Non-Consenting Lender shall be paid in full by the Borrower. If the Aggregate Credit Exposure following the payment provided for in clause (iii) above exceeds the Aggregate Commitment (as reduced as provided in clause (ii) above), (A) the Borrower shall pay, on the date on which the Commitment of the Non-Consenting Lender terminates, Loans in the amounts necessary to cause such Aggregate Credit Exposure to equal but not exceed the Aggregate Commitment (as so reduced) and (B) if the outstanding Facility Letter of Credit Obligations exceed the Aggregate Commitment (as so reduced), the Borrower shall pay to the Administrative Agent on such date an amount equal to the amount by which the outstanding Facility Letter of Credit Obligations exceed the Aggregate Commitment (as so reduced), which funds shall be held in the Letter of Credit Collateral Account in accordance with and subject to the terms of Section 2.17(h). SECTION 2.24. Replacement of Certain Lenders. In the event a Lender (the “Affected Lender”) is a Non-Consenting Lender under Section 2.23 or a non-consenting Lender under Section 13.06(b), the Borrower may, upon written notice to such Affected Lender and to the Administrative Agent, require such Affected Lender to assign, and such Affected Lender shall assign, within five Business Days after the date of such notice, to one or more assignees selected by the Borrower and that are Eligible Assignees and otherwise comply with the provisions of Section 12.02 (each, a “Replacement Lender”), all of such Affected Lender’s rights and obligations under this Agreement and the other Loan Documents (including without limitation its Commitments and all Loans owing to it) in accordance with Section 12.02. With respect to any such assignment, the Affected Lender shall concurrently with such assignment receive payment in full of all amounts due and owing to it hereunder or under any of the other Loan Documents with respect to the Loans and Commitments so assigned, including without limitation the aggregate outstanding principal amount of such Loans owed to such Affected Lender, together with accrued interest thereon through the date of such assignment, amounts payable to such Affected Lender under Article III with respect to such Loans and all fees payable to such Affected Lender hereunder with respect to such Loans and Commitments so assigned. Any assignment to a Replacement Lender pursuant to the provisions of this Section 2.24 shall be in accordance with the provisions of Section 12.02 hereof. In no event shall any Lender have any obligation to issue a new or increased Commitment to replace all or any part of any Commitment of any Non-Consenting Lender or any non-consenting Lender under Section 13.06(b). 44 --------------------------------------------------------------------------------   ARTICLE III   CHANGE IN CIRCUMSTANCES SECTION 3.01. Yield-Protection. If the adoption, on or after the Agreement Date, of any law or any governmental or quasi-governmental rule, regulation, policy, guideline or directive (whether or not having the force of law), or any change, on or after the Agreement Date, in interpretation thereof, or the compliance of any Lender (which term, for purposes of this Article III, shall be deemed to include each Issuer in such capacity) therewith,  (i) subjects any Lender or any applicable Lending Installation to any tax, duty, charge or withholding on or from payments due from the Borrower (excluding federal taxation of the overall net income of any Lender or applicable Lending Installation), or changes the basis of taxation of payments to any Lender in respect of its Loans or other amounts due it hereunder, or (ii) imposes or increases or deems applicable any reserve, assessment, insurance charge, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender or any applicable Lending Installation (other than reserves and assessments taken into account in determining the interest rate applicable to Eurodollar Advances), or (iii) imposes any other condition the result of which is to increase the cost to any Lender or any applicable Lending Installation of making, funding or maintaining loans (or letters of credit or participations therein) or reduces any amount receivable by any Lender or any applicable Lending Installation in connection with loans (or letters of credit or participations therein), or requires any Lender or any applicable Lending Installation to make any payment calculated by reference to the amount of loans (or letters of credit or participations therein) held or interest received by it, by an amount deemed material by such Lender, 45 -------------------------------------------------------------------------------- then, within 15 days of demand by such Lender, the Borrower shall pay such Lender that portion of such increased expense incurred or reduction in an amount received which such Lender determines is attributable to making, funding and maintaining its Loans, its applicable Commitment, the Facility Letters of Credit or any participations therein.   SECTION 3.02. Changes in Capital Adequacy Regulation. If a Lender reasonably determines the amount of capital required or expected to be maintained by such Lender, any Lending Installation of such Lender or any corporation controlling such Lender is increased as a result of a Change, and such increase will have the effect of reducing the rate of return on such Lender’s capital as a consequence of such Lender’s obligations hereunder to a level below that which such Lender or such corporation, as the case may be, could have achieved but for such Change (taking into account such Lender’s or such corporation’s policies, as the case may be, with respect to capital adequacy and any payments made to such Lender pursuant to Section 3.01 which relate to capital adequacy and assuming that such Lender’s capital was fully utilized prior to such Change), then within 15 days of demand by such Lender, the Borrower shall pay to the Administrative Agent, for the account of such Lender, such additional amount or amounts as will compensate such Lender for such reduction. If any Lender becomes entitled to claim any additional amounts pursuant to this Section 3.02 it shall promptly notify the Borrower through the Administrative Agent of the event by reason of which it has become so entitled, but in any event within 90 days, after such Lender obtains actual knowledge thereof; provided that if such Lender fails to give such notice within the 90-day period after it obtains actual knowledge of such an event, such Lender shall, with respect to such compensation in respect of any costs resulting from such event, only be entitled to payment for costs incurred from and after the date 90 days prior to the date that such Lender does give such notice. A certificate setting forth in reasonable detail the computation of any additional amount payable pursuant to this Section 3.02, submitted by such Lender to the Borrower through the Administrative Agent, shall be delivered to the Borrower promptly after the initial incurrence of such additional amounts. “Change” means (i) any change after the Agreement Date in the Risk-Based Capital Guidelines or (ii) any adoption of or change in any other law, governmental or quasi-governmental rule, regulation, policy, guideline, interpretation, or directive (whether or not having the force of law) after the date of this Agreement which affects the amount of capital required or expected to be maintained by any Lender or any Lending Installation or any corporation controlling any Lender or any Lending Institution. “Risk-Based Capital Guidelines” means (i) the risk-based capital guidelines in effect in the United States on the date of this Agreement, including transition rules, and (ii) the corresponding capital regulations promulgated by regulatory authorities outside the United States implementing the July 1988 report of the Basle Committee on Banking Regulation and Supervisory Practices entitled “International Convergence of Capital Measurements and Capital Standards,” including transition rules, and any amendments to such regulations adopted prior to the date of this Agreement.   SECTION 3.03. Availability of Types of Advances. If any Lender determines that maintenance of its Eurodollar Loans at a suitable Lending Installation would violate any applicable law, rule, regulation, or directive, whether or not having the force of law, or if the Administrative Agent determines that (i) deposits of a type and maturity appropriate to match fund Eurodollar Advances are not available or (ii) the interest rate applicable to a Type of Revolving Advance does not accurately reflect the cost of making or maintaining such Revolving Advance, then the Administrative Agent shall suspend the availability of the affected Type of Revolving Advance and require any Eurodollar Advances of the affected Type of Revolving Advance to be repaid or to be converted (in accordance with the terms of this Agreement) to any Type of Revolving Advance which is not affected and is then available under this Agreement.   46 -------------------------------------------------------------------------------- SECTION 3.04. Funding Indemnification. If any payment of a Eurodollar Advance or Competitive Loan occurs on a date which is not the last day of the applicable Interest Period, whether because of acceleration, prepayment or otherwise, or a Eurodollar Advance or Competitive Loan is not made on the date specified by the Borrower for any reason other than default by the Lenders or applicable Lender, the Borrower will indemnify each Lender for any loss or cost incurred by it resulting therefrom, including, without limitation, any loss or cost in liquidating or employing deposits acquired to fund or maintain the Eurodollar Advance or Competitive Loan.   SECTION 3.05. Lender Statements Survival of Indemnity. To the extent reasonably possible, each Lender shall designate an alternate Lending Installation with respect to its Eurodollar Loan to reduce any liability of the Borrower to such Lender under Sections 3.01 and 3.02 or to avoid the unavailability of a Type of Revolving Advance under Section 3.03, so long as such designation is not disadvantageous to such Lender. Each Lender shall deliver a written statement of such Lender as to the amount due, if any, under Sections 3.01, 3.02 or 3.04. Such written statement shall set forth in reasonable detail the calculations upon which such Lender determined such amount and shall be final, conclusive and binding on the Borrower in the absence of manifest error. Determination of amounts payable under such Sections in connection with a Eurodollar Loan or Competitive Loan shall be calculated as though each Lender or the applicable Lender or Lenders funded their Eurodollar Loans through the purchase of a deposit of the type and maturity corresponding to the deposit used as a reference in determining the Eurodollar Rate applicable to such Loan or funded their Competitive Loans through the purchase of a deposit of a maturity corresponding to the Interest Period for such Competitive Loan, whether in fact that is the case or not. Unless otherwise provided herein, the amount specified in the written statement shall be payable on demand after receipt by the Borrower of the written statement. The obligations of the Borrower under Sections 3.01, 3.02 and 3.04 shall survive payment of the Obligations and termination of this Agreement. ARTICLE IV REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants to each of the Lenders that:   SECTION 4.01. Organization, Powers, etc. Each of the Loan Parties (a) is a corporation, limited partnership or limited liability company (as applicable) duly organized or formed, validly existing and in good standing under laws of its state of incorporation or formation, (b) has the power and authority to own or hold under lease the properties it purports to own or hold under lease and to carry on its business as now conducted, (c) is duly qualified or licensed to transact business in every jurisdiction in which such qualification or licensing is necessary to enable it to enforce all of its material contracts and other material rights and to avoid any material penalty or forfeiture.   47 -------------------------------------------------------------------------------- SECTION 4.02. Authorization and Validity of this Agreement, etc. Each of the Loan Parties has the power and authority to execute and deliver this Agreement, the Notes, the Guaranties and the other Loan Documents to which it is a party and to perform all its obligations hereunder and thereunder. The execution and delivery by the Borrower of this Agreement and the Notes and by each of the Loan Parties of the Guaranties and the other Loan Documents to which it is a party and its performance of its obligations hereunder and thereunder and any and all actions taken by the Loan Parties (a) have been duly authorized by all requisite corporate action or other applicable limited partnership or limited liability company action, (b) will not violate or be in conflict with (i) any provisions of law (including, without limitation, any applicable usury or similar law), (ii) any order, rule, regulation, writ, judgment, injunction, decree or award of any court or other agency of government, or (iii) any provision of its certificate of incorporation or by-laws, certificate of limited partnership or limited partnership agreement, or articles or certificate of formation or operating agreement (as applicable), (c) will not violate, be in conflict with, result in a breach of or constitute (with or without the giving of notice or the passage of time or both) a default under any material indenture, agreement or other instrument to which such Loan Party is a party or by which it or any of its properties or assets is or may be bound (including without limitation any indentures pursuant to which any debt Securities of the Borrower), and (d) except as otherwise contemplated by this Agreement, will not result in the creation or imposition of any lien, charge or encumbrance upon, or any security interest in, any of its properties or assets. Each of this Agreement, the Notes, the Guaranties and the other applicable Loan Documents has been duly executed and delivered by the applicable Loan Parties. The Loan Documents constitute legal, valid and binding obligations of the applicable Loan Parties enforceable against the applicable Loan Parties in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors’ rights generally.   SECTION 4.03. Financial Statements. The Borrower heretofore has provided to the Lenders (i) the consolidated balance sheet of the Borrower and its Subsidiaries as November 30, 2005, and the related consolidated statements of earnings, stockholders’ equity and cash flows for the 12-month period ended on that date, audited and reported upon by Deloitte & Touche, an independent registered public accounting firm (the “Borrower Audited Financial Statements”), and (ii) the consolidated balance sheet of the Borrower as of May 31, 2006, and the consolidated statements of earnings and cash flows of the Borrower and its Subsidiaries for the three-month period ended on that date, unaudited but certified to be true and accurate (subject to normal year-end audit adjustments) by the President and an Authorized Financial Officer of the Borrower (the “Borrower Unaudited Financial Statements”). Those financial statements and reports (subject, in the case of the Borrower Unaudited Financial Statements, to normal year-end audit adjustments), and the related notes and schedules (if any), (a) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, (b) present fairly the consolidated financial condition of the Borrower and its Subsidiaries as of the date thereof, (c) show all material liabilities, direct or contingent, of the Borrower and its Subsidiaries as of that date (including, without limitation, liabilities for taxes and material commitments), and (d) present fairly the consolidated shareholders’ equity, results of operations and cash flows of the Borrower and its Subsidiaries at the date and for the period covered thereby.   SECTION 4.04. No Material Adverse Effect. Since the date of the Borrower Audited Financial Statements, no event has occurred which has had or could reasonably be expected to have a Material Adverse Effect. There are no material unrealized or expected losses in connection with loans, advances and other commitments of the Loan Parties.   48 -------------------------------------------------------------------------------- SECTION 4.05. Title to Properties. Each of the Loan Parties has good and marketable fee title, or title insurable by a reputable and nationally recognized title insurance company, to the Real Estate owned by it, and to all the other assets owned by it and either reflected on the balance sheet and related notes and schedules most recently delivered by the Borrower to the Lenders (the “Recent Balance Sheet”) or acquired by it after the date of that balance sheet and prior to the date hereof, except for those properties and assets which have been disposed of since the date of the Recent Balance Sheet or which no longer are used or useful in the conduct of its business. All such Real Estate and other assets owned by the Loan Parties are free and clear of all Mortgages, Liens, charges and other encumbrances (other than Permitted Liens), except (i) in the case of Real Estate, as reflected on title insurance policies insuring the interest of the applicable Loan Party in the Real Estate or in title insurance binders issued with respect to the Real Estate (some of which title insurance binders have expired but were valid at the time of acquisition of the relevant Real Estate), and (ii) as reflected in the Recent Balance Sheet, and none of those Mortgages, Liens, charges or other encumbrances, individually or in the aggregate, prevents or has a Material Adverse Effect upon the use by the Loan Parties of any of their respective properties or assets as currently conducted or as planned for the future.   SECTION 4.06. Litigation. There is no action, suit, proceeding, arbitration, inquiry or investigation (whether or not purportedly on behalf of the Borrower or any of its Subsidiaries) pending or, to the best knowledge of the Borrower, threatened against or affecting the Borrower or any of the Subsidiaries which could reasonably be expected to have a Material Adverse Effect. Neither the Borrower nor any of its Subsidiaries is in default with respect to any final judgment, writ, injunction, decree, rule or regulation of any court or federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, which default would or could have a Material Adverse Effect. Neither the Borrower nor any of the other Loan Parties has any material contingent obligations not provided for or disclosed in the Borrower Audited Financial Statements or Borrower Unaudited Financial Statements or in any financial statements delivered hereafter in accordance with this Agreement.   SECTION 4.07. Payment of Taxes. There have been filed all federal, state and local tax returns with respect to the operations of the Loan Parties which are required to be filed, except where extensions of time to make those filings have been granted by the appropriate taxing authorities and the extensions have not expired. The Loan Parties have paid or caused to be paid to the appropriate taxing authorities all taxes as shown on those returns and on any assessment received by any of them, to the extent that those taxes have become due, except for taxes the failure to pay which do not violate the provisions of Section 6.03 hereof. The Internal Revenue Service has completed an examination of the Borrower’s federal income tax returns for the years ended 1980 through 2001, and the Borrower has paid all additional taxes, assessments, interest and penalties with respect to such years, provided, however, that, with respect to the years 2000 and 2001, (a) the Borrower has appealed the adjustments made by the Internal Revenue Service and has fully reserved for such adjustments and interest thereon and (b) no penalties have been assessed or are anticipated by the Borrower.    49 -------------------------------------------------------------------------------- SECTION 4.08. Agreements. Neither the Borrower nor any Subsidiary is a party to any agreement or instrument or is subject to any charter or other restriction that could reasonably be expected to have a Material Adverse Effect on it. Neither the Borrower nor any Subsidiary is in material default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any material agreement or instrument to which it is a party, and consummation of the transactions contemplated hereby and in the other Loan Documents will not cause any Loan Party to be in material default thereof.   SECTION 4.09. Foreign Direct Investment Regulations. Neither the making of the Advances nor the repayment thereof nor any other transaction contemplated hereby will involve or constitute a violation by any Loan Party of any provision of the Foreign Direct Investment Regulations of the United States Department of Commerce or of any license, ruling, order, or direction of the Secretary of Commerce thereunder.    SECTION 4.10. Federal Reserve Regulations. (a) Regulations U and X. Neither the Borrower nor any other Loan Party is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any margin stock (within the meaning of Regulation U or Regulation X of the Board of Governors of the Federal Reserve System of the United States). Margin stock (as defined in Regulation U) constitutes less than 25% of those assets of the Borrower and its Subsidiaries which are subject to any limitation on sale, pledge, or other restriction hereunder. (b) Use of Proceeds. No part of the proceeds of any of the Advances will be used to purchase or carry any such margin stock or to extend credit to others for the purpose of purchasing or carrying any such margin stock. If requested by the Lenders, the Borrower shall furnish to the Lenders a statement in conformity with the requirements of Federal Reserve Form U-1 referred to in Regulation U of said Board of Governors. No part of the proceeds of the Advances will be used for any purpose that violates, or which is inconsistent with, the provisions of Regulation X of said Board of Governors.   SECTION 4.11. Consents, etc. Except as set forth on Schedule V hereto, no order, license, consent, approval, authorization of, or registration, declaration, recording or filing (except for the filing of a Current Report on Form 8-K, and a Quarterly Report on Form 10-Q, in each case with the Securities and Exchange Commission) with, or validation of, or exemption by, any governmental or public authority (whether federal, state or local, domestic or foreign) or any subdivision thereof is required in connection with, or as a condition precedent to, the due and valid execution, delivery and performance by any Loan Party of this Agreement, the Notes, the Guaranties or the other Loan Documents, or the legality, validity, binding effect or enforceability of any of the respective terms, provisions or conditions thereof. To the extent that any franchises, licenses, certificates, authorizations, approvals or consents from any federal, state or local (domestic or foreign) government, commission, bureau or agency are required for the acquisition, ownership, operation or maintenance by any Loan Party of properties now owned, operated or maintained by any of them, those franchises, licenses, certificates, authorizations, approvals and consents have been validly granted, are in full force and effect and constitute valid and sufficient authorization therefor.   50 -------------------------------------------------------------------------------- SECTION 4.12. Compliance with Applicable Laws. The Borrower and its Subsidiaries are in compliance with and conform to all statutes, laws, ordinances, rules, regulations, orders, restrictions and all other legal requirements of all domestic or foreign governments or any instrumentality thereof having jurisdiction over the conduct of their respective businesses or the ownership of their respective properties, the violation of which would have a Material Adverse Effect on it, including, without limitation, regulations of the Board of Governors of the Federal Reserve System, the Federal Interstate Land Sales Full Disclosure Act, the Florida Land Sales Act or any comparable statute in any other applicable jurisdiction. Neither the Borrower nor any Subsidiary has received any notice to the effect that its operations are not in material compliance with any of the requirements of applicable Environmental Laws or any applicable federal, state and local health and safety statutes and regulations or the subject of any federal or state investigation evaluating whether any remedial action is needed to respond to a release of any Hazardous Substances into the environment, which non-compliance or remedial action could reasonably be expected to have a Material Adverse Effect.   SECTION 4.13. Relationship of the Loan Parties. The Loan Parties are engaged as an integrated group in the business of owning, developing and selling Real Estate and of providing the required services, credit and other facilities for those integrated operations. The Loan Parties require financing on such a basis that funds can be made available from time to time to such entities, to the extent required for the continued successful operation of their integrated operations. The Advances to be made to the Borrower under this Agreement are for the purpose of financing the integrated operations of the Loan Parties, and the Loan Parties expect to derive benefit, directly or indirectly, from the Advances, both individually and as a member of the integrated group, since the financial success of the operations of the Loan Parties is dependent upon the continued successful performance of the integrated group as a whole.   SECTION 4.14. Subsidiaries; Joint Ventures. Schedule VI hereto contains a complete and accurate list of (a) all Subsidiaries of the Borrower, including, with respect to each Subsidiary, (i) its state of incorporation, (ii) all jurisdictions (if any) in which it is qualified as a foreign corporation, (iii) the number of shares of its Capital Stock outstanding, and (iv) the number and percentage of those shares owned by the Borrower and/or by any other Subsidiary, and (b) each Joint Venture, including, with respect to each such Joint Venture, (i) its jurisdiction of organization, (ii) all other jurisdictions in which it is qualified as a foreign entity and (c) all Persons other than the Borrower that are parties thereto. All the outstanding shares of Capital Stock of each Subsidiary of the Borrower are validly issued, fully paid and nonassessable, except as otherwise provided by state wage claim laws of general applicability. All of the outstanding shares of Capital Stock of each Subsidiary owned by the Borrower or another Subsidiary as specified in Schedule VI are owned free and clear of all Liens, security interests, equity or other beneficial interests, charges and encumbrances of any kind whatsoever, except for Permitted Liens. Neither the Borrower nor any other Loan Party owns of record or beneficially any shares of the Capital Stock or other equity interests of any Person that is not a Guarantor, except (x) Joint Ventures in which such Loan Party is permitted to invest pursuant to this Agreement, (y) Subsidiaries that are not Material Subsidiaries and (z) Excluded Subsidiaries.   SECTION 4.15. ERISA. Neither the Borrower nor any other Loan Party is executing or delivering any of the Loan Documents or entering into any of the transactions contemplated hereby, directly or indirectly, in connection with any arrangement or understanding in any respect involving any “employee benefit plan” with respect to which the Borrower or any other Loan Party is a “party in interest” within the meaning of the Employee Retirement Income Security Act of 1974, or a “disqualified person”, within the meaning of the Internal Revenue Code 1986, as amended. No Unfunded Liabilities exist with respect to any Single Employer Plans. Each Plan complies in all material respects with all applicable requirements of law and regulations, no Reportable Event has occurred with respect to any Plan, neither the Borrower nor any other Loan Party nor any other members of the Controlled Group has withdrawn from any Plan or initiated steps to do so, and no steps have been taken to reorganize or terminate any Plan.   51 --------------------------------------------------------------------------------   SECTION 4.16. Investment Company Act. Neither the Borrower nor any Subsidiary of the Borrower is an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940, as amended.   SECTION 4.17. Intentionally Omitted.   SECTION 4.18. Subordinated Debt. The Obligations constitute senior indebtedness which is entitled to the benefits of the subordination provisions of all outstanding Subordinated Debt, which outstanding Subordinated Debt as of the Closing Date is identified in Schedule VIII.   SECTION 4.19. Post-Retirement Benefits. The present value of the expected cost of post-retirement medical and insurance benefits payable by the Borrower and its Subsidiaries to its employees and former employees, as estimated by the Borrower in accordance with procedures and assumptions deemed reasonable by the Administrative Agent, does not exceed $5,000,000.   SECTION 4.20. Insurance. The certificate signed by an Authorized Financial Officer of the Borrower, that attests to the existence and adequacy of, and summarizes, the property, casualty, and liability insurance programs carried by the Loan Parties and that has been furnished by the Borrower to the Administrative Agent and the Lenders, is complete and accurate. This summary includes the insurer’s or insurers’ name(s), policy number(s), expiration date(s), amount(s) of coverage, type(s) of coverage, exclusion(s), and deductibles. This summary also includes similar information, and describes any reserves, relating to any self-insurance program that is in effect.   SECTION 4.21. Environmental Representations. To the best of the Borrower’s knowledge and belief, no Hazardous Substances in material violation of any Environmental Laws are present upon any of the Real Estate owned by the Borrower or any Subsidiary or any Real Estate which is encumbered by any Mortgage held by the Borrower or any Subsidiary, and neither the Borrower nor any Subsidiary has received any notice to the effect that any of the Real Estate owned by the Borrower or any Subsidiary or any of their respective operations are not in compliance with any of the requirements of applicable Environmental Laws or are the subject of any federal or state investigation evaluating whether any remedial action is needed to respond to a release of any Hazardous Substance into the environment which non-compliance or remedial action could be reasonably expected to have a Material Adverse Effect.   52 -------------------------------------------------------------------------------- SECTION 4.22. Minimum Adjusted Consolidated Tangible Net Worth. On the Agreement Date, Adjusted Consolidated Tangible Net Worth exceeds the amount required as of the Agreement Date under Section 7.01.   SECTION 4.23. No Misrepresentation. No representation or warranty by any Loan Party contained herein or made hereunder and no certificate, schedule, exhibit, report or other document provided or to be provided by any Loan Party in connection with the transactions contemplated hereby or thereby (including, without limitation, the negotiation of and compliance with the Loan Documents) contains or will contain a misstatement of a material fact or omit to state a material fact required to be stated therein in order to make the statements contained therein, in the light of the circumstances under which made, not misleading. ARTICLE V   CONDITIONS PRECEDENT SECTION 5.01. Conditions of Effectiveness. This Agreement shall become effective when (i) the Administrative Agent shall have received counterparts of this Agreement executed by the Borrower and all Lenders party hereto, (ii) the Administrative Agent shall have received the fees provided to be paid pursuant to the Fee Letter and (iii) the Administrative Agent shall have received each of the following items (with all documents required below, except as otherwise specified, to be dated the Closing Date, which date shall be the same for all such documents, and each of such documents to be in form and substance satisfactory to the Administrative Agent, to be fully and properly executed by all parties thereto and the conditions specified below shall have been satisfied: (a) A Revolving Loan Note payable to the order of each Lender that shall have requested a Revolving Loan Note in accordance with this Agreement and the Swing Line Note payable to the Swing Line Bank. (b) From each Material Subsidiary, including any Subsidiary that has a Net Worth of less than $10,000,000 but is required to be a Guarantor hereunder by reason of the proviso contained in the definition of “Material Subsidiary” (except the Excluded Subsidiaries), a Guaranty executed and delivered as of the Closing Date. (c) The favorable written opinions addressed to the Lenders, and in form and substance satisfactory to the Administrative Agent, from (i) Bilzin Sumberg Baena Price & Axelrod, LLP (counsel to the Borrower), with respect to the Borrower and (ii) Bilzin Sumberg Baena Price & Axelrod LLP or any other firm reasonably satisfactory to the Administrative Agent (as counsel for such other Loan Parties as the Administrative Agent may require) which opinions shall be reasonably satisfactory to the Administrative Agent. The Borrower hereby instructs such counsel to prepare their opinions and deliver such opinions to the Lenders for the benefit of the Lenders, and such opinions shall contain a statement to such effect. 53 -------------------------------------------------------------------------------- (d) The following supporting documents with respect to the Borrower and (to the extent required by Administrative Agent in its sole discretion) each other Loan Party: (i) a copy of its certificate or articles of incorporation or formation or certificate of limited partnership (as applicable) certified as of a date reasonably close to the Closing Date to be a true and accurate copy by the Secretary of State of its state of incorporation or formation; (ii) a certificate of that Secretary of State, dated as of a date reasonably close to the Closing Date, as to its existence and (if available) good standing; (iii) a certificate of the Secretary of State of each jurisdiction, other than its state of incorporation, in which it does business, as to its qualification as a foreign corporation; (iv) a copy of its by-laws, partnership agreement or operating agreement (as applicable), certified by its secretary or assistant secretary, general partner, manager or other appropriate Person (as applicable) to be a true and accurate copy of its by-laws, partnership agreement or operating agreement (as applicable) in effect on the Closing Date; (v) a certificate of its secretary or assistant secretary, general partner, manager or other appropriate Person (as applicable), as to the incumbency and signatures of its officers or other Persons who have executed any documents on behalf of such Loan Party in connection with the transactions contemplated by this Agreement; (vi) a copy of resolutions of its Board of Directors, certified by its secretary or assistant secretary to be a true and accurate copy of resolutions duly adopted by such Board of Directors, or other appropriate resolutions or consents of, its partners or members certified by its general partner or manager (as applicable) to be true and correct copies thereof duly adopted, approved or otherwise delivered by its partners or members (to the extent necessary and applicable), each of which is certified to be in full force and effect on the Closing Date, authorizing the execution and delivery by it of this Agreement and any Notes, Guaranties and other Loan Documents delivered on the Closing Date to which it is a party and the performance by it of all its obligations thereunder; and (vii) such additional supporting documents and other information with respect to its operations and affairs as the Administrative Agent may reasonably request. (e) Certificates signed by a duly authorized officer of the Borrower stating that: (i) the representations and warranties of the Borrower contained in Article IV hereof are correct and accurate on and as of the Closing Date as though made on and as of the Closing Date and (ii) no event has occurred and is continuing which constitutes an Event of Default or Unmatured Default hereunder. (f) The certified financial statements provided for in Section 6.04(b) hereof for the quarter ending May 31, 2006. (g) The certified report provided for in Section 6.04(i) hereof for the quarter ending May 31, 2006. (h) An Affidavit confirming the execution and delivery of this Agreement and the Notes outside the State of Florida. (i) Evidence of payment in full of all amounts outstanding under the Existing Credit Agreement. (j) Such other documents as the Administrative Agent or its counsel may reasonably request.   SECTION 5.02. Conditions Precedent to All Advances and Facility Letters of Credit. 54 -------------------------------------------------------------------------------- (a) No Lender shall be required to make any Advance (but excluding any Revolving Advance that, after giving effect thereto and to the application of the proceeds thereof, does not increase the aggregate amount of outstanding Revolving Advances) and no Issuer shall be required to issue any Facility Letter of Credit, unless on the applicable Borrowing Date or Issuance Date: (i) the Administrative Agent shall have received notice of Borrower’s request for the Advance as provided in Section 2.06(a) or Letter of Credit Request as provided in Section 2.18(a) and such other approvals, opinions or documents as the Administrative Agent may reasonably request; (ii) the representations and warranties of the Borrower contained in Article IV hereof are true and correct as of such Borrowing Date or Issuance Date; provided, however, that for the purposes hereof, (A) from and after the date of delivery by the Borrower pursuant to Section 6.04(a) of the consolidated financial statements for the year ended November 30, 2006, the references in Section 4.03 to “Borrower Audited Financial Statements” shall be deemed to be references to the annual audited financial statements most recently delivered by the Borrower pursuant to Section 6.04(a) as of the date of the request for a Advance or Letter of Credit Request and (B) from and after that date of delivery by the Borrower pursuant to Section 6.04(b) of its consolidated financial statements for the quarter ending August 31, 2006, the references in Section 4.03 to “Borrower Unaudited Financial Statements” shall be deemed to be references to the quarterly unaudited financial statements most recently delivered by the Borrower pursuant to Section 6.04(b) as of the date of that request for an Advance or Letter of Credit Request and provided, further, that the representation and warranty contained in the first sentence of Section 4.04 shall not be required to be true and correct as of the Borrowing Date for an Advance of which the proceeds are used solely to repay maturing commercial paper issued by the Borrower; (iii) All legal matters incident to the making of such Advance shall be satisfactory to the Lenders and their counsel; (iv) There exists no Event of Default or Unmatured Default, except for Subsidiary Unmatured Defaults; provided the Borrower certifies (either in the Borrowing Notice or in a separate certificate addressed to the Administrative Agent for the benefit of the Lenders) that (a) such Subsidiary Unmatured Defaults are not reasonably likely to have a Material Adverse Effect and (b) the Borrower reasonably expects to cure such Subsidiary Unmatured Defaults before the date on which the same become an Event of Default, which certification shall provide reasonable detail regarding the Subsidiary Unmatured Defaults and the Borrower’s proposed cure thereof. The Administrative Agent shall furnish a copy of such certification to the Lenders; and (v) The making of the Advance or issuance of the Facility Letter of Credit will not result in any Event of Default or Unmatured Default. 55 -------------------------------------------------------------------------------- (b) Each Borrowing Notice with respect to each such Advance and each Letter of Credit Request shall constitute a representation and warranty by the Borrower that all of the conditions contained in this Section 5.02 have been satisfied. ARTICLE VI   AFFIRMATIVE COVENANTS The Borrower covenants and agrees that from the date hereof until payment in full of all the Obligations, termination of all Facility Letters of Credit and termination of all Commitments, unless the Required Lenders otherwise shall consent in writing as provided in Section 13.06 hereof, the Borrower will, and will cause each of the other Loan Parties (and, where so specified, each of the Borrower’s Subsidiaries) to:   SECTION 6.01. Existence, Properties, etc. Do or cause to be done all things or proceed with due diligence with any actions or courses of action which may be necessary to preserve and keep in full force and effect its existence under the laws of their respective states of incorporation or formation and all qualifications or licenses in jurisdictions in which such qualification or licensing is required for the conduct of its business or in which the Lenders shall request such qualification; provided, however, that nothing herein shall be deemed to prohibit (a) a Loan Party from (i) merging into or consolidating with any other Loan Party or any other Subsidiary of the Borrower; provided (A) the Borrower is the surviving entity in the case of a merger involving the Borrower and (B) the surviving entity in the case of a merger involving a Loan Party and a Subsidiary that is not a Loan Party is, or upon such merger becomes, a Loan Party and (ii) declaring and paying dividends in complete liquidation or (b) a Subsidiary that is not a Loan Party from merging into or consolidating with any other Subsidiary that is not a Loan Party. The Borrower will, and will cause each Subsidiary to, carry on and conduct its business in substantially the same manner and in substantially the same fields of enterprise as it is presently conducted and maintain all requisite authority to conduct its business in each jurisdiction in which its business is conducted. The primary business of the Borrower and its Subsidiaries shall at all times be the acquisition, development and sale of real estate assets.   SECTION 6.02. Notice. Give prompt written notice to the Administrative Agent of (a) any proceeding instituted by or against the Borrower or any of its Subsidiaries in any federal or state court or before any commission or other regulatory body, federal, state or local, or any such proceedings threatened against the Borrower or any Subsidiary in writing by any federal, state or other governmental agency, which, if adversely determined, could reasonably be expected to have a Material Adverse Effect on any Loan Party, and (b) any other Event which could reasonably be expected to lead to or result in a Material Adverse Effect on any Loan Party, or which, with or without the giving of notice or the passage of time or both, would constitute an Event of Default or a default (beyond all applicable grace and cure periods) under any material agreement other than this Agreement to which any Loan Party is a party or by which any of its properties or assets is or may be bound.   SECTION 6.03. Payments of Debts, Taxes, etc. Pay all its debts and perform all its obligations promptly and in accordance with the respective terms thereof, and pay and discharge or cause to be paid and discharged promptly all taxes, assessments and governmental charges or levies imposed upon any Loan Party or upon any of their respective incomes or receipts or upon any of their respective properties before the same shall become in default or past due, as well as all lawful claims for labor, materials and supplies or otherwise which, if unpaid, might result in the imposition of a Lien or charge upon such properties or any part thereof; provided, however, that it shall not constitute a violation of the provisions of this Section 6.03 if any Loan Party shall fail to perform any such obligation or to pay any such debt (except for obligations for money borrowed), tax, assessment, governmental charge or levy or claim for labor, materials or supplies which is being contested in good faith, by proper proceedings diligently pursued, and as to which adequate reserves have been provided.   56 -------------------------------------------------------------------------------- SECTION 6.04. Accounts and Reports. Maintain a standard system of accounting established and administered in accordance with GAAP, and provide to the Lenders the following: (a) as soon as available and in any event within 120 days after the end of each fiscal year of the Borrower (commencing with the fiscal year ending November 30, 2006), a consolidated balance sheet of the Borrower and its Subsidiaries as of the end of that fiscal year and the related consolidated statements of earnings, stockholders’ equity and cash flows for that fiscal year, all with accompanying notes and schedules, prepared in accordance with GAAP consistently applied and audited and reported upon by Deloitte & Touche or another firm of independent certified public accountants of similar recognized standing selected by the Borrower and acceptable to the Administrative Agent (such audit report shall be unqualified except for qualifications relating to changes in GAAP and required or approved by the Borrower’s independent certified public accountants); (b) as soon as available and in any event within 60 days after the end of each of the first three quarters, and within 120 days after the end of the fourth quarter, of each fiscal year of the Borrower (commencing with the quarter ending August 31, 2006), a consolidated balance sheet of the Borrower and its Subsidiaries as of the end of that quarter, and the related consolidated statement of earnings and cash flows of the Borrower and its Subsidiaries for the period from the beginning of the fiscal year to the end of that quarter, all prepared in accordance with GAAP consistently applied, unaudited but certified to be true and accurate, subject to normal year-end audit adjustments, by an Authorized Financial Officer of the Borrower; (c) concurrently with the delivery of the financial statements described in subsection (a) above, a letter signed by that firm of independent certified public accountants to the effect that, during the course of their examination, nothing came to their attention which caused them to believe that any Event of Default or Unmatured Default has occurred, or if such Event of Default or Unmatured Default has occurred, specifying the facts with respect thereto; and concurrently with the delivery of the financial statements described in subsection (b) above, a certificate signed by the President or Executive Vice President and an Authorized Financial Officer of the Borrower to the effect that having read this Agreement, and based upon an examination which they deemed sufficient to enable them to make an informed statement, there does not exist any Event of Default or Unmatured Default, or if such Event of Default or Unmatured Default has occurred, specifying the facts with respect thereto; 57 -------------------------------------------------------------------------------- (d) within 30 days after the end of each quarter of each fiscal year of Borrower (commencing with the quarter ending August 31, 2006), a report, in reasonable detail and in form and substance satisfactory to the Administrative Agent, setting forth, as of the end of that quarter, with respect to each Project owned by the Loan Parties, (i) the number of Housing Unit Closings, (ii) the number of Housing Units either completed or under construction, specifying the number thereof that are Completed Housing Units, (iii) the number of Housing Units Under Contract, provided, however, that the foregoing report shall only be required if, as of the last day of the applicable quarter or fiscal year, the Borrower does not have an Investment Grade Rating from at least one of the three Rating Agencies; (e) Concurrently with the quarterly financial statements described in subsection (b) above, an updated Schedule VI accurately identifying the Subsidiaries and Joint Venturers as of the last day of such fiscal quarter. (f) within 90 days after the beginning of each fiscal year of the Borrower, a projection, in reasonable detail and in form and substance satisfactory to the Administrative Agent, on a quarterly basis, of the cash flow and of the earnings of the Borrower and its Subsidiaries for that fiscal year and for the immediately succeeding fiscal year; (g) promptly upon becoming available, copies of all financial statements, reports, notices and proxy statements sent by the Borrower to its stockholders, and of all regular and periodic reports and other material (including copies of all registration statements and reports under the Securities Act of 1933, as amended (the “Securities Act”), and the Securities Exchange Act of 1934, as amended) filed by the Borrower with or furnished to any securities exchange or any governmental authority or commission, except material filed with or furnished to governmental authorities or commissions relating to the development of Real Estate in the ordinary course of the business of the Loan Parties and which does not relate to or disclose any Material Adverse Effect; the reports and financial statements filed with or furnished to the Securities and Exchange Commission by the Borrower (and which are available online) shall be deemed to have been provided by the Borrower under this Section 6.04; (h) as soon as available and in any event within 90 days after the end of each of the first three quarters, and within 120 days after the end of the fourth quarter, of each fiscal year of each Joint Venture, a balance sheet of that Joint Venture as of the end of that quarter and a statement of earnings of that Joint Venture for the period from the beginning of the fiscal year to the end of that quarter, in the form furnished by the Joint Venture; (i) within 60 days after the end of each of the first three quarters, and within 90 days after the end of each fiscal year of the Borrower (commencing with the quarter ending August 31, 2006 and fiscal year ending November 30, 2006), a report which (subject to the last sentence of this subsection (i)) shall include the information and calculations provided for in Exhibit H attached hereto and such other condition in reasonable detail and be in form and substance satisfactory to the Administrative Agent, with calculations indicating that the Borrower is in compliance, as of the last day of such quarterly or annual period, as the case may be, with the provisions of Articles VI and VII of this Agreement. Without limiting the generality of the foregoing, (but subject to the last sentence of this subsection (i)) the Borrower shall provide to the Lenders (i) a report calculating the Borrowing Base in form and substance satisfactory to Administrative Agent, provided, however, that the Borrower may, and upon request from the Administrative Agent shall, also deliver such report as of the end of any calendar month, and, (ii) a report containing the calculations necessary to indicate that the Borrower is in compliance with the provisions of Sections 6.09 (if applicable) and 7.14, including (if applicable) a certification of the outstanding principal amount of all loans and advances made by any Loan Party to each of the applicable Mortgage Banking Subsidiaries, as the case may be, and that all such loans and advances are duly evidenced by the Mortgage Banking Subsidiaries Note in the possession of Administrative Agent. The reports furnished pursuant to this subsection (i) shall be certified to be true and correct by an Authorized Financial Officer of the Borrower and shall also contain a representation and warranty by the Borrower that it is in full compliance with the provisions of Article VII of this Agreement. Notwithstanding the foregoing, the Borrowing Base report and the report evidencing compliance with Section 7.02(a) shall only be required if, as of the last day of the applicable quarter or fiscal year, the Borrower does not have an Investment Grade Rating from at least two of the three Rating Agencies, and the reports evidencing compliance with Sections 6.09, 7.08 and 7.15 shall only be required if, as of the last day of the applicable quarter or fiscal year, the Borrower does not have an Investment Grade Rating from at least one of the three Rating Agencies; 58 -------------------------------------------------------------------------------- (j) if requested by Administrative agent, within 270 days after the close of each fiscal year a statement of the Unfunded Liabilities of each Single Employer Plan, certified as correct by an actuary enrolled under ERISA, but the foregoing statement shall be required only if any Single Employer Plan shall exist; (k) as soon as possible and in any event within 10 days after the Borrower knows that any Reportable Event has occurred with respect to any Plan, a statement, signed by an Authorized Financial Officer of the Borrower, describing said Reportable Event and the action which the Borrower proposes to take with respect thereto; (l) as soon as possible and in any event within 10 days after receipt thereof by the Borrower or any of its Subsidiaries, a copy of (i) any notice or claim to the effect that the Borrower or any of its Subsidiaries is or may be liable to any Person as a result of the release by the Borrower, any of its Subsidiaries, or any other Person of any Hazardous Substance into the environment, and (ii) any notice alleging any violation of any Environmental law or any federal, state or local health or safety law or regulation by the Borrower or any of its Subsidiaries, which, in either case, could reasonably be expected to have a Material Adverse Effect; (m) promptly upon the request of the Administrative Agent or any Lender, an accurate legal description with respect to any Real Estate included in the calculation of the Borrowing Base; (n) concurrently with the quarterly financial statements described in subsection (b) above following the end of any quarter in which there occurred an event described in clause (a), (b) or (c) of Section 6.07 hereof that requires a Subsidiary that is not then a Guarantor to become a Guarantor under Section 6.07 hereof (or at any time that the Borrower may elect to cause any other Subsidiary to be a Guarantor), the Borrower shall deliver to the Administrative Agent (i) a Supplemental Guaranty, substantially in the form provided for in the Guaranty, executed by a duly authorized officer of such Subsidiary; (ii) a copy of the certificate of incorporation or other organizational document of such Subsidiary, certified by the secretary of state or other official of the state or other jurisdiction of its incorporation; (iii) a copy of the bylaws of such Subsidiary, certified by the secretary or other appropriate officer or partner of such Subsidiary; and (iv) if requested by the Administrative Agent, an opinion of the Borrower’s counsel in the form provided for in Section 5.01(d), modified to apply to the foregoing documents delivered hereunder; and 59 -------------------------------------------------------------------------------- (o) such supplements to the aforementioned documents and additional information (including, but not limited to, leasing, occupancy and non-financial information) and reports as the Administrative Agent or any Lender may from time to time reasonably require.   SECTION 6.05. Access to Premises and Records. At all reasonable times and as often as any Lender may reasonably request, permit authorized representatives and agents (including accountants) designated by that Lender to (a) have access to the premises of the Borrower and each Subsidiary and to their respective corporate books and financial records, and all other records relating to their respective operations and procedures, (b) make copies of or excerpts from those books and records and (c) upon reasonable notice to the Borrower, discuss the respective affairs, finances and operations of the Borrower and its Subsidiaries with, and to be advised as to the same by, their respective officers and directors.   SECTION 6.06. Maintenance of Properties and Insurance. Maintain all its properties and assets in good working order and condition and make all necessary repairs, renewals and replacements thereof so that its business carried on in connection therewith may be properly conducted at all times; and maintain or require to be maintained (a) adequate insurance, by financially sound and reputable insurers, on all properties of the Loan Parties which are of character usually insured by Persons engaged in the same or a similar business (including, without limitation, all Real Estate encumbered by Mortgages securing mortgage loans made by any Loan Party, to the extent normally required by prudent mortgagees, and all Real Estate which is subject of an Equity Investment by any Loan Party, to the extent normally carried by prudent builder-developers) against loss or damage resulting from fire, defects in title or other risks insured against by extended coverage and of the kind customarily insured against by those Persons, (b) adequate public liability insurance against tort claims which may be incurred by any Loan Party, and (c) such other insurance as may be required by law. Upon the request of the Administrative Agent, the Borrower will furnish to the Lenders full information as to the insurance carried. Notwithstanding the foregoing provisions of this Section 6.06, the Borrower shall be permitted to self-insure against all property and casualty risks associated with its construction of dwelling units up to a maximum aggregate construction exposure for any Project not to exceed at any time 10% of Adjusted Consolidated Tangible Net Worth.   SECTION 6.07. Financing; New Investing. Give the Administrative Agent written notice of (a) the formation or acquisition of any Material Subsidiary, (b) the increase of the Net Worth of any Subsidiary that is not a Guarantor (other than an Excluded Subsidiary) that results in such Subsidiary becoming a Material Subsidiary or (c) the increase in the aggregate Net Worth of all Subsidiaries (other than Excluded Subsidiaries) that are not Guarantors to an amount in excess of $50,000,000, in each case not later than ninety (90) days after such occurrence. In the case of an event described in clause (a) or (b) above, such Material Subsidiary shall be required to become a Guarantor in accordance with the provisions of Section 6.04(n) and, in the case of an event described in clause (c) above, the applicable Subsidiary or Subsidiaries selected by the Borrower necessary to satisfy the requirements of the proviso contained in the definition of “Material Subsidiary” shall be required to become Guarantors in accordance with Section 6.04(n), provided, however, that (A) nothing in this Section 6.07 shall be deemed to authorize the Borrower or any of its Subsidiaries to acquire or otherwise invest in any Subsidiary if the same would violate any of the limitations set forth in Article VII hereof and (B) the Borrower may elect to cause a Subsidiary that is not required to be a Guarantor to become a Guarantor in accordance with the provisions of Section 6.04(n). Notwithstanding anything to the contrary in this Agreement, if at any time or from time to time any event results in a Change in Status of a Guarantor, the Borrower shall deliver notice thereof to the Administrative Agent, including a reasonably detailed description of the Change in Status and a statement of the effective date of the Change in Status. Such notice shall be delivered no later than 60 days after the end of the fiscal quarter during which such Change in Status occurs; provided, however, that with respect to any Change in Status occurring during the last quarter of Borrower’s fiscal year, such notice shall be delivered no later than 120 days after the end of such final fiscal quarter. Each Change in Status event shall be effective as of the effective date of such Change in Status, automatically, without any further action by any party to this Agreement, and the Subsidiary that is subject to such Change in Status shall no longer be a Guarantor. In connection with each Change in Status, the Administrative Agent, on behalf of Lenders, shall promptly following receipt of written notice of Change in Status, execute and deliver to the Borrower a written confirmation of such Change in Status.   60 -------------------------------------------------------------------------------- SECTION 6.08. Compliance with Applicable Laws. Promptly and fully, comply with, conform to and obey all present and future laws, ordinances, rules, regulations, orders, writs, judgments, injunctions, decrees, awards and all other legal requirements applicable to the Borrower, its Subsidiaries and their respective properties, including, without limitation, Regulation Z of the Board of Governors of the Federal Reserve System, the Federal Interstate Land Sales Full Disclosure Act, ERISA, the Florida Land Sales Act or any similar statute in any applicable jurisdiction, the violation of which would have a Material Adverse Effect on any Loan Party.   SECTION 6.09. Advances to the Mortgage Banking Subsidiaries. At any time at which the Borrower does not have an Investment Grade Rating from at least one of the three Rating Agencies, cause the Mortgage Banking Subsidiaries to execute and deliver the Mortgage Banking Subsidiaries Note in order to evidence all loans and advances that then exist or are thereafter made by any Loan Party to any of the Mortgage Banking Subsidiaries, respectively; deposit the original Mortgage Banking Subsidiaries Note with Administrative Agent; and obtain written acknowledgments from each Mortgage Banking Subsidiary that the aggregate of all loans and advances thereafter made by any applicable Loan Party to such Mortgage Banking Subsidiary shall be evidenced and governed by the Mortgage Banking Subsidiaries Note held by Administrative Agent. At any time at which the Borrower does not have an Investment Grade Rating from at least one of the three Rating Agencies, the principal amount of the Mortgage Banking Subsidiaries Note held by Administrative Agent must equal or exceed the aggregate principal amount of all loans and advances made by any Loan Party to Mortgage Banking Subsidiaries, and upon the request of Administrative Agent (but no more frequently than monthly), the Borrower shall obtain and deliver to the Administrative Agent specific written acknowledgments from each of the Mortgage Banking Subsidiaries to the effect that loans and advances theretofore made by any applicable Loan Party to the Mortgage Banking Subsidiaries are evidenced by the Mortgage Banking Subsidiaries Note. In the event that at any time after the initial delivery of the Mortgage Banking Subsidiaries Note to the Administrative Agent any Loan Party organizes or acquires any Mortgage Banking Subsidiary, such Mortgage Banking Subsidiary shall, upon such organization or acquisition, join in and become a maker of a replacement Mortgage Banking Subsidiaries Note, such new Mortgage Banking Subsidiaries Note shall be deposited with the Administrative Agent pursuant to this Section 6.09, and all references in this Agreement to Mortgage Banking Subsidiaries shall thereafter be deemed references to all such Mortgage Banking Subsidiaries.   61 -------------------------------------------------------------------------------- SECTION 6.10. Use of Proceeds. Use and cause to be used the proceeds of the Advances for working capital and general corporate purposes (including repayment of maturing commercial paper of the Borrower) and to finance Acquisitions consummated with the prior approval of the Board of Directors or a majority of the shareholders of the Person to be acquired.    SECTION 6.11. REIT Subsidiary. For as long as it remains a financing entity, cause the REIT Subsidiary at all times to maintain its status as a qualified real estate investment trust in accordance with Section 856 of the Code. ARTICLE VII   NEGATIVE COVENANTS The Borrower covenants and agrees that from the date hereof until payment in full of all the Obligations, termination of all Facility Letters of Credit and termination of the Commitments, unless the Required Lenders otherwise shall consent in writing as provided in Section 13.06 hereof, the Borrower will not, nor will it permit any other Loan Party (and, where specified, any of the Borrower’s Subsidiaries) to:   SECTION 7.01. Minimum Adjusted Consolidated Tangible Net Worth. Permit Adjusted Consolidated Tangible Net Worth at any time to be less than the sum of (a) $2,903,000,000, plus (b) an amount equal to the amount (if any) by which (i) 50% of the cumulative amount of positive Consolidated Net Income of the Loan Parties for each fiscal quarter of the Borrower ending after November 30, 2004 for which the Loan Parties, taken as a whole, had Consolidated Net Income exceeds (ii) the aggregate amount paid by the Borrower after November 30, 2004 to purchase or redeem its equity Securities, plus (c) an amount equal to 50% of the aggregate amount of the increase in Adjusted Consolidated Tangible Net Worth resulting from the issuance of equity Securities of the Borrower after November 30, 2004. For purposes of this Section 7.01, the term “Consolidated Net Income,” when used in respect of any period, shall not include any loss for such period.   SECTION 7.02. Limitation on Indebtedness. (a) Borrowing Base Limitation. At any time at which the Borrower does not have an Investment Grade Rating from at least two of the Rating Agencies, permit the aggregate outstanding amount of the sum of all Borrowing Base Debt to exceed the Borrowing Base at such time (the “Borrowing Base Limitation”). 62 -------------------------------------------------------------------------------- (b) Maximum Leverage Ratio. At any time, permit the Leverage Ratio to equal or exceed sixty percent (60%). (c) Minimum Interest Coverage Ratio. At any time, permit the Interest Coverage Ratio to be less than 2.00 to 1.00. SECTION 7.03. Guaranties. Make or suffer to exist any guaranty or other Contingent Obligation in respect of the obligations of any Mortgage Banking Subsidiaries (other than a Repurchase Guaranty) or any Subsidiary that is not a Guarantor if the same would cause a violation of Section 7.02. SECTION 7.04. Sale of Assets; Acquisitions; Merger. (a) Do or permit any of its Subsidiaries to do any of the following: (i) sell, assign, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of the assets (whether now owned or hereafter acquired) of the Borrower and the Subsidiaries (on a consolidated basis) except for the sale of inventory in the ordinary course of business; (ii) merge into or consolidate with any other Person or permit any other Person to merge into or consolidate with it; (iii) dissolve, liquidate or wind up its business by operation of law or otherwise; or (iv) distribute to the stockholders of the Borrower any Securities of any Subsidiary; provided, however, that any Subsidiary or any other Person may merge into or consolidate with or may dissolve and liquidate into a Loan Party and any Subsidiary that is not a Loan Party may merge into or consolidate with or may dissolve and liquidate into another Subsidiary that is not a Loan Party, if (and only if), (1) in the case of a merger or consolidation involving a Loan Party other than the Borrower, the surviving Person is, or upon such merger or consolidation becomes, a Loan Party, (2) in the case of a merger or consolidation involving the Borrower, the Borrower is the surviving Person, (3) the character of the business of the Borrower and the Subsidiaries on a consolidated basis will not be materially changed by such occurrence, and (4) such occurrence shall not constitute or give rise to (a) an Event of Default or Unmatured Default or (b) a default (beyond all applicable grace and cure periods) in respect of any of the covenants contained in any agreement to which the Borrower or any such Subsidiary is a party or by which its property may be bound if such default would have a Material Adverse Effect. (b) Acquire another Person unless (i) the primary business of such Person is the Real Estate Business and (ii) the majority of shareholders (or other equity interest holders), the board of directors or other governing body of such Person approves such Acquisition. 63 -------------------------------------------------------------------------------- Nothing contained in this Section 7.04, however, shall restrict any sale of assets among the Borrower and its Subsidiaries which is in the ordinary course of business or is otherwise in compliance with all other provisions of this Agreement.   SECTION 7.05. Investments. Purchase or otherwise acquire, hold or invest in the Securities (whether Capital Stock or instruments evidencing debt) of, make loans or advances to, enter into any arrangements for the purpose of providing funds or credit to, or make any Equity Investment in, any Person which is not a Loan Party on the Closing Date or a Subsidiary which becomes a Guarantor upon the making of the investment (or permit any of its Subsidiaries to do any of the foregoing), except for: (i) (A) Investments in or loans or advances to (1) Joint Ventures to which the Borrower or a Subsidiary is a party and (2) Subsidiaries (other than the Mortgage Banking Subsidiaries) that are not Guarantors; and (B) Investments in or loans or advances to the Mortgage Banking Subsidiaries, provided that the sum of the aggregate of all Investments, loans and advances outstanding at any time under clause (A) and (at any time at which the Borrower does not have an Investment Grade Rating from at least one of the three Rating Agencies) the loans and advances (but not equity Investments) outstanding at any time under clause (B) does not exceed 40% of Adjusted Consolidated Tangible Net Worth; and (ii) (A) purchases of direct obligations of the government of the United States of America or any agency thereof, or obligations unconditionally guaranteed by the United States of America; (B) certificates of deposit of any bank, organized or licensed to conduct a banking business under the laws of the United States or any state thereof having capital, surplus and undivided profits of not less than $100,000,000; (C) Investments in commercial paper which, at the time of acquisition by the Borrower or a Subsidiary, is accorded an “A” or equivalent rating by any of the Rating Agencies or any other nationally recognized credit rating agency of similar standing; (D) investments in publicly traded, readily marketable securities traded on a recognized national exchange or over-the-counter; (E) loans or advances by the Borrower or a Guarantor to, or Securities or Indebtedness of, a real estate or homebuilding company to be acquired by the Borrower for the purpose of obtaining control of specific homebuilding assets of that homebuilding company, provided, however, that to the extent that such loans, advances or Indebtedness exceed (in the aggregate) $100,000,000, they are secured by Mortgages on land, homes under construction and/or homes inventory of such real estate or homebuilding company; and (F) loans by the REIT Subsidiary to other Loan Parties.   SECTION 7.06. Disposition; Encumbrance or Issuance of Certain Stock. Sell, transfer or otherwise dispose of, or pledge, grant a security interest, equity interest or other beneficial interest in or otherwise encumber any of the outstanding shares of Capital Stock of any Mortgage Banking Subsidiary, or permit any Mortgage Banking Subsidiary to sell, issue or otherwise transfer any shares of its Capital Stock to any Person other than a Loan Party.   SECTION 7.07. Subordinated Debt. Directly or indirectly make any payment of principal or interest with respect to any Subordinated Debt prior to the date the same is due, or amend or modify the terms of any Subordinated Debt except for extensions of the due date thereof, or directly or indirectly redeem, retire, defease, purchase or otherwise acquire any Subordinated Debt.   SECTION 7.08. Housing Units. At any time at which the Borrower does not have an Investment Grade Rating from at least one of the three Rating Agencies, permit the total number of Housing Units owned by the Loan Parties, including Housing Units under construction, but excluding model Housing Units and Housing Units Under Contract, at any time to exceed 35% of the total number of Housing Unit Closings during the immediately preceding 12-month period, provided that Housing Unit Closings shall include closings of the sale of housing units by entities that were acquired, and became Loan Parties, during the applicable period.   64 -------------------------------------------------------------------------------- SECTION 7.09. Construction in Progress. Cause, suffer or permit to exist any Mortgage, security interest or other encumbrance (other than Liens described in clause (j) of the definition of “Permitted Liens”) to secure Indebtedness on any Housing Unit or other building or structure (including, without limitation, any asset reported as “Construction in Progress” in the financial statements of the Borrower) that is under construction on any land owned or leased by any Loan Party; provided, however, that the Borrower may cause, suffer or permit to exist purchase money Mortgages having an aggregate outstanding principal balance not exceeding $50,000,000 at any time on assets so reported as “Construction in Progress.”   SECTION 7.10. No Margin Stock. Use or permit to be used any of the proceeds of the Advances to purchase or carry any “margin stock” (as defined in Regulation U).   SECTION 7.11. Mortgage Banking Subsidiaries’ Capital Ratio. Permit the ratio of the combined total Indebtedness of the Mortgage Banking Subsidiaries to the Mortgage Banking Subsidiaries Adjusted Net Worth to exceed, at any time, eight (8) to one (1).   SECTION 7.12. Transactions with Affiliates. Enter into any transaction (including, without limitation, the purchase or sale of any property or service) with, or make any payment or transfer to, any Affiliate (or permit any Subsidiary to do any of the foregoing), except in the ordinary course of business and pursuant to the reasonable requirements of the Borrower’s or a Subsidiary’s business and upon fair and reasonable terms no less favorable to the Borrower or such Subsidiary than the Borrower or such Subsidiary would obtain in a comparable arms’-length transaction.   SECTION 7.13. Restrictions on Advances to Mortgage Banking Subsidiaries. Subject to Section 7.05, (a) at any time at which the Borrower does not have an Investment Grade Rating from at least one of the three Rating Agencies, permit any loan or advance to be made by a Loan Party to a Mortgage Banking Subsidiary, except for loans and advances from a Loan Party to the Mortgage Banking Subsidiaries which are made under, and evidenced by, the Mortgage Banking Subsidiaries Note that is in the possession of Administrative Agent and for which the Borrower shall have obtained a written acknowledgment from each Mortgage Banking Subsidiary that the same are evidenced and governed by the Mortgage Banking Subsidiaries Note; (b) permit the aggregate amount of all loans and advances made by the Loan Parties to any Mortgage Banking Subsidiary outstanding at any time to exceed the sum of (i) the net carrying value of all mortgage loans held by such Mortgage Banking Subsidiary, less the aggregate principal amount of all promissory notes payable by such Mortgage Banking Subsidiary to banks or other lenders, and less the aggregate principal amount of all mortgage loans held for sale by such Mortgage Banking Subsidiaries which are pledged, assigned or otherwise encumbered, to the extent that said aggregate amount exceeds the aggregate principal amount of notes payable by such Mortgage Banking Subsidiary to banks or other lenders, and (ii) 1.5% of the principal amount of all mortgages serviced by such Mortgage Banking Subsidiary, less any loans or other financing to such Mortgage Banking Subsidiary associated with the servicing portfolio (exclusive of those amounts deducted in the calculation required under clause (i) above) if, and to the extent that, the servicing rights with respect to such mortgages are not subject to any Lien; (c) assign, transfer, pledge, hypothecate or encumber in any way any indebtedness of any Mortgage Banking Subsidiary to any Loan Party (including without limitation the Mortgage Banking Subsidiaries Note), any interest therein or any sums due or to become due thereunder; (d) at any time at which the Borrower does not have an Investment Grade Rating from at least one of the three Rating Agencies, modify, amend, extend or in any way change the terms of the Mortgage Banking Subsidiaries Note; (e) make any principal advances to any Mortgage Banking Subsidiary, under the Mortgage Banking Subsidiaries Note or otherwise, at any time after the Administrative Agent has been granted a security interest in the Mortgage Banking Subsidiaries Note pursuant to Section 8.01 except to the extent of any principal prepayments under the Mortgage Banking Subsidiaries Note in excess of the mandatory principal payments required thereunder; or (f) permit a Mortgage Banking Subsidiary to enter into any agreement or agreements which (i) in any way restrict the payment of dividends by such Mortgage Banking Subsidiary or (ii) individually, or in the aggregate, impose any restriction on the repayment of any indebtedness of a Mortgage Banking Subsidiary to any Person (including, without limitation, the indebtedness payable under the Mortgage Banking Subsidiaries Note) other than a restriction on the payment of the last $5,000,000 of principal indebtedness of UAMC (i.e., such permitted restriction shall be applicable only after the aggregate principal amount of indebtedness owed by UAMC to any Person shall be less than or equal to $5,000,000).   65 -------------------------------------------------------------------------------- SECTION 7.14. Mortgage Banking Subsidiaries Adjusted Net Worth. Permit the Mortgage Banking Subsidiaries Adjusted Net Worth at any time to be less than $30,000,000.    SECTION 7.15. Investments in Land. At any time at which the Borrower does not have an Investment Grade Rating from at least one of the three Rating Agencies, permit (a) the sum of (i) the Loan Parties’ investments in unimproved land plus (ii) the amount by which the Loan Parties’ investments in improved land exceeds Qualified Finished Lots to exceed (b) the sum of (i) 100% of Adjusted Consolidated Tangible Net Worth plus (ii) the lesser of (A) $300,000,000 and (B) 50% of Subordinated Debt.   SECTION 7.16. Liens and Encumbrances. Do or permit any of its Subsidiaries to do any of the following: (a) Negative Pledge. Grant or suffer or permit to exist any Liens on any of its rights, properties or assets other than Permitted Liens. (b) No Agreement for Negative Pledge. Agree with any third party not to create, assume or suffer to exist any Lien securing the Obligations on or of any of its property, real or personal, whether now owned or hereafter acquired. ARTICLE VIII   PLEDGE OF MORTGAGE BANKING SUBSIDIARIES NOTE   66 -------------------------------------------------------------------------------- SECTION 8.01. Mortgage Banking Subsidiaries Note. (a) Pledge. At any time at which the Borrower does not have an Investment Grade Rating from at least one of the three Rating Agencies, upon the request of the Administrative Agent (which may not be made without the prior written consent from the Required Lenders and which shall be made upon the written request of the Required Lenders), the Borrower shall grant, and shall cause any Guarantor that is a payee under the Mortgage Banking Subsidiaries Note to grant, the Administrative Agent on behalf of the Lenders as security for the payment in full of all the Obligations, a first lien and security interest in any Mortgage Banking Subsidiaries Note. Notwithstanding anything to the contrary provided in this Agreement, the Borrower agrees that the Mortgage Banking Subsidiaries Note Pledge Agreement shall require all principal payments payable under the Mortgage Banking Subsidiaries Note to be made directly to the Administrative Agent and applied to the principal outstanding under the Loans as required under Section 2.03(b). (b) Pledge Documentation. If and when the Borrower is required to grant the Administrative Agent a security interest in the Mortgage Banking Subsidiaries Note pursuant to Section 8.01(a), the Borrower shall deliver to the Administrative Agent: (i) a pledge and security agreement (the “Mortgage Banking Subsidiaries Note Pledge Agreement”), in form and substance satisfactory to the Administrative Agent, duly executed by the Borrower and each Guarantor that is a payee under the Mortgage Banking Subsidiaries Note, granting the Administrative Agent on behalf of the Lenders, a first lien on, and security interest in, the Mortgage Banking Subsidiaries Note; (ii) an endorsement or allonge to the Mortgage Banking Subsidiaries Note, in form and substance satisfactory to the Administrative Agent, duly executed by the Borrower and each Guarantor that is a payee under the Mortgage Banking Subsidiaries Note, transferring the Mortgage Banking Subsidiaries Note to the Administrative Agent on behalf of the Lenders; and (iii) a written acknowledgment duly executed by the Borrower and each Guarantor that is a payee under the Mortgage Banking Subsidiaries Note, that the Administrative Agent holds the Mortgage Banking Subsidiaries Note as security for the Obligations. (c) All the foregoing documents shall be delivered to the Administrative Agent on or before the date that the Borrower is required to grant the Administrative Agent the security interest in the Mortgage Banking Subsidiaries Note. All of the documentation and other items required under this Section 8.01 must be fully satisfactory, both in form and substance, to the Administrative Agent. In addition to the foregoing, at the request of the Administrative Agent, the Borrower shall, and shall cause each Guarantor that is a payee under the Mortgage Banking Subsidiaries Note to, execute and deliver to the Administrative Agent such assignments, pledges, financing statements and other documents, and cause to be done such further acts, all as the Administrative Agent from time to time may deem necessary or appropriate to evidence, confirm, perfect or protect any security interest required to be granted to the Administrative Agent hereunder. 67 -------------------------------------------------------------------------------- ARTICLE IX   EVENTS OF DEFAULT SECTION 9.01. Events of Default. The occurrence of any one or more of the following Events shall constitute an “Event of Default”: (a) any representation or warranty made or deemed made by or on behalf of any Loan Party to the Lenders, the Issuer, the Swing Line Bank or the Administrative Agent under or in connection with this Agreement or any Loan Document shall be false or misleading in any material respect when made; (b) any report, certificate, financial statement or other document or instrument furnished in connection with this Agreement or the Loans hereunder shall be false or misleading in any material respect when furnished; (c) default shall be made in the payment of (i) the principal of any of the Loans when and as due and payable, or (ii) the interest on any of the Loans, any fees or any other sums due pursuant to Article II, which default continues for five days after the same becomes due and payable; (d) default shall be made with respect to any Indebtedness or Contingent Obligations of any Loan Party (other than the Loans hereunder, Non-Recourse Indebtedness and Indebtedness of a Loan Party to another Loan Party), beyond any applicable period of grace, or default shall be made with respect to the performance of any other obligation incurred in connection with any such Indebtedness or Contingent Obligations beyond any applicable period of grace, or default shall be made with respect to any other liability of $10,000,000 or more, if the effect of any of the foregoing defaults described in this Section 9.01(d) is to accelerate the maturity of such Indebtedness, Contingent Obligation or liability or to cause any other liability to become due prior to its stated maturity, or any such Indebtedness, Contingent Obligation or liability shall not be paid when due and such default shall not have been remedied or cured by such Loan Party or waived by the obligee; (e) default shall be made in the due observance or performance of any of the provisions of Article VI or Article VII or any other covenant, agreement or condition on the part of any Loan Party to be performed under or in connection with this Agreement or any Loan Document, and such default shall have continued for a period of thirty (30) days after the occurrence thereof; (f) any Loan Party shall (i) petition or apply for, seek, consent to, or acquiesce in, the appointment of a receiver, trustee, examiner, custodian, liquidator or similar official of such Loan Party or any of its properties or assets, (ii) be unable, or admit in writing its inability, to pay its debts as they mature, (iii) make a general assignment for the benefit of or a composition with its creditors, (iv) have an order for relief entered with respect to it under the Federal bankruptcy laws as now or hereafter in effect, (v) institute any proceeding seeking an order for relief under the Federal bankruptcy laws as now or hereafter in effect, or file a petition or an answer seeking dissolution, winding up, liquidation or reorganization or an arrangement with creditors or a composition of its debts or to take advantage of any bankruptcy, reorganization, insolvency, readjustment of debts, dissolution or liquidation law or statute or other statute or law for the relief of debtors, or file any answer admitting the material allegations of a petition filed against it in any proceeding under such law, or fail to file an answer or other pleading denying the material allegations of any such proceeding filed against it, or if corporate or other action shall be taken by such Loan Party for the purpose of effecting any of the foregoing, or (vi) fail to contest in good faith any appointment or proceeding described in Section 9.01(g); 68 -------------------------------------------------------------------------------- (g) an order, judgment, or decree shall be entered without the application, approval, or consent of any Loan Party by any court of competent jurisdiction appointing a receiver, trustee or liquidator of any Loan Party or a proceeding described in Section 9.01(f) shall be instituted against the any Loan Party, and such appointment shall continue undischarged or such proceeding continues undismissed or unstayed for any period of 60 days; (h) final judgment for the payment of money in excess of an aggregate of $10,000,000 shall be rendered against the any Loan Party and the same shall remain undischarged or not appealed for a period of 30 days during which execution shall not be effectively stayed; (i) there shall occur any Event or Events which, individually or in the aggregate, shall be deemed by the Required Lenders to have had a Material Adverse Effect; (j) any Loan Party shall be the subject of any proceeding or investigation pertaining to the release by any Loan Party, any of its Subsidiaries or any other Person of any Hazardous Substance into the environment, or any violation of any Environmental Law or any federal, state or local health or safety law or regulation, which, in either case, could reasonably be expected to have a Material Adverse Effect; or (k) there shall occur any Change in Control of the Borrower.   SECTION 9.02. Remedies. (a) Acceleration. If any Event of Default described in Section 9.01(f) or (g) occurs with respect to the Borrower, the obligations of the Lenders to make Loans, the Swing Line Bank to make Swing Line Loans and the Issuer to issue Facility Letters of Credit hereunder shall automatically terminate and the Obligations (including all Facility Letter of Credit Obligations) shall immediately become due and payable without any election or action on the part of the Administrative Agent or any Lender. If any other Event of Default occurs and is continuing, the Administrative Agent may, and upon written direction of the Required Lenders shall, terminate or suspend the obligations of the Lenders to make Loans, the Swing Line Bank to make Swing Line Loans and the Issuer to issue Facility Letters of Credit hereunder, or declare the Obligations (including all Facility Letter of Credit Obligations) to be due and payable, or both, whereupon the Obligations (including all Facility Letter of Credit Obligations) shall become immediately due and payable, without presentment, demand, protest or notice of any kind, all of which the Borrower hereby expressly waives. (b) Rescission of Acceleration. If, within 30 days after acceleration of the maturity of the Obligations or termination of the obligations of the Lenders to make Loans hereunder as a result of any Event of Default (other than any Event of Default as described in Section 9.01 (f) or (g) with respect to the Borrower and before any judgment or decree for the payment of the Obligations due shall have been obtained or entered, the Required Lenders (in their sole discretion) shall so direct, the Administrative Agent shall, by notice to the Borrower, rescind and annul such acceleration and/or termination.   69 -------------------------------------------------------------------------------- SECTION 9.03. Application of Payments. Subject to the provisions of Section 11.02 and any provisions of this Agreement specifically providing for payments to be applied to the Revolving Loans, Swing Line Loans or Competitive Loans (as applicable), the Administrative Agent shall, unless otherwise specified at the direction of the Required Lenders which direction shall be consistent with the last sentence of this Section 9.03, apply all payments and prepayments in respect of any Obligations (except as hereinafter provided) in the following order:   (i) first, to pay interest on and then principal of any portion of the Loans which the Administrative Agent may have advanced on behalf of any Lender for which the Administrative Agent has not then been reimbursed by such Lender or the Borrower;   (ii) second, to pay Obligations in respect of any fees, expenses, reimbursements or indemnities then due to the Administrative Agent;   (iii) third, to the ratable payment of Obligations in respect of any fees, expenses, reimbursements or indemnities then due to the Lenders and the Issuer(s);   (iv) fourth, to pay interest due in respect of Swing Line Loans;   (v) fifth, to the ratable payment of interest due in respect of Revolving Loans and Competitive Loans and Facility Letter of Credit Obligations;   (vi) sixth, to the ratable payment or prepayment of principal outstanding on Swing Line Loans;   (vii) seventh, to the ratable payment or prepayment of principal outstanding on Revolving Loans and Competitive Loans and Reimbursement Obligations and to the Letter of Credit Collateral Account in an amount equal to the outstanding Facility Letter of Credit Obligations to the extent required under Section 2.18(h); and   (viii) eighth, to the ratable payment of all other Obligations. Unless otherwise designated (which designation shall only be applicable prior to the occurrence of an Event of Default) by the Borrower, all principal payments in respect of Revolving Loans shall be applied first, to repay outstanding ABR Loans and then to repay outstanding Eurodollar Loan, with those that have earlier expiring Interest Period being repaid prior to those that have later expiring Interest Periods. The order of priority set forth in this Section 9.03 and the related provisions of this Agreement are set forth solely to determine the rights and priorities of the Administrative Agent, the Lenders, the Swing Line Bank and the Issuer(s) as among themselves. The order of priority set forth in clauses (i) through (ix) of this Section 9.03 may at any time and from time to time be changed by the Required Lenders without necessity of notice to or consent of or approval by the Borrower or any other Person; provided, that (A) the order of priority set forth in clauses (i) and (ii) may be changed only with the prior written consent of the Administrative Agent, (B) the order of priority of payments in respect of Swing Line Loans may be changed only with the prior written consent of the Swing Line Bank, (C) the order of priority in respect of payments to an Issuer may be changed only with the prior written consent of the Issuer, and (D) the order of priority of payments in respect of any Competitive Bid Loans may be changed only with the prior written consent of each Lender then holding a Competitive Bid Loan. 70 -------------------------------------------------------------------------------- ARTICLE X   THE ADMINISTRATIVE AGENT SECTION 10.01. Appointment. JPMorgan Chase Bank is hereby appointed Administrative Agent hereunder and under each other Loan Document and, subject to the provisions of Section 10.14 below, each of the Lenders irrevocably authorizes the Administrative Agent to act as the Administrative Agent of such Lender. The Administrative Agent agrees to act as such upon the express conditions contained in this Article X. The Administrative Agent shall not have a fiduciary relationship in respect of any Lender by reason of this Agreement. No Lender identified herein as a Syndication Agent, Documentation Agent, Managing Agent or Co-Agent shall have any right, power, obligation, liability, responsibility or duty under this Agreement in such capacity.   SECTION 10.02. Powers. The Administrative Agent shall have and may exercise such powers under the Loan Documents as are specifically delegated to the Administrative Agent by the terms of each thereof, together with such powers as are reasonably incidental thereto. The Administrative Agent shall have no implied duties to the Lenders, or any obligation to the Lenders to take any action thereunder except any action specifically provided by the Loan Documents to be taken by the Administrative Agent.   SECTION 10.03. General Immunity. Neither the Administrative Agent nor any of its directors, officers, agents or employees shall be liable to the Borrower, the Lenders or any Lender for any action taken or omitted to be taken by it or them hereunder or under any other Loan Document or in connection herewith or therewith except for its or their own gross negligence or willful misconduct.   SECTION 10.04. No Responsibility for Loans, Recitals, Etc. Neither the Administrative Agent nor any of its directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into, or verify (a) any statement, warranty or representation made in connection with any Loan Document or any borrowing hereunder; (b) the performance or observance of any of the covenants or agreements of any obligor under any Loan Document; (c) the satisfaction of any condition specified in Article V, except receipt of items required to be delivered to the Administrative Agent; or (d) the validity, effectiveness or genuineness (except its own due execution thereof) of any Loan Document or any other instrument or writing furnished in connection therewith. Further, the Administrative Agent assumes no obligation to any other Lender as to the collectibility of any Loans made by any Lender to the Borrower. Each Lender expressly acknowledges that the Administrative Agent has not made any representations or warranties to it on or prior to the date hereof and that no act by the Administrative Agent hereafter taken shall be deemed to constitute any representation or warranty by the Administrative Agent to any other Lender. Each Lender acknowledges that it has taken and will take such action and make such investigation as it deems necessary to inform itself as to the affairs and creditworthiness of the Borrower.   71 -------------------------------------------------------------------------------- SECTION 10.05. Employment of Agents and Counsel. The Administrative Agent may execute any of its duties as Administrative Agent hereunder and under any other Loan Document by or through employees, agents, and attorneys-in-fact and shall not be answerable to the Lenders, except as to money or securities received by it or its authorized agents, for the default or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. The Administrative Agent shall be entitled to advice of counsel concerning all matters pertaining to the agency hereby created and its duties hereunder and under any other Loan Document.   SECTION 10.06. Reliance on Documents; Counsel. The Administrative Agent shall not be under a duty to examine into or pass upon the validity, effectiveness, genuineness or value of this Agreement, the Notes, the Guaranties and other Loan Documents or any other document furnished pursuant hereto or thereto or in connection herewith, and the Administrative Agent shall be entitled to assume that the same are valid, effective and genuine and what they purport to be. The Administrative Agent shall be entitled to rely upon any Note, notice, consent, certificate, affidavit, letter, telegram, statement, paper or document reasonably believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, and, in respect to legal matters, upon the opinion of counsel selected by the Administrative Agent, which counsel may be employees of the Administrative Agent. The Administrative Agent shall not be liable for any action taken or suffered in good faith by it based on or in accordance with any of the foregoing.   SECTION 10.07. No Waiver of Rights. With respect to its Commitments, the Loans (including Swing Line Loans and Competitive Loans) made by it and the Notes issued to it, the Administrative Agent shall have the same rights and powers hereunder and under any other Loan Document as any Lender or Issuer and may exercise the same as though it was not the Administrative Agent, and the term “Lender” or “Lenders” shall, unless the context otherwise indicates, include the Administrative Agent in its individual capacity. The Administrative Agent may accept deposits from, lend money to and issue letters of credit for the account of, and generally engage in any kind of business with the Borrower or its Affiliates (including, without limitation, trust, debt, equity and other transactions) in addition to the transactions contemplated by this Agreement or any other Loan Document; it being expressly understood and agreed that neither the Administrative Agent nor any other Lender shall be deemed by the execution hereof to have waived any rights under any loan or other agreement with the Borrower or any of its Affiliates relating to any other business or loans to the Borrower or any of its Affiliates which are not a part of the Commitments under this Agreement.   SECTION 10.08. Knowledge of Event of Default. It is expressly understood and agreed that the Administrative Agent shall be entitled to assume that no Event of Default or Unmatured Default has occurred and is continuing, unless the officers of the Administrative Agent active on the Borrower’s account have actual knowledge of such occurrence or have been notified by a Lender that such Lender considers that an Event of Default or Unmatured Default has occurred and is continuing and specifying the nature thereof.   72 -------------------------------------------------------------------------------- SECTION 10.09. Administrative Agent’s Reimbursement and Indemnification. The Lenders agree to reimburse and indemnify the Administrative Agent ratably in accordance with their respective Pro Rata Shares (determined at the time indemnification is sought hereunder) (a) for any amounts not reimbursed by the Borrower for which the Administrative Agent is entitled to reimbursement by the Borrower under the Loan Documents, (b) for any other expenses incurred by the Administrative Agent on behalf of the Lenders, in connection with the preparation, execution, delivery, administration and enforcement of the Loan Documents and (c) for any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of the Loan Documents or any other document delivered in connection therewith or the transactions contemplated thereby, or the enforcement of any of the terms thereof or of any such other documents, provided that no Lender shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the Administrative Agent.   SECTION 10.10. Notices to the Borrower. In each instance that a notice is required, pursuant to the terms hereof, to be given by one or more of the Lenders to the Borrower or any Subsidiary, the Lenders desiring that such notice be given shall so advise the Administrative Agent (which advice, if given by telephone, shall be promptly confirmed by telex or letter to the Administrative Agent at its address listed in the signature pages hereto), which shall transmit such notice to the Borrower or such Subsidiary promptly after its having been so advised by the appropriate number of Lenders; provided, however, that subject to the provisions of Section 10.15 hereof, if the Administrative Agent shall fail to transmit such notice within a reasonable period of time after its having been so advised by the appropriate number of Lenders, the Lenders desiring that such notice be given may transmit such notice directly to the Borrower or such Subsidiary. In any event notices to the Borrower or any Subsidiary shall be sent to the address of the Borrower provided for in this Agreement.   SECTION 10.11. Action on Instructions of Lenders. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder and under any other Loan Document in accordance with written instructions signed by the Required Lenders, or all of the Lenders, as the case may be, and such instructions and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders and on all holders of Notes. Except where an action or inaction is expressly required under this Agreement, the Administrative Agent shall be fully justified in failing or refusing to take any action hereunder and under any other Loan Documents unless it shall first be indemnified to its satisfaction by the Lenders in accordance with their respective Pro Rata Shares, against any and all liability, cost and expense that it may incur by reason of taking or continuing to take any such action.   SECTION 10.12. Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on the financial statements prepared by the Borrower and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and the other Loan Documents. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents.   73 -------------------------------------------------------------------------------- SECTION 10.13. Mortgage Banking Subsidiaries Note.  (a) Each Lender authorizes the Administrative Agent to enter into each of the Loan Documents to which it is a party and to take all action contemplated by such Loan Documents. Each Lender agrees that no Lender, other than the Administrative Agent acting on behalf of all Lenders, shall have the right individually to seek to realize upon the security granted by any Loan Document, it being understood and agreed that such rights and remedies may be exercised solely by the Administrative Agent for the benefit of the Lenders, upon the terms of the Loan Documents. (b) In the event that the Mortgage Banking Subsidiaries Note is pledged by any Person as security for the Obligations, the Administrative Agent is hereby authorized to execute and deliver on behalf of the Lenders any Loan Documents necessary or appropriate to grant and perfect a Lien on such Mortgage Banking Subsidiaries Note in favor of the Administrative Agent on behalf of the Lenders. (c) The Lenders hereby authorize the Administrative Agent, at its option and in its discretion, to release any Lien granted to or held by the Administrative Agent upon the Mortgage Banking Subsidiaries Note (i) upon termination of the Commitments and payment and satisfaction of all of the Obligations or the transactions contemplated hereby; (ii) as permitted by, but only in accordance with, the terms of the applicable Loan Document; or (iii) if approved, authorized or ratified in writing by the Required Lenders, unless such release is required to be approved by all of the Lenders hereunder. Upon request by the Administrative Agent at any time, the Lenders will confirm in writing the Administrative Agent’s authority to release any such Lien pursuant to this Section 10.13(c).   SECTION 10.14. Resignation or Removal of the Administrative Agent. If, at any time, Lenders holding Notes having aggregate outstanding principal balances equal to at least 75% of the then outstanding amount of the Aggregate Commitment (excluding from such computation the Administrative Agent and its Notes) shall deem it advisable, those Lenders may submit to the Administrative Agent notification by certified mail, return receipt requested of its removal as Administrative Agent under this Agreement, which removal shall be effective as of the date of receipt of such notice by the Administrative Agent. If, at any time, the Administrative Agent shall deem it advisable, in its sole discretion, it may submit to each of the Lenders written notification, by certified mail, return receipt requested, of its resignation as Administrative Agent under this Agreement, which resignation shall be effective as of 60 days after the date of such notice. In the event of any such removal or resignation, the Required Lenders may appoint a successor to the Administrative Agent. In the event the Administrative Agent shall have resigned and/or have been removed and so long as no successor shall have been appointed, the Borrower shall make all payments due each Lender hereunder directly to that Lender and all powers specifically delegated to the Administrative Agent by the terms hereof may be exercised by the Required Lenders. Upon the removal or resignation of the Administrative Agent, the retiring Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents. After the removal or resignation of the Administrative Agent, the provisions of this Article X shall continue in effect for its benefit in respect of any actions taken or omitted to be taken while it was acting as the Administrative Agent hereunder and under the other Loan Documents.   74 -------------------------------------------------------------------------------- SECTION 10.15. Benefits of Article X. None of the provisions of this Article X shall inure to the benefit of the Borrower or of any Person other than Administrative Agent and each of the Lenders and their respective successors and permitted assigns. Accordingly, neither the Borrower nor any Person other than Administrative Agent and the Lenders (and their respective successors and permitted assigns) shall be entitled to rely upon, or to raise as a defense, the failure of the Administrative Agent or any Lenders to comply with the provisions of this Article X. ARTICLE XI   SETOFF; RATABLE PAYMENTS SECTION 11.01. Set-off. In addition to, and without limitation of, any rights of the Lenders under applicable law, if any Loan Party becomes insolvent, however evidenced, or any Event of Default occurs, any indebtedness from any Lender to any Loan Party (including all account balances, whether provisional or final and whether or not collected or available) may be offset and applied toward the payment of the Obligations owing to such Lender, whether or not the Obligations, or any part hereof, shall then be due. Each Lender agrees promptly to notify the Borrower after any such set-off and application made by such Lender; provided, however, that the failure to give such notice shall not affect the validity of any such set-off and application. The rights of each Lender under this Section 11.01 are in addition to any other rights and remedies which that Lender may have under this Agreement or otherwise.   SECTION 11.02. Ratable Payments. If any Lender, whether by setoff or otherwise, has payment made to it upon any of its Revolving Loans (other than payments received pursuant to Sections 3.01, 3.02 or 3.04) in a greater proportion than that received by any other Lender with respect to the Revolving Loans, such Lender agrees, promptly upon demand, to purchase a portion of such Loans held by the other Lenders so that after such purchase each Lender will hold its Pro Rata Share of all Revolving Loans. If any Lender, whether in connection with setoff or amounts which might be subject to setoff or otherwise, receives collateral or other protection for its Obligations or such amounts which may be subject to setoff, such Lender agrees, promptly upon demand, to take such action necessary such that all Lenders share in the benefits of such collateral ratably in accordance with their respective Pro Rata Shares. In case any such payment is disturbed by legal process, or otherwise, appropriate further adjustments shall be made. ARTICLE XII   BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS   75 -------------------------------------------------------------------------------- SECTION 12.01. Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby (including any Affiliate of the Issuers that issues any Facility Letter of Credit), except that (i) the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void) and (ii) no Lender may assign or otherwise transfer its rights or obligations hereunder except in accordance with this Article XII. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby (including any Affiliate of the Issuer that issues any Facility Letter of Credit), Participants (to the extent provided in Section 12.03) and, to the extent contemplated by Section 13.04, the officers, directors and employees of each of the Administrative Agent, the Issuer and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.    SECTION 12.02. Assignments.  (a) Subject to the conditions set forth in Section 12.02(b)(ii), any Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it) with the prior written consent (such consent not to be unreasonably withheld) of: (i) the Borrower, provided that no consent of the Borrower shall be required for an assignment to a Lender, an Affiliate of a Lender, an Approved Fund or, if an Event of Default has occurred and is continuing, any other assignee; and (ii) the Administrative Agent, provided that no consent of the Administrative Agent shall be required for an assignment of all or any portion of a Loan to a Lender, an Affiliate of a Lender or an Approved Fund. (b) Assignments shall be subject to the following additional conditions: (i) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement, provided that this clause shall not be construed to prohibit the assignment of a proportionate part of all the assigning Lender’s rights and obligations in respect of (A) Commitments or Revolving Loans or (B) any Competitive Loans; (ii) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption (“Assignment and Assumption”) in substantially the form of Exhibit I hereto, together with a processing and recordation fee of $3,500; and (iii) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire. 76 -------------------------------------------------------------------------------- (c) Upon its receipt of a duly completed Assignment and Assumption executed by an assigning Lender and an assignee, the assignee's completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in Section 12.02(b)(ii) and any written consent to such assignment required by Section 12.02(a), the Administrative Agent shall accept such Assignment and Assumption and record the information contained therein in the Register; provided that if either the assigning Lender or the assignee shall have failed to make any payment required to be made by it pursuant to Section 2.10(e), 2.18(e)(ii), 2.19, 10.09 or 11.02, the Administrative Agent shall have no obligation to accept such Assignment and Assumption and record the information therein in the Register unless and until such payment shall have been made in full, together with all accrued interest thereon. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph.   SECTION 12.03. Participations.  (a) Any Lender may, without the consent of the Borrower, the Administrative Agent, the Issuer or the Swing Line Bank, sell participations to one or more banks or other entities (a "Participant") in all or a portion of such Lender's rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Administrative Agent, the Issuer and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 13.06 that affects such Participant. Subject to Section 12.03(b), the Borrower agrees that each Participant shall be entitled to the benefits of Sections 3.01, 3.02 and 3.04 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to Section 12.02. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 11.01 as though it were a Lender, provided such Participant agrees to be subject to Section 11.02 as though it were a Lender. (b) A Participant shall not be entitled to receive any greater payment under Section 3.01, 3.02 and 3.04 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower's prior written consent.   SECTION 12.04. Pledge to Federal Reserve Bank. Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto. ARTICLE XIII   MISCELLANEOUS   77 -------------------------------------------------------------------------------- SECTION 13.01. Notice. (a) Except as otherwise permitted by Section 2.13(b) with respect to borrowing notices, all notices and other communications provided to any party hereto under this Agreement or any other Loan Document shall be in writing or by telex or by facsimile and addressed or delivered to such party at its address set forth below its signature hereto in the case of the Borrower and the Administrative Agent or in the case of any Lender at the address set forth in its Administrative Questionnaire (in the case of any party) or at such other address as may be designated by such party in a notice to the Administrative Agent and the Borrower (in the case of notice by a Lender) or to all other parties (in the case of notice given by the Borrower or the Administrative Agent). Any notice, if mailed and properly addressed with postage prepaid, shall be deemed given when received (or when delivery is refused); any notice, if transmitted by telex or facsimile, shall be deemed given when transmitted (answerback confirmed in the case of telexes and facsimile confirmation in the case of a facsimile). (b) The Borrower, the Administrative Agent and any Lender may each change the address for service of notice upon it by a notice in writing to the other parties hereto.   SECTION 13.02. Survival of Representations. All covenants, agreements, representations and warranties made herein and in the certificates delivered pursuant hereto shall survive the making by the Lenders of any Loans herein contemplated and the execution and delivery to the Lenders of the Notes evidencing the Commitments, and shall continue in full force and effect until all of the Obligations have been paid in full, all Facility Letters of Credit have been terminated and all of the Commitments have been terminated.   SECTION 13.03. Expenses. The Borrower shall pay (a) all expenses, including attorneys’ fees and disbursements (which attorneys may be employees of the Administrative Agent or any Lender), incurred by the Administrative Agent and any Lender in connection with the administration of this Agreement and the other Loan Documents, any amendments, modifications or waivers with respect to any of the provisions thereof and the enforcement and protection of the rights of the Lenders and the Administrative Agent under this Agreement or any of the other Loan Documents, including all recording and filing fees, documentary stamp, intangibles and similar taxes, title insurance premiums, appraisal fees and other costs and disbursements incurred in connection with the taking of collateral and the perfection and preservation of the Lenders’ security therein, and (b) the reasonable fees and the disbursements of Administrative Agent’s attorneys (which attorneys may be employees of the Administrative Agent) in connection with the preparation, negotiation, execution, delivery and review of this Agreement, the Notes and the other Loan Documents (whether or not the transactions contemplated by this Agreement shall be consummated) and the closing of the transactions contemplated hereby.   SECTION 13.04. Indemnification of the Lenders and the Administrative Agent. The Borrower shall indemnify and hold harmless the Administrative Agent and each Lender, and their respective directors, officers and employees against all losses, claims, damages, penalties, judgments, liabilities and expenses (including, without limitation, all expenses of litigation or preparation therefor whether or not the Administrative Agent or any Lender is a party thereto) which any of them may pay or incur arising out of or relating to, directly or indirectly, this Agreement, the other Loan Documents, the transactions contemplated hereby or the direct or indirect application or proposed application of the proceeds of any Loan hereunder; provided, however, that in no event shall the Administrative Agent or a Lender have the right to be indemnified hereunder for its own gross negligence or willful misconduct nor shall the Administrative Agent be indemnified against any liabilities which arise as a result of any claims made or actions, suits or proceedings commenced or maintained against any Lender (including the Administrative Agent, in its capacity as such) (i) by that Lender’s shareholders or any governmental regulatory body or authority asserting that such Lender or any of its directors, officers, employees or agents violated any banking or securities law or regulation or any duty to its own shareholders, customers (excluding the Borrower) or creditors in any manner whatsoever in entering into or performing any of its obligations contemplated by this Agreement or (ii) by any other Lender. The obligations of the Borrower under this Section shall survive the termination of this Agreement.   78 -------------------------------------------------------------------------------- SECTION 13.05. Maximum Interest Rate. It is the intention of the Lenders and the Borrower that the interest (as defined under applicable law) on the Indebtedness evidenced by the Notes which may be charged to, or collected or received from the Borrower shall not exceed the maximum rate permissible under applicable law. Accordingly, anything herein or in any of the Notes to the contrary notwithstanding, should any interest (as so defined) be charged to, or collected or received from the Borrower by the Lenders pursuant hereto or thereto in excess of the maximum legal rate, then the excess payment shall be applied to the Obligations with respect to which such excess payment applies, and any portion of the excess payment remaining after payment in full thereof shall be returned by the Lenders to the Borrower.   SECTION 13.06. Modification of Agreement. (a) Neither this Agreement nor any Note or Guaranty nor any terms hereof or thereof may be changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing signed by the Borrower (or other applicable Loan Party to such Loan Document) and the Required Lenders, provided that no such change, waiver, discharge or termination shall, without the consent of each Lender (with Obligations being directly affected in the case of the following clause (i)): (i) extend the final scheduled maturity of any Loan or Note or any portion thereof or extend the stated maturity of any Facility Letter of Credit beyond the Termination Date, or reduce the rate or extend the time of payment of interest or fees thereon, or reduce the principal amount thereof (except to the extent repaid in cash), (ii) amend, modify or waive any provision of Article XI or this Section 13.06, (iii) reduce the percentage specified in the definition of the Required Lenders or change the definition of Pro Rata Share, (iv) consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement, or (v) other than pursuant to a transaction permitted by the terms of this Agreement, release any Guarantor from its obligations under its Guaranty; provided, further, that no such change, waiver, discharge or termination shall (A) increase any Commitment of any Lender over the amount thereof then in effect (it being understood that waivers or modifications of conditions precedent, covenants, any Unmatured Default or Event of Default or of a mandatory reduction to the Aggregate Commitment or of a mandatory prepayment shall not constitute an increase of the Commitment of any Lender, and that an increase in the available portion of any Commitment of any Lender shall not constitute an increase in the Commitment of such Lender), without the consent of such Lender, provided, however, that in any case the Required Lenders may waive, in whole or in part, any such prepayment, repayment or Commitment reduction, so long as the application of any such prepayment, repayment or Commitment reduction which is still required to be made is not altered; (B) without the consent of each Issuer affected thereby, amend, modify or waive any provision of Section 2.18 or alter its rights or obligations with respect to Facility Letters of Credit; (C) without the consent of the Swing Line Bank, amend, modify or waive any provision relating to the rights or obligations of the Swing Line Bank or with respect to the Swing Line Loans (including, without limitation, the obligations of the Lenders to make Advances in repayment of Swing Line Loans); or (D) without the consent of the Administrative Agent, amend, modify or waive any provision of Article X or any other provision relating to the rights or obligations of the Administrative Agent; 79 -------------------------------------------------------------------------------- (b) If, in connection with any proposed change, waiver, discharge or termination of or to any of the provisions of this Agreement or other Loan Documents as contemplated in clauses (i) through (v), inclusive, of the first proviso to Section 13.06(a), the consent of the Required Lenders is obtained but the consent of one or more of such other Lenders whose consent is required is not obtained, then the Borrower shall have the right, so long as all non-consenting Lenders whose individual consent is required are treated as described in either clauses (i) or (ii) below, either (i) to replace each such non-consenting Lender with one or more Replacement Lenders pursuant to Section 2.24 so long as at the time of such replacement, each such Replacement Lender consents to the proposed change, waiver, discharge or termination or (ii) to terminate each such non-consenting Lender’s Commitments and repay in full its outstanding Loans, provided that, unless the Commitments that are terminated, and Loans that are repaid, pursuant to the preceding clause (ii) are immediately replaced in full at such time through the addition of new Lenders or the increase of the Commitments and/or outstanding Loans of existing Lenders (who in each case must specifically consent thereto in writing), then in the case of any action pursuant to preceding clause (ii) the Required Lenders (determined before giving effect to the proposed action) shall specifically consent thereto and, provided further, that in any event the Borrower shall not have the right to replace a Lender, terminate its Commitments or repay its Loans solely as a result of the exercise of such Lender’s rights (and the withholding of any required consent by such Lender) pursuant to the second proviso to Section 13.06(a). (c) Anything in this Agreement to the contrary notwithstanding, if at a time when the conditions precedent set forth in Article V hereof to any Loan are, in the opinion of the Required Lenders, satisfied, any Lender (a “Defaulting Lender”) shall fail to fulfill its obligations to make such Loan and such failure continues for at least two Business Days then, for so long as such failure shall continue, such Defaulting Lender shall (unless the Required Lenders, determined as if such Defaulting Lender were not a “Lender” hereunder, shall otherwise consent in writing) be deemed for all purposes relating to changes, waivers, discharges and termination under this Agreement (including, without limitation, under Section 13.06(a)) to have no Loans or Commitments, shall not be treated as a “Lender” hereunder when performing the computation of Required Lenders, and shall have no rights under the first proviso of Section 13.06(a); provided that any action taken by the other Lenders with respect to the matters referred to in clauses (i) through (iv), inclusive, of the first proviso of Section 13.06(a) shall not be effective as against such Defaulting Lender.   SECTION 13.07. Register. The Administrative Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans and Reimbursement Obligations owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive, absent manifest error, and the Borrower, the Administrative Agent, the Issuer and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower, the Issuer and any Lender, at any reasonable time and from time to time upon reasonable prior notice.   80 -------------------------------------------------------------------------------- SECTION 13.08. Preservation of Rights. No notice to or demand of the Borrower in any case shall entitle the Borrower to any other or further notice or demand in the same or similar circumstances. No delay or omission of the Lenders or the Administrative Agent to exercise any right under the Loan Documents shall impair such right or be construed to be a waiver of any Event of Default or an acquiescence therein, and the making of a Loan notwithstanding the existence of an Event of Default or Unmatured Default, or the inability of the Borrower to satisfy the conditions precedent to such Loan shall not constitute any waiver or acquiescence. Any single or partial exercise of any such right shall not preclude other or further exercise thereof or the exercise of any other right, and no waiver, amendment or other variation of the terms, conditions or provisions of the Loan Documents whatsoever shall be valid unless in writing signed by the Lenders required pursuant to Section 13.06, and then only to the extent in such writing specifically set forth. All remedies contained in the Loan Documents or by law afforded shall be cumulative and all shall be available to the Administrative Agent and the Lenders until the Obligations have been paid in full and all Facility Letters of Credit have terminated and all Commitments have terminated.    SECTION 13.09. Several Obligations of Lenders. The respective obligations of the Lenders hereunder are several and not joint, and no Lender shall be the partner or agent of any other (except to the extent to which the Administrative Agent is authorized to act as such). The failure of any Lender to perform any of its obligations hereunder shall not relieve any other Lender from any of its obligations hereunder. This Agreement shall not be construed so as to confer any right or benefit upon any Person other than the parties to this Agreement and their respective successors and assigns.   SECTION 13.10. Severability. If any one or more of the provisions contained in this Agreement or the Notes is held invalid, illegal or unenforceable in any respect, the validity, legality or enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby.   SECTION 13.11. Counterparts. This Agreement may be executed in two or more counterparts, each of which may be executed by one or more of the parties hereto, but all of which, when taken together, shall constitute a single agreement binding on all the parties hereto.   SECTION 13.12. Loss, etc., Notes. Upon receipt by the Borrower of reasonably satisfactory evidence of the loss, theft, destruction or mutilation of any of the Notes, upon reimbursement to the Borrower of all reasonable expenses incidental thereto and upon surrender and cancellation of the relevant Note, if mutilated, the Borrower shall make and deliver in lieu of that Note (the “Prior Note”) a new Note of like tenor, except that no reference need be made in the new Note to any installment or installments of principal, if any, previously due and paid upon the Prior Note. Any Note made and delivered in accordance with the provisions of this Section shall be dated as of the date to which interest has been paid on the unpaid principal amount of the Prior Note.   81 -------------------------------------------------------------------------------- SECTION 13.13. Governmental Regulation. Anything contained in this Agreement to the contrary notwithstanding, no Lender shall be obligated to extend credit to the Borrower in violation of any limitation or prohibition provided by any applicable statute or regulation.   SECTION 13.14. Taxes. Any taxes (excluding federal, state or local income taxes on the overall net income of any Lender) or other similar assessments or charges payable or ruled payable by any governmental authority in respect of the Loan Documents shall be paid by the Borrower, together with interest and penalties, if any.   SECTION 13.15. Headings. Section headings in the Loan Documents are for convenience of reference only, and shall not govern the interpretation of any of the provisions of the Loan Documents.   SECTION 13.16. USA PATRIOT ACT. Each Lender that is subject to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”) hereby notifies the Borrower that pursuant to the requirements of the Act, it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Lender to identify the Borrower in accordance with the Act.   SECTION 13.17. Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto with respect to the subject matter hereof, provided, however, that the fees payable by Borrower are set forth in the Fee Letter.   SECTION 13.18. CHOICE OF LAW. THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF NEW YORK BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.   SECTION 13.19. CONSENT TO JURISDICTION. THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR NEW YORK STATE COURT SITTING IN NEW YORK CITY IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENTS AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE ADMINISTRATIVE AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE BORROWER AGAINST THE ADMINISTRATIVE AGENT OR ANY LENDER OR ANY AFFILIATE OF THE ADMINISTRATIVE AGENT OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN NEW YORK, NEW YORK. 82 -------------------------------------------------------------------------------- SECTION 13.20. WAIVER OF JURY TRIAL. THE BORROWER, THE ADMINISTRATIVE AGENT AND EACH LENDER HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER. [Signatures appear on following pages] 83 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the Borrower and the Lenders have caused this Agreement to be duly executed as of the date first above written.           Borrower:       LENNAR CORPORATION               By:   /s/ Jonathan M. Jaffe   -------------------------------------------------------------------------------- Jonathan M. Jaffe   Chief Operating Officer       Address: Lennar Corporation 700 Northwest 107th Avenue Miami, Florida 33172 Attention: Bruce Gross, Chief Financial Officer Fax No.: (305) 227-7115 with copies to: Lennar Corporation 700 Northwest 107th Avenue Miami, Florida 33172 Attention: Mark Sustana, General Counsel Fax No.: (305) 229-6650 and Bilzin Sumberg Baena Price & Axelrod LLP 200 South Biscayne Boulevard Suite 2500 Miami, FL 33131-2336 Attention: Brian Bilzin Fax No.: (305) 374-7593     84 --------------------------------------------------------------------------------   Lenders:       JPMORGAN CHASE BANK, N.A.,   As Lender, Administrative Agent, Issuer   and Swing Line Bank     By: /s/ Kimberly L. Turner   Name: Kimberly L. Turner   Its: Vice President       Address: JPMorgan Chase Bank, N.A. 277 Park Avenue - 3rd Floor New York, NY 10172 Attention: Kimberly L. Turner Fax No.: (646) 534-0574   85 --------------------------------------------------------------------------------   EXHIBIT E FORM OF GUARANTY THIS GUARANTY (this “Guaranty”) is made as of July 21, 2006 by the undersigned parties hereto (collectively, the “Guarantors”) in favor of the Administrative Agent, for the benefit of the Lenders under the Credit Agreement referred to below. WITNESSETH: WHEREAS, Lennar Corporation, a Delaware corporation (the “Company”) and JPMorgan Chase Bank, N.A., as Administrative Agent (the “Administrative Agent”), and certain other Lenders from time to time party thereto have entered into a certain Credit Agreement dated as of July 21, 2006 (as same may be amended or modified from time to time, the “Credit Agreement”), providing, subject to the terms and conditions thereof, for extensions of credit to be made by the Lenders to the Company; WHEREAS, it is a condition precedent to the execution of the Credit Agreement by the Administrative Agent and the Lenders that each of the Guarantors execute and deliver this Guaranty whereby each of the Guarantors shall guarantee the payment when due, subject to Section 9 hereof, of all Guaranteed Obligations, as defined below; and WHEREAS, in consideration of the financial and other support that the Company has provided (the Company being referred to collectively as the “Principal”), and in consideration of such financial and other support as the Principal may in the future provide, to the Guarantors, and in order to induce the Lenders and the Administrative Agent to enter into the Credit Agreement, and because each Guarantor has determined that executing this Guaranty is in its interest and to its financial benefit, each of the Guarantors is willing to guarantee the obligations of the Principal under the Credit Agreement, any Note and any other Loan Documents; NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. Defined Terms. “Guaranteed Obligations” is defined in Section 3 below. Other capitalized terms used herein but not defined herein shall have the meaning set forth in the Credit Agreement. SECTION 2.1. Representations and Warranties. Each of the Guarantors represents and warrants (which representations and warranties shall be deemed to have been renewed upon each Borrowing Date and each Issuance Date under the Credit Agreement) that: (a) It is a corporation, limited partnership or limited liability company (as applicable) duly and properly incorporated or formed, validly existing and in good standing under the laws of its jurisdiction of incorporation or formation, has the power and authority to own or hold under lease the properties it purports to own or hold under lease and to carry on its business as now conducted, and is duly qualified or licensed to transact business in every jurisdiction in which such qualification or licensing is necessary to enable it to enforce all of its material contracts and other material rights and to avoid any material penalty or forfeiture. 1 -------------------------------------------------------------------------------- (b) It has the power and authority to execute and deliver this Guaranty and to perform its obligations hereunder. The execution and delivery by it of this Guaranty and the performance of its obligations hereunder have been duly authorized by all requisite corporate, limited partnership or limited liability company action (as applicable). (c) Neither its execution and delivery of this Guaranty nor performance of its obligations hereunder nor its compliance with the provisions hereof (i) will violate or be in conflict with (A) any provisions of law, (B) any order, rule, regulation, write, judgment, injunction, decree or award of any court or other agency of government, or (C) any provision of its certificate of incorporation or by-laws, or certificate of limited partnership or limited partnership agreement, or certificate or articles of formation or operating agreement (as applicable), (ii) will violate, be in conflict with, result in a breach of or constitute (with or without the giving of notice or the passage of time or both) a default under any material indenture, agreement or other instrument to which it is a party or by which it or any of its properties or assets is or may be bound, and (iii) except as otherwise contemplated by the Credit Agreement, will result in the creation or imposition of any lien, charge or encumbrance upon, or any security interest in, any of its properties or assets. (d) It has duly executed and delivered this Guaranty, and this Guaranty constitutes its legal, valid and binding obligation enforceable against it in accordance with the terms hereof, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors’ rights generally. (e) No order, license, consent, approval, authorization of, or registration, declaration, recording or filing with, or validation of, or exemption by, any governmental or public authority (whether federal, state or local, domestic or foreign) or any subdivision thereof is required in connection with, or as a condition precedent to, the due and valid execution, delivery and performance by it of this Guaranty, or the legality, validity, binding effect or enforceability of any of the terms, provisions or conditions hereof. SECTION 2.2. Covenants. Each of the Guarantors covenants that, so long as any Lender has any Commitment outstanding under the Credit Agreement or any of the Guaranteed Obligations shall remain unpaid, that it will, and, if necessary, will enable the Principal to, fully comply with those covenants and agreements set forth in the Credit Agreement. SECTION 3. The Guaranty. Subject to Section 9 hereof, each of the Guarantors hereby absolutely and unconditionally guarantees, as primary obligor and not as surety, the full and punctual payment (whether at stated maturity, upon acceleration or early termination or otherwise, and at all times thereafter) and performance of the Obligations, including without limitation any such Obligations incurred or accrued during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, whether or not allowed or allowable in such proceeding (collectively, subject to the provisions of Section 9 hereof, being referred to collectively as the “Guaranteed Obligations”). Upon failure by the Principal to pay punctually any such amount, each of the Guarantors agrees that it shall forthwith on demand pay to the Administrative Agent for the benefit of the Lenders, the amount not so paid at the place and in the manner specified in the Credit Agreement, any Note or any other Loan Document, as the case may be. This Guaranty is a guaranty of payment and not of collection. Each of the Guarantors waives any right to require the Lender to sue the Principal, any other guarantor, or any other Person obligated for all or any part of the Guaranteed Obligations, or otherwise to enforce its payment against any collateral securing all or any part of the Guaranteed Obligations. 2 -------------------------------------------------------------------------------- SECTION 4. Guaranty Unconditional. Subject to Section 9 hereof, the obligations of each of the Guarantors hereunder shall be unconditional and absolute and, without limiting the generality of the foregoing, shall not be released, discharged or otherwise affected by: (i)  any extension, renewal, settlement, compromise, waiver or release in respect of any of the Guaranteed Obligations, by operation of law or otherwise, or any obligation of any other guarantor of any of the Guaranteed Obligations, or any default, failure or delay, willful or otherwise, in the payment or performance of the Guaranteed Obligations;   (ii) any modification or amendment of or supplement to the Credit Agreement, any Note or any other Loan Document;   (iii) any release, nonperfection or invalidity of any direct or indirect security for any obligation of the Principal under the Credit Agreement, any Note or any other Loan Document or any obligations of any other guarantor of any of the Guaranteed Obligations, or any action or failure to act by the Administrative Agent, any Lender or any Affiliate of any Lender with respect to any collateral securing all or any part of the Guaranteed Obligations;   (iv) any change in the corporate existence, structure or ownership of the Principal or any other guarantor of any of the Guaranteed Obligations, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting the Principal, or any other guarantor of the Guaranteed Obligations, or its assets or any resulting release or discharge of any obligation of the Principal, or any other guarantor of any of the Guaranteed Obligations;   (v) the existence of any claim, setoff or other rights which the Guarantors may have at any time against the Principal, any other guarantor of any of the Guaranteed Obligations, the Administrative Agent, any Lender or any other Person, whether in connection herewith or any unrelated transactions;   (vi) any invalidity or unenforceability relating to or against the Principal, or any other guarantor of any of the Guaranteed Obligations, for any reason related to the Credit Agreement, any Note, any other Loan Document or any provision of applicable law or regulation purporting to prohibit the payment by the Principal, or any other guarantor of the Guaranteed Obligations, of the principal of or interest on any Note or any other amount payable by the Principal under the Credit Agreement, any Note or any other Loan Document; or   3 -------------------------------------------------------------------------------- (vii) any other act or omission to act or delay of any kind by the Principal, any other guarantor of the Guaranteed Obligations, the Administrative Agent, any Lender or any other Person or any other circumstance whatsoever which might, but for the provisions of this paragraph, constitute a legal or equitable discharge of any Guarantor’s obligations hereunder. SECTION 5. Discharge Only Upon Payment In Full: Reinstatement In Certain Circumstances. Each of the Guarantor’s obligations hereunder shall remain in full force and effect until all Guaranteed Obligations shall have been indefeasibly paid in full and the Commitments under the Credit Agreement shall have terminated or expired. If at any time any payment of the principal of or interest on any Note or any other amount payable by the Principal or any other party under the Credit Agreement, any Note or any other Loan Document is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of the Principal or otherwise, each of the Guarantor’s obligations hereunder with respect to such payment shall be reinstated as though such payment had been due but not made at such time. SECTION 6. Waivers. Each of the Guarantors irrevocably waives acceptance hereof, presentment, demand, protest and, to the fullest extent permitted by law, any notice not provided for herein, as well as any requirement that at any time any action be taken by any Person against the Principal, any other guarantor of any of the Guaranteed Obligations, or any other Person. SECTION 7. Subordination; Subrogation. Each of the Guarantors hereby subordinates to the Guaranteed Obligations all indebtedness or other liabilities of the Principal or any other Guarantor to such Guarantor. Each of the Guarantors hereby further agrees not to assert any right, claim or cause of action, including, without limitation, a claim for subrogation, reimbursement, indemnification or otherwise, against the Principal arising out of or by reason of this Guaranty or the obligations hereunder, including, without limitation, the payment or securing or purchasing of any of the Guaranteed Obligations by any of the Guarantors unless and until the Guaranteed Obligations are indefeasibly paid in full and any commitment to lend under the Credit Agreement and any other Loan Documents is terminated. SECTION 8. Stay of Acceleration. If acceleration of the time for payment of any of the Guaranteed Obligations is stayed upon the insolvency, bankruptcy or reorganization of the Principal, all such amounts otherwise subject to acceleration under the terms of the Credit Agreement, any Note or any other Loan Document shall nonetheless be payable by each of the Guarantors hereunder forthwith on demand by the Administrative Agent made at the request of the Required Lenders. 4 -------------------------------------------------------------------------------- SECTION 9. Limitation on Obligations. (a) The provisions of this Guaranty are severable, and in any action or proceeding involving any state corporate law, or any state, federal or foreign bankruptcy, insolvency, reorganization or other law affecting the rights of creditors generally, if the obligations of any Guarantor under this Guaranty would otherwise be held or determined to be avoidable, invalid or unenforceable on account of the amount of such Guarantor’s liability under this Guaranty, then, notwithstanding any other provision of this Guaranty to the contrary, the amount of such liability shall, without any further action by the Guarantors, the Administrative Agent or any Lender, be automatically limited and reduced to the highest amount that is valid and enforceable as determined in such action or proceeding (such highest amount determined hereunder being the relevant Guarantor’s “Maximum Liability”). This Section 9(a) with respect to the Maximum Liability of the Guarantors is intended solely to preserve the rights of the Administrative Agent hereunder to the maximum extent not subject to avoidance under applicable law, and neither the Guarantor nor any other person or entity shall have any right or claim under this Section 9(a) with respect to the Maximum Liability, except to the extent necessary so that the obligations of the Guarantors hereunder shall not be rendered voidable under applicable law.   (b) Each of the Guarantors agrees that the Guaranteed Obligations may at any time and from time to time exceed the Maximum Liability of each Guarantor, and may exceed the aggregate Maximum Liability of all other Guarantors, without impairing this Guaranty or affecting the rights and remedies of the Administrative Agent hereunder. Nothing in this Section 9(b) shall be construed to increase any Guarantor’s obligations hereunder beyond its Maximum Liability. (c) In the event any Guarantor (a “Paying Guarantor”) shall make any payment or payments under this Guaranty or shall suffer any loss as a result of any realization upon any collateral granted by it to secure its obligations under this Guaranty, each other Guarantor (each a “Non-Paying Guarantor”) shall contribute to such Paying Guarantor an amount equal to such Non-Paying Guarantor’s “Pro Rata Share” of such payment or payments made, or losses suffered, by such Paying Guarantor. For the purposes hereof, each Non-Paying Guarantor’s “Pro Rata Share” with respect to any such payment or loss by a Paying Guarantor shall be determined as of the date on which such payment or loss was made by reference to the ratio of (i) such Non-Paying Guarantor’s Maximum Liability as of such date (without giving effect to any right to receive, or obligation to make, any contribution hereunder) or, if such Non-Paying Guarantor’s Maximum Liability has not been determined, the aggregate amount of all monies received by such Non-Paying Guarantor from the Principal after the date hereof (whether by loan, capital infusion or by other means) to (ii) the aggregate Maximum Liability of all Guarantors hereunder (including such Paying Guarantor) as of such date (without giving effect to any right to receive, or obligation to make, any contribution hereunder), or to the extent that a Maximum Liability has not been determined for any Guarantors, the aggregate amount of all monies received by such Guarantors from the Principal after the date hereof (whether by loan, capital infusion or by other means). Nothing in this Section 9 (c) shall affect any Guarantor’s several liability for the entire amount of the Guaranteed Obligations (up to such Guarantor’s Maximum Liability). Each of the Guarantors covenants and agrees that its right to receive any contribution under this Guaranty from a Non-Paying Guarantor shall be subordinate and junior in right of payment to all the Guaranteed Obligations. The provisions of this Section 9(c) are for the benefit of both the Administrative Agent and the Guarantors and may be enforced by any one, or more, or all of them in accordance with the terms hereof. 5 -------------------------------------------------------------------------------- SECTION 10. Application of Payments. All payments received by the Administrative Agent hereunder shall be applied by the Administrative Agent to payment of the Guaranteed Obligations in the order of priority set forth in Section 9.03 of the Credit Agreement unless a court of competent jurisdiction shall otherwise direct. SECTION 11. Notices. All notices, requests and other communications to any party hereunder shall be given or made by telecopier or other writing and telecopied, or mailed or delivered to the intended recipient at its address or telecopier number set forth on the signature pages hereof or such other address or telecopy number as such party may hereafter specify for such purpose by notice to the Administrative Agent in accordance with the provisions of Section 13.01 of the Credit Agreement. Except as otherwise provided in this Guaranty, all such communications shall be deemed to have been duly given when transmitted by telecopier, or personally delivered or, in the case of a mailed notice sent by certified mail return-receipt requested, on the date set forth on the receipt (provided, that any refusal to accept any such notice shall be deemed to be notice thereof as of the time of any such refusal), in each case given or addressed as aforesaid. SECTION 12. No Waivers. No failure or delay by the Administrative Agent or any Lenders in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies provided in this Guaranty, the Credit Agreement, any Note and the other Loan Documents shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 13. No Duty to Advise. Each of the Guarantors assumes all responsibility for being and keeping itself informed of the Principal’s financial condition and assets, and of all other circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations and the nature, scope and extent of the risks that each of the Guarantors assumes and incurs under this Guaranty, and agrees that neither the Administrative Agent nor any Lender has any duty to advise any of the Guarantors of information known to it regarding those circumstances or risks. SECTION 14. Successors and Assigns. This Guaranty is for the benefit of the Administrative Agent and the Lenders and their respective successors and permitted assigns and in the event of an assignment of any amounts payable under the Credit Agreement, any Note or any other Loan Documents, the rights hereunder, to the extent applicable to the indebtedness so assigned, shall be transferred with such indebtedness. This Guaranty shall be binding upon each of the Guarantors and their respective successors and permitted assigns. SECTION 15. Changes in Writing. Neither this Guaranty nor any provision hereof may be changed, waived, discharged or terminated orally, but only in writing signed by each of the Guarantors and the Administrative Agent with the consent of the Required Lenders. SECTION 16. Costs of Enforcement. Each of the Guarantors agrees to pay all costs and expenses including, without limitation, all court costs and attorneys’ fees and expenses paid or incurred by the Administrative Agent or any Lender or any Affiliate of any Lender in endeavoring to collect all or any part of the Guaranteed Obligations from, or in prosecuting any action against, the Principal, the Guarantors or any other guarantor of all or any part of the Guaranteed Obligations. 6 -------------------------------------------------------------------------------- SECTION 17. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. EACH OF THE GUARANTORS HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT, AND ANY NEW YORK STATE COURT, SITTING IN NEW YORK, NEW YORK AND FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS GUARANTY (INCLUDING, WITHOUT LIMITATION, ANY OF THE OTHER LOAN DOCUMENTS) OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH OF THE GUARANTORS IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH ANY OF THEM MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH OF THE GUARANTORS, AND THE ADMINISTRATIVE AGENT AND THE LENDERS ACCEPTING THIS GUARANTY, HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTY OR THE TRANSACTIONS CONTEMPLATED HEREBY. SECTION 18. Taxes, etc. All payments required to be made by any of the Guarantors hereunder shall be made without setoff or counterclaim and free and clear of and without deduction or withholding for or on account of, any present or future taxes, levies, imposts, duties or other charges of whatsoever nature imposed by any government or any political or taxing authority thereof (excluding federal taxation of the overall income of any Lender), provided, however, that if any of the Guarantors is required by law to make such deduction or withholding, such Guarantor shall forthwith (i) pay to the Administrative Agent or any Lender, as applicable, such additional amount as results in the net amount received by the Administrative Agent or any Lender, as applicable, equaling the full amount which would have been received by the Administrative Agent or any Lender, as applicable, had no such deduction or withholding been made, (ii) pay the full amount deducted to the relevant authority in accordance with applicable law, and (iii) furnish to the Administrative Agent or any Lender, as applicable, certified copies of official receipts evidencing payment of such withholding taxes within 30 days after such payment is made. SECTION 19. Supplemental Guarantors. Pursuant to Section 6.07 of the Credit Agreement, additional Subsidiaries shall become obligated as Guarantors hereunder (each as fully as though an original signatory hereto) by executing and delivering to the Administrative Agent a supplemental guaranty in the form of Exhibit A attached hereto (with blanks appropriately filled in), together with such additional supporting documentation required pursuant to Section 6.04(n) of the Credit Agreement. 7 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, each of the Guarantors has caused this Guaranty to be duly executed, under seal, by its authorized officer as of the day and year first above written.     By:   Title:       By:   Title:     By:   Title:     By:   Title:     By:   Title:     8 --------------------------------------------------------------------------------   SCHEDULE I LENDERS AND COMMITMENTS Lender Commitment     JPMorgan Chase Bank, N.A. Deutsche Bank Trust Company Americas Bank of America, N.A. Barclays Bank PLC Calyon New York Branch The Royal Bank of Scotland plc Wachovia Bank, N.A. Lloyds TSB Bank plc UBS Loan Finance LLC BNP Paribas SunTrust Bank Citicorp North America, Inc. HSBC Bank USA, N.A. Comerica Bank Guaranty Bank U.S. Bank National Association Washington Mutual Bank BankUnited, FSB PNC Bank, National Association Societe Generale Sumitomo Mitsui Banking Corporation AmSouth Bank City National Bank Commerzbank AG, New York and Grand Cayman Branches Fifth Third Bank The International Commercial Bank of China, New York Agency LaSalle Bank National Association MidFirst Bank Mitzuho Corporate Bank, Ltd. Natexis Banques Populaires Bank Hapoalim B.M. Chang Hwa Commercial Bank, Ltd., New York Branch First Commercial Bank, Los Angeles Branch Manufacturers and Traders Trust Company Regions Bank United Overseas Bank Limited Cathay United Bank, Ltd. Chiao Tung Bank, Co., Ltd. New York Agency Commercebank N.A. Florida Compass Bank Israel Discount Bank of New York Malayan Banking Berhad, New York Branch RBC Centura Bank Bank of Communications, New York Branch The Norinchukin Bank, New York Branch Taiwan Business Bank     Total $2,700,000,000   --------------------------------------------------------------------------------

EXECUTION COPY RESIDENTIAL ASSET SECURITIES CORPORATION, Depositor, RESIDENTIAL FUNDING COMPANY, LLC, Master Servicer, and U.S. BANK NATIONAL ASSOCIATION Trustee POOLING AND SERVICING AGREEMENT Dated as of October 27, 2006 Home Equity Mortgage Asset-Backed Pass-Through Certificates Series 2006-KS9 -------------------------------------------------------------------------------- TABLE OF CONTENTS ARTICLE I DEFINITIONS......................................................7 Section 1.01. Definitions.............................................7 Section 1.02. Determination of LIBOR.................................68 ARTICLE II CONVEYANCE OF MORTGAGE LOANS; ORIGINAL ISSUANCE OF CERTIFICATES.69 Section 2.01. Conveyance of Mortgage Loans...........................69 Section 2.02. Acceptance by Trustee..................................72 Section 2.03. Representations, Warranties and Covenants of the Master Servicer and the Depositor......................................73 Section 2.04. Representations and Warranties of Sellers..............75 Section 2.05. Execution and Authentication of Certificates; Conveyance of Uncertificated REMIC Regular Interests.................77 Section 2.06. Purposes and Powers of the Trust.......................77 Section 2.07. Agreement Regarding Ability to Disclose................78 ARTICLE III ADMINISTRATION AND SERVICING OF MORTGAGE LOANS..................78 Section 3.01. Master Servicer to Act as Servicer.....................78 Section 3.02. Subservicing Agreements Between Master Servicer and Subservicers; Enforcement of Subservicers' Obligations.80 Section 3.03. Successor Subservicers.................................81 Section 3.04. Liability of the Master Servicer.......................82 Section 3.05. No Contractual Relationship Between Subservicer and Trustee or Certificateholders.....................................82 Section 3.06. Assumption or Termination of Subservicing Agreements by Trustee 82 Section 3.07. Collection of Certain Mortgage Loan Payments; Deposits to Custodial Account......................................82 Section 3.08. Subservicing Accounts; Servicing Accounts..............85 Section 3.09. Access to Certain Documentation and Information Regarding the Mortgage Loans.........................................86 Section 3.10. Permitted Withdrawals from the Custodial Account.......86 Section 3.11. Maintenance of Primary Insurance Coverage..............88 Section 3.12. Maintenance of Fire Insurance and Omissions and Fidelity Coverage 88 Section 3.13. Enforcement of Due-on-Sale Clauses; Assumption and Modification Agreements; Certain Assignments........................90 Section 3.14. Realization Upon Defaulted Mortgage Loans..............91 Section 3.15. Trustee to Cooperate; Release of Custodial Files.......93 Section 3.16. Servicing and Other Compensation; Compensating Interest94 Section 3.17. Reports to the Trustee and the Depositor...............95 Section 3.18. Annual Statement as to Compliance and Servicing Assessment ............................................96 Section 3.19. Annual Independent Public Accountants' Servicing Report96 Section 3.20. Right of the Depositor in Respect of the Master Servicer96 Section 3.21. [Reserved].............................................97 Section 3.22. Advance Facility.......................................97 Section 3.23. Special Servicing.....................................100 ARTICLE IV PAYMENTS TO CERTIFICATEHOLDERS.................................101 Section 4.01. Certificate Account...................................101 Section 4.02. Distributions.........................................102 Section 4.03. Statements to Certificateholders; Statements to Rating Agencies; Exchange Act Reporting................................106 Section 4.04. Distribution of Reports to the Trustee and the Depositor; Advances by the Master Servicer.......................109 Section 4.05. Allocation of Realized Losses.........................111 Section 4.06. Reports of Foreclosures and Abandonment of Mortgaged Property .............................................112 Section 4.07. Optional Purchase of Defaulted Mortgage Loans.........113 Section 4.08. [Reserved]............................................113 Section 4.09. [Reserved]............................................113 Section 4.10. Swap Agreement........................................113 ARTICLE V THE CERTIFICATES...............................................115 Section 5.01. The Certificates......................................115 Section 5.02. Registration of Transfer and Exchange of Certificates.117 Section 5.03. Mutilated, Destroyed, Lost or Stolen Certificates.....121 Section 5.04. Persons Deemed Owners.................................121 Section 5.05. Appointment of Paying Agent...........................121 ARTICLE VI THE DEPOSITOR AND THE MASTER SERVICER..........................122 Section 6.01. Respective Liabilities of the Depositor and the Master Servicer .............................................122 Section 6.02. Merger or Consolidation of the Depositor or the Master Servicer; Assignment of Rights and Delegation of Duties by Master Servicer .............................................122 Section 6.03. Limitation on Liability of the Depositor, the Master Servicer and Others............................................123 Section 6.04. Depositor and Master Servicer Not to Resign...........123 ARTICLE VII DEFAULT........................................................124 Section 7.01. Events of Default.....................................124 Section 7.02. Trustee or Depositor to Act; Appointment of Successor.125 Section 7.03. Notification to Certificateholders....................126 Section 7.04. Waiver of Events of Default...........................127 ARTICLE VIII CONCERNING THE TRUSTEE ...............................127 Section 8.01. Duties of Trustee.....................................127 Section 8.02. Certain Matters Affecting the Trustee.................128 Section 8.03. Trustee Not Liable for Certificates or Mortgage Loans.130 Section 8.04. Trustee May Own Certificates..........................130 Section 8.05. Master Servicer to Pay Trustee's Fees and Expenses; Indemnification.......................................130 Section 8.06. Eligibility Requirements for Trustee..................131 Section 8.07. Resignation and Removal of the Trustee................131 Section 8.08. Successor Trustee.....................................132 Section 8.09. Merger or Consolidation of Trustee....................132 Section 8.10. Appointment of Co-Trustee or Separate Trustee.........132 Section 8.11. Appointment of the Custodian..........................133 Section 8.12. Appointment of Office or Agency.......................134 Section 8.13. DTC Letter of Representations.........................134 Section 8.14. Swap Agreement........................................134 ARTICLE IX TERMINATION....................................................134 Section 9.01. Termination Upon Purchase or Liquidation of All Mortgage Loans ................................................134 Section 9.02. Additional Termination Requirements...................138 ARTICLE X REMIC PROVISIONS...............................................139 Section 10.01. REMIC Administration..................................139 Section 10.02. Master Servicer, REMIC Administrator and Trustee Indemnification ......................................142 ARTICLE XI MISCELLANEOUS PROVISIONS.......................................143 Section 11.01. Amendment.............................................143 Section 11.02. Recordation of Agreement; Counterparts................145 Section 11.03. Limitation on Rights of Certificateholders............145 Section 11.04. Governing Law.........................................146 Section 11.05. Notices...............................................146 Section 11.06. Notices to Rating Agencies............................146 Section 11.07. Severability of Provisions............................147 Section 11.08. Supplemental Provisions for Resecuritization..........147 Section 11.09. Third-Party Beneficiary...............................148 Section 11.10. Tax Treatment.........................................148 ARTICLE XII COMPLIANCE WITH REGULATION AB..................................148 Section 12.01. Intent of Parties; Reasonableness.....................148 Section 12.02. Additional Representations and Warranties of the Trustee149 Section 12.03. Information to be Provided by the Trustee.............149 Section 12.04. Report on Assessment of Compliance and Attestation....150 Section 12.05. Indemnification; Remedies.............................150 Exhibit A Form of Class A Certificate....................................A-1 Exhibit B Form of Class M Certificate....................................B-1 Exhibit C Form of Class SB Certificate...................................C-1 Exhibit D Form of Class R Certificate....................................D-1 Exhibit E Form of Custodial Agreement....................................E-1 Exhibit F-1 Group I Loan Schedule........................................F-1-1 Exhibit F-2 Group II Loan Schedule.......................................F-2-1 Exhibit G Form of Request for Release....................................G-1 Exhibit H-1 Form of Transfer Affidavit and Agreement.....................H-1-1 Exhibit H-2 Form of Transferor Certificate...............................H-2-1 Exhibit I Form of Investor Representation Letter.........................I-1 Exhibit J Form of Transferor Representation Letter.......................J-1 Exhibit K Text of Amendment to Pooling and Servicing Agreement Pursuant to Section 11.01(e) for a Limited Guaranty........................K-1 Exhibit L Form of Limited Guaranty.......................................L-1 Exhibit M Form of Lender Certification for Assignment of Mortgage Loan...M-1 Exhibit N Form of Rule 144A Investment Representation Letter.............N-1 Exhibit O Swap Agreement.................................................O-1 Exhibit P Form of ERISA Letter...........................................P-1 Exhibit Q SB-AM Swap Agreement...........................................Q-1 Exhibit R Assignment Agreement...........................................R-1 Exhibit S Servicing Criteria.............................................S-1 Exhibit T-1 Form of 10-K Certification...................................T-1-1 Exhibit T-2 Form of Back-Up Certification................................T-2-1 Exhibit U Information to be Provided by the Master Servicer to the Rating Agencies Relating to Reportable Modified Mortgage Loans.................U-1 Exhibit V Form of Certificate to be Given by Certificate Owner..........V-1 Exhibit W Form of Certificate to be Given by Euroclear or Cedel.........W-1 -------------------------------------------------------------------------------- This Pooling and Servicing Agreement, effective as of October 27, 2006, among RESIDENTIAL ASSET SECURITIES CORPORATION, as the depositor (together with its permitted successors and assigns, the "Depositor"), RESIDENTIAL FUNDING COMPANY, LLC, as master servicer (together with its permitted successors and assigns, the "Master Servicer"), and U.S. BANK NATIONAL ASSOCIATION, a banking association organized under the laws of the United States, as trustee and supplemental interest trust trustee (together with its permitted successors and assigns, the "Trustee" and the "Supplemental Interest Trust Trustee", respectively). PRELIMINARY STATEMENT: The Depositor intends to sell mortgage asset-backed pass-through certificates (collectively, the "Certificates"), to be issued hereunder in sixteen Classes, which in the aggregate will evidence the entire beneficial ownership interest in the Mortgage Loans (as defined herein) and certain other related assets. REMIC I As provided herein, the REMIC Administrator will make an election to treat the segregated pool of assets consisting of the Mortgage Loans and certain other related assets (exclusive of the Supplemental Interest Trust Account and the Swap Agreement) subject to this Agreement as a real estate mortgage investment conduit (a "REMIC") for federal income tax purposes, and such segregated pool of assets will be designated as "REMIC I." Component I of the Class R Certificates will represent the sole Class of "residual interests" in REMIC I for purposes of the REMIC Provisions (as defined herein) under federal income tax law. The following table irrevocably sets forth the designation, remittance rate (the "Uncertificated REMIC I Pass-Through Rate") and initial Uncertificated Principal Balance for each of the "regular interests" in REMIC I (the "REMIC I Regular Interests"). The "latest possible maturity date" (determined solely for purposes of satisfying Treasury regulation Section 1.860G-1(a)(4)(iii)) for each REMIC I Regular Interest shall be the Maturity Date. None of the REMIC I Regular Interests will be certificated. Uncertificated REMIC I Pass-Through Initial Uncertificated Designation Rate Principal Balance I-1-A Variable(1) $3,508,242.225 I-2-A Variable(1) $5,142,221.255 I-3-A Variable(1) $6,790,264.820 I-4-A Variable(1) $8,440,239.210 I-5-A Variable(1) $10,079,353.190 I-6-A Variable(1) $11,694,272.815 I-7-A Variable(1) $13,271,253.435 I-8-A Variable(1) $14,795,460.570 I-9-A Variable(1) $16,203,148.840 I-10-A Variable(1) $17,139,392.770 I-11-A Variable(1) $17,657,903.735 I-12-A Variable(1) $17,012,885.250 I-13-A Variable(1) $16,391,072.010 I-14-A Variable(1) $15,792,247.075 I-15-A Variable(1) $15,215,552.550 I-16-A Variable(1) $14,660,162.795 I-17-A Variable(1) $14,125,283.205 I-18-A Variable(1) $13,610,149.040 I-19-A Variable(1) $13,123,521.755 I-20-A Variable(1) $12,682,750.125 I-21-A Variable(1) $14,469,173.560 I-22-A Variable(1) $20,922,912.195 I-23-A Variable(1) $19,409,039.605 I-24-A Variable(1) $17,980,837.165 I-25-A Variable(1) $16,671,626.535 I-26-A Variable(1) $14,301,213.280 I-27-A Variable(1) $9,593,930.600 I-28-A Variable(1) $9,183,143.625 I-29-A Variable(1) $8,792,703.190 I-30-A Variable(1) $8,418,955.455 I-31-A Variable(1) $8,062,188.765 I-32-A Variable(1) $7,721,069.690 I-33-A Variable(1) $7,394,893.840 I-34-A Variable(1) $7,082,959.720 I-35-A Variable(1) $6,783,285.065 I-36-A Variable(1) $6,494,508.680 I-37-A Variable(1) $6,222,148.245 I-38-A Variable(1) $5,961,639.485 I-39-A Variable(1) $5,712,452.800 I-40-A Variable(1) $5,474,081.570 I-41-A Variable(1) $5,245,943.850 I-42-A Variable(1) $5,027,555.430 I-43-A Variable(1) $4,818,855.600 I-44-A Variable(1) $4,619,167.880 I-45-A Variable(1) $4,428,091.705 I-46-A Variable(1) $4,245,240.560 I-47-A Variable(1) $4,070,184.605 I-48-A Variable(1) $3,902,673.115 I-49-A Variable(1) $3,742,398.890 I-50-A Variable(1) $3,588,988.925 I-51-A Variable(1) $3,442,139.855 I-52-A Variable(1) $3,301,561.655 I-53-A Variable(1) $3,166,978.580 I-54-A Variable(1) $3,038,126.100 I-55-A Variable(1) $2,914,752.000 I-56-A Variable(1) $2,796,615.470 I-57-A Variable(1) $2,683,485.370 I-58-A Variable(1) $2,575,143.910 I-59-A Variable(1) $2,472,802.365 I-60-A Variable(1) $62,331,230.720 I-1-B Variable(1) $3,508,242.225 I-2-B Variable(1) $5,142,221.255 I-3-B Variable(1) $6,790,264.820 I-4-B Variable(1) $8,440,239.210 I-5-B Variable(1) $10,079,353.190 I-6-B Variable(1) $11,694,272.815 I-7-B Variable(1) $13,271,253.435 I-8-B Variable(1) $14,795,460.570 I-9-B Variable(1) $16,203,148.840 I-10-B Variable(1) $17,139,392.770 I-11-B Variable(1) $17,657,903.735 I-12-B Variable(1) $17,012,885.250 I-13-B Variable(1) $16,391,072.010 I-14-B Variable(1) $15,792,247.075 I-15-B Variable(1) $15,215,552.550 I-16-B Variable(1) $14,660,162.795 I-17-B Variable(1) $14,125,283.205 I-18-B Variable(1) $13,610,149.040 I-19-B Variable(1) $13,123,521.755 I-20-B Variable(1) $12,682,750.125 I-21-B Variable(1) $14,469,173.560 I-22-B Variable(1) $20,922,912.195 I-23-B Variable(1) $19,409,039.605 I-24-B Variable(1) $17,980,837.165 I-25-B Variable(1) $16,671,626.535 I-26-B Variable(1) $14,301,213.280 I-27-B Variable(1) $9,593,930.600 I-28-B Variable(1) $9,183,143.625 I-29-B Variable(1) $8,792,703.190 I-30-B Variable(1) $8,418,955.455 I-31-B Variable(1) $8,062,188.765 I-32-B Variable(1) $7,721,069.690 I-33-B Variable(1) $7,394,893.840 I-34-B Variable(1) $7,082,959.720 I-35-B Variable(1) $6,783,285.065 I-36-B Variable(1) $6,494,508.680 I-37-B Variable(1) $6,222,148.245 I-38-B Variable(1) $5,961,639.485 I-39-B Variable(1) $5,712,452.800 I-40-B Variable(1) $5,474,081.570 I-41-B Variable(1) $5,245,943.850 I-42-B Variable(1) $5,027,555.430 I-43-B Variable(1) $4,818,855.600 I-44-B Variable(1) $4,619,167.880 I-45-B Variable(1) $4,428,091.705 I-46-B Variable(1) $4,245,240.560 I-47-B Variable(1) $4,070,184.605 I-48-B Variable(1) $3,902,673.115 I-49-B Variable(1) $3,742,398.890 I-50-B Variable(1) $3,588,988.925 I-51-B Variable(1) $3,442,139.855 I-52-B Variable(1) $3,301,561.655 I-53-B Variable(1) $3,166,978.580 I-54-B Variable(1) $3,038,126.100 I-55-B Variable(1) $2,914,752.000 I-56-B Variable(1) $2,796,615.470 I-57-B Variable(1) $2,683,485.370 I-58-B Variable(1) $2,575,143.910 I-59-B Variable(1) $2,472,802.365 I-60-B Variable(1) $62,331,230.720 I Variable(1) $103,871.853 II Variable(1) $19,542.545 A-I Variable(1) $41,220,408.792 _______________ (1) Calculated as provided in the definition of Uncertificated REMIC I Pass-Through Rate. -------------------------------------------------------------------------------- REMIC II As provided herein, the REMIC Administrator will make an election to treat the segregated pool of assets consisting of the REMIC I Regular Interests as a REMIC for federal income tax purposes, and such segregated pool of assets will be designated as "REMIC II." Component II of the Class R Certificates will represent the sole Class of "residual interests" in REMIC II for purposes of the REMIC Provisions (as defined herein) under federal income tax law. The following table irrevocably sets forth the designation, remittance rate (the "Uncertificated REMIC II Pass-Through Rate") and initial Uncertificated Principal Balance for each of the "regular interests" in REMIC II (the "REMIC II Regular Interests"). The "latest possible maturity date" (determined solely for purposes of satisfying Treasury regulation Section 1.860G 1(a)(4)(iii)) for each REMIC II Regular Interest shall be the Maturity Date. None of the REMIC II Regular Interests will be certificated. Uncertificated REMIC II Initial Uncertificated Designation Pass-Through Rate Principal Balance Y-1 Variable(1) $519,355.26 Y-2 Variable(1) $97,712.72 Z-1 Variable(1) $1,038,199,171.27 Z-2 Variable(1) $195,327,736.59 LT-IO Variable(1) (2) _______________ (1) Calculated as provided in the definition of Uncertificated REMIC II Pass-Through Rate. (2) REMIC II Regular Interest LT-IO will not have an Uncertificated Principal Balance but will accrue interest on its uncertificated notional amount calculated in accordance with the definition of "Uncertificated Notional Amount" herein. -------------------------------------------------------------------------------- REMIC III As provided herein, the REMIC Administrator will make an election to treat the segregated pool of assets consisting of the REMIC II Regular Interests as a REMIC for federal income tax purposes, and such segregated pool of assets will be designated as "REMIC III." Component III of the Class R Certificates will represent the sole Class of "residual interests" in REMIC III for purposes of the REMIC Provisions (as defined herein) under federal income tax law. The following table irrevocably sets forth the designation, remittance rate (the "Uncertificated REMIC III Pass-Through Rate") and initial Uncertificated Principal Balance for each of the "regular interests" in REMIC III (the "REMIC III Regular Interests"). The "latest possible maturity date" (determined solely for purposes of satisfying Treasury regulation Section 1.860G-1(a)(4)(iii)) for each REMIC III Regular Interest shall be the Maturity Date. None of the REMIC III Regular Interests will be certificated. Uncertificated REMIC III Initial Uncertificated Designation Pass-Through Rate Principal Balance LT1 Variable(1) $1,038,027,675.28 LT2 Variable(1) $36,247.71 LT3 0.00% $67,624.14 LT4 Variable(1) $67,624.14 LT5 Variable(1) $195,295,260.45 LT6 Variable(1) $6,608.96 LT7 0.00% $12,933.59 LT8 Variable(1) $12,933.59 LT-Y1 Variable(1) $519,355.26 LT-Y2 Variable(1) $97,712.72 LT-IO Variable(1) (2) _______________ (1) Calculated as provided in the definition of Uncertificated REMIC III Pass-Through Rate. (2) REMIC III Regular Interest LT-IO will not have an Uncertificated Principal Balance but will accrue interest on its uncertificated notional amount calculated in accordance with the definition of "Uncertificated Notional Amount" herein. -------------------------------------------------------------------------------- REMIC IV As provided herein, the REMIC Administrator will elect to treat the segregated pool of assets consisting of the REMIC III Regular Interests as a REMIC for federal income tax purposes, and such segregated pool of assets will be designated as REMIC IV. Component IV of the Class R Certificates will represent the sole Class of "residual interests" in REMIC IV for purposes of the REMIC Provisions under federal income tax law. The following table irrevocably sets forth the designation, Pass-Through Rate, aggregate Initial Certificate Principal Balance, certain features, month of Final Scheduled Distribution Date and initial ratings for each Class of Certificates comprising the interests representing "regular interests" in REMIC IV. The "latest possible maturity date" (determined solely for purposes of satisfying Treasury Regulation Section 1.860G-1(a)(4)(iii)) for each of REMIC IV Regular Interest shall be the Maturity Date. Month of Final Aggregate Initial Scheduled Pass-Through Certificate Distribution Designation Type Rate Principal Balance Features Date S&P Moody's Fitch Clas A-I-1 Regular(1) Adjustable(2)(3) Senior/Adjustable April 2030 AAA Aaa AAA $ 376,471,000.00 Rate Class A-I-2 Regular(1) Adjustable(2)(3) Senior/Adjustable January 2034 AAA Aaa AAA $ 164,849,000.00 Rate Class A-I-3 Regular(1) Adjustable(2)(3) Senior/Adjustable September 2036 AAA Aaa AAA $ 153,889,000.00 Rate Class A-I-4 Regular(1) Adjustable(2)(3) Senior/Adjustable November 2036 AAA Aaa AAA $ 119,666,000.00 Rate Class A-II Regular(1) Adjustable(2)(3) Senior/Adjustable November 2036 AAA Aaa AAA $ 153,311,000.00 Rate Class M-1S Regular(1) Adjustable(2)(3) Mezzanine/Adjustable November 2036 AA+ Aa1 AA+ $ 47,515,000.00 Rate Class M-2S Regular(1) Adjustable(2)(3) Mezzanine/Adjustable November 2036 AA Aa2 AA $ 41,960,000.00 Rate Class M-3S Regular(1) Adjustable(2)(3) Mezzanine/Adjustable November 2036 AA Aa3 AA- $ 25,300,000.00 Rate Class M-4 Regular(1) Adjustable(2)(3) Mezzanine/Adjustable November 2036 AA- A1 A+ $ 22,832,000.00 Rate Class M-5 Regular(1) Adjustable(2)(3) Mezzanine/Adjustable November 2036 A+ A2 A $ 22,215,000.00 Rate Class M-6 Regular(1) Adjustable(2)(3) Mezzanine/Adjustable November 2036 A A3 A- $ 20,363,000.00 Rate Class M-7 Regular(1) Adjustable(2)(3) Mezzanine/Adjustable November 2036 BBB+ Baa1 BBB+ $ 20,363,000.00 Rate Class M-8 Regular(1) Adjustable(2)(3) Mezzanine/Adjustable November 2036 BBB Baa2 BBB $ 14,810,000.00 Rate Class M-9 Regular(1) Adjustable(2)(3) Mezzanine/Adjustable November 2036 BBB- Baa3 BBB- $ 13,575,000.00 Rate Class SB Regular (4) Subordinate N/A N/R N/R (4) $ 37,024,975.84 IO Regular (6) (7) Interest Only N/R N/R (5) ___________________ (1) This Class of Certificates represents ownership of a REMIC IV Regular Interest together with (i) certain rights to payments to be made from amounts received under the Swap Agreement which will be deemed made for federal income tax purposes outside of REMIC IV by the holder of the Class SB Certificates as the owner of the Swap Agreement and (ii) the obligation to pay the Class IO Distribution Amount. Any amount distributed on this Class of Certificates on any Distribution Date in excess of the amount distributable on the related REMIC IV Regular Interest on such Distribution Date shall be treated for federal income tax purposes as having been paid from the Supplemental Interest Trust Account and any amount distributable on such REMIC IV Regular Interest on such Distribution Date in excess of the amount distributable on such Class of Certificates on such Distribution Date shall be treated as having been paid to the Supplemental Interest Trust Account, all pursuant to and as further provided in Section 4.10 hereof. (2) The REMIC IV Regular Interests ownership of which is represented by the Class A Certificates and the Class M Certificates, will accrue interest at a per annum rate equal to LIBOR plus the applicable Margin, each subject to a payment cap as described in the definition of "Pass-Through Rate" and the provisions for the payment of Basis Risk Shortfalls herein, which payments will not be part of the entitlement of the REMIC IV Regular Interests related to such Certificates. (3) The Class A Certificates and Class M Certificates will also entitle their holders to certain payments from the Holder of the Class SB Certificates from amounts to which the related REMIC IV Regular Interest is entitled and from amounts received under the Swap Agreement, which will not be a part of their ownership of the REMIC IV Regular Interests. (4) The Class SB Certificates will accrue interest as described in the definition of Accrued Certificate Interest. The Class SB Certificates will not accrue interest on their Certificate Principal Balance. The Class SB Certificates will be comprised of two REMIC IV Regular Interests, a principal only Regular Interest designated SB-PO and an interest only Regular Interest designated SB-IO, which will be entitled to distributions as set forth herein. The rights of the Holder of the Class SB Certificates to payments from the Swap Agreement shall be outside and apart from its rights under the REMIC IV Regular Interests SB-IO and SB-PO. (5) REMIC IV Regular Interest IO will be held as an asset of the Supplemental Interest Trust Account established by the Trustee and will be treated for federal income tax purposes as owned by the holder of the Class SB Certificates. (6) For federal income tax purposes, REMIC IV Regular Interest IO will not have a Pass-Through Rate, but will be entitled to 100% of the amounts distributed on REMIC III Regular Interest LT-IO. (7) For federal income tax purposes, REMIC IV Regular Interest IO will not have an Uncertificated Principal Balance, but will have a notional amount equal to the Uncertificated Notional Amount of REMIC III Regular Interest LT-IO. -------------------------------------------------------------------------------- In consideration of the mutual agreements herein contained, the Depositor, the Master Servicer and the Trustee agree as follows: ARTICLE I DEFINITIONS Section 1.01 Definitions. Whenever used in this Agreement, the following words and phrases, unless the context otherwise requires, shall have the meanings specified in this Article. Accrued Certificate Interest: With respect to each Distribution Date and each Class of Class A Certificates and Class M Certificates, an amount equal to the interest accrued during the related Interest Accrual Period on the Certificate Principal Balance thereof immediately prior to such Distribution Date at the related Pass-Through Rate for that Distribution Date. The amount of Accrued Certificate Interest on each Class of Certificates shall be reduced by the amount of Prepayment Interest Shortfalls on the related Mortgage Loans during the prior calendar month to the extent not covered by Compensating Interest pursuant to Section 3.16, and by Relief Act Shortfalls on the related Mortgage Loans during the related Due Period. The portion of any Prepayment Interest Shortfalls or Relief Act Shortfalls allocated to the Class A Certificates will be based upon the related Senior Percentage of all such reductions with respect to the related Mortgage Loans, such reductions will be allocated among the related Class A Certificates, pro rata, on the basis of Accrued Certificate Interest payable on such Distribution Date absent such reductions, with the remainder of such reductions allocated among the Holders of all Classes of Class M Certificates, pro rata, on the basis of Accrued Certificate Interest payable on such Distribution Date absent such reductions. Accrued Certificate Interest for any Distribution Date shall further be reduced by the interest portion of Realized Losses allocated to any Class of Certificates pursuant to Section 4.05. Accrued Certificate Interest shall accrue on the basis of a 360-day year and the actual number of days in the related Interest Accrual Period. With respect to each Distribution Date and the Class SB Certificates, interest accrued during the preceding Interest Accrual Period at the related Pass-Through Rate on the Uncertificated Notional Amount as specified in the definition of Pass-Through Rate, immediately prior to such Distribution Date, reduced by any interest shortfalls with respect to the Mortgage Loans, including Prepayment Interest Shortfalls to the extent not covered by Compensating Interest pursuant to Section 3.16 or by Excess Cash Flow pursuant to Section 4.02(c)(v) and (vi). Accrued Certificate Interest on the Class SB Certificates shall accrue on the basis of a 360-day year and the actual number of days in the related Interest Accrual Period. Adjusted Available Distribution Amount: With respect to any Distribution Date, the Available Distribution Amount increased by the excess, if any, of the Net Swap Payment owed to the Swap Counterparty over the amount distributable on such Distribution Date in respect of REMIC IV Regular Interest IO. Adjusted Mortgage Rate: With respect to any Mortgage Loan and any date of determination, the Mortgage Rate borne by the related Mortgage Note, less the rate at which the related Subservicing Fee accrues. Adjustment Date: With respect to each adjustable-rate Mortgage Loan, each date set forth in the related Mortgage Note on which an adjustment to the interest rate on such Mortgage Loan becomes effective. Adjusted Strip Rate: With respect to any Distribution Date, a per annum rate equal to the excess, if any, of the Uncertificated REMIC I Pass-Through Rate for REMIC I Regular Interest A-I over the weighted average of (v) with respect to REMIC I Regular Interests ending with the designation "B," the weighted average of the Uncertificated REMIC I Pass-Through Rates for such REMIC I Regular Interests, weighted on the basis of the Uncertificated Principal Balance of such REMIC I Regular Interests for each such Distribution Date, (w) with respect to REMIC I Regular Interest A-I, the Uncertificated REMIC I Pass-Through Rate for such REMIC I Regular Interest, (x) with respect to REMIC I Regular Interest I, the Uncertificated REMIC I Pass-Through Rate for such REMIC I Regular Interest, (y) with respect to REMIC I Regular Interest II, the Uncertificated REMIC I Pass-Through Rate for such REMIC I Regular Interest, and (z) with respect to REMIC I Regular Interests ending with the designation "A," for each Distribution Date listed below, the weighted average of the rates listed below for each such REMIC I Regular Interest listed below, weighted on the basis of the Uncertificated Principal Balance of each such REMIC I Regular Interest for each such Distribution Date: Distribution REMIC I Regular Date Interest Rate 1 I-1-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate 2 I-2-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A Uncertificated REMIC I Pass-Through Rate 3 I-3-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A and I-2-A Uncertificated REMIC I Pass-Through Rate 4 I-4-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-3-A Uncertificated REMIC I Pass-Through Rate 5 I-5-A through I-44-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-4-A Uncertificated REMIC I Pass-Through Rate 6 I-6-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-5-A Uncertificated REMIC I Pass-Through Rate 7 I-7-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-6-A Uncertificated REMIC I Pass-Through Rate 8 I-8-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-7-A Uncertificated REMIC I Pass-Through Rate 9 I-9-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-8-A Uncertificated REMIC I Pass-Through Rate 10 I-10-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-9-A Uncertificated REMIC I Pass-Through Rate 11 I-11-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-10-A Uncertificated REMIC I Pass-Through Rate 12 I-12-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-11-A Uncertificated REMIC I Pass-Through Rate 13 I-13-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-12-A Uncertificated REMIC I Pass-Through Rate 14 I-14-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-13-A Uncertificated REMIC I Pass-Through Rate 15 I-15-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-14-A Uncertificated REMIC I Pass-Through Rate 16 I-16-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-15-A Uncertificated REMIC I Pass-Through Rate 17 I-17-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-16-A Uncertificated REMIC I Pass-Through Rate 18 I-18-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-17-A Uncertificated REMIC I Pass-Through Rate 19 I-19-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-18-A Uncertificated REMIC I Pass-Through Rate 20 I-20-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-19-A Uncertificated REMIC I Pass-Through Rate 21 I-21-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-20-A Uncertificated REMIC I Pass-Through Rate 22 I-22-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-21-A Uncertificated REMIC I Pass-Through Rate 23 I-23-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-22-A Uncertificated REMIC I Pass-Through Rate 24 I-24-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-23-A Uncertificated REMIC I Pass-Through Rate 25 I-25-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-24-A Uncertificated REMIC I Pass-Through Rate 26 I-26-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-25-A Uncertificated REMIC I Pass-Through Rate 27 I-27-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-26-A Uncertificated REMIC I Pass-Through Rate 28 I-28-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-27-A Uncertificated REMIC I Pass-Through Rate 29 I-29-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-28-A Uncertificated REMIC I Pass-Through Rate 30 I-30-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-29-A Uncertificated REMIC I Pass-Through Rate 31 I-31-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-30-A Uncertificated REMIC I Pass-Through Rate 32 I-32-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-31-A Uncertificated REMIC I Pass-Through Rate 33 I-33-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-32-A Uncertificated REMIC I Pass-Through Rate 34 I-34-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-33-A Uncertificated REMIC I Pass-Through Rate 35 I-35-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-34-A Uncertificated REMIC I Pass-Through Rate 36 I-36-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-35-A Uncertificated REMIC I Pass-Through Rate 37 I-37-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-36-A Uncertificated REMIC I Pass-Through Rate 38 I-38-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-37-A Uncertificated REMIC I Pass-Through Rate 39 I-39-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-38-A Uncertificated REMIC I Pass-Through Rate 40 I-40-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-39-A Uncertificated REMIC I Pass-Through Rate 41 I-41-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-40-A Uncertificated REMIC I Pass-Through Rate 42 I-42-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-41-A Uncertificated REMIC I Pass-Through Rate 43 I-43-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-42-A Uncertificated REMIC I Pass-Through Rate 44 I-44-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-43-A Uncertificated REMIC I Pass-Through Rate 45 I-45-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-44-A Uncertificated REMIC I Pass-Through Rate 46 I-46-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-45-A Uncertificated REMIC I Pass-Through Rate 47 I-47-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-46-A Uncertificated REMIC I Pass-Through Rate 48 I-48-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-47-A Uncertificated REMIC I Pass-Through Rate 49 I-49-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-48-A Uncertificated REMIC I Pass-Through Rate 50 I-50-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-49-A Uncertificated REMIC I Pass-Through Rate 51 I-51-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-50-A Uncertificated REMIC I Pass-Through Rate 52 I-52-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-51-A Uncertificated REMIC I Pass-Through Rate 53 I-53-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-52-A Uncertificated REMIC I Pass-Through Rate 54 I-54-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-53-A Uncertificated REMIC I Pass-Through Rate 55 I-55-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-54-A Uncertificated REMIC I Pass-Through Rate 56 I-56-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-55-A Uncertificated REMIC I Pass-Through Rate 57 I-57-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-56-A Uncertificated REMIC I Pass-Through Rate 58 I-58-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-57-A Uncertificated REMIC I Pass-Through Rate 59 I-59-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-58-A Uncertificated REMIC I Pass-Through Rate 60 I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-59-A Uncertificated REMIC I Pass-Through Rate Thereafter I-1-A through I-60-A Uncertificated REMIC I Pass-Through Rate Advance: With respect to any Mortgage Loan, any advance made by the Master Servicer, pursuant to Section 4.04. Affected Party: As defined in the Swap Agreement. Affiliate: With respect to any Person, any other Person controlling, controlled by or under common control with such first Person. For the purposes of this definition, "control" 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. Agreement: This Pooling and Servicing Agreement and all amendments hereof and supplements hereto. Amount Held for Future Distribution: With respect to any Distribution Date, the total of the amounts held in the Custodial Account at the close of business on the preceding Determination Date on account of (i) Liquidation Proceeds, Subsequent Recoveries, Insurance Proceeds, REO Proceeds, Principal Prepayments, Mortgage Loan purchases made pursuant to Section 2.02, 2.03, 2.04 or 4.07 and Mortgage Loan substitutions made pursuant to Section 2.03 or 2.04 received or made in the month of such Distribution Date (other than such Liquidation Proceeds, Subsequent Recoveries, Insurance Proceeds, REO Proceeds and purchases of Mortgage Loans that the Master Servicer has deemed to have been received in the preceding month in accordance with Section 3.07(b)) and (ii) payments which represent early receipt of scheduled payments of principal and interest due on a date or dates subsequent to the Due Date in the related Due Period. Appraised Value: With respect to any Mortgaged Property, the lesser of (i) the appraised value of such Mortgaged Property based upon the appraisal made at the time of the origination of the related Mortgage Loan, and (ii) the sales price of the Mortgaged Property at such time of origination, except in the case of a Mortgaged Property securing a refinanced or modified Mortgage Loan as to which it is either the appraised value based upon the appraisal made at the time of origination of the loan which was refinanced or modified or the appraised value determined in an appraisal at the time of refinancing or modification, as the case may be. Assignment: An assignment of the Mortgage, notice of transfer or equivalent instrument, in recordable form, sufficient under the laws of the jurisdiction wherein the related Mortgaged Property is located to reflect of record the sale of the Mortgage Loan to the Trustee for the benefit of Certificateholders, which assignment, notice of transfer or equivalent instrument may be in the form of one or more blanket assignments covering Mortgages secured by Mortgaged Properties located in the same county, if permitted by law and accompanied by an Opinion of Counsel to that effect. Assignment Agreement: The Assignment and Assumption Agreement, dated the Closing Date, between Residential Funding and the Depositor relating to the transfer and assignment of the Mortgage Loans, attached hereto as Exhibit R. Available Distribution Amount: With respect to any Distribution Date, an amount equal to (a) the sum of (i) the amount relating to the Mortgage Loans on deposit in the Custodial Account as of the close of business on the immediately preceding Determination Date, including any Subsequent Recoveries, and amounts deposited in the Custodial Account in connection with the substitution of Qualified Substitute Mortgage Loans, (ii) the amount of any Advance made on the immediately preceding Certificate Account Deposit Date with respect to the Mortgage Loans, (iii) any amount deposited in the Certificate Account on the related Certificate Account Deposit Date pursuant to the second paragraph of Section 3.12(a) in respect of the Mortgage Loans, (iv) any amount that the Master Servicer is not permitted to withdraw from the Custodial Account pursuant to Section 3.16(e) in respect of the Mortgage Loans, and (v) any amount deposited in the Certificate Account pursuant to Section 4.07 or 9.01 in respect of the Mortgage Loans, reduced by (b) the sum as of the close of business on the immediately preceding Determination Date of (x) the Amount Held for Future Distribution with respect to the Mortgage Loans, (y) amounts permitted to be withdrawn by the Master Servicer from the Custodial Account in respect of the Mortgage Loans pursuant to clauses (ii)-(x), inclusive, of Section 3.10(a) and (z) any Net Swap Payments required to be made to the Swap Counterparty and Swap Termination Payments not due to a Swap Counterparty Trigger Event for such Distribution Date. Balloon Loan: Each of the Mortgage Loans having an original term to maturity that is shorter than the related amortization term. Balloon Payment: With respect to any Balloon Loan, the related Monthly Payment payable on the stated maturity date of such Balloon Loan. Bankruptcy Code: The Bankruptcy Code of 1978, as amended. Basis Risk Shortfalls: The Group I Basis Risk Shortfalls, Group II Basis Risk Shortfalls and Class M Basis Risk Shortfalls, as applicable. Book-Entry Certificate: Any Certificate registered in the name of the Depository or its nominee. Business Day: Any day other than (i) a Saturday or a Sunday or (ii) a day on which banking institutions in the State of California, the State of Minnesota, the State of Texas, the State of New York or the State of Illinois (and such other state or states in which the Custodial Account or the Certificate Account are at the time located) are required or authorized by law or executive order to be closed. Calendar Quarter: A Calendar Quarter shall consist of one of the following time periods in any given year: January 1 through March 31, April 1 through June 30, July 1 through September 30, and October 1 through December 31. Capitalization Reimbursement Amount: With respect to any Distribution Date, the amount of Advances or Servicing Advances that were added to the Stated Principal Balance of the Mortgage Loans during the prior calendar month and reimbursed to the Master Servicer or Subservicer on or prior to such Distribution Date pursuant to Section 3.10(a)(vii). Cash Liquidation: With respect to any defaulted Mortgage Loan other than a Mortgage Loan as to which an REO Acquisition occurred, a determination by the Master Servicer that it has received all Insurance Proceeds, Liquidation Proceeds and other payments or cash recoveries which the Master Servicer reasonably and in good faith expects to be finally recoverable with respect to such Mortgage Loan. Certificate: Any Class A Certificate, Class M Certificate, Class SB Certificate or Class R Certificate. Certificate Account: The account or accounts created and maintained pursuant to Section 4.01, which shall be entitled "U.S. Bank National Association, as trustee, in trust for the registered holders of Residential Asset Securities Corporation, Home Equity Mortgage Asset-Backed Pass-Through Certificates, Series 2006-KS9" and which account shall be held for the benefit of the Certificateholders and which must be an Eligible Account. Certificate Account Deposit Date: With respect to any Distribution Date, the Business Day prior thereto. Certificateholder or Holder: The Person in whose name a Certificate is registered in the Certificate Register, except that neither a Disqualified Organization nor a Non-United States Person shall be a holder of a Class R Certificate for any purpose hereof. Solely for the purpose of giving any consent or direction pursuant to this Agreement, any Certificate, other than a Class R Certificate, registered in the name of the Depositor, the Master Servicer or any Subservicer or any Affiliate thereof shall be deemed not to be outstanding and the Percentage Interest or Voting Rights evidenced thereby shall not be taken into account in determining whether the requisite amount of Percentage Interests or Voting Rights necessary to effect any such consent or direction has been obtained. All references herein to "Holders" or "Certificateholders" shall reflect the rights of Certificate Owners as they may indirectly exercise such rights through the Depository and participating members thereof, except as otherwise specified herein; provided, however, that the Trustee shall be required to recognize as a "Holder" or "Certificateholder" only the Person in whose name a Certificate is registered in the Certificate Register. Certificate Owner: With respect to a Book-Entry Certificate, the Person who is the beneficial owner of such Certificate, as reflected on the books of an indirect participating brokerage firm for which a Depository Participant acts as agent, if any, and otherwise on the books of a Depository Participant, if any, and otherwise on the books of the Depository. Certificate Principal Balance: With respect to any Class A Certificate or Class M Certificate, on any date of determination, an amount equal to (i) the Initial Certificate Principal Balance of such Certificate as specified on the face thereof, minus (ii) the sum of (x) the aggregate of all amounts previously distributed with respect to such Certificate (or any predecessor Certificate) and applied to reduce the Certificate Principal Balance thereof pursuant to Section 4.02(c) and (y) the aggregate of all reductions in Certificate Principal Balance deemed to have occurred in connection with Realized Losses which were previously allocated to such Certificate (or any predecessor Certificate) pursuant to Section 4.05; provided, that with respect to any Distribution Date, the Certificate Principal Balances of (i) the Class A I or Class M Certificates will be increased, in each case to the extent of Realized Losses previously allocated thereto and remaining unreimbursed, by the Subsequent Recovery Allocation Amount for Loan Group I in the following order of priority: first to the Class A-I Certificates, pro rata, and then to the Class M-1S, Class M-2S, Class M-3S, Class M-4, Class M-5, Class M-6, Class M-7, Class M-8 and Class M-9 Certificates, in that order and (ii) the Class A-II or Class M Certificates will be increased, in each case to the extent of Realized Losses previously allocated thereto and remaining unreimbursed, by the Subsequent Recovery Allocation Amount for Loan Group II in the following order of priority: to the Class A-II, Class M-1S, Class M-2S, Class M-3S, Class M-4, Class M-5, Class M-6, Class M-7, Class M-8 and Class M-9 Certificates, in that order. With respect to any Class SB Certificate, on any date of determination, an amount equal to the Percentage Interest evidenced by such Certificate multiplied by an amount equal to (i) the excess, if any, of (A) the then aggregate Stated Principal Balance of the Mortgage Loans over (B) the then aggregate Certificate Principal Balance of the Class A Certificates and Class M Certificates then outstanding, which represents the sum of (i) the Initial Principal Balance of REMIC IV Regular Interest SB-PO, as reduced by Realized Losses allocated thereto and payments deemed made thereon, and (ii) accrued and unpaid interest on REMIC IV Regular Interest SB-IO, as reduced by Realized Losses allocated thereto. The Class R Certificates will not have a Certificate Principal Balance. Certificate Register and Certificate Registrar: The register maintained and the registrar appointed pursuant to Section 5.02. Class: Collectively, all of the Certificates or uncertificated interests bearing the same designation. Class A-I-1 Margin: 0.070% per annum, and on any Distribution Date on or after the second Distribution Date after the first possible Optional Termination Date, 0.140% per annum. Class A-I-2 Certificate: Any one of the Class A-I-2 Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed hereto as Exhibit A, senior to the Class M Certificates, Class SB Certificates and Class R Certificates with respect to distributions and the allocation of Realized Losses in respect of Group I Loans as set forth in Section 4.05, and evidencing (i) an interest designated as a "regular interest" in REMIC IV for purposes of the REMIC Provisions, (ii) the right to receive payments under the Swap Agreement and (iii) the obligation to pay the Class IO Distribution Amount. Class A-I-2 Margin: Initially, 0.120% per annum, and on any Distribution Date on or after the second Distribution Date after the first possible Optional Termination Date, 0.240% per annum. Class A-I-3 Certificate: Any one of the Class A-I-3 Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed hereto as Exhibit A, senior to the Class M Certificates, Class SB Certificates and Class R Certificates with respect to distributions and the allocation of Realized Losses in respect of Group I Loans as set forth in Section 4.05, and evidencing (i) an interest designated as a "regular interest" in REMIC IV for purposes of the REMIC Provisions, (ii) the right to receive payments under the Swap Agreement and (iii) the obligation to pay the Class IO Distribution Amount.. Class A-I-3 Margin: Initially, 0.160% per annum, and on any Distribution Date on or after the second Distribution Date after the first possible Optional Termination Date, 0.320% per annum. Class A-I-4 Certificate: Any one of the Class A-I-4 Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed hereto as Exhibit A, senior to the Class M Certificates, Class SB Certificates and Class R Certificates with respect to distributions and the allocation of Realized Losses in respect of Group I Loans as set forth in Section 4.05, and evidencing (i) an interest designated as a "regular interest" in REMIC IV for purposes of the REMIC Provisions, (ii) the right to receive payments under the Swap Agreement and (iii) the obligation to pay the Class IO Distribution Amount. Class A-I-4 Margin: Initially, 0.250% per annum, and on any Distribution Date on or after the second Distribution Date after the first possible Optional Termination Date, 0.500% per annum. Class A-I Certificates: Collectively, the Class A-I-1 Certificates, Class A-I-2 Certificates, Class A-I-3 Certificates and Class A-I-4 Certificates. Class A-I Interest Remittance Amount: With respect to any Distribution Date, the portion of the Available Distribution Amount for that Distribution Date attributable to interest received or advanced with respect to the Group I Loans, as adjusted to reflect the pro rata portion of any net swap payments or Swap Termination Payments not due to a Swap Counterparty Trigger Event allocable to Loan Group I. Class A-II Certificate: Any one of the Class Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed hereto as Exhibit A, senior to the Class Certificates, Class SB Certificates and Class R Certificates with respect to distributions and the allocation of Realized Losses in respect of Group II Loans as set forth in Section 4.05, and evidencing an interest designated as a "regular interest" in REMIC IV for purposes of the REMIC Provisions. Class A-II Margin: Initially, 0.140% per annum, and on any Distribution Date on or after the second Distribution Date after the first possible Optional Termination Date, 0.280% per annum. Class A-II Interest Remittance Amount: With respect to any Distribution Date, the portion of the Available Distribution Amount for that Distribution Date attributable to interest received or advanced with respect to the Group II Loans, as adjusted to reflect the pro rata portion of any net swap payments or Swap Termination Payments not due to a Swap Counterparty Trigger Event allocable to Loan Group II. Class A Certificates: Collectively, the Class A-I Certificates and Class A-II Certificates. Class A Interest Distribution Priority: With respect to each Class of Class A Certificates and any Distribution Date, the amount available for payment of Accrued Certificate Interest thereon for that Distribution Date plus Accrued Certificate Interest thereon remaining unpaid from any prior Distribution Date, in the amounts and priority as follows: (i) first, concurrently, to the Class A-I Certificates, pro rata, from the Class A-I Interest Remittance Amount, and to the Class A-II Certificates, from the Class A-II Interest Remittance Amount; (ii) second, to the Class A-I Certificates, pro rata, from the remaining Class A-II Interest Remittance Amount, or to the Class A-II Certificates, from the remaining Class A-I Interest Remittance Amount, as needed after taking into account any distributions in respect of interest on the Class A Certificates made in first above; (iii) third, concurrently, to the Class A-I Certificates, pro rata, from the Principal Remittance Amount related to Loan Group I, and to the Class A-II Certificates, from the Principal Remittance Amount related to Loan Group II, as needed after taking into account any distributions in respect of interest on the Class A Certificates made in first and second above; and (iv) fourth, to the Class A-I Certificates, pro rata, from the remaining Principal Remittance Amount related to Loan Group II, or to the Class A-II Certificates, from the remaining Principal Remittance Amount related to Loan Group I, as needed after taking into account any distributions in respect of interest on the Class A Certificates made in first, second and third above. Class A Principal Distribution Amount: With respect to any Distribution Date (a) prior to the Stepdown Date or on or after the Stepdown Date if a Trigger Event is in effect for that Distribution Date, the Principal Distribution Amount for that Distribution Date or (b) on or after the Stepdown Date if a Trigger Event is not in effect for that Distribution Date, the lesser of: (i)...the Principal Distribution Amount for that Distribution Date; and (ii)..the excess, if any, of (A) the aggregate Certificate Principal Balance of the Class A Certificates immediately prior to that Distribution Date over (B) the lesser of (x) the product of (1) the applicable Subordination Percentage and (2) the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date and (y) the excess, if any, of the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date, over the Overcollateralization Floor. Class A-I-1 Certificate: Any one of the Class A-I-1 Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed hereto as Exhibit A, senior to the Class M Certificates, Class SB Certificates and Class R Certificates with respect to distributions and the allocation of Realized Losses in respect of Group I Loans as set forth in Section 4.05, and evidencing (i) an interest designated as a "regular interest" in REMIC IV for purposes of the REMIC Provisions, (ii) the right to receive payments under the Swap Agreement and (iii) the obligation to pay the Class IO Distribution Amount. Class M-1S Certificate: Any one of the Class M-1S Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed hereto as Exhibit B, senior to the Class M-2S Certificates, Class M-3S Certificates, Class M-4 Certificates, Class M-5 Certificates, Class M-6 Certificates, Class M-7 Certificates, Class M-8 Certificates, Class M-9 Certificates, Class SB Certificates and Class R Certificates with respect to distributions and the allocation of Realized Losses as set forth in Section 4.05, and evidencing (i) an interest designated as a "regular interest" in REMIC IV for purposes of the REMIC Provisions, (ii) the right to receive payments under the Swap Agreement and (iii) the obligation to pay the Class IO Distribution Amount. Class M-1S Margin: Initially, 0.250% per annum, and on any Distribution Date on or after the second Distribution Date after the first possible Optional Termination Date, 0.375% per annum. Class M-2S Certificate: Any one of the Class M-2S Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed hereto as Exhibit B, senior to the Class M-3S Certificates, Class M-4 Certificates, Class M-5 Certificates, Class M-6 Certificates, Class M-7 Certificates, Class M-8 Certificates, Class M-9 Certificates, Class SB Certificates and Class R Certificates with respect to distributions and the allocation of Realized Losses as set forth in Section 4.05, and evidencing (i) an interest designated as a "regular interest" in REMIC IV for purposes of the REMIC Provisions, (ii) the right to receive payments under the Swap Agreement and (iii) the obligation to pay the Class IO Distribution Amount. Class M-2S Margin: Initially, 0.320% per annum, and on any Distribution Date on or after the second Distribution Date after the first possible Optional Termination Date, 0.480% per annum. Class M-3S Certificate: Any one of the Class M-3S Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed hereto as Exhibit B-1, senior to the Class M-4 Certificates, Class M-5 Certificates, Class M-6 Certificates, Class M-7 Certificates, Class M-8 Certificates, Class M-9 Certificates, Class SB Certificates and Class R Certificates with respect to distributions and the allocation of Realized Losses as set forth in Section 4.05, and evidencing (i) an interest designated as a "regular interest" in REMIC IV for purposes of the REMIC Provisions, (ii) the right to receive payments under the Swap Agreement and (iii) the obligation to pay the Class IO Distribution Amount. Class M-3S Margin: Initially, 0.350% per annum, and on any Distribution Date on or after the second Distribution Date after the first possible Optional Termination Date, 0.525% per annum. Class M-4 Certificate: Any one of the Class M-4 Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed hereto as Exhibit B, senior to the Class M-5 Certificates, Class M-6 Certificates, Class M-7 Certificates, Class M-8 Certificates, Class M-9 Certificates, Class SB Certificates and Class R Certificates with respect to distributions and the allocation of Realized Losses as set forth in Section 4.05, and evidencing (i) an interest designated as a "regular interest" in REMIC IV for purposes of the REMIC Provisions, (ii) the right to receive payments under the Swap Agreement and (iii) the obligation to pay the Class IO Distribution Amount. Class M-4 Margin: Initially, 0.390% per annum, and on any Distribution Date on or after the second Distribution Date after the first possible Optional Termination Date, 0.585% per annum. Class M-4 Principal Distribution Amount: With respect to any Distribution Date (a) prior to the Stepdown Date or on or after the Stepdown Date if a Trigger Event is in effect for that Distribution Date, the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount and Sequential Class M Principal Distribution Amount or (b) on or after the Stepdown Date if a Trigger Event is not in effect for that Distribution Date, the lesser of: (i)...the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount and Sequential Class M Principal Distribution Amount; and (ii)..the excess, if any, of (A) the sum of (1) the aggregate Certificate Principal Balance of the Class A Certificates, Class M-1S Certificates, Class M-2S Certificates and Class M-3S Certificates (after taking into account the payment of the Class A Principal Distribution Amount and Sequential Class M Principal Distribution Amount for that Distribution Date) and (2) the Certificate Principal Balance of the Class M-4 Certificates immediately prior to that Distribution Date over (B) the lesser of (x) the product of (1) the applicable Subordination Percentage and (2) the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date and (y) the excess, if any, of the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date, over the Overcollateralization Floor. Class M-5 Certificate: Any one of the Class M-5 Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed hereto as Exhibit B, senior to the Class M-6 Certificates, Class M-7 Certificates, Class M-8 Certificates, Class M-9 Certificates, Class SB Certificates and Class R Certificates with respect to distributions and the allocation of Realized Losses as set forth in Section 4.05, and evidencing (i) an interest designated as a "regular interest" in REMIC IV for purposes of the REMIC Provisions, (ii) the right to receive payments under the Swap Agreement and (iii) the obligation to pay the Class IO Distribution Amount. Class M-5 Margin: Initially, 0.420% per annum, and on any Distribution Date on or after the second Distribution Date after the first possible Optional Termination Date, 0.630% per annum. Class M-5 Principal Distribution Amount: With respect to any Distribution Date (a) prior to the Stepdown Date or on or after the Stepdown Date if a Trigger Event is in effect for that Distribution Date, the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount, the Sequential Class M Principal Distribution Amount and the Class M-4 Principal Distribution Amount or (b) on or after the Stepdown Date if a Trigger Event is not in effect for that Distribution Date, the lesser of: (i)...the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount, the Sequential Class M Principal Distribution Amount and the Class M-4 Principal Distribution Amount; and (ii)..the excess, if any, of (A) the sum of (1) the aggregate Certificate Principal Balance of the Class A Certificates, Class M-1S Certificates, Class M-2S Certificates, Class M-3S Certificates and Class M-4 Certificates (after taking into account the payment of the Class A Principal Distribution Amount, the Sequential Class M Principal Distribution Amount and the Class M-4 Principal Distribution Amount for that Distribution Date) and (2) the Certificate Principal Balance of the Class M-5 Certificates immediately prior to that Distribution Date over (B) the lesser of (x) the product of (1) the applicable Subordination Percentage and (2) the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date and (y) the excess, if any, of the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date, over the Overcollateralization Floor. Class M-6 Certificate: Any one of the Class M-6 Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed hereto as Exhibit B, senior to the Class M-7 Certificates, Class M-8 Certificates, Class M-9 Certificates, Class SB Certificates and Class R Certificates with respect to distributions and the allocation of Realized Losses as set forth in Section 4.05, and evidencing (i) an interest designated as a "regular interest" in REMIC IV for purposes of the REMIC Provisions, (ii) the right to receive payments under the Swap Agreement and (iii) the obligation to pay the Class IO Distribution Amount. Class M-6 Margin: Initially, 0.480% per annum, and on any Distribution Date on or after the second Distribution Date after the first possible Optional Termination Date, 0.720% per annum. Class M-6 Principal Distribution Amount: With respect to any Distribution Date (a) prior to the Stepdown Date or on or after the Stepdown Date if a Trigger Event is in effect for that Distribution Date, the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount, the Sequential Class M Principal Distribution Amount, the Class M-4 Principal Distribution Amount and the Class M-5 Principal Distribution Amount or (b) on or after the Stepdown Date if a Trigger Event is not in effect for that Distribution Date, the lesser of: (i)...the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount, the Sequential Class M Principal Distribution Amount, the Class M-4 Principal Distribution Amount and the Class M-5 Principal Distribution Amount; and (ii)..the excess, if any, of (A) the sum of (1) the aggregate Certificate Principal Balance of the Class A Certificates, Class M-1S Certificates, Class M-2S Certificates, Class M-3S Certificates, Class M-4 Certificates and Class M-5 Certificates (after taking into account the payment of the Class A Principal Distribution Amount, the Sequential Class M Principal Distribution Amount, the Class M-4 Principal Distribution Amount and the Class M-5 Principal Distribution Amount for that Distribution Date) and (2) the Certificate Principal Balance of the Class M-6 Certificates immediately prior to that Distribution Date over (B) the lesser of (x) the product of (1) the applicable Subordination Percentage and (2) the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date and (y) the excess, if any, of the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date, over the Overcollateralization Floor. Class M-7 Certificate: Any one of the Class M-7 Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed hereto as Exhibit B, senior to the Class M-8 Certificates, Class M-9 Certificates, Class SB Certificates and Class R Certificates with respect to distributions and the allocation of Realized Losses as set forth in Section 4.05, and evidencing (i) an interest designated as a "regular interest" in REMIC IV for purposes of the REMIC Provisions, (ii) the right to receive payments under the Swap Agreement and (iii) the obligation to pay the Class IO Distribution Amount. Class M-7 Margin: Initially, 0.900% per annum, and on any Distribution Date on or after the second Distribution Date after the first possible Optional Termination Date, 1.350% per annum. Class M-7 Principal Distribution Amount: With respect to any Distribution Date (a) prior to the Stepdown Date or on or after the Stepdown Date if a Trigger Event is in effect for that Distribution Date, the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount, the Sequential Class M Principal Distribution Amount, the Class M-4 Principal Distribution Amount, the Class M-5 Principal Distribution Amount and the Class M-6 Principal Distribution Amount or (b) on or after the Stepdown Date if a Trigger Event is not in effect for that Distribution Date, the lesser of: (i)...the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount, the Sequential Class M Principal Distribution Amount, the Class M-4 Principal Distribution Amount, the Class M-5 Principal Distribution Amount and the Class M-6 Principal Distribution Amount; and (ii)..the excess, if any, of (A) the sum of (1) the aggregate Certificate Principal Balance of the Class A Certificates, Class M-1S Certificates, Class M-2S Certificates, Class M-3S Certificates, Class M-4 Certificates, Class M-5 Certificates and Class M-6 Certificates (after taking into account the payment of the Class A Principal Distribution Amount, the Sequential Class M Principal Distribution Amount, the Class M-4 Principal Distribution Amount, the Class M-5 Principal Distribution Amount and the Class M-6 Principal Distribution Amount for that Distribution Date) and (2) the Certificate Principal Balance of the Class M-7 Certificates immediately prior to that Distribution Date over (B) the lesser of (x) the product of (1) the applicable Subordination Percentage and (2) the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date and (y) the excess, if any, of the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date, over the Overcollateralization Floor. Class M-8 Certificate: Any one of the Class M-8 Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed hereto as Exhibit B, senior to the Class M-9 Certificates, Class SB Certificates and Class R Certificates with respect to distributions and the allocation of Realized Losses as set forth in Section 4.05, and evidencing (i) an interest designated as a "regular interest" in REMIC IV for purposes of the REMIC Provisions, (ii) the right to receive payments under the Swap Agreement and (iii) the obligation to pay the Class IO Distribution Amount. Class M-8 Margin: Initially, 1.450% per annum, and on any Distribution Date on or after the second Distribution Date after the first possible Optional Termination Date, 2.175% per annum. Class M-8 Principal Distribution Amount: With respect to any Distribution Date (a) prior to the Stepdown Date or on or after the Stepdown Date if a Trigger Event is in effect for that Distribution Date, the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount, the Sequential Class M Principal Distribution Amount, the Class M-4 Principal Distribution Amount, the Class M-5 Principal Distribution Amount, Class M-6 Principal Distribution Amount and the Class M-7 Principal Distribution Amount or (b) on or after the Stepdown Date if a Trigger Event is not in effect for that Distribution Date, the lesser of: (i)...the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount, the Sequential Class M Principal Distribution Amount, the Class M-4 Principal Distribution Amount, the Class M-5 Principal Distribution Amount, Class M-6 Principal Distribution Amount and the Class M-7 Principal Distribution Amount; and (ii)..the excess, if any, of (A) the sum of (1) the aggregate Certificate Principal Balance of the Class A Certificates, Class M-1S Certificates, Class M-2S Certificates, Class M-3S Certificates, Class M-4 Certificates, Class M-5 Certificates, Class M-6 Certificates and Class M-7 Certificates (after taking into account the payment of the Class A Principal Distribution Amount, the Sequential Class M Principal Distribution Amount, the Class M-4 Principal Distribution Amount, the Class M-5 Principal Distribution Amount, Class M-6 Principal Distribution Amount and the Class M-7 Principal Distribution Amount for that Distribution Date) and (2) the Certificate Principal Balance of the Class M-8 Certificates immediately prior to that Distribution Date over (B) the lesser of (x) the product of (1) the applicable Subordination Percentage and (2) the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date and (y) the excess, if any, of the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date, over the Overcollateralization Floor. Class M-9 Certificate: Any one of the Class M-9 Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed hereto as Exhibit B, senior to the Class SB Certificates and Class R Certificates with respect to distributions and the allocation of Realized Losses as set forth in Section 4.05, and evidencing (i) an interest designated as a "regular interest" in REMIC IV for purposes of the REMIC Provisions, (ii) the right to receive payments under the Swap Agreement and (iii) the obligation to pay the Class IO Distribution Amount. Class M-9 Margin: Initially, 2.500% per annum, and on any Distribution Date on or after the second Distribution Date after the first possible Optional Termination Date, 3.750% per annum. Class M-9 Principal Distribution Amount: With respect to any Distribution Date (a) prior to the Stepdown Date or on or after the Stepdown Date if a Trigger Event is in effect for that Distribution Date, the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount, the Sequential Class M Principal Distribution Amount, the Class M-4 Principal Distribution Amount, the Class M-5 Principal Distribution Amount, Class M-6 Principal Distribution Amount, the Class M-7 Principal Distribution Amount and the Class M-8 Principal Distribution Amount or (b) on or after the Stepdown Date if a Trigger Event is not in effect for that Distribution Date, the lesser of: (i)...the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount, the Sequential Class M Principal Distribution Amount, the Class M-4 Principal Distribution Amount, the Class M-5 Principal Distribution Amount, Class M-6 Principal Distribution Amount, Class M-7 Principal Distribution Amount and the Class M-8 Principal Distribution Amount; and (ii)..the excess, if any, of (A) the sum of (1) the aggregate Certificate Principal Balance of the Class A Certificates, Class M-1S Certificates, Class M-2S Certificates, Class M-3S Certificates, Class M-4 Certificates, Class M-5 Certificates, Class M-6 Certificates, Class M-7 Certificates and Class M-8 Certificates (after taking into account the payment of the Class A Principal Distribution Amount, the Sequential Class M Principal Distribution Amount, the Class M-4 Principal Distribution Amount, the Class M-5 Principal Distribution Amount, Class M-6 Principal Distribution Amount, Class M-7 Principal Distribution Amount and the Class M-8 Principal Distribution Amount for that Distribution Date) and (2) the Certificate Principal Balance of the Class M-9 Certificates immediately prior to that Distribution Date over (B) the lesser of (x) the product of (1) the applicable Subordination Percentage and (2) the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date and (y) the excess, if any, of the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date, over the Overcollateralization Floor. Class M Basis Risk Shortfalls: With respect to each Class of Class M Certificates and any Distribution Date, the sum of (a) with respect to any Distribution Date on which the Class M Net WAC Cap Rate is used to determine the Pass-Through Rate of such Class, an amount equal to the excess of (x) Accrued Certificate Interest for such Class calculated at a per annum rate equal to LIBOR plus the related Margin for such Distribution Date (which shall not exceed 14.000% per annum), over (y) Accrued Certificate Interest for such Class calculated using the Class M Net WAC Cap Rate for such Distribution Date, (b) any shortfalls for such Class calculated pursuant to clause (a) above remaining unpaid from prior Distribution Dates, and (c) one month's interest on the amount in clause (b) (based on the number of days in the preceding Interest Accrual Period) at a per annum rate equal to LIBOR plus the related Margin for such Distribution Date (which shall not exceed 14.000% per annum). Class M Certificates: Collectively, the Class M-1S Certificates, Class M-2S Certificates, Class M-3S Certificates, Class M-4 Certificates, Class M-5 Certificates, Class M-6 Certificates, Class M-7 Certificates, Class M-8 Certificates and Class M-9 Certificates. Class M Net WAC Cap Rate: With respect to any Distribution Date and the Class M Certificates, a per annum rate equal to the weighted average of the Group I Net WAC Cap Rate for such Distribution Date and the Group II Net WAC Cap Rate for such Distribution Date, weighted on the basis of the related Subordinate Component, which for tax purposes is equal to the weighted average of the Uncertificated REMIC II Pass-Through Rates for REMIC II Regular Interests Y-1 and Y-2. Class R Certificate: Any one of the Class R Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed hereto as Exhibit D and evidencing an interest designated as a "residual interest" in the REMICs for purposes of the REMIC Provisions. Component I of the Class R Certificates is designated as the sole class of "residual interest" in REMIC I, Component II of the Class R Certificates is designated as the sole class of "residual interest" in REMIC II, Component III of the Class R Certificates is designated as the sole class of "residual interest" in REMIC III and Component IV of the Class R Certificates is designated as the sole class of "residual interest" in REMIC IV. Class SB Certificate: Any one of the Class SB Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed hereto as Exhibit C, subordinate to the Class A Certificates and the Class M Certificates with respect to distributions and the allocation of Realized Losses as set forth in Section 4.05, and evidencing an interest comprised of "regular interests" in REMIC IV together with certain rights to payments under the Swap Agreements for purposes of the REMIC Provisions. Clearance System: The Euroclear, Clearstream or both, as applicable. Clearstream: Clearstream Banking, societe anonyme. Closing Date: October 27, 2006. Code: The Internal Revenue Code of 1986. Commission: The Securities and Exchange Commission. Compensating Interest: With respect to any Distribution Date, any amount paid by the Master Servicer in accordance with Section 3.16(f). Corporate Trust Office: The principal office of the Trustee at which at any particular time its corporate trust business with respect to this Agreement shall be administered, which office at the date of the execution of this instrument is located at U.S. Bank National Association, EP-MN-WS3D, 60 Livingston Avenue, St. Paul, Minnesota 55107, Attn: Structured Finance/RASC 2006-KS9. Credit Repository: Equifax, Transunion and Experian, or their successors in interest. Curtailment: Any Principal Prepayment made by a Mortgagor which is not a Principal Prepayment in Full. Custodial Account: The custodial account or accounts created and maintained pursuant to Section 3.07 in the name of a depository institution, as custodian for the holders of the Certificates, for the holders of certain other interests in mortgage loans serviced or sold by the Master Servicer and for the Master Servicer, into which the amounts set forth in Section 3.07 shall be deposited directly. Any such account or accounts shall be an Eligible Account. Custodial Agreement: An agreement that may be entered into among the Depositor, the Master Servicer, the Trustee and a Custodian in substantially the form of Exhibit E hereto. Custodial File: Any mortgage loan document in the Mortgage File that is required to be delivered to the Trustee or the Custodian pursuant to Section 2.01(b) of this Agreement. Custodian: Wells Fargo Bank, N.A., or any successor custodian appointed pursuant to a Custodial Agreement. Cut-off Date: October 1, 2006. Cut-off Date Balance: $1,234,143,975.84. Cut-off Date Principal Balance: With respect to any Mortgage Loan, the unpaid principal balance thereof at the Cut-off Date after giving effect to all installments of principal due on or prior thereto (or due in the month of the Cut-off Date), whether or not received. Debt Service Reduction: With respect to any Mortgage Loan, a reduction in the scheduled Monthly Payment for such Mortgage Loan by a court of competent jurisdiction in a proceeding under the Bankruptcy Code, except such a reduction constituting a Deficient Valuation or any reduction that results in a permanent forgiveness of principal. Defaulting Party: As defined in the Swap Agreement. Deficient Valuation: With respect to any Mortgage Loan, a valuation by a court of competent jurisdiction of the Mortgaged Property in an amount less than the then outstanding indebtedness under the Mortgage Loan, or any reduction in the amount of principal to be paid in connection with any scheduled Monthly Payment that constitutes a permanent forgiveness of principal, which valuation or reduction results from a proceeding under the Bankruptcy Code. Definitive Certificate: Any definitive, fully registered Certificate. Deleted Mortgage Loan: A Mortgage Loan replaced or to be replaced with a Qualified Substitute Mortgage Loan. Delinquent: As used herein, a Mortgage Loan is considered to be: "30 to 59 days" or "30 or more days" delinquent when a payment due on any scheduled due date remains unpaid as of the close of business on the next following monthly scheduled due date; "60 to 89 days" or "60 or more days" delinquent when a payment due on any scheduled due date remains unpaid as of the close of business on the second following monthly scheduled due date; and so on. The determination as to whether a Mortgage Loan falls into these categories is made as of the close of business on the last business day of each month. For example, a Mortgage Loan with a payment due on July 1 that remained unpaid as of the close of business on August 31 would then be considered to be 30 to 59 days delinquent. Delinquency information as of the Cut-off Date is determined and prepared as of the close of business on the last business day immediately prior to the Cut-off Date. Depositor: As defined in the preamble hereto. Depository: The Depository Trust Company, or any successor Depository hereafter named. The nominee of the initial Depository for purposes of registering those Certificates that are to be Book-Entry Certificates is Cede & Co. The Depository shall at all times be a "clearing corporation" as defined in Section 8-102(a)(5) of the Uniform Commercial Code of the State of New York and a "clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act. Depository Participant: A broker, dealer, bank or other financial institution or other Person for whom from time to time a Depository effects book-entry transfers and pledges of securities deposited with the Depository. Destroyed Mortgage Note: A Mortgage Note the original of which was permanently lost or destroyed and has not been replaced. Determination Date: With respect to any Distribution Date, the 20th day (or if such 20th day is not a Business Day, the Business Day immediately following such 20th day) of the month of the related Distribution Date. Disqualified Organization: Any organization defined as a "disqualified organization" under Section 860E(e)(5) of the Code, including, if not otherwise included, any of the following: (i) the United States, any State or political subdivision thereof, any possession of the United States, or any agency or instrumentality of any of the foregoing (other than an instrumentality which is a corporation if all of its activities are subject to tax and, except for Freddie Mac, a majority of its board of directors is not selected by such governmental unit), (ii) a foreign government, any international organization, or any agency or instrumentality of any of the foregoing, (iii) any organization (other than certain farmers' cooperatives described in Section 521 of the Code) which is exempt from the tax imposed by Chapter 1 of the Code (including the tax imposed by Section 511 of the Code on unrelated business taxable income) and (iv) rural electric and telephone cooperatives described in Section 1381(a)(2)(C) of the Code. A Disqualified Organization also includes any "electing large partnership," as defined in Section 775(a) of the Code and any other Person so designated by the Trustee based upon an Opinion of Counsel that the holding of an Ownership Interest in a Class R Certificate by such Person may cause any REMIC or any Person having an Ownership Interest in any Class of Certificates (other than such Person) to incur a liability for any federal tax imposed under the Code that would not otherwise be imposed but for the Transfer of an Ownership Interest in a Class R Certificate to such Person. The terms "United States," "State" and "international organization" shall have the meanings set forth in Section 7701 of the Code or successor provisions. Distribution Date: The 25th day of any month beginning in November 2006 or, if such 25th day is not a Business Day, the Business Day immediately following such 25th day. DTC Letter: The Letter of Representations, dated October 26, 2006, between the Trustee, on behalf of the Trust Fund, and the Depository. Due Date: With respect to any Distribution Date and any Mortgage Loan, the day during the related Due Period on which the Monthly Payment is due. Due Period: With respect to any Distribution Date, the calendar month of such Distribution Date. Early Termination Date: Shall have the meaning set forth in the Swap Agreement. Eligible Account: An account that is any of the following: (i) maintained with a depository institution the debt obligations of which have been rated by each Rating Agency in its highest rating available, or (ii) an account or accounts in a depository institution in which such accounts are fully insured to the limits established by the FDIC, provided that any deposits not so insured shall, to the extent acceptable to each Rating Agency, as evidenced in writing, be maintained such that (as evidenced by an Opinion of Counsel delivered to the Trustee and each Rating Agency) the registered Holders of Certificates have a claim with respect to the funds in such account or a perfected first security interest against any collateral (which shall be limited to Permitted Investments) securing such funds that is superior to claims of any other depositors or creditors of the depository institution with which such account is maintained, or (iii) in the case of the Custodial Account, a trust account or accounts maintained in the corporate trust department of U.S. Bank National Association, or (iv) in the case of the Certificate Account, a trust account or accounts maintained in the corporate trust division of U.S. Bank National Association, or (v) an account or accounts of a depository institution acceptable to each Rating Agency (as evidenced in writing by each Rating Agency that use of any such account as the Custodial Account or the Certificate Account will not reduce the rating assigned to any Class of Certificates by such Rating Agency below the then-current rating assigned to such Certificates by such Rating Agency). Eligible Master Servicing Compensation: With respect to any Distribution Date and each Loan Group, the lesser of (a) one-twelfth of 0.125% of the Stated Principal Balance of the related Mortgage Loans immediately preceding such Distribution Date and (b) the sum of the Servicing Fee and all income and gain on amounts held in the Custodial Account and the Certificate Account and payable to the Certificateholders with respect to such Distribution Date, in each case with respect to the related Loan Group; provided that for purposes of this definition the amount of the Servicing Fee will not be reduced pursuant to Section 7.02(a) except as may be required pursuant to the last sentence of such Section. ERISA: The Employee Retirement Income Security Act of 1974, as amended. Euroclear: Euroclear Bank S.A./N.V. Event of Default: As defined in Section 7.01. Excess Cash Flow: With respect to any Distribution Date, an amount equal to the sum of (A) the excess of (i) the Available Distribution Amount for that Distribution Date over (ii) the sum of (a) the Interest Distribution Amount for that Distribution Date and (b) the lesser of (1) the aggregate Certificate Principal Balance of Class A Certificates and the Class M Certificates immediately prior to such Distribution Date and (2) the Principal Remittance Amount for that Distribution Date to the extent not applied to pay interest on the Class A Certificates and the Class M Certificates on such Distribution Date, (B) the Overcollateralization Reduction Amount, if any, for that Distribution Date and (C) any Net Swap Payments received by the Supplemental Interest Trust Trustee under the Swap Agreement for that Distribution Date and deposited in the Supplemental Interest Trust Account pursuant to Section 4.10(c). Excess Overcollateralization Amount: With respect to any Distribution Date, the excess, if any, of (a) the Overcollateralization Amount on such Distribution Date over (b) the Required Overcollateralization Amount for such Distribution Date. Exchange Act: The Securities Exchange Act of 1934, as amended. Expense Fee Rate: With respect to any Mortgage Loan as of any date of determination, the sum of the applicable Servicing Fee Rate and the per annum rate at which the applicable Subservicing Fee accrues. Fannie Mae: Fannie Mae, a federally chartered and privately owned corporation organized and existing under the Federal National Mortgage Association Charter Act, or any successor thereto. FDIC: Federal Deposit Insurance Corporation or any successor thereto. Final Distribution Date: The Distribution Date on which the final distribution in respect of the Certificates will be made pursuant to Section 9.01, which Final Distribution Date shall in no event be later than the end of the 90-day liquidation period described in Section 9.02. Final Scheduled Distribution Date: Solely for purposes of the face of the Certificates, as follows: with respect to the Class A-I-1 Certificates, the Distribution Date occurring in April 2030; with respect to the Class A-I-2 Certificates the Distribution Date occurring in January 2034; with respect to the Class A-I-3 Certificates the Distribution Date occurring in September 2036; and with respect to the Class A-I-4 Certificates, Class A-II Certificates and each class of the Class M Certificates, the Distribution Date occurring in November 2036. No event of default under this Agreement will arise or become applicable solely by reason of the failure to retire the entire Certificate Principal Balance of any Class of Class A Certificates or Class M Certificates on or before its Final Scheduled Distribution Date. Fitch: Fitch Ratings, or its successors in interest. Fixed Swap Payment: With respect to any Distribution Date on or prior to the distribution date in October 2011, an amount equal to the product of (x) a fixed rate equal to 5.21% per annum, (y) the Swap Agreement Notional Balance for that Distribution Date and (z) a fraction, the numerator of which is (a) 29 for the distribution date in November 2006 and (b) 30 for any distribution date occurring after the distribution date in November 2006, and the denominator of which is 360. Floating Swap Payment: With respect to any Distribution Date on or prior to the Distribution Date in October 2011, an amount equal to the product of (x) Swap LIBOR, (y) the Swap Agreement Notional Balance for that Distribution Date and (z) a fraction, the numerator of which is equal to the number of days in the related calculation period as provided in the Swap Agreement and the denominator of which is 360. Foreclosure Profits: With respect to any Distribution Date or related Determination Date and any Mortgage Loan, the excess, if any, of Liquidation Proceeds, Insurance Proceeds and REO Proceeds (net of all amounts reimbursable therefrom pursuant to Section 3.10(a)(ii)) in respect of each Mortgage Loan or REO Property for which a Cash Liquidation or REO Disposition occurred in the related Prepayment Period over the sum of the unpaid principal balance of such Mortgage Loan or REO Property (determined, in the case of an REO Disposition, in accordance with Section 3.14) plus accrued and unpaid interest at the Mortgage Rate on such unpaid principal balance from the Due Date to which interest was last paid by the Mortgagor to the first day of the month following the month in which such Cash Liquidation or REO Disposition occurred. Form 10-K Certification: As defined in Section 4.03(e). Freddie Mac: Freddie Mac, a corporate instrumentality of the United States created and existing under Title III of the Emergency Home Finance Act of 1970, as amended, or any successor thereto. Gross Margin: With respect to each adjustable-rate Mortgage Loan, the fixed percentage set forth in the related Mortgage Note and indicated on the Mortgage Loan Schedule as the "NOTE MARGIN," which percentage is added to the related Index on each Adjustment Date to determine (subject to rounding in accordance with the related Mortgage Note, the Periodic Cap, the Maximum Mortgage Rate and the Minimum Mortgage Rate) the interest rate to be borne by such Mortgage Loan until the next Adjustment Date. Group: Loan Group I or Loan Group II, as applicable. Group I Basis Risk Shortfall: With respect to any Class of Class A-I Certificates and any Distribution Date, an amount equal to the excess of (x) Accrued Certificate Interest for that Class calculated at a per annum rate (which shall not exceed 14.000% per annum) equal to LIBOR plus the related Margin for that Distribution Date over (y) Accrued Certificate Interest for that Class if the Pass-Through Rate for that Distribution Date is calculated using the Group I Net WAC Cap Rate for that Distribution Date; plus any unpaid Group I Basis Risk Shortfall from prior Distribution Dates, plus interest thereon to the extent previously unreimbursed by Excess Cash Flow calculated at a per annum rate (which shall not exceed 14.000% per annum) equal to LIBOR plus the related Margin for that Distribution Date. Group I Loans: The Mortgage Loans designated on the Mortgage Loan Schedule attached hereto as Exhibit F-1. The Group I Loans relate to the Class A-I Certificates, Class M Certificates and Class SB Certificates. Group I Net WAC Cap Rate: With respect to any Distribution Date, a per annum rate equal to the product of (i) the weighted average of the Net Mortgage Rates (or, if applicable, the Modified Net Mortgage Rates) on the Group I Loans using the Net Mortgage Rates (or, if applicable, the Modified Net Mortgage Rates) in effect for the Monthly Payments due on such Mortgage Loans during the related Due Period, weighted on the basis of the respective Stated Principal Balances thereof for that Distribution Date and (ii) a fraction equal to 30 divided by the actual number of days in the related Interest Accrual Period. Group I Principal Distribution Amount: For any Distribution Date, the product of (x) the Class A Principal Distribution Amount for that Distribution Date and (y) a fraction, the numerator of which is the portion of the Principal Allocation Amount related to Loan Group I for that Distribution Date and the denominator of which is the Principal Allocation Amount for all of the Mortgage Loans for that Distribution Date. Group I REMIC II Net WAC Rate: With respect to any Distribution Date, a per annum rate equal to the weighted average of the Net Mortgage Rates on the Group I Loans reduced by the Adjusted Strip Rate. Group I REMIC III Net WAC Rate: With respect to any Distribution Date, a per annum rate equal to the weighted average of the Uncertificated REMIC II Pass-Through Rates for REMIC II Regular Interests Y-1 and Z-1. Group II Basis Risk Shortfall: With respect to any Class of Class A-II Certificates and any Distribution Date, an amount equal to the excess of (x) Accrued Certificate Interest for that Class calculated at a per annum rate (which shall not exceed 14.000% per annum) equal to LIBOR plus the related Margin for that Distribution Date over (y) Accrued Certificate Interest for that Class if the Pass-Through Rate for such Distribution Date is calculated using the Group II Net WAC Cap Rate for that Distribution Date; plus any unpaid Group II Basis Risk Shortfall from prior Distribution Dates, plus interest thereon to the extent previously unreimbursed by Excess Cash Flow calculated at a per annum rate (which shall not exceed 14.000% per annum) equal to LIBOR plus the related Margin for that Distribution Date. Group II Loans: The Mortgage Loans designated on the Mortgage Loan Schedule attached hereto as Exhibit F-2. The Group II Loans relate to the Class A-II Certificates, Class M Certificates and Class SB Certificates. Group II Net WAC Cap Rate: With respect to any Distribution Date, a per annum rate equal to the product of (i) the weighted average of the Net Mortgage Rates (or, if applicable, the Modified Net Mortgage Rates) on the Group II Loans using the Net Mortgage Rates (or, if applicable, the Modified Net Mortgage Rates) in effect for the Monthly Payments due on such Mortgage Loans during the related Due Period, weighted on the basis of the respective Stated Principal Balances thereof for that Distribution Date and (ii) a fraction equal to 30 divided by the actual number of days in the related Interest Accrual Period. Group II Principal Distribution Amount: For any Distribution Date, the product of (x) the Class A Principal Distribution Amount for that Distribution Date and (y) a fraction, the numerator of which is the portion of the Principal Allocation Amount related to Loan Group II for that Distribution Date and the denominator of which is the Principal Allocation Amount for all of the Mortgage Loans for that Distribution Date. Group II REMIC II Net WAC Rate: With respect to any Distribution Date, a per annum rate equal to the weighted average of the Net Mortgage Rates on the Group II Loans reduced by the Adjusted Strip Rate. Group II REMIC III Net WAC Rate: With respect to any Distribution Date, a per annum rate equal to the weighted average of the Uncertificated REMIC II Pass-Through Rates for REMIC II Regular Interests Y-2 and Z-2. HUD: The United States Department of Housing and Urban Development. Independent: When used with respect to any specified Person, means such a Person who (i) is in fact independent of the Depositor, the Master Servicer and the Trustee, or any Affiliate thereof, (ii) does not have any direct financial interest or any material indirect financial interest in the Depositor, the Master Servicer or the Trustee or in an Affiliate thereof, and (iii) is not connected with the Depositor, the Master Servicer or the Trustee as an officer, employee, promoter, underwriter, trustee, partner, director or person performing similar functions. Index: With respect to any adjustable-rate Mortgage Loan and as to any Adjustment Date therefor, the related index as stated in the related Mortgage Note. Initial Certificate Principal Balance: With respect to each Class of Certificates (other than the Class R Certificates), the Certificate Principal Balance of such Class of Certificates as of the Closing Date as set forth in the Preliminary Statement hereto. Insurance Proceeds: Proceeds paid in respect of the Mortgage Loans pursuant to any Primary Insurance Policy or any other related insurance policy covering a Mortgage Loan, to the extent such proceeds are payable to the mortgagee under the Mortgage, any Subservicer, the Master Servicer or the Trustee and are not applied to the restoration of the related Mortgaged Property or released to the Mortgagor in accordance with the procedures that the Master Servicer would follow in servicing mortgage loans held for its own account. Interest Accrual Period: With respect to the Distribution Date in November 2006, the period commencing the Closing Date and ending on the day preceding the Distribution Date in November 2006, and with respect to any Distribution Date after the Distribution Date in November 2006, the period commencing on the Distribution Date in the month immediately preceding the month in which such Distribution Date occurs and ending on the day preceding such Distribution Date. Interest Distribution Amount: For any Distribution Date, the amounts payable pursuant to Section 4.02(c)(i) and (ii). Interim Certification: As defined in Section 2.02. Late Collections: With respect to any Mortgage Loan, all amounts received during any Due Period, whether as late payments of Monthly Payments or as Insurance Proceeds, Liquidation Proceeds or otherwise, which represent late payments or collections of Monthly Payments due but delinquent for a previous Due Period and not previously recovered. LIBOR: With respect to any Distribution Date, the arithmetic mean of the London interbank offered rate quotations for one-month U.S. Dollar deposits, expressed on a per annum basis, determined in accordance with Section 1.02. LIBOR Business Day: Any day other than (i) a Saturday or Sunday or (ii) a day on which banking institutions in London, England are required or authorized by law to be closed. LIBOR Certificates: Collectively, the Class A Certificates and the Class M Certificates. LIBOR Rate Adjustment Date: With respect to each Distribution Date, the second LIBOR Business Day immediately preceding the commencement of the related Interest Accrual Period. Liquidation Proceeds: Amounts (other than Insurance Proceeds) received by the Master Servicer in connection with the taking of an entire Mortgaged Property by exercise of the power of eminent domain or condemnation or in connection with the liquidation of a defaulted Mortgage Loan through trustee's sale, foreclosure sale or otherwise, other than REO Proceeds and Subsequent Recoveries. Loan Group I: The Mortgage Loans designated on the Mortgage Loan Schedule attached hereto as Exhibit F-1. Loan Group II: The Mortgage Loans designated on the Mortgage Loan Schedule attached hereto as Exhibit F-2. Loan-to-Value Ratio: As of any date, the fraction, expressed as a percentage, the numerator of which is the current principal balance of the related Mortgage Loan at the date of determination and the denominator of which is the Appraised Value of the related Mortgaged Property. Margin: The Class A-I-1 Margin, Class A-I-2 Margin, Class A-I-3 Margin, Class A-I-4 Margin, Class A-II Margin, Class M-1S Margin, Class M-2S Margin, Class M-3S Margin, Class M-4 Margin, Class M-5 Margin, Class M-6 Margin, Class M-7 Margin, Class M-8 Margin or Class M-9 Margin, as applicable. Marker Rate: With respect to the Class SB Certificates or REMIC IV Regular Interest SB-IO and any Distribution Date, in relation to REMIC III Regular Interests LT1, LT2, LT3, LT4 and LT-Y1, a per annum rate equal to two (2) times the weighted average of the Uncertificated REMIC III Pass-Through Rates for REMIC III Regular Interest LT2 and REMIC III Regular Interest LT3. With respect to the Class SB Certificates or REMIC IV Regular Interest SB-IO and any Distribution Date, in relation to REMIC III Regular Interests LT5, LT6, LT7, LT8 and LT-Y2, a per annum rate equal to two (2) times the weighted average of the Uncertificated REMIC III Pass-Through Rates for REMIC III Regular Interest LT6 and REMIC III Regular Interest LT7. Master Servicer: As defined in the preamble hereto. Maturity Date: With respect to each Class of Certificates representing ownership of Regular Interests or Uncertificated Regular Interest issued by each of REMIC I, REMIC II, REMIC III and REMIC IV the latest possible maturity date, solely for purposes of Section 1.860G-1(a)(4)(iii) of the Treasury Regulations, by which the Certificate Principal Balance of each such Class of Certificates representing a regular interest in the Trust Fund would be reduced to zero, which is, for each such regular interest, November 25, 2036, which is the Distribution Date occurring in the month following the last scheduled monthly payment of the Mortgage Loans. Maximum Mortgage Rate: With respect to any adjustable-rate Mortgage Loan, the per annum rate indicated on the Mortgage Loan Schedule as the "NOTE CEILING," which rate is the maximum interest rate that may be applicable to such Mortgage Loan at any time during the life of such Mortgage Loan. MERS: Mortgage Electronic Registration Systems, Inc., a corporation organized and existing under the laws of the State of Delaware, or any successor thereto. MERS(R)System: The system of recording transfers of Mortgages electronically maintained by MERS. MIN: The Mortgage Identification Number for Mortgage Loans registered with MERS on the MERS(R)System. Minimum Mortgage Rate: With respect to any adjustable-rate Mortgage Loan, a per annum rate equal to the greater of (i) the Note Margin and (ii) the rate indicated on the Mortgage Loan Schedule as the "NOTE FLOOR," which rate may be applicable to such Mortgage Loan at any time during the life of such Mortgage Loan. Modified Mortgage Loan: Any Mortgage Loan that has been the subject of a Servicing Modification. Modified Net Mortgage Rate: With respect to any Mortgage Loan that is the subject of a Servicing Modification, the Net Mortgage Rate minus the rate per annum by which the Mortgage Rate on such Mortgage Loan was reduced. MOM Loan: With respect to any Mortgage Loan, MERS acting as the mortgagee of such Mortgage Loan, solely as nominee for the originator of such Mortgage Loan and its successors and assigns, at the origination thereof. Monthly Payment: With respect to any Mortgage Loan (including any REO Property) and the Due Date in any Due Period, the payment of principal and interest due thereon in accordance with the amortization schedule at the time applicable thereto (after adjustment, if any, for Curtailments and for Deficient Valuations occurring prior to such Due Date but before any adjustment to such amortization schedule by reason of any bankruptcy, other than a Deficient Valuation, or similar proceeding or any moratorium or similar waiver or grace period and before any Servicing Modification that constitutes a reduction of the interest rate on such Mortgage Loan). Moody's: Moody's Investors Service, Inc., or its successors in interest. Mortgage: With respect to each Mortgage Note, the mortgage, deed of trust or other comparable instrument creating a first or junior lien on an estate in fee simple or leasehold interest in real property securing a Mortgage Note. Mortgage File: The mortgage documents listed in Section 2.01 pertaining to a particular Mortgage Loan and any additional documents required to be added to the Mortgage File pursuant to this Agreement. Mortgage Loans: Such of the mortgage loans transferred and assigned to the Trustee pursuant to Section 2.01 as from time to time are held or deemed to be held as a part of the Trust Fund, the Mortgage Loans originally so held being identified in the initial Mortgage Loan Schedule, and Qualified Substitute Mortgage Loans held or deemed held as part of the Trust Fund including, without limitation, each related Mortgage Note, Mortgage and Mortgage File and all rights appertaining thereto. Mortgage Loan Schedule: The lists of the Mortgage Loans attached hereto as Exhibit F-1 and Exhibit F-2 (as amended from time to time to reflect the addition of Qualified Substitute Mortgage Loans), which lists shall set forth at a minimum the following information as to each Mortgage Loan: (i)...the Mortgage Loan identifying number ("RFC LOAN #"); (ii)..[reserved]; (iii).the maturity of the Mortgage Note ("MATURITY DATE," or "MATURITY DT"); (iv)..for the adjustable-rate Mortgage Loans, the Mortgage Rate as of origination ("ORIG RATE"); (v)...the Mortgage Rate as of the Cut-off Date ("CURR RATE"); (vi)..the Net Mortgage Rate as of the Cut-off Date ("CURR NET"); (vii).the scheduled monthly payment of principal, if any, and interest as of the Cut-off Date ("ORIGINAL P & I" or "CURRENT P & I"); (viii) the Cut-off Date Principal Balance ("PRINCIPAL BAL"); (ix)..the Loan-to-Value Ratio at origination ("LTV"); (x)...a code "T," "BT" or "CT" under the column "LN FEATURE," indicating that the Mortgage Loan is secured by a second or vacation residence (the absence of any such code means the Mortgage Loan is secured by a primary residence); (xi)..a code "N" under the column "OCCP CODE," indicating that the Mortgage Loan is secured by a non-owner occupied residence (the absence of any such code means the Mortgage Loan is secured by an owner occupied residence); (xii).for the adjustable-rate Mortgage Loans, the Maximum Mortgage Rate ("NOTE CEILING"); (xiii) for the adjustable-rate Mortgage Loans, the maximum Net Mortgage Rate ("NET CEILING"); (xiv).for the adjustable-rate Mortgage Loans, the Note Margin ("NOTE MARGIN"); (xv)..for the adjustable-rate Mortgage Loans, the first Adjustment Date after the Cut-off Date ("NXT INT CHG DT"); (xvi).for the adjustable-rate Mortgage Loans, the Periodic Cap ("PERIODIC DECR" or "PERIODIC INCR"); (xvii) [reserved]; and (xviii) for the adjustable-rate Mortgage Loans, the rounding of the semi-annual or annual adjustment to the Mortgage Rate ("NOTE METHOD"). Such schedules may consist of multiple reports that collectively set forth all of the information required. Mortgage Note: The originally executed note or other evidence of indebtedness evidencing the indebtedness of a Mortgagor under a Mortgage Loan, together with any modification thereto. Mortgage Rate: With respect to any Mortgage Loan, the interest rate borne by the related Mortgage Note, or any modification thereto other than a Servicing Modification. The Mortgage Rate on the adjustable-rate Mortgage Loans will adjust on each Adjustment Date to equal the sum (rounded to the nearest multiple of one-eighth of one percent (0.125%) or up to the nearest one-eighth of one percent, which are indicated by a "U" on the Mortgage Loan Schedule, except in the case of the adjustable-rate Mortgage Loans indicated by an "X" on the Mortgage Loan Schedule under the heading "NOTE METHOD"), of the related Index plus the Note Margin, in each case subject to the applicable Periodic Cap, Maximum Mortgage Rate and Minimum Mortgage Rate. Mortgaged Property: The underlying real property securing a Mortgage Loan. Mortgagor: The obligor on a Mortgage Note. Net Mortgage Rate: With respect to any Mortgage Loan as of any date of determination, a per annum rate equal to the Mortgage Rate for such Mortgage Loan as of such date minus the related Expense Fee Rate. Net Swap Payment: With respect to each Distribution Date, the net payment required to be made pursuant to the terms of the Swap Agreement by either the Swap Counterparty or the Supplemental Interest Trust Trustee, on behalf of the Supplemental Interest Trust, which net payment shall not take into account any Swap Termination Payment. Net WAC Cap Rate: The Group I Net WAC Cap Rate, Group II Net WAC Cap Rate or Class M Net WAC Cap Rate, as applicable. Non-United States Person: Any Person other than a United States Person. Nonrecoverable Advance: Any Advance previously made or proposed to be made by the Master Servicer or Subservicer in respect of a Mortgage Loan (other than a Deleted Mortgage Loan) which, in the good faith judgment of the Master Servicer, will not, or, in the case of a proposed Advance, would not, be ultimately recoverable by the Master Servicer from related Late Collections, Insurance Proceeds, Liquidation Proceeds or REO Proceeds. To the extent that any Mortgagor is not obligated under the related Mortgage documents to pay or reimburse any portion of any Servicing Advances that are outstanding with respect to the related Mortgage Loan as a result of a modification of such Mortgage Loan by the Master Servicer, which forgives amounts which the Master Servicer or Subservicer had previously advanced, and the Master Servicer determines that no other source of payment or reimbursement for such advances is available to it, such Servicing Advances shall be deemed to be Nonrecoverable Advances. The determination by the Master Servicer that it has made a Nonrecoverable Advance shall be evidenced by a certificate of a Servicing Officer, Responsible Officer or Vice President or its equivalent or senior officer of the Master Servicer, delivered to the Depositor, the Trustee, and the Master Servicer setting forth such determination, which shall include any other information or reports obtained by the Master Servicer such as property operating statements, rent rolls, property inspection reports and engineering reports, which may support such determinations. Notwithstanding the above, the Trustee shall be entitled to rely upon any determination by the Master Servicer that any Advance previously made is a Nonrecoverable Advance or that any proposed Advance, if made, would constitute a Nonrecoverable Advance. Nonsubserviced Mortgage Loan: Any Mortgage Loan that, at the time of reference thereto, is not subject to a Subservicing Agreement. Note Margin: With respect to each adjustable-rate Mortgage Loan, the fixed percentage set forth in the related Mortgage Note and indicated on the Mortgage Loan Schedule as the "NOTE MARGIN," which percentage is added to the Index on each Adjustment Date to determine (subject to rounding in accordance with the related Mortgage Note, the Periodic Cap, the Maximum Mortgage Rate and the Minimum Mortgage Rate) the interest rate to be borne by such adjustable-rate Mortgage Loan until the next Adjustment Date. Officers' Certificate: A certificate signed by the Chairman of the Board, the President, a Vice President, Assistant Vice President, Director, Managing Director, the Treasurer, the Secretary, an Assistant Treasurer or an Assistant Secretary of the Depositor or the Master Servicer, as the case may be, and delivered to the Trustee, as required by this Agreement. Opinion of Counsel: A written opinion of counsel acceptable to the Trustee and the Master Servicer and which counsel may be counsel for the Depositor or the Master Servicer, provided that any Opinion of Counsel (i) referred to in the definition of "Disqualified Organization" or (ii) relating to the qualification of any REMIC hereunder as a REMIC or compliance with the REMIC Provisions must, unless otherwise specified, be an opinion of Independent counsel. Optional Termination Date: Any Distribution Date on or after which the Stated Principal Balance (after giving effect to distributions to be made on such Distribution Date) of the Mortgage Loans is less than 10.00% of the Cut-off Date Balance. Outstanding Mortgage Loan: With respect to the Due Date in any Due Period, a Mortgage Loan (including an REO Property) that was not the subject of a Principal Prepayment in Full, Cash Liquidation or REO Disposition and that was not purchased, deleted or substituted for prior to such Due Date pursuant to Section 2.02, 2.03, 2.04 or 4.07. Overcollateralization Amount: With respect to any Distribution Date, the excess, if any, of (a) the aggregate Stated Principal Balance of the Mortgage Loans before giving effect to distributions of principal to be made on such Distribution Date over (b) the aggregate Certificate Principal Balance of the Class A Certificates and the Class M Certificates immediately prior to such date. Overcollateralization Floor: An amount equal to the product of 0.50% and the Cut-off Date Balance. Overcollateralization Increase Amount: With respect to any Distribution Date, the lesser of (a) Excess Cash Flow for that Distribution Date (to the extent not used to cover the amounts described in clauses (iv) and (v) of the definition of Principal Distribution Amount as of such Distribution Date), and (b) the excess of (1) the Required Overcollateralization Amount for such Distribution Date over (2) the Overcollateralization Amount for such Distribution Date. Overcollateralization Reduction Amount: With respect to any Distribution Date on which the Excess Overcollateralization Amount is, after taking into account all other distributions to be made on such Distribution Date, greater than zero, the Overcollateralization Reduction Amount shall be equal to the lesser of (i) the Excess Overcollateralization Amount for that Distribution Date and (ii) the Principal Remittance Amount on such Distribution Date. Ownership Interest: With respect to any Certificate, any ownership or security interest in such Certificate, including any interest in such Certificate as the Holder thereof and any other interest therein, whether direct or indirect, legal or beneficial, as owner or as pledgee. Pass-Through Rate: With respect to each Class of Class A Certificates and Class M Certificates and any Distribution Date, the least of (i) a per annum rate equal to LIBOR plus the related Margin for such Distribution Date, (ii) 14.000% per annum and (iii) the related Net WAC Cap Rate for such Distribution Date. With respect to the Class SB Certificates or REMIC IV Regular Interest SB-IO and any Distribution Date, a per annum rate equal to the percentage equivalent of a fraction, the numerator of which is the sum of the amounts calculated pursuant to clauses (i) through (viii) below, and the denominator of which is the aggregate principal balance of the REMIC III Regular Interests. For purposes of calculating the Pass-Through Rate for the Class SB Certificates or REMIC IV Regular Interest SB-IO, the numerator is equal to the sum of the following components: (i)...the Uncertificated Pass-Through Rate for REMIC III Regular Interest LT1 minus the related Marker Rate, applied to a notional amount equal to the Uncertificated Principal Balance of REMIC III Regular Interest LT1; (ii)..the Uncertificated Pass-Through Rate for REMIC III Regular Interest LT2 minus the related Marker Rate, applied to a notional amount equal to the Uncertificated Principal Balance of REMIC III Regular Interest LT2; (iii).the Uncertificated Pass-Through Rate for REMIC III Regular Interest LT4 minus twice the related Marker Rate, applied to a notional amount equal to the Uncertificated Principal Balance of REMIC III Regular Interest LT4; (iv)..the Uncertificated Pass-Through Rate for REMIC III Regular Interest LT5 minus the related Marker Rate, applied to a notional amount equal to the Uncertificated Principal Balance of REMIC III Regular Interest LT5; (v)...the Uncertificated Pass-Through Rate for REMIC III Regular Interest LT6 minus the related Marker Rate, applied to a notional amount equal to the Uncertificated Principal Balance of REMIC III Regular Interest LT6; (vi)..the Uncertificated Pass-Through Rate for REMIC III Regular Interest LT8 minus twice the related Marker Rate, applied to a notional amount equal to the Uncertificated Principal Balance of REMIC III Regular Interest LT8; (vii).the Uncertificated Pass-Through Rate for REMIC III Regular Interest LT-Y1 minus the related Marker Rate, applied to a notional amount equal to the Uncertificated Principal Balance of REMIC III Regular Interest LT-Y1; and (viii) the Uncertificated Pass-Through Rate for REMIC III Regular Interest LT-Y2 minus the related Marker Rate, applied to a notional amount equal to the Uncertificated Principal Balance of REMIC III Regular Interest LT-Y2. Paying Agent: U.S. Bank National Association or any successor Paying Agent appointed by the Trustee. Percentage Interest: With respect to any Class A Certificate or Class M Certificate, the undivided percentage ownership interest in the related Class evidenced by such Certificate, which percentage ownership interest shall be equal to the Initial Certificate Principal Balance thereof divided by the aggregate Initial Certificate Principal Balance of all of the Certificates of the same Class. The Percentage Interest with respect to a Class SB Certificate or Class R Certificate shall be stated on the face thereof. Periodic Cap: With respect to each adjustable-rate Mortgage Loan, the periodic rate cap that limits the increase or the decrease of the related Mortgage Rate on any Adjustment Date pursuant to the terms of the related Mortgage Note. Permitted Investments: One or more of the following: (i) ..obligations of or guaranteed as to principal and interest by the United States or any agency or instrumentality thereof when such obligations are backed by the full faith and credit of the United States; (ii) .repurchase agreements on obligations specified in clause (i) maturing not more than one month from the date of acquisition thereof, provided that the unsecured obligations of the party agreeing to repurchase such obligations are at the time rated by each Rating Agency in its highest short-term rating available; (iii) federal funds, certificates of deposit, demand deposits, time deposits and bankers' acceptances (which shall each have an original maturity of not more than 90 days and, in the case of bankers' acceptances, shall in no event have an original maturity of more than 365 days or a remaining maturity of more than 30 days) denominated in United States dollars of any U.S. depository institution or trust company incorporated under the laws of the United States or any state thereof or of any domestic branch of a foreign depository institution or trust company; provided that the debt obligations of such depository institution or trust company at the date of acquisition thereof have been rated by each Rating Agency in its highest short-term rating available; and, provided further that, if the original maturity of such short-term obligations of a domestic branch of a foreign depository institution or trust company shall exceed 30 days, the short-term rating of such institution shall be A-1+ in the case of Standard & Poor's if Standard & Poor's is a Rating Agency; (iv) .commercial paper and demand notes (having original maturities of not more than 365 days) of any corporation incorporated under the laws of the United States or any state thereof which on the date of acquisition has been rated by each Rating Agency in its highest short term rating available; provided that such commercial paper and demand notes shall have a remaining maturity of not more than 30 days; (v) ..a money market fund or a qualified investment fund rated by each Rating Agency in its highest long-term rating available (which may be managed by the Trustee or one of its Affiliates); and (vi) .other obligations or securities that are acceptable to each Rating Agency as a Permitted Investment hereunder and will not reduce the rating assigned to any Class of Certificates by such Rating Agency below the then-current rating assigned to such Certificates by such Rating Agency, as evidenced in writing; provided, however, that no instrument shall be a Permitted Investment if it represents, either (1) the right to receive only interest payments with respect to the underlying debt instrument or (2) the right to receive both principal and interest payments derived from obligations underlying such instrument and the principal and interest payments with respect to such instrument provide a yield to maturity greater than 120% of the yield to maturity at par of such underlying obligations. References herein to the highest rating available on unsecured long-term debt shall mean AAA in the case of Standard & Poor's and Aaa in the case of Moody's, and for purposes of this Agreement, any references herein to the highest rating available on unsecured commercial paper and short-term debt obligations shall mean the following: A-1 in the case of Standard & Poor's and P-1 in the case of Moody's; provided, however, that any Permitted Investment that is a short-term debt obligation rated A-1 by Standard & Poor's must satisfy the following additional conditions: (i) the total amount of debt from A-1 issuers must be limited to the investment of monthly principal and interest payments (assuming fully amortizing collateral); (ii) the total amount of A-1 investments must not represent more than 20% of the aggregate outstanding Certificate Principal Balance of the Certificates and each investment must not mature beyond 30 days; (iii) the terms of the debt must have a predetermined fixed dollar amount of principal due at maturity that cannot vary; and (iv) if the investments may be liquidated prior to their maturity or are being relied on to meet a certain yield, interest must be tied to a single interest rate index plus a single fixed spread (if any) and must move proportionately with that index. Any Permitted Investment may be purchased by or through the Trustee or its Affiliates. Permitted Transferee: Any Transferee of a Class R Certificate, other than a Disqualified Organization or Non-United States Person. Person: Any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. Prepayment Assumption: With respect to the Class A Certificates and the Class M Certificates, the prepayment assumption to be used for determining the accrual of original issue discount and premium and market discount on such Certificates for federal income tax purposes, which (a) with respect to the fixed-rate Mortgage Loans, assumes a constant prepayment rate of one-tenth of 23% per annum of the then outstanding Stated Principal Balance of the fixed-rate Mortgage Loans in the first month of the life of such Mortgage Loans and an additional one-tenth of 23% per annum in each month thereafter until the tenth month, and beginning in the tenth month and in each month thereafter during the life of the fixed-rate Mortgage Loans, a constant prepayment rate of 23% per annum each month ("23% HEP") and (b) with respect to the adjustable-rate Mortgage Loans assumes a prepayment assumption of 2% of the constant prepayment rate in month one, increasing by approximately 2.545% from month 2 until month 12, a constant prepayment rate of 30% from month 12 to month 22, a constant prepayment rate of 50% from month 23 to month 27, and a constant prepayment rate of 35% thereafter, used for determining the accrual of original issue discount and premium and market discount on the Class A Certificates and Class M Certificates for federal income tax purposes. The constant prepayment rate assumes that the stated percentage of the outstanding Stated Principal Balance of the adjustable-rate Mortgage Loans is prepaid over the course of a year. Prepayment Interest Shortfall: With respect to any Distribution Date and any Mortgage Loan (other than a Mortgage Loan relating to an REO Property) that was the subject of (a) a Principal Prepayment in Full during the related Prepayment Period, an amount equal to the excess of one month's interest at the related Net Mortgage Rate (or Modified Net Mortgage Rate in the case of a Modified Mortgage Loan) on the Stated Principal Balance of such Mortgage Loan over the amount of interest (adjusted to the related Net Mortgage Rate (or Modified Net Mortgage Rate in the case of a Modified Mortgage Loan)) paid by the Mortgagor for such Prepayment Period to the date of such Principal Prepayment in Full or (b) a Curtailment during the prior calendar month, an amount equal to one month's interest at the related Net Mortgage Rate (or Modified Net Mortgage Rate in the case of a Modified Mortgage Loan) on the amount of such Curtailment. Prepayment Period: With respect to any Distribution Date, the calendar month preceding the month of distribution. Primary Insurance Policy: Each primary policy of mortgage guaranty insurance as indicated by a numeric code on the Mortgage Loan Schedule with the exception of code "A23," "A34" or "A96" under the column "MI CO CODE." Principal Allocation Amount: With respect to any Distribution Date, the sum of (a) the Principal Remittance Amount for that Distribution Date, as adjusted to reflect any net swap payments or Swap Termination Payments not due to a Swap Counterparty Trigger Event, (b) any Realized Losses covered by amounts included in clause (iv) of the definition of Principal Distribution Amount and (c) the aggregate amount of the principal portion of Realized Losses on the Mortgage Loans in the calendar month preceding that Distribution Date, to the extent covered by Excess Cash Flow included in clause (v) of the definition of Principal Distribution Amount; provided, however, that on any Distribution Date on which there is (i) insufficient Subsequent Recoveries to cover all unpaid Realized Losses on the Mortgage Loans described in clause (b) above, in determining the Group I Principal Distribution Amount and the Group II Principal Distribution Amount, Subsequent Recoveries will be allocated to the Class A-I Certificates and Class A-II Certificates, pro rata, based on the principal portion of unpaid Realized Losses from prior Distribution Dates on the Group I Loans and Group II Loans, respectively, and (ii) insufficient Excess Cash Flow to cover all Realized Losses on the Mortgage Loans described in clause (c) above, in determining the Group I Principal Distribution Amount and the Group II Principal Distribution Amount, the Excess Cash Flow remaining after the allocation described in clause (b) above or (i) of this proviso, as applicable, will be allocated to the Class A-I Certificates and Class A-II Certificates, pro rata, based on the principal portion of Realized Losses incurred during the calendar month preceding that Distribution Date on the Group I Loans and Group II Loans, respectively. Principal Distribution Amount: With respect to any Distribution Date, the lesser of (a) the excess of (x) the sum of (A) the Available Distribution Amount and (B) with respect to clauses (b)(v) and (vi) below, the amounts received by the Supplemental Interest Trust Trustee under the Swap Agreement for that Distribution Date, over (y) the Interest Distribution Amount, and (b) the sum of: (i)...the principal portion of each Monthly Payment received or Advanced with respect to the related Due Period on each Outstanding Mortgage Loan; (ii)..the Stated Principal Balance of any Mortgage Loan repurchased during the related Prepayment Period (or deemed to have been so repurchased in accordance with Section 3.07(b)) pursuant to Section 2.02, 2.03, 2.04 or 4.07 and the amount of any shortfall deposited in the Custodial Account in connection with the substitution of a Deleted Mortgage Loan pursuant to Section 2.03 or 2.04 during the related Prepayment Period; (iii).the principal portion of all other unscheduled collections, other than Subsequent Recoveries, on the Mortgage Loans (including, without limitation, Principal Prepayments in Full, Curtailments, Insurance Proceeds, Liquidation Proceeds and REO Proceeds) received during the related Prepayment Period (or deemed to have been so received) to the extent applied by the Master Servicer as recoveries of principal of the Mortgage Loans pursuant to Section 3.14; (iv)..the lesser of (1) Subsequent Recoveries for such Distribution Date and (2) the principal portion of any Realized Losses allocated to any Class of Certificates on a prior Distribution Date and remaining unpaid; (v)...the lesser of (1) the Excess Cash Flow for such Distribution Date (to the extent not used pursuant to clause (iv) of this definition on such Distribution Date) and (2) the principal portion of any Realized Losses incurred (or deemed to have been incurred) on any Mortgage Loans in the calendar month preceding such Distribution Date; and (vi)..the lesser of (1) the Excess Cash Flow for that Distribution Date (to the extent not used pursuant to clauses (iv) and (v) of this definition on such Distribution Date) and (2) the Overcollateralization Increase Amount for such Distribution Date; minus (vii).(A) the amount of any Overcollateralization Reduction Amount for such Distribution Date and (B) the amount of any Capitalization Reimbursement Amount for such Distribution Date. Principal Prepayment: Any payment of principal or other recovery on a Mortgage Loan, including a recovery that takes the form of Liquidation Proceeds or Insurance Proceeds, which is received in advance of its scheduled Due Date and is not accompanied by an amount as to interest representing scheduled interest on such payment due on any date or dates in any month or months subsequent to the month of prepayment. Principal Prepayment in Full: Any Principal Prepayment made by a Mortgagor of the entire principal balance of a Mortgage Loan. Principal Remittance Amount: With respect to any Distribution Date, all amounts described in clauses (b)(i) through (iii) of the definition of Principal Distribution Amount for that Distribution Date. Program Guide: The AlterNet Seller Guide as incorporated into the Residential Funding Seller Guide for mortgage collateral sellers that participate in Residential Funding's AlterNet Mortgage Program, and Residential Funding's Servicing Guide and any other subservicing arrangements which Residential Funding has arranged to accommodate the servicing of the Mortgage Loans and in each case all supplements and amendments thereto published by Residential Funding. Purchase Price: With respect to any Mortgage Loan (or REO Property) required to be or otherwise purchased on any date pursuant to Section 2.02, 2.03, 2.04 or 4.07, an amount equal to the sum of (i) 100% of the Stated Principal Balance thereof plus the principal portion of any related unreimbursed Advances and (ii) unpaid accrued interest at either (a) the Adjusted Mortgage Rate (or Modified Net Mortgage Rate in the case of a Modified Mortgage Loan) plus the rate per annum at which the Servicing Fee is calculated, or (b) in the case of a purchase made by the Master Servicer, at the Net Mortgage Rate (or Modified Net Mortgage Rate in the case of a Modified Mortgage Loan), in each case on the Stated Principal Balance thereof to the first day of the month following the month of purchase from the Due Date to which interest was last paid by the Mortgagor. With respect to any Mortgage Loan (or REO Property) required to be or otherwise purchased on any date pursuant to Section 4.08, an amount equal to the greater of (i) the sum of (a) 100% of the Stated Principal Balance thereof plus the principal portion of any related unreimbursed Advances of such Mortgage Loan (or REO Property) and (b) unpaid accrued interest at either (1) the Adjusted Mortgage Rate (or Modified Net Mortgage Rate in the case of a Modified Mortgage Loan) plus the rate per annum at which the Servicing Fee is calculated, or (2) in the case of a purchase made by the Master Servicer, at the Net Mortgage Rate (or Modified Net Mortgage Rate in the case of a Modified Mortgage Loan), in each case on the Stated Principal Balance thereof to the first day of the month following the month of purchase from the Due Date to which interest was last paid by the Mortgagor, and (ii) the fair market value of such Mortgage Loan (or REO Property). Qualified Institutional Buyer: The meaning specified in Rule 144A under the Securities Act. Qualified Substitute Mortgage Loan: A Mortgage Loan substituted by Residential Funding or the Depositor for a Deleted Mortgage Loan which must, on the date of such substitution, as confirmed in an Officers' Certificate delivered to the Trustee, (i) have an outstanding principal balance, after deduction of the principal portion of the monthly payment due in the month of substitution (or in the case of a substitution of more than one Mortgage Loan for a Deleted Mortgage Loan, an aggregate outstanding principal balance, after such deduction), not in excess of the Stated Principal Balance of the Deleted Mortgage Loan (the amount of any shortfall to be deposited by Residential Funding, in the Custodial Account in the month of substitution); (ii) have a Mortgage Rate and a Net Mortgage Rate no lower than and not more than 1% per annum higher than the Mortgage Rate and Net Mortgage Rate, respectively, of the Deleted Mortgage Loan as of the date of substitution; (iii) have a Loan-to-Value Ratio at the time of substitution no higher than that of the Deleted Mortgage Loan at the time of substitution; (iv) have a remaining term to stated maturity not greater than (and not more than one year less than) that of the Deleted Mortgage Loan; (v) comply with each representation and warranty set forth in Sections 2.03 and 2.04 hereof and Section 4 of the Assignment Agreement (other than the representations and warranties set forth therein with respect to the number of loans (including the related percentage) in excess of zero which meet or do not meet a specified criteria); (vi) not be 30 days or more Delinquent; (vii) not be subject to the requirements of HOEPA (as defined in the Assignment Agreement); (viii) have a policy of title insurance, in the form and amount that is in material compliance with the Program Guide, that was effective as of the closing of such Mortgage Loan, is valid and binding, and remains in full force and effect, unless the Mortgage Property is located in the State of Iowa where an attorney's certificate has been provided as described in the Program Guide; (ix) if the Deleted Loan is not a Balloon Loan, not be a Balloon Loan; (x) with respect to adjustable rate Mortgage Loans, have a Mortgage Rate that adjusts with the same frequency and based upon the same Index as that of the Deleted Mortgage Loan; (xi) with respect to adjustable rate Mortgage Loans, have a Note Margin not less than that of the Deleted Mortgage Loan; (xii) with respect to adjustable rate Mortgage Loans, have a Periodic Rate Cap that is equal to that of the Deleted Mortgage Loan; (xiii) with respect to adjustable rate Mortgage Loans, have a next Adjustment Date no later than that of the Deleted Mortgage Loan; and (xiv) be secured by a lien with the same lien priority as the Deleted Mortgage Loan. Rating Agency: Each of Standard & Poor's, Moody's and Fitch. If any agency or a successor is no longer in existence, "Rating Agency" shall be such statistical credit rating agency, or other comparable Person, designated by the Depositor, notice of which designation shall be given to the Trustee and the Master Servicer. Realized Loss: With respect to each Mortgage Loan (or REO Property) as to which a Cash Liquidation or REO Disposition has occurred, an amount (not less than zero) equal to (i) the Stated Principal Balance of the Mortgage Loan (or REO Property) as of the date of Cash Liquidation or REO Disposition, plus (ii) interest (and REO Imputed Interest, if any) at the Net Mortgage Rate from the Due Date as to which interest was last paid or advanced to Certificateholders up to the last day of the month in which the Cash Liquidation (or REO Disposition) occurred on the Stated Principal Balance of such Mortgage Loan (or REO Property) outstanding during each Due Period that such interest was not paid or advanced, minus (iii) the proceeds, if any, received during the month in which such Cash Liquidation (or REO Disposition) occurred, to the extent applied as recoveries of interest at the Net Mortgage Rate and to principal of the Mortgage Loan, net of the portion thereof reimbursable to the Master Servicer or any Subservicer with respect to related Advances, Servicing Advances or other expenses as to which the Master Servicer or Subservicer is entitled to reimbursement thereunder but which have not been previously reimbursed. With respect to each Mortgage Loan which is the subject of a Servicing Modification, (a) (1) the amount by which the interest portion of a Monthly Payment or the principal balance of such Mortgage Loan was reduced or (2) the sum of any other amounts owing under the Mortgage Loan that were forgiven and that constitute Servicing Advances that are reimbursable to the Master Servicer or a Subservicer, and (b) any such amount with respect to a Monthly Payment that was or would have been due in the month immediately following the month in which a Principal Prepayment or the Purchase Price of such Mortgage Loan is received or is deemed to have been received. With respect to each Mortgage Loan which has become the subject of a Deficient Valuation, the difference between the principal balance of the Mortgage Loan outstanding immediately prior to such Deficient Valuation and the principal balance of the Mortgage Loan as reduced by the Deficient Valuation. With respect to each Mortgage Loan which has become the object of a Debt Service Reduction, the amount of such Debt Service Reduction. Notwithstanding the above, neither a Deficient Valuation nor a Debt Service Reduction shall be deemed a Realized Loss hereunder so long as the Master Servicer has notified the Trustee in writing that the Master Servicer is diligently pursuing any remedies that may exist in connection with the representations and warranties made regarding the related Mortgage Loan and either (A) the related Mortgage Loan is not in default with regard to payments due thereunder or (B) delinquent payments of principal and interest under the related Mortgage Loan and any premiums on any applicable primary hazard insurance policy and any related escrow payments in respect of such Mortgage Loan are being advanced on a current basis by the Master Servicer or a Subservicer, in either case without giving effect to any Debt Service Reduction. Realized Losses allocated to the Class SB Certificates shall be allocated first to REMIC IV Regular Interest SB-IO in reduction of the accrued but unpaid interest thereon until such accrued and unpaid interest shall have been reduced to zero and then to REMIC IV Regular Interest SB-PO in reduction of the Principal Balance thereof. To the extent the Master Servicer receives Subsequent Recoveries with respect to any Mortgage Loan, the amount of the Realized Loss with respect to that Mortgage Loan will be reduced to the extent such recoveries are applied to reduce the Certificate Principal Balance of any Class of Certificates on any Distribution Date. Record Date: With respect to each Distribution Date and the LIBOR Certificates, the Business Day immediately preceding such Distribution Date. With respect to each Distribution Date and the Certificates (other than the LIBOR Certificates), the close of business on the last Business Day of the month next preceding the month in which the related Distribution Date occurs, except in the case of the first Record Date which shall be the Closing Date. Reference Bank Rate: As defined in Section 1.02. Regular Interest: Any one of the regular interests in the REMICs. Regulation AB: Subpart 229.1100 - Asset Backed Securities (Regulation AB), 17 C.F.R. ss.ss.229.1100-229.1123, as such may be amended from time to time, and subject to such clarification and interpretation as have been provided by the Commission in the adopting release (Asset-Backed Securities, Securities Act Release No. 33-8518, 70 Fed. Reg. 1,506, 1,531 (January 7, 2005)) or by the staff of the Commission, or as may be provided by the Commission or its staff from time to time. Regulation S: Regulation S promulgated under the Securities Act. Relief Act: The Servicemembers Civil Relief Act, as amended. Relief Act Shortfalls: Interest shortfalls on the Mortgage Loans resulting from the Relief Act or similar legislation or regulations. REMIC: A "real estate mortgage investment conduit" within the meaning of Section 860D of the Code. As used herein, the term "REMIC" shall mean REMIC I, REMIC II, REMIC III or REMIC IV. REMIC Administrator: Residential Funding Company, LLC. If Residential Funding Company, LLC is found by a court of competent jurisdiction to no longer be able to fulfill its obligations as REMIC Administrator under this Agreement the Master Servicer or Trustee acting as successor Master Servicer shall appoint a successor REMIC Administrator, subject to assumption of the REMIC Administrator obligations under this Agreement. REMIC I: The segregated pool of assets subject hereto (exclusive of the Supplemental Interest Trust Account and the Swap Agreement), constituting a portion of the primary trust created hereby and to be administered hereunder, with respect to which a separate REMIC election is to be made, consisting of: (i)...the Mortgage Loans and the related Mortgage Files; (ii)..all payments on and collections in respect of the Mortgage Loans due after the Cut-off Date (other than Monthly Payments due in the month of the Cut-off Date) as shall be on deposit in the Custodial Account or in the Certificate Account and identified as belonging to the Trust Fund; (iii).property which secured a Mortgage Loan and which has been acquired for the benefit of the Certificateholders by foreclosure or deed in lieu of foreclosure; (iv)..the hazard insurance policies and Primary Insurance Policies pertaining to the Mortgage Loans, if any; and (v) ..all proceeds of clauses (i) through (iv) above. REMIC I Available Distribution Amount: The Available Distribution Amount increased by the amount of any Net Swap Payment described in clause (b)(z) thereof. REMIC I Distribution Amount: For any Distribution Date, the REMIC I Available Distribution Amount shall be distributed to REMIC II in respect of the REMIC I Regular Interests and to the Class R Certificateholders in respect of Component I thereof in the following amounts and priority: (a)...to each of the REMIC I Regular Interests, pro rata, in an amount equal to (A) Uncertificated Accrued Interest for such REMIC I Regular Interest for such Distribution Date, plus (B) any amounts payable in respect thereof remaining unpaid from previous Distribution Dates; (b)...to the extent of amounts remaining after the distributions made pursuant to clause (a) above, payments of principal shall be allocated as follows: (i) first, to REMIC I Regular Interests I and II, an amount equal to 1/10,000 of such principal payments for the Group I Loans and the Group II Loans, respectively; provided that the Uncertificated Principal Balances of REMIC I Regular Interests I and II shall not be reduced below zero; (i) second, any remainder sequentially to REMIC I Regular Interests I-1-A and I-1-B through the REMIC I Regular Interests with numerical designations equal to the number of such Distribution Date (or in the case of any Distribution Date occurring in or after September 2008, equal to the number of such Distribution Date less one), starting with the lowest numerical designation until the Uncertificated Principal Balance of each such REMIC I Regular Interest is reduced to zero, provided that, for REMIC I Regular Interests with the same numerical designation, such payments of principal shall be allocated pro rata between such REMIC I Regular Interests; (iii) third, any remainder to REMIC I Regular Interest A-I until the Uncertificated Principal Balance of such REMIC I Regular Interest is reduced to zero; (iv) fourth, any remainder to the REMIC I Regular Interests remaining outstanding after the foregoing distributions (other than REMIC I Regular Interests I and II), starting with the lowest numerical designation until the Uncertificated Principal Balance of each such REMIC I Regular Interest is reduced to zero, provided that, for REMIC I Regular Interests with the same numerical designation, such payments of principal shall be allocated pro rata between such REMIC I Regular Interests; (v) fifth, any remainder to REMIC I Regular Interests I and II, pro rata according to their respective Uncertificated Principal Balances as reduced by the distributions deemed made pursuant to (i) above, until their respective Uncertificated Principal Balances are reduced to zero; and (c)...to the extent of amounts remaining after the distributions made pursuant to clauses (a) and (b) above, to the Class R Certificates in respect of Component I thereof, such remaining amount. REMIC I Realized Losses: Realized Losses on the Mortgage Loans shall be allocated to the REMIC I Regular Interests as follows: The interest portion of Realized Losses on the Mortgage Loans shall be allocated among the REMIC I Regular Interests, pro rata, according to the amount of interest accrued but unpaid thereon, in reduction thereof. Any interest portion of such Realized Losses in excess of the amount allocated pursuant to the preceding sentence shall be treated as a principal portion of Realized Losses not attributable to any specific Mortgage Loan and allocated pursuant to the succeeding sentences. An amount equal to 1/10,000 of the principal portion of Realized Losses on Group I Loans and Group II Loans shall be allocated first, on each Distribution Date, to REMIC I Regular Interests I and II, respectively, provided that the Uncertificated Principal Balances of REMIC I Regular Interests I and II shall not be reduced below zero. Any remaining principal portion of Realized Losses on the Mortgage Loans shall be allocated first, on each Distribution Date, to REMIC I Regular Interest A-I until the Uncertificated Principal Balance of such REMIC I Regular Interest has been reduced to zero, and thereafter to REMIC I Regular Interest I-1-A through REMIC I Regular Interest I-60-B, starting with the lowest numerical denomination until the Uncertificated Principal Balance of such REMIC I Regular Interest has been reduced to zero, provided that, for REMIC I Regular Interests with the same numerical denomination, such Realized Losses shall be allocated pro rata between such REMIC I Regular Interests. REMIC I Regular Interest. Any of the separate non-certificated beneficial ownership interests in REMIC I issued hereunder and designated as a "regular interest" in REMIC I. Each REMIC I Regular Interest shall accrue interest at the related Uncertificated REMIC I Pass-Through Rate in effect from time to time, and shall be entitled to distributions of principal, subject to the terms and conditions hereof, in an aggregate amount equal to its initial Uncertificated Principal Balance as set forth in the Preliminary Statement hereto. The designations for the respective REMIC I Regular Interests are set forth in the Preliminary Statement hereto. REMIC II: The segregated pool of assets subject hereto, constituting a portion of the primary trust created hereby and to be administered hereunder, with respect to which a separate REMIC election is to be made, consisting of the REMIC I Regular Interests. REMIC II Available Distribution Amount: For any Distribution Date, the amount distributed from REMIC I to REMIC II on such Distribution Date in respect of the REMIC I Regular Interests. REMIC II Distribution Amount: For any Distribution Date, the REMIC II Available Distribution Amount shall be distributed to REMIC III in respect of the REMIC II Regular Interests and to the Class R Certificateholders in respect of Component II thereof in the following amounts and priority: (a) To REMIC II Regular Interest LT-IO, in an amount equal to (i) Uncertificated Accrued Interest for such Regular Interest for such Distribution Date, plus (ii) any amounts in respect thereof remaining unpaid from previous Distribution Dates; (b) To the extent of the portion of the REMIC II Available Distribution Amount related to Loan Group I remaining after payment of the amounts pursuant to paragraph (a) of this definition of "REMIC II Distribution Amount": (i)...first, to REMIC II Regular Interests Y-1 and Z-1, concurrently, the Uncertificated Accrued Interest for such Regular Interests remaining unpaid from previous Distribution Dates, pro rata according to their respective shares of such unpaid amounts; (ii)..second, to REMIC II Regular Interests Y-1 and Z-1, concurrently, the Uncertificated Accrued Interest for such Regular Interests for the current Distribution Date, pro rata according to their respective Uncertificated Accrued Interest; and (iii).third, to REMIC II Regular Interests Y-1 and Z-1, the REMIC II Regular Interest Y-1 Principal Distribution Amount and the REMIC II Regular Interest Z-1 Principal Distribution Amount, respectively. (c) To the extent of the portion of the REMIC II Available Distribution Amount related to Loan Group II remaining after payment of the amounts pursuant to paragraph (a) of this definition of "REMIC II Distribution Amount": (i)...first, to REMIC II Regular Interests Y-2 and Z-2, concurrently, the Uncertificated Accrued Interest for such Regular Interests remaining unpaid from previous Distribution Dates, pro rata according to their respective shares of such unpaid amounts; (ii)..second, to REMIC II Regular Interests Y-2 and Z-2, concurrently, the Uncertificated Accrued Interest for such Regular Interests for the current Distribution Date, pro rata according to their respective Uncertificated Accrued Interest; and (iii).third, to REMIC II Regular Interests Y-2 and Z-2, the REMIC II Regular Interest Y-2 Principal Distribution Amount and the REMIC II Regular Interest Z-2 Principal Distribution Amount, respectively. (d) To the extent of the REMIC II Available Distribution Amount for such Distribution Date remaining after payment of the amounts pursuant to paragraphs (a) through (c) of this definition of "REMIC II Distribution Amount": (i)...first, to each of the REMIC II Regular Interests, pro rata according to the amount of unreimbursed Realized Losses allocable to principal previously allocated to each such Regular Interest, the aggregate amount of any distributions to the Certificates as reimbursement of such Realized Losses on such Distribution Date pursuant to clause (ix) in Section 4.02(c); provided, however, that any amounts distributed pursuant to this paragraph (d)(i) of this definition of "REMIC II Distribution Amount" shall not cause a reduction in the Uncertificated Principal Balances of any of the REMIC II Regular Interests; and (ii)..second, to the Class R Certificates in respect of Component II thereof, any remaining amount. REMIC II Regular Interest. Any of the separate non-certificated beneficial ownership interests in REMIC II issued hereunder and designated as a "regular interest" in REMIC II. Each REMIC II Regular Interest shall accrue interest at the related Uncertificated REMIC II Pass-Through Rate in effect from time to time, and shall be entitled to distributions of principal, subject to the terms and conditions hereof, in an aggregate amount equal to its initial Uncertificated Principal Balance as set forth in the Preliminary Statement hereto. The designations for the respective REMIC II Regular Interests are set forth in the Preliminary Statement hereto. REMIC II Y Principal Reduction Amounts: For any Distribution Date the amounts by which the Uncertificated Principal Balances of REMIC II Regular Interests Y-1 and Y-2, respectively, will be reduced on such Distribution Date by the allocation of Realized Losses and the distribution of principal, determined as follows: First determine the Group I REMIC II Net WAC Rate and the Group II REMIC II Net WAC Rate for distributions of interest that will be made on the next succeeding Distribution Date (for each Loan Group, the "Group Interest Rate" for that Loan Group). The REMIC II Y Principal Reduction Amounts for REMIC II Regular Interests Y-1 and Y-2 will be determined pursuant to the "Generic solution for the REMIC II Y Regular Interests" set forth below (the "Generic Solution") by making the following identifications among the Loan Groups and their related REMIC II Regular Interests: A.....Determine which Loan Group has the lower Group Interest Rate. That Loan Group will be identified with Loan Group AA and the REMIC II Regular Interests related to that Loan Group will be respectively identified with the REMIC II Regular Interests YAA and ZAA. The Group Interest Rate for that Loan Group will be identified with J%. If the two Loan Groups have the same Group Interest Rate pick one for this purpose, subject to the restriction that each Loan Group may be picked only once in the course of any such selections pursuant to paragraphs A and B of this definition. B.....Determine which Loan Group has the higher Group Interest Rate. That Loan Group will be identified with Loan Group BB and the REMIC II Regular Interests related to that Group will be respectively identified with the REMIC II Regular Interests YBB and ZBB. The Group Interest Rate for that Loan Group will be identified with K%. If the two Loan Groups have the same Group Interest Rate the Loan Group not selected pursuant to paragraph A, above, will be selected for purposes of this paragraph B. Second, apply the Generic Solution set forth below to determine the REMIC II Y Principal Reduction Amounts for the Distribution Date using the identifications made above. Generic Solution for the REMIC II Y Principal Reduction Amounts: For any Distribution Date, the amounts by which the Uncertificated Principal Balances of REMIC II Regular Interests YAA and ZAA, respectively, will be reduced on such Distribution Date by the allocation of Realized Losses and the distribution of principal, determined as follows: J% and K% represent the interest rates on Loan Group AA and Loan Group BB respectively. J% less than K%. For purposes of the succeeding formulas the following symbols shall have the meanings set forth below: PJB = the Loan Group AA Subordinate Component after the allocation of Realized Losses and distributions of principal on such Distribution Date. PKB =.the Loan Group BB Subordinate Component after the allocation of Realized Losses and distributions of principal on such Distribution Date. R = ..the Class CB Pass-Through Rate = (J%PJB + K%PKB)/(PJB + PKB) Yj = .the REMIC II Regular Interest YAA Uncertificated Principal Balance after distributions on the prior Distribution Date. Yk = .the REMIC II Regular Interest YBB Uncertificated Principal Balance after distributions on the prior Distribution Date. (DELTA)Yj = the REMIC II Regular Interest YAA Principal Reduction Amount. (DELTA)Yk = the REMIC II Regular Interest YBB Principal Reduction Amount. Zj = .the REMIC II Regular Interest ZAA Uncertificated Principal Balance after distributions on the prior Distribution Date. Zk = .the REMIC II Regular Interest ZBB Uncertificated Principal Balance after distributions on the prior Distribution Date. (DELTA)Zj = the REMIC II Regular Interest ZAA Principal Reduction Amount. = (DELTA)Pj - (DELTA)Yj (DELTA)Zk = the REMIC II Regular Interest ZBB Principal Reduction Amount. = (DELTA)Pk - (DELTA)Yk Pj = .the aggregate Uncertificated Principal Balance of REMIC II Regular Interests YAA and ZAA after distributions on the prior Distribution Date, which is equal to the aggregate principal balance of the Group AA Loans. Pk = .the aggregate Uncertificated Principal Balance of REMIC II Regular Interests YBB and ZBB after distributions on the prior Distribution Date, which is equal to the aggregate principal balance of the Group BB Loans. (DELTA)Pj = the aggregate principal reduction resulting on such Distribution Date on the Group AA Loans as a result of principal distributions (exclusive of any amounts distributed pursuant to clauses (d)(i) or (d)(ii) of the definition of REMIC II Distribution Amount) to be made and Realized Losses to be allocated on such Distribution Date, if applicable, which is equal to the aggregate of the REMIC II Regular Interest YAA Principal Reduction Amount and the REMIC II Regular Interest ZAA Principal Reduction Amount. (DELTA)Pk= the aggregate principal reduction resulting on such Distribution Date on the Group BB Loans as a result of principal distributions (exclusive of any amounts distributed pursuant to clauses (d)(i) or (d)(ii) of the definition of REMIC II Distribution Amount) to be made and realized losses to be allocated on such Distribution Date, which is equal to the aggregate of the REMIC II Regular Interest YBB Principal Reduction Amount and the REMIC II Regular Interest ZBB Principal Reduction Amount. (alpha) = .0005 (gamma) = (R - J%)/(K% - R). (gamma) is a non-negative number unless its denominator is zero, in which event it is undefined. If (gamma) is zero, (DELTA)Yk = Yk and (DELTA)Yj = (Yj/Pj)(DELTA)Pj. If (gamma) is undefined, (DELTA)Yj = Yj, (DELTA)Yk = (Yk/Pk)(DELTA)Pk. if denominator In the remaining situations, (DELTA)Yk and (DELTA)Yj shall be defined as follows: 1. If Yk - (alpha)(Pk - (DELTA)Pk) => 0, Yj- (alpha)(Pj - (DELTA)Pj) => 0, and (gamma) (Pj - (DELTA)Pj) <(Pk - (DELTA)Pk), (DELTA)Yk = Yk - (alpha)(gamma) (Pj - (DELTA)Pj) and (DELTA)Yj = Yj - (alpha)(Pj - (DELTA)Pj). 2. If Yk - (alpha)(Pk - (DELTA)Pk) => 0, Yj - (alpha)(Pj - (DELTA)Pj) => 0, and (gamma) (Pj - (DELTA)Pj) => (Pk - (DELTA)Pk), (DELTA)Yk = Yk - (alpha)(Pk - (DELTA)Pk) and (DELTA)Yj = Yj - ((alpha)/(gamma))(Pk - (DELTA)Pk). 3. If Yk - (alpha)(Pk - (DELTA)Pk) < 0, Yj - (alpha)(Pj - (DELTA)Pj) => 0, and Yj - (alpha)(Pj - (DELTA)Pj) => Yj - (Yk/(gamma)), (DELTA)Yk = Yk - (alpha)(gamma) (Pj - (DELTA)Pj) and (DELTA)Yj = Yj - (alpha)(Pj - (DELTA)Pj). 4. If Yk - (alpha)(Pk - (DELTA)Pk) < 0, Yj - (Yk/(gamma)) => 0, and Yj - (alpha)(Pj - (DELTA)Pj) <= Yj - (Yk/(gamma)), (DELTA)Yk = 0 and (DELTA)Yj = Yj - (Yk/(gamma)). 5. If Yj - (alpha)(Pj - (DELTA)Pj) < 0, Yj - (Yk/(gamma)) < 0, and Yk - (alpha)(Pk - (DELTA)Pk) <= Yk - ((gamma)Yj), (DELTA)Yk = Yk - ((gamma)Yj) and (DELTA)Yj = 0. 6. If Yj - (alpha)(Pj - (DELTA)Pj) < 0, Yk - (alpha)(Pk - (DELTA)Pk) => 0, and Yk - (alpha)(Pk - (DELTA)Pk) => Yk - ((gamma)Yj), (DELTA)Yk = Yk - (alpha)(Pk - (DELTA)Pk) and (DELTA)Yj = Yj - ((alpha)/(gamma))(Pk - (DELTA)Pk). The purpose of the foregoing definitional provisions together with the related provisions allocating Realized Losses and defining the REMIC II Regular Interest Y-1 and Y-2 and REMIC II Regular Interest Z-1 and Z-2 Principal Distribution Amounts is to accomplish the following goals in the following order of priority: 1. Making the ratio of Yk to Yj equal to (gamma) after taking account of the allocation Realized Losses and the distributions that will be made through end of the Distribution Date to which such provisions relate and assuring that the Principal Reduction Amounts for each of the REMIC II Regular Interests is greater than or equal to zero for such Distribution Date; 2. Making (i) the REMIC II Regular Interest YAA Uncertificated Principal Balance less than or equal to 0.0005 of the sum of the Uncertificated Principal Balances for REMIC II Regular Interest YAA and REMIC II Regular Interest ZAA and (ii) the REMIC II Regular Interest YBB Uncertificated Principal Balances less than or equal to 0.0005 of the sum of the Uncertificated Principal Balances for REMIC II Regular Interest YBB and REMIC II Regular Interest ZBB in each case after giving effect to allocations of Realized Losses and distributions to be made through the end of the Distribution Date to which such provisions relate; and 3. Making the larger of (a) the fraction whose numerator is Yk and whose denominator is the sum of Yk and Zk and (b) the fraction whose numerator is Yj and whose denominator is the sum of Yj, and Zj as large as possible while remaining less than or equal to 0.0005. In the event of a failure of the foregoing portion of the definition of REMIC II Y Principal Reduction Amount to accomplish both of goals 1 and 2 above, the amounts thereof should be adjusted to so as to accomplish such goals within the requirement that each REMIC II Y Principal Reduction Amount must be less than or equal to the sum of (a) the principal Realized Losses to be allocated on the related Distribution Date for the related Loan Group and (b) the remainder of the Available Distribution Amount for the related Loan Group or after reduction thereof by the distributions to be made on such Distribution in respect of interest on the related REMIC II Regular Interests, or, if both of such goals cannot be accomplished within such requirement, such adjustment as is necessary shall be made to accomplish goal 1 within such requirement. In the event of any conflict among the provisions of the definition of the REMIC II Y Principal Reduction Amounts, such conflict shall be resolved on the basis of the goals and their priorities set forth above within the requirement set forth in the preceding sentence. REMIC II Realized Losses: Realized Losses on Group I Loans and Group II Loans shall be allocated to the REMIC II Regular Interests as follows: (1) The interest portion of Realized Losses on Group I Loans, if any, shall be allocated among REMIC II Regular Interests Y-1 and Z-1, pro rata, according to the amount of interest accrued but unpaid thereon, in reduction thereof, and thereafter to REMIC II Regular Interest LT-IO in reduction thereof; and (2) the interest portion of Realized Losses on Group II Loans, if any, shall be allocated among REMIC II Regular Interests Y-2 and Z-2, pro rata, according to the amount of interest accrued but unpaid thereon, in reduction thereof, and thereafter to REMIC II Regular Interest LT-IO in reduction thereof. Any interest portion of such Realized Losses in excess of the amount allocated pursuant to the preceding sentence shall be treated as a principal portion of Realized Losses not attributable to any specific Mortgage Loan in such Loan Group and allocated pursuant to the succeeding sentences. The principal portion of Realized Losses on Group I Loans and Group II Loans shall be allocated to the REMIC II Regular Interests as follows: (1) The principal portion of Realized Losses on Group I Loans shall be allocated, first, to REMIC II Regular Interest Y-1 to the extent of the REMIC II Regular Interest Y-1 Principal Reduction Amount in reduction of the Uncertificated Principal Balance of such Regular Interest and, second, the remainder, if any, of such principal portion of such Realized Losses shall be allocated to REMIC II Regular Interest Z-1 in reduction of the Uncertificated Principal Balance thereof; and (2) the principal portion of Realized Losses on Group II Loans shall be allocated, first, to REMIC II Regular Interest Y-2 to the extent of the REMIC II Regular Interest Y-2 Principal Reduction Amount in reduction of the Uncertificated Principal Balance of such Regular Interest and, second, the remainder, if any, of such principal portion of such Realized Losses shall be allocated to REMIC II Regular Interest Z-2 in reduction of the Uncertificated Principal Balance thereof. REMIC II Regular Interest Y-1 Principal Distribution Amount: For any Distribution Date, the excess, if any, of the REMIC II Regular Interest Y-1 Principal Reduction Amount for such Distribution Date over the Realized Losses allocated to REMIC II Regular Interest Y-1 on such Distribution Date. REMIC II Regular Interest Y-2 Principal Distribution Amount: For any Distribution Date, the excess, if any, of the REMIC II Regular Interest Y-2 Principal Reduction Amount for such Distribution Date over the Realized Losses allocated to REMIC II Regular Interest Y-2 on such Distribution Date. REMIC II Regular Interest Z-1 Principal Distribution Amount: For any Distribution Date, the excess, if any, of the REMIC II Regular Interest Z-1 Principal Reduction Amount for such Distribution Date over the Realized Losses allocated to REMIC II Regular Interest Z-1 on such Distribution Date. REMIC II Regular Interest Z-2 Principal Distribution Amount: For any Distribution Date, the excess, if any, of the REMIC II Regular Interest Z-2 Principal Reduction Amount for such Distribution Date over the Realized Losses allocated to the REMIC II Regular Interest Z-2 on such Distribution Date. REMIC II Z Principal Reduction Amounts: For any Distribution Date, the amounts by which the Uncertificated Principal Balances of REMIC II Regular Interests Z-1 and Z-2, respectively, will be reduced on such Distribution Date by the allocation of Realized Losses and the distribution of principal, which shall be in each case the excess of (A) the sum of (x) the excess of the REMIC II Available Distribution Amount for the related Loan Group (i.e. the "related Loan Group" for REMIC II Regular Interest Z-1 is Loan Group I and the "related Loan Group" for REMIC II Regular Interest Z-2 is Loan Group II) exclusive of any amount in respect of Subsequent Recoveries included therein over the amount thereof distributable (i) in respect of interest on such REMIC II Regular Interest and REMIC II Regular Interest Y-1 (in the case of REMIC II Regular Interest Z-1) or REMIC II Regular Interest Y-2 (in the case of REMIC II Regular Interest Z-2) and (ii) to such REMIC II Regular Interest and REMIC II Regular Interest Y-1 (in the case of REMIC II Regular Interest Z-1) or REMIC II Regular Interest Y-2 (in the case of REMIC II Regular Interest Z-2) pursuant clause (d)(i) of the definition of "REMIC II Distribution Amount" and (y) the amount of Realized Losses allocable to principal for the related Loan Group over (B) the related REMIC II Y Principal Reduction Amount. REMIC III: The segregated pool of assets subject hereto, constituting a portion of the primary trust created hereby and to be administered hereunder, with respect to which a separate REMIC election is to be made, consisting of the REMIC II Regular Interests. REMIC III Available Distribution Amount: For any Distribution Date, the amount distributed from REMIC II to REMIC III on such Distribution Date in respect of the REMIC II Regular Interests. REMIC III Distribution Amount: For any Distribution Date, the REMIC III Available Distribution Amount shall be distributed to REMIC IV in respect of the REMIC III Regular Interests and to the Class R Certificateholders in respect of Component III thereof in the following amounts and priority: (a)...to REMIC IV as the holder of REMIC III Regular Interest LT-IO, in an amount equal to (i) Uncertificated Accrued Interest for such Regular Interest for such Distribution Date, plus (ii) any amounts in respect thereof remaining unpaid from previous Distribution Dates; (b)...to the extent of the portion of the REMIC III Available Distribution Amount related to Loan Group I remaining after the distributions made pursuant to clause (a) above, to REMIC IV as the holder of REMIC III Regular Interests LT1, LT2, LT3, LT4 and LT-Y1, allocated as follows: (i) to REMIC III Regular Interests LT1, LT2, LT3, LT4 and LT-Y1, pro rata, in an amount equal to (A) their Uncertificated Accrued Interest for such Distribution Date, plus (B) any amounts in respect thereof remaining unpaid from previous Distribution Dates; and (ii) to REMIC III Regular Interests LT1, LT2, LT3, LT4 and LT-Y1, in an amount equal to the remainder of such portion of the REMIC III Available Distribution Amount related to Loan Group I remaining after the distributions made pursuant to clauses (a) and (b)(i) above, allocated as follows: (A) in respect of REMIC III Regular Interests LT2, LT3, LT4 and LT-Y1, their respective Principal Distribution Amounts; (B) in respect of REMIC III Regular Interest LT1 any remainder until the Uncertificated Principal Balance thereof is reduced to zero; (C) any remainder in respect of REMIC III Regular Interests LT2, LT3, LT4 and LT-Y1, pro rata according to their respective Uncertificated Principal Balances as reduced by the distributions deemed made pursuant to (A) above, until their respective Uncertificated Principal Balances are reduced to zero; (c)...to the extent of the portion of the REMIC III Available Distribution Amount related to Loan Group II remaining after the distributions made pursuant to clause (a) above, to REMIC IV as the holder of REMIC III Regular Interests LT5, LT6, LT7, LT8 and LT-Y2, allocated as follows: (i) to REMIC III Regular Interests LT5, LT6, LT7, LT8 and LT-Y2, pro rata, in an amount equal to (A) their Uncertificated Accrued Interest for such Distribution Date, plus (B) any amounts in respect thereof remaining unpaid from previous Distribution Dates; and (ii) to REMIC III Regular Interests LT5, LT6, LT7, LT8 and LT-Y2, in an amount equal to the remainder of such portion of the REMIC III Available Distribution Amount related to Loan Group II remaining after the distributions made pursuant to clauses (a) and (c)(i) above, allocated as follows: (A) in respect of REMIC III Regular Interests LT6, LT7, LT8 and LT-Y2, their respective Principal Distribution Amounts; (B) in respect of REMIC III Regular Interest LT5 any remainder until the Uncertificated Principal Balance thereof is reduced to zero; (C) any remainder in respect of REMIC III Regular Interests LT6, LT7, LT8 and LT-Y2, pro rata according to their respective Uncertificated Principal Balances as reduced by the distributions deemed made pursuant to (A) above, until their respective Uncertificated Principal Balances are reduced to zero; (d)...to the extent of amounts remaining after the distributions made pursuant to clauses (a) through (c) above: (i) first, to each of the REMIC III Regular Interests, pro rata according to the amount of unreimbursed Realized Losses allocable to principal previously allocated to each such REMIC III Regular Interest, the aggregate amount of any distributions to the Certificates as reimbursement of such Realized Losses on such Distribution Date pursuant to clause (ix) in Section 4.02(c); provided, however, that any amounts distributed pursuant to this paragraph (d)(i) of this definition of "REMIC III Distribution Amount" shall not cause a reduction in the Uncertificated Principal Balances of any of the REMIC III Regular Interests; and (ii) second, to the Class R Certificates in respect of Component III thereof, any remaining amount. REMIC III Principal Reduction Amounts: For any Distribution Date, the amounts by which the Uncertificated Principal Balances of REMIC III Regular Interests LT1, LT2, LT3, LT4, LT5, LT6, LT7, LT8, LT-Y1 and LT-Y2, respectively, will be reduced on such Distribution Date by the allocation of Realized Losses and the distribution of principal, determined as follows: For purposes of the succeeding formulas the following symbols shall have the meanings set forth below: Y1 = the aggregate Uncertificated Principal Balance of REMIC III Regular Interests LT1 and LT-Y1 after distributions on the prior Distribution Date. Y2 = the Uncertificated Principal Balance of REMIC III Regular Interest LT2 after distributions on the prior Distribution Date. Y3 = the Uncertificated Principal Balance of REMIC III Regular Interest LT3 after distributions on the prior Distribution Date. Y4 = the Uncertificated Principal Balance of REMIC III Regular Interest LT4 after distributions on the prior Distribution Date (note: Y3 = Y4). AY1 = the combined REMIC III Regular Interest LT1 and LT-Y1 Principal Reduction Amount. Such amount shall be allocated first to REMIC III Regular Interest LT-Y1 up to the REMIC III Regular Interest LT-Y1 Principal Reduction Amount and thereafter the remainder shall be allocated to REMIC III Regular Interest LT1. AY2 = the REMIC III Regular Interest LT2 Principal Reduction Amount. AY3 = the REMIC III Regular Interest LT3 Principal Reduction Amount. AY4 = the REMIC III Regular Interest LT4 Principal Reduction Amount. P0 = the aggregate Uncertificated Principal Balance of REMIC III Regular Interests LT1, LT2, LT3, LT4 and LT-Y1 after distributions and the allocation of Realized Losses on the prior Distribution Date. P1 = the Uncertificated Principal Balance of REMIC III Regular Interests LT1, LT2, LT3, LT4 and LT-Y1 after distributions and the allocation of Realized Losses to be made on such Distribution Date. AP = P0 - P1 = the aggregate of the REMIC III Regular Interests LT1, LT2, LT3, LT4 and LT-Y1 Principal Reduction Amounts. =.....the aggregate of the principal portions of Realized Losses to be allocated to, and the principal distributions to be made on, the Class A-I Certificates and the Class M Certificates on such Distribution Date (including distributions of accrued and unpaid interest on the Class SB Certificates for prior Distribution Dates). R0 = the Group I REMIC III Net WAC Cap Rate (stated as a monthly rate) after giving effect to amounts distributed and Realized Losses allocated on the prior Distribution Date. R1 = the Group I REMIC III Net WAC Cap Rate (stated as a monthly rate) after giving effect to amounts to be distributed and Realized Losses to be allocated on such Distribution Date. a = (Y2 + Y3)/P0. The initial value of a on the Closing Date for use on the first Distribution Date shall be 0.0001. a0 = the lesser of (A) the sum of (1) for all Classes of Class A-I Certificates of the product for each Class of (i) the monthly interest rate (as limited by the Group I Net WAC Cap Rate, if applicable) for such Class applicable for distributions to be made on such Distribution Date and (ii) the aggregate Certificate Principal Balance for such Class after distributions and the allocation of Realized Losses on the prior Distribution Date, (2) for all Classes of Class M Certificates of the product for each Class of (i) the monthly interest rate (as limited by the Class M Net WAC Cap Rate, if applicable) for such Class applicable for distributions to be made on such Distribution Date and (ii) the aggregate Certificate Principal Balance for such Class multiplied by a fraction whose numerator is the Uncertificated Principal Balance of REMIC II Regular Interest Y-1 and whose denominator is the sum of the Uncertificated Principal Balances of REMIC II Regular Interests Y-1 and Y-2 after distributions and the allocation of Realized Losses on the prior Distribution Date and (3) the amount, if any, by which the sum of the amounts in clauses (A)(1), (2) and (3) of the definition of A0 exceeds S0*Q0 and (B) R0*P0. a1 = the lesser of (A) the sum of (1) for all Classes of Class A-I Certificates of the product for each Class of (i) the monthly interest rate (as limited by the Group I Net WAC Cap Rate, if applicable) for such Class applicable for distributions to be made on the next succeeding Distribution Date and (ii) the aggregate Certificate Principal Balance for such Class after distributions and the allocation of Realized Losses to be made on such Distribution Date, (2) for all Classes of Class M Certificates of the product for each Class of (i) the monthly interest rate (as limited by the Class M Net WAC Cap Rate, if applicable) for such Class applicable for distributions to be made on the next succeeding Distribution Date and (ii) the aggregate Certificate Principal Balance for such Class multiplied by a fraction whose numerator is the Uncertificated Principal Balance of REMIC II Regular Interest Y-1 and whose denominator is the sum of the Uncertificated Principal Balances of REMIC II Regular Interests Y-1 and Y-2 after distributions and the allocation of Realized Losses to be made on such Distribution Date and (3) the amount, if any, by which the sum of the amounts in clauses (A)(1), (2) and (3) of the definition of A1 exceeds S1*Q1 and (B) R1*P1. Then, based on the foregoing definitions: AY1 = AP - AY2 - AY3 - AY4; AY2 = (a/2){( a0R1 - a1R0)/R0R1}; AY3 = aAP - AY2; and AY4 = AY3. if both AY2 and AY3, as so determined, are non-negative numbers. Otherwise: (1) If AY2, as so determined, is negative, then AY2 = 0; AY3 = a{a1R0P0 - a0R1P1}/{a1R0}; AY4 = AY3; and AY1 = AP - AY2 - AY3 - AY4. (2) If AY3, as so determined, is negative, then AY3 = 0; AY2 = a{a1R0P0 - a0R1P1}/{2R1R0P1 - a1R0}; AY4 = AY3; and AY1 = AP - AY2 - AY3 - AY4. For purposes of the succeeding formulas the following symbols shall have the meanings set forth below: Y5 = the aggregate Uncertificated Principal Balance of REMIC III Regular Interests LT5 and LT-Y2 after distributions on the prior Distribution Date. Y6 = the Uncertificated Principal Balance of REMIC III Regular Interest LT6 after distributions on the prior Distribution Date. Y7 = the Uncertificated Principal Balance of REMIC III Regular Interest LT7 after distributions on the prior Distribution Date. Y8 = the Uncertificated Principal Balance of REMIC III Regular Interest LT8 after distributions on the prior Distribution Date (note: Y7 = Y8). AY5 = the aggregate of the REMIC III Regular Interest LT5 and LT-Y2 Principal Reduction Amounts. Such amount shall be allocated first to REMIC III Regular Interest LT-Y2 up to the REMIC III Regular Interest LT-Y2 Principal Reduction Amount and thereafter the remainder shall be allocated to REMIC III Regular Interest LT5. AY6 = the REMIC III Regular Interest LT6 Principal Reduction Amount. AY7 = the REMIC III Regular Interest LT7 Principal Reduction Amount. AY8 = the REMIC III Regular Interest LT8 Principal Reduction Amount. Q0 = the aggregate Uncertificated Principal Balance of REMIC III Regular Interests LT5, LT6, LT7, LT8 and LT-Y2 after distributions and the allocation of Realized Losses on the prior Distribution Date. Q1 = the aggregate Uncertificated Principal Balance of REMIC III Regular Interests LT5, LT6, LT7, LT8 and LT-Y2 after distributions and the allocation of Realized Losses to be made on such Distribution Date. AQ = Q0 - Q1 = the aggregate of the REMIC III Regular Interests LT5, LT6, LT7, LT8 and LT-Y2 Principal Reduction Amounts. =.....the aggregate of the principal portions of Realized Losses to be allocated to, and the principal distributions to be made on, the Class A-II Certificates and the Class M Certificates on such Distribution Date (including distributions of accrued and unpaid interest on the Class SB Certificates for prior Distribution Dates). S0 = the Group II REMIC III Net WAC Cap Rate (stated as a monthly rate) after giving effect to amounts distributed and Realized Losses allocated on the prior Distribution Date. S1 = the Group II REMIC III Net WAC Cap Rate (stated as a monthly rate) after giving effect to amounts to be distributed and Realized Losses to be allocated on such Distribution Date. a = (Y6 + Y7)/Q0. The initial value of a on the Closing Date for use on the first Distribution Date shall be 0.0001. A0 = the lesser of (A) the sum of (1) for all Classes of Class A-II Certificates of the product for each Class of (i) the monthly interest rate (as limited by the Group II Net WAC Cap Rate, if applicable) for such Class applicable for distributions to be made on such Distribution Date and (ii) the aggregate Certificate Principal Balance for such Class after distributions and the allocation of Realized Losses on the prior Distribution Date, (2) for all Classes of Class M Certificates of the product for each Class of (i) the monthly interest rate (as limited by the Class M Net WAC Cap Rate, if applicable) for such Class applicable for distributions to be made on such Distribution Date and (ii) the aggregate Certificate Principal Balance for such Class multiplied by a fraction whose numerator is the Uncertificated Principal Balance of REMIC II Regular Interest Y-2 and whose denominator is the sum of the Uncertificated Principal Balances of REMIC II Regular Interests Y-1 and Y-2 after distributions and the allocation of Realized Losses on the prior Distribution Date and (3) the amount, if any, by which the sum of the amounts in clauses (A)(1), (2) and (3) of the definition of a0 exceeds R0*P0 and (B) S0*Q0. A1 = the lesser of (A) the sum of (1) for all Classes of Class A-II Certificates of the product for each Class of (i) the monthly interest rate (as limited by the Group II Net WAC Cap Rate, if applicable) for such Class applicable for distributions to be made on the next succeeding Distribution Date and (ii) the aggregate Certificate Principal Balance for such Class after distributions and the allocation of Realized Losses to be made on such Distribution Date, (2) for all Classes of Class M Certificates of the product for each Class of (i) the monthly interest rate (as limited by the Class M Net WAC Cap Rate, if applicable) for such Class applicable for distributions to be made on the next succeeding Distribution Date and (ii) the aggregate Certificate Principal Balance for such Class multiplied by a fraction whose numerator is the Uncertificated Principal Balance of REMIC II Regular Interest Y-2 and whose denominator is the sum of the principal balances of REMIC II Regular Interests Y-1 and Y-2 after distributions and the allocation of Realized Losses to be made on such Distribution Date and (3) the amount, if any, by which the sum of the amounts in clauses (A)(1), (2) and (3) of the definition of a1 exceeds R1*P1 and (B) S1*Q1. Then, based on the foregoing definitions: AY5 = AQ - AY6 - AY7 - AY8; AY6 = (a/2){(A0S1 - A1S0)/S0S1}; AY7 = aAQ - AY6; and AY8 = AY7. if both AY6 and AY7, as so determined, are non-negative numbers. Otherwise: (1) If AY6, as so determined, is negative, then AY6 = 0; AY7 = a{A1S0Q0 - A0S1Q1}/{A1S0}; AY8 = AY7; and AY5 = AQ - AY6 - AY7 - AY8. (2) If AY7, as so determined, is negative, then AY7 = 0; AY6 = a{A1S0Q0 - A0S1Q1}/{2S1S0Q1 - A1S0}; AY8 = AY7; and AY5 = AQ - AY6 - AY7 - AY8. REMIC III Realized Losses: Realized Losses on Group I Loans and Group II Loans shall be allocated to the REMIC III Regular Interests as follows: (1) The interest portion of Realized Losses on Group I Loans, if any, shall be allocated among REMIC III Regular Interests LT1, LT2, LT4 and LT-Y1, pro rata according to the amount of interest accrued but unpaid thereon, in reduction thereof, and thereafter to REMIC III Regular Interest LT-IO in reduction thereof; and (2) the interest portion of Realized Losses on Group II Loans, if any, shall be allocated among REMIC III Regular Interests LT5, LT6, LT8 and LT-Y2, pro rata, according to the amount of interest accrued but unpaid thereon, in reduction thereof, and thereafter to REMIC III Regular Interest LT-IO in reduction thereof. Any interest portion of such Realized Losses in excess of the amount allocated pursuant to the preceding sentence shall be treated as a principal portion of Realized Losses not attributable to any specific Mortgage Loan in such Loan Group and allocated pursuant to the succeeding sentences. The principal portion of Realized Losses with respect to Loan Group I and Loan Group II shall be allocated to the REMIC III Regular Interests as follows: (1) The principal portion of Realized Losses on Group I Loans shall be allocated, first, to REMIC III Regular Interest LT-Y1 to the extent that such losses were allocated to REMIC II Regular Interest Y-1 in reduction of the Uncertificated Principal Balance thereof, second, to REMIC III Regular Interests LT2, LT3 and LT4 pro-rata according to their respective REMIC III Principal Reduction Amounts to the extent thereof in reduction of the Uncertificated Principal Balance of such REMIC III Regular Interests and, third, the remainder, if any, of such principal portion of such Realized Losses shall be allocated to REMIC III Regular Interest LT1 in reduction of the Uncertificated Principal Balance thereof; and (2) the principal portion of Realized Losses on Group II Loans shall be allocated, first, to REMIC III Regular Interest LT-Y2 to the extent that such losses were allocated to REMIC II Regular Interest Y-2 in reduction of the Uncertificated Principal Balance thereof, second, to REMIC III Regular Interests LT6, LT7 and LT8 pro-rata according to their respective REMIC III Principal Reduction Amounts to the extent thereof in reduction of the Uncertificated Principal Balance of such REMIC III Regular Interests and, third, the remainder, if any, of such principal portion of such Realized Losses shall be allocated to REMIC III Regular Interest LT5 in reduction of the Uncertificated Principal Balance thereof. REMIC III Regular Interest. Any of the separate non-certificated beneficial ownership interests in REMIC III issued hereunder and designated as a "regular interest" in REMIC III. Each REMIC III Regular Interest shall accrue interest at the related Uncertificated REMIC III Pass-Through Rate in effect from time to time, and shall be entitled to distributions of principal, subject to the terms and conditions hereof, in an aggregate amount equal to its initial Uncertificated Principal Balance as set forth in the Preliminary Statement hereto. The designations for the respective REMIC III Regular Interests are set forth in the Preliminary Statement hereto. REMIC III Regular Interest LT1 Principal Distribution Amount: For any Distribution Date, the excess, if any, of the REMIC III Regular Interest LT1 Principal Reduction Amount for such Distribution Date over the Realized Losses allocated to REMIC III Regular Interest LT1 on such Distribution Date. REMIC III Regular Interest LT2 Principal Distribution Amount: For any Distribution Date, the excess, if any, of the REMIC III Regular Interest LT2 Principal Reduction Amount for such Distribution Date over the Realized Losses allocated to REMIC III Regular Interest LT2 on such Distribution Date. REMIC III Regular Interest LT3 Principal Distribution Amount: For any Distribution Date, the excess, if any, of the REMIC III Regular Interest LT3 Principal Reduction Amount for such Distribution Date over the Realized Losses allocated to REMIC III Regular Interest LT3 on such Distribution Date. REMIC III Regular Interest LT4 Principal Distribution Amount: For any Distribution Date, the excess, if any, of the REMIC III Regular Interest LT4 Principal Reduction Amount for such Distribution Date over the Realized Losses allocated to REMIC III Regular Interest LT4 on such Distribution Date. REMIC III Regular Interest LT5 Principal Distribution Amount: For any Distribution Date, the excess, if any, of the REMIC III Regular Interest LT5 Principal Reduction Amount for such Distribution Date over the Realized Losses allocated to REMIC III Regular Interest LT5 on such Distribution Date. REMIC III Regular Interest LT6 Principal Distribution Amount: For any Distribution Date, the excess, if any, of the REMIC III Regular Interest LT6 Principal Reduction Amount for such Distribution Date over the Realized Losses allocated to REMIC III Regular Interest LT6 on such Distribution Date. REMIC III Regular Interest LT7 Principal Distribution Amount: For any Distribution Date, the excess, if any, of the REMIC III Regular Interest LT7 Principal Reduction Amount for such Distribution Date over the Realized Losses allocated to REMIC III Regular Interest LT7 on such Distribution Date. REMIC III Regular Interest LT8 Principal Distribution Amount: For any Distribution Date, the excess, if any, of the REMIC III Regular Interest LT8 Principal Reduction Amount for such Distribution Date over the Realized Losses allocated to REMIC III Regular Interest LT8 on such Distribution Date. REMIC III Regular Interest LT-Y1 Principal Distribution Amount: For any Distribution Date, the excess, if any, of the REMIC III Regular Interest LT-Y1 Principal Reduction Amount for such Distribution Date over the Realized Losses allocated to REMIC III Regular Interest LT-Y1 on such Distribution Date. REMIC III Regular Interest LT-Y2 Principal Distribution Amount: For any Distribution Date, the excess, if any, of the REMIC III Regular Interest LT-Y2 Principal Reduction Amount for such Distribution Date over the Realized Losses allocated to REMIC III Regular Interest LT-Y2 on such Distribution Date. REMIC IV: The segregated pool of assets subject hereto, constituting a portion of the primary trust created hereby and to be administered hereunder, with respect to which a separate REMIC election is to be made, consisting of the REMIC III Regular Interests. REMIC IV Available Distribution Amount: For any Distribution Date, the amount distributed from REMIC III to REMIC IV on such Distribution Date in respect of the REMIC III Regular Interests. REMIC IV Distribution Amount: For any Distribution Date, the REMIC IV Available Distribution Amount shall be deemed distributed to Class A, Class M and Class SB Certificates in respect of the portion of such Certificates representing ownership of REMIC IV Regular Interests and the Class R Certificates in respect of Component IV thereof in the following amounts and priority: (i) to the Class SB Certificateholders in respect of REMIC IV Regular Interest IO, the amount distributable with respect to such REMIC IV Regular Interest as described in the Preliminary Statement, being paid from and in reduction of the REMIC IV Available Distribution Amount for such Distribution Date; (ii) to the Class A Certificateholders, the Accrued Certificate Interest payable on the Class A Certificates with respect to such Distribution Date, plus any related amounts accrued pursuant to this clause (i) but remaining unpaid from any prior Distribution Date, being paid from and in reduction of the REMIC IV Available Distribution Amount for such Distribution Date; (iii) to the Class M Certificateholders, from the amount, if any, of the Available Distribution Amount remaining after the foregoing distributions, Accrued Certificate Interest payable on the Class M Certificates with respect to such Distribution Date, plus any related amounts accrued pursuant to this clause (ii) but remaining unpaid from any prior Distribution Date, sequentially, to the Class M-1S Certificateholders, Class M-2S Certificateholders, Class M-3S Certificateholders, Class M-4 Certificateholders, Class M-5 Certificateholders, Class M-6 Certificateholders, Class M-7 Certificateholders, Class M-8 Certificateholders and Class M-9 Certificateholders, in that order, being paid from and in reduction of the REMIC IV Available Distribution Amount for such Distribution Date; (iv) the Principal Distribution Amount shall be distributed as follows, to be applied to reduce the principal balance of the REMIC IV Regular Interest related to the applicable Certificates in each case to the extent of the remaining Principal Distribution Amount: (A) first, the Class A-I-Principal Distribution Amount shall be distributed sequentially to the Class A-I-1 Certificateholders, Class A-I-2 Certificateholders, Class A-I-3 Certificateholders and Class A-I-4 Certificateholders, in that order, in each case until the Certificate Principal Balance thereof is reduced to zero; (B) second, to the Class M-1S, Class M-2S and Class M-3S Certificateholders, in that order, the Sequential Class M Principal Distribution Amount, in each case until the Certificate Principal Balance thereof has been reduced to zero; (C) third, to the Class M-4 Certificateholders, the Class M-4 Principal Distribution Amount, until the Certificate Principal Balance of the Class M-4 Certificates has been reduced to zero; (D) fourth, to the Class M-5 Certificateholders, the Class M-5 Principal Distribution Amount, until the Certificate Principal Balance of the Class M-5 Certificates has been reduced to zero; (E) fifth, to the Class M-6 Certificateholders, the Class M-6 Principal Distribution Amount, until the Certificate Principal Balance of the Class M-6 Certificates has been reduced to zero; (F) sixth, to the Class M-7 Certificateholders, the Class M-7 Principal Distribution Amount, until the Certificate Principal Balance of the Class M-7 Certificates has been reduced to zero; (G) seventh, to the Class M-8 Certificateholders, the Class M-8 Principal Distribution Amount, until the Certificate Principal Balance of the Class M-8 Certificates has been reduced to zero; and (H) eighth, to the Class M-9 Certificateholders, the Class M-9 Principal Distribution Amount, until the Certificate Principal Balance of the Class M-9 Certificates has been reduced to zero; and (v) to the Class A Certificateholders and Class M Certificateholders, the amount of any Prepayment Interest Shortfalls allocated thereto for such Distribution Date, on a pro rata basis based on Prepayment Interest Shortfalls allocated thereto to the extent not offset by Eligible Master Servicing Compensation on such Distribution Date; (vi) to the Class A Certificateholders and Class M Certificateholders, the amount of any Prepayment Interest Shortfalls previously allocated thereto remaining unpaid from prior Distribution Dates together with interest thereon at the related Pass-Through Rate, on a pro rata basis based on unpaid Prepayment Interest Shortfalls previously allocated thereto; (vii) to the Class SB Certificates, (A) from the amount, if any, of the REMIC IV Available Distribution Amount remaining after the foregoing distributions, the sum of (I) Accrued Certificate Interest thereon, (II) the amount of any Overcollateralization Reduction Amount for such Distribution Date and (III) for any Distribution Date after the Certificate Principal Balance of each Class of Class A Certificates and Class M Certificates has been reduced to zero, the Overcollateralization Amount and (B) from prepayment charges on deposit in the Certificate Account, any prepayment charges received on the Mortgage Loans during the related Prepayment Period; and (viii)......to the Class R Certificateholders in respect of Component IV thereof, the balance, if any, of the REMIC IV Available Distribution Amount. REMIC IV Regular Interest SB-PO: A separate beneficial ownership interest in REMIC IV issued hereunder and designated as a Regular Interest in REMIC IV, the ownership of which is evidenced by the Class SB Certificates. REMIC IV Regular Interest SB-PO shall have no entitlement to interest, and shall be entitled to distributions of principal subject to the terms and conditions hereof, in aggregate amount equal to the initial Certificate Principal Balance of the Class SB Certificates as set forth in the Preliminary Statement hereto. REMIC IV Regular Interest SB-IO: A separate beneficial ownership interest in REMIC IV issued hereunder and designated as a Regular Interest in REMIC IV, the ownership of which is evidenced by the Class SB Certificates. REMIC IV Regular Interest SB-IO shall have no entitlement to principal, and shall be entitled to distributions of interest subject to the terms and conditions hereof, in aggregate amount equal to the interest distributable with respect to the Class SB Certificates pursuant to the terms and conditions hereof. REMIC IV Regular Interest IO: A separate beneficial ownership interest in REMIC IV issued hereunder and designated as a Regular Interest in REMIC IV, the ownership of which is evidenced by the Class SB Certificates. REMIC IV Regular Interest IO shall have no entitlement to principal, and shall be entitled to distributions of interest subject to the terms and conditions hereof, in aggregate amount equal to the interest distributable with respect to REMIC III Regular Interest LT-IO. REMIC IV Regular Interests: REMIC IV Regular Interests SB-IO, SB-PO and IO, together with the Class A Certificates and Class M Certificates, exclusive of their respective rights to receive the payment of Basis Risk Shortfalls and other amounts pursuant to the SB-AM Swap Agreement. REMIC Provisions: Provisions of the federal income tax law relating to real estate mortgage investment conduits, which appear at Sections 860A through 860G of Subchapter M of Chapter 1 of the Code, and related provisions, and temporary and final regulations (or, to the extent not inconsistent with such temporary or final regulations, proposed regulations) and published rulings, notices and announcements promulgated thereunder, as the foregoing may be in effect from time to time. REO Acquisition: The acquisition by the Master Servicer on behalf of the Trustee for the benefit of the Certificateholders of any REO Property pursuant to Section 3.14. REO Disposition: With respect to any REO Property, a determination by the Master Servicer that it has received substantially all Insurance Proceeds, Liquidation Proceeds, REO Proceeds and other payments and recoveries (including proceeds of a final sale) which the Master Servicer expects to be finally recoverable from the sale or other disposition of the REO Property. REO Imputed Interest: With respect to any REO Property, for any period, an amount equivalent to interest (at a rate equal to the Net Mortgage Rate that would have been applicable to the related Mortgage Loan had it been outstanding) on the unpaid principal balance of the Mortgage Loan as of the date of acquisition thereof for such period. REO Proceeds: Proceeds, net of expenses, received in respect of any REO Property (including, without limitation, proceeds from the rental of the related Mortgaged Property) which proceeds are required to be deposited into the Custodial Account only upon the related REO Disposition. REO Property: A Mortgaged Property acquired by the Master Servicer on behalf of the Trust Fund for the benefit of the Certificateholders through foreclosure or deed in lieu of foreclosure in connection with a defaulted Mortgage Loan. Reportable Modified Mortgage Loan: Any Mortgage Loan that (a) has been subject to an interest rate reduction, (b) has been subject to a term extension or (c) has had amounts owing on such Mortgage Loan capitalized by adding such amount to the Stated Principal Balance of such Mortgage Loan; provided, however, that a Mortgage Loan modified in accordance with (a) above for a temporary period shall not be a Reportable Modified Mortgage Loan if such Mortgage Loan has not been delinquent in payments of principal and interest for six months since the date of such modification if that interest rate reduction is not made permanent thereafter. Repurchase Event: As defined in the Assignment Agreement. Request for Release: A request for release, the form of which is attached as Exhibit G hereto, or an electronic request in a form acceptable to the Custodian. Required Insurance Policy: With respect to any Mortgage Loan, any insurance policy which is required to be maintained from time to time under this Agreement, the Program Guide or the related Subservicing Agreement in respect of such Mortgage Loan. Required Overcollateralization Amount: With respect to any Distribution Date, (a) prior to the Stepdown Date, an amount equal to 3.00% of the aggregate Stated Principal Balance of the Mortgage Loans as of the Cut-off Date, (b) on or after the Stepdown Date if a Trigger Event is not in effect, the greater of (i) an amount equal to 6.00% of the aggregate outstanding Stated Principal Balance of the Mortgage Loans after giving effect to distributions made on that Distribution Date and (ii) the Overcollateralization Floor and (c) on or after the Stepdown Date if a Trigger Event is in effect, an amount equal to the Required Overcollateralization Amount from the immediately preceding Distribution Date. The Required Overcollateralization Amount may be reduced so long as written confirmation is obtained from each Rating Agency that such reduction shall not reduce the ratings assigned to any Class of Certificates by such Rating Agency below the lower of the then-current rating or the rating assigned to such Certificates as of the Closing Date by such Rating Agency. Residential Funding: Residential Funding Company, LLC, a Delaware limited liability company, in its capacity as seller of the Mortgage Loans to the Depositor and any successor thereto. Responsible Officer: When used with respect to the Trustee, any officer of the Corporate Trust Department of the Trustee, including any Senior Vice President, any Vice President, any Assistant Vice President, any Assistant Secretary, any Trust Officer or Assistant Trust Officer, or any other officer of the Trustee, in each case with direct responsibility for the administration of this Agreement. RFC Exemption: As defined in Section 5.02(e)(ii). Rule 144A: Rule 144A under the Securities Act of 1933, as in effect from time to time. SB-AM Swap Agreement: The swap between the Class SB Certificateholder and the Class A and Class M Certificateholders evidenced by the confirmation attached hereto as Exhibit Q and incorporated herein by reference. Securities Act: The Securities Act of 1933, as amended. Securitization Transaction: Any transaction involving a sale or other transfer of mortgage loans directly or indirectly to an issuing in connection with an issuance of publicly offered or privately placed, rated or unrated mortgage-backed securities. Seller: With respect to any Mortgage Loan, a Person, including any Subservicer, that executed a Seller's Agreement applicable to such Mortgage Loan. Seller's Agreement: An agreement for the origination and sale of Mortgage Loans generally in the form of the seller contract referred to or contained in the Program Guide, or in such other form as has been approved by the Master Servicer and the Depositor. Senior Enhancement Percentage: For any Distribution Date, the fraction, expressed as a percentage, the numerator of which is the sum of (i) the aggregate Certificate Principal Balance of the Class M Certificates and (ii) the Overcollateralization Amount, in each case prior to the distribution of the Principal Distribution Amount on such Distribution Date and the denominator of which is the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date. Senior Percentage: With respect to each Loan Group and any Distribution Date, the percentage equal to the lesser of (x) the aggregate Certificate Principal Balances of the related Class A Certificates immediately prior to such Distribution Date divided by the aggregate Stated Principal Balance of the Mortgage Loans in such Loan Group immediately prior to such Distribution Date and (y) 100%. Sequential Class M Certificates: Collectively, the Class M-1S Certificates, Class M-2S Certificates and Class M-3S Certificates. Sequential Class M Principal Distribution Amount: With respect to any Distribution Date (i) prior to the Stepdown Date or on or after the Stepdown Date if a Trigger Event is in effect for that Distribution Date, the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount, or (ii) on or after the Stepdown Date if a Trigger Event is not in effect for that Distribution Date, the lesser of: (i) the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount; and (ii) the excess, if any, of (A) the sum of (1) the aggregate Certificate Principal Balance of the Class A Certificates (after taking into account the payment of the Class A Principal Distribution Amount for that Distribution Date) and (2) the aggregate Certificate Principal Balance of the Sequential Class M Certificates immediately prior to that distribution date over (B) the lesser of (x) the product of (1) the Subordination Percentage with respect to the Class M-3S Certificates and (2) the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date and (y) the excess, if any, of the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date, over the Overcollateralization Floor. Servicing Accounts: The account or accounts created and maintained pursuant to Section 3.08. Servicing Advances: All customary, reasonable and necessary "out of pocket" costs and expenses incurred in connection with a default, delinquency or other unanticipated event by the Master Servicer or a Subservicer in the performance of its servicing obligations, including, but not limited to, the cost of (i) the preservation, restoration and protection of a Mortgaged Property or, with respect to a cooperative loan, the related cooperative apartment, (ii) any enforcement or judicial proceedings, including foreclosures, including any expenses incurred in relation to any such proceedings that result from the Mortgage Loan being registered on the MERS(R)System, (iii) the management and liquidation of any REO Property, (iv) any mitigation procedures implemented in accordance with Section 3.07, and (v) compliance with the obligations under Sections 3.01, 3.08, 3.11, 3.12(a) and 3.14, including, if the Master Servicer or any Affiliate of the Master Servicer provides services such as appraisals and brokerage services that are customarily provided by Persons other than servicers of mortgage loans, reasonable compensation for such services. Servicing Criteria: The "servicing criteria" set forth in Item 1122(d) of Regulation AB, as such may be amended from time to time. Servicing Fee: With respect to any Mortgage Loan and Distribution Date, the fee payable monthly to the Master Servicer in respect of master servicing compensation that accrues at an annual rate equal to the Servicing Fee Rate multiplied by the Stated Principal Balance of such Mortgage Loan as of the related Due Date in the related Due Period, as may be adjusted pursuant to Section 3.16(e). Servicing Fee Rate: With respect to any Mortgage Loan, the per annum rate designated on the Mortgage Loan Schedule as the "MSTR SERV FEE," as may be adjusted with respect to successor Master Servicers as provided in Section 7.02, which rate shall never be greater than the Mortgage Rate of such Mortgage Loan. Servicing Modification: Any reduction of the interest rate on or the outstanding principal balance of a Mortgage Loan, any extension of the final maturity date of a Mortgage Loan, and any increase to the Stated Principal Balance of a Mortgage Loan by adding to the Stated Principal Balance unpaid principal and interest and other amounts owing under the Mortgage Loan, in each case pursuant to a modification of a Mortgage Loan that is in default, or for which, in the judgment of the Master Servicer, default is reasonably foreseeable in accordance with Section 3.07(a). Servicing Officer: Any officer of the Master Servicer involved in, or responsible for, the administration and servicing of the Mortgage Loans whose name and specimen signature appear on a list of servicing officers furnished to the Trustee by the Master Servicer on the Closing Date, as such list may from time to time be amended. Sixty-Plus Delinquency Percentage: With respect to any Distribution Date and the Mortgage Loans, the arithmetic average, for each of the three Distribution Dates ending with such Distribution Date, of the fraction, expressed as a percentage, equal to (x) the aggregate Stated Principal Balance of the Mortgage Loans that are 60 or more days delinquent in payment of principal and interest for that Distribution Date, including Mortgage Loans in foreclosure and REO, over (y) the aggregate Stated Principal Balance of all of the Mortgage Loans immediately preceding that Distribution Date. Standard & Poor's: Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. or its successors in interest. Startup Date: The day designated as such pursuant to Article X hereof. Stated Principal Balance: With respect to any Mortgage Loan or related REO Property, as of any date of determination, (i) the sum of (a) the Cut-off Date Principal Balance of the Mortgage Loan and (b) any amount by which the Stated Principal Balance of the Mortgage Loan has been increased pursuant to a Servicing Modification, minus (ii) the sum of (a) the principal portion of the Monthly Payments due with respect to such Mortgage Loan or REO Property during each Due Period ending with the Due Period relating to the most recent Distribution Date which were received or with respect to which an Advance was made, (b) all Principal Prepayments with respect to such Mortgage Loan or REO Property, and all Insurance Proceeds, Liquidation Proceeds and REO Proceeds, to the extent applied by the Master Servicer as recoveries of principal in accordance with Section 3.14 with respect to such Mortgage Loan or REO Property, in each case which were distributed pursuant to Section 4.02 on any previous Distribution Date, and (c) any Realized Loss incurred with respect to such Mortgage Loan allocated to Certificateholders with respect thereto for any previous Distribution Date. Stepdown Date: That Distribution Date which is the earlier to occur of (a) the Distribution Date immediately succeeding the Distribution Date on which the aggregate Certificate Principal Balance of the Class A Certificates has been reduced to zero and (b) the later to occur of (i) the Distribution Date in November 2009 and (ii) the first Distribution Date on which the Senior Enhancement Percentage is equal to or greater than 43.10%. Subordinate Component: With respect to each Loan Group and any Distribution Date, the positive excess, if any, of the aggregate Stated Principal Balance of the Mortgage Loans in that Loan Group, over the aggregate Certificate Principal Balance of the related Class A Certificates, in each case immediately prior to that Distribution Date. Subordination: The provisions described in Section 4.05 relating to the allocation of Realized Losses. Subordination Percentage: With respect to the Class A Certificates and any Class of Class M Certificates, the respective percentage set forth below. Subordination Class Percentage A 56.90% M-1S 64.60% M-2S 71.40% M-3S 75.50% M-4 79.20% M-5 82.80% M-6 86.10% M-7 89.40% M-8 91.80% M-9 94.00% Subsequent Recoveries: As of any Distribution Date, amounts received by the Master Servicer (net of any related expenses permitted to be reimbursed pursuant to Section 3.10) or surplus amounts held by the Master Servicer to cover estimated expenses (including, but not limited to, recoveries in respect of the representations and warranties made by the related Seller pursuant to the applicable Seller's Agreement and assigned to the Trustee pursuant to Section 2.04) specifically related to a Mortgage Loan that was the subject of a Cash Liquidation or an REO Disposition prior to the related Prepayment Period and that resulted in a Realized Loss. Subsequent Recovery Allocation Amount: With respect to a Loan Group, that portion of the Principal Allocation Amount in respect of that Loan Group attributable to the amounts described in clause (iv) of the definition of Principal Distribution Amount. Subserviced Mortgage Loan: Any Mortgage Loan that, at the time of reference thereto, is subject to a Subservicing Agreement. Subservicer: Any Person with whom the Master Servicer has entered into a Subservicing Agreement and who generally satisfied the requirements set forth in the Program Guide in respect of the qualification of a Subservicer as of the date of its approval as a Subservicer by the Master Servicer. Subservicer Advance: Any delinquent installment of principal and interest on a Mortgage Loan which is advanced by the related Subservicer (net of its Subservicing Fee) pursuant to the Subservicing Agreement. Subservicing Account: An account established by a Subservicer in accordance with Section 3.08. Subservicing Agreement: The written contract between the Master Servicer and any Subservicer relating to servicing and administration of certain Mortgage Loans as provided in Section 3.02, generally in the form of the servicer contract referred to or contained in the Program Guide or in such other form as has been approved by the Master Servicer and the Depositor. Subservicing Fee: With respect to any Mortgage Loan, the fee payable monthly to the related Subservicer (or, in the case of a Nonsubserviced Mortgage Loan, to the Master Servicer) in respect of subservicing and other compensation that accrues with respect to each Distribution Date at an annual rate designated as "SUBSERV FEE" on the Mortgage Loan Schedule. Supplemental Interest Trust Account: The separate trust account created and maintained by the Supplemental Interest Trust Trustee pursuant to Section 4.10(a). Supplemental Interest Trust: The separate trust created and maintain by the Supplemental Interest Trust Trustee pursuant to Section 4.10(a). The primary activities of the Supplemental Interest Trust created pursuant to this Agreement shall be: (i)...holding the Swap Agreement; (ii)..receiving collections or making payments with respect to the Swap Agreement; ...... and (iii).engaging in other activities that are necessary or incidental to accomplish these . limited purposes, which activities cannot be contrary to the status of the Supplemental Interest Trust as a qualified special purpose entity under existing accounting literature. Supplemental Interest Trust Trustee: As defined in the preamble hereto. Swap Agreement: The interest rate swap agreement between the Swap Counterparty and the Supplemental Interest Trust Trustee, on behalf of the Supplemental Interest Trust, which agreement provides for Net Swap Payments and Swap Termination Payments to be paid, as provided therein, together with any schedules, confirmations or other agreements relating thereto, attached hereto as Exhibit O. Swap Agreement Notional Balance: As to the Swap Agreement and each Floating Rate Payer Payment Date and Fixed Rate Payer Payment Date (each as defined in the Swap Agreement) the amount set forth on Schedule I to the Swap Agreement for such Floating Rate Payer Payment Date. Swap Counterparty: The swap counterparty under the Swap Agreement either (a) entitled to receive payments from the Supplemental Interest Trust Trustee from amounts payable by the Supplemental Interest Trust under this Agreement or (b) required to make payments to the Supplemental Interest Trust Trustee for payment to the Supplemental Interest Trust, in either case pursuant to the terms of the Swap Agreement, and any successor in interest or assign. Initially, the Swap Counterparty shall be Barclays Bank PLC. Swap Counterparty Trigger Event: With respect to any Distribution Date, (i) an Event of Default under the Swap Agreement with respect to which the Swap Counterparty is a Defaulting Party, (ii) a Termination Event under the Swap Agreement with respect to which the Swap Counterparty is the sole Affected Party, or (iii) an additional termination event under the Swap Agreement with respect to which the Swap Counterparty is the sole Affected Party. Swap LIBOR: LIBOR as determined pursuant to the Swap Agreement. Swap Termination Payment: Upon the occurrence of an Early Termination Date, the payment to be made by the Supplemental Interest Trust Trustee on behalf of the Supplemental Interest Trust to the Swap Counterparty from payments from the Supplemental Interest Trust, or by the Swap Counterparty to the Supplemental Interest Trust Trustee for payment to the Supplemental Interest Trust, as applicable, pursuant to the terms of the Swap Agreement. Tax Returns: The federal income tax return on Internal Revenue Service Form 1066, U.S. Real Estate Mortgage Investment Conduit Income Tax Return, including Schedule Q thereto, Quarterly Notice to Residual Interest Holders of REMIC Taxable Income or Net Loss Allocation, or any successor forms, to be filed on behalf of any REMIC hereunder due to its classification as a REMIC under the REMIC Provisions, together with any and all other information, reports or returns that may be required to be furnished to the Certificateholders or filed with the Internal Revenue Service or any other governmental taxing authority under any applicable provisions of federal, state or local tax laws. Telerate Screen Page 3750: As defined in Section 1.02. Transfer: Any direct or indirect transfer, sale, pledge, hypothecation or other form of assignment of any Ownership Interest in a Certificate. Transfer Affidavit and Agreement: As defined in Section 5.02(f). Transferee: Any Person who is acquiring by Transfer any Ownership Interest in a Certificate. Transferor: Any Person who is disposing by Transfer of any Ownership Interest in a Certificate. Transferring Servicer: As defined in Section 3.23(c). Trigger Event: A Trigger Event is in effect with respect to any Distribution Date on or after the Stepdown Date if either (a) the related Sixty-Plus Delinquency Percentage, as determined on that Distribution Date, equals or exceeds 39.44% of the Senior Enhancement Percentage for such Distribution Date or (b) on or after the Distribution Date in November 2008, the aggregate amount of Realized Losses on the Mortgage Loans as a percentage of the Cut-off Date Balance exceeds the applicable amount set forth below: November 2008 to October 2009: 1.55% with respect to November 2008, plus an additional 1/12th of 2.00% for each month thereafter. November 2009 to October 2010: 3.55% with respect to November 2009, plus an additional 1/12th of 2.05% for each month thereafter. November 2010 to October 2011: 5.60% with respect to November 2010, plus an additional 1/12th of 1.60% for each month thereafter. November 2011 to October 2012: 7.20% with respect to November 2011, plus an additional 1/12th of 0.95% for each month thereafter. November 2012 and thereafter: 8.15%. Trustee: As defined in the preamble hereto. Trust Fund: Collectively, the assets of each REMIC hereunder and the assets in the Supplemental Interest Trust. Uncertificated Accrued Interest: With respect to any Uncertificated Regular Interest for any Distribution Date, one month's interest at the related Uncertificated Pass-Through Rate for such Distribution Date, accrued on the Uncertificated Principal Balance or Uncertificated Notional Amount, as applicable, immediately prior to such Distribution Date. Uncertificated Accrued Interest for the Uncertificated Regular Interests shall accrue on the basis of a 360-day year consisting of twelve 30-day months. For purposes of calculating the amount of Uncertificated Accrued Interest for the REMIC I Regular Interests for any Distribution Date, any Prepayment Interest Shortfalls and Relief Act Shortfalls (to the extent not covered by Compensating Interest) shall be allocated among REMIC I Regular Interests, pro rata, based on, and to the extent of, Uncertificated Accrued Interest, as calculated without application of this sentence. For purposes of calculating the amount of Uncertificated Accrued Interest for the REMIC II Regular Interests for any Distribution Date, any Prepayment Interest Shortfalls and Relief Act Shortfalls (to the extent not covered by Compensating Interest) shall be allocated among REMIC II Regular Interests, pro rata, based on, and to the extent of, Uncertificated Accrued Interest, as calculated without application of this sentence. For purposes of calculating the amount of Uncertificated Accrued Interest for the REMIC III Regular Interests for any Distribution Date, any Prepayment Interest Shortfalls and Relief Act Shortfalls (to the extent not covered by Compensating Interest) shall be allocated among the REMIC III Regular Interests, pro rata, based on, and to the extent of, Uncertificated Accrued Interest, as calculated without application of this sentence. Uncertificated Accrued Interest on REMIC IV Regular Interest SB-PO shall be zero. Uncertificated Accrued Interest on REMIC IV Regular Interest SB-IO for each Distribution Date shall equal Accrued Certificate Interest for the Class SB Certificates. Uncertificated Notional Amount: With respect to the Class SB Certificates or REMIC IV Regular Interest SB-IO, immediately prior to any Distribution Date, the aggregate of the Uncertificated Principal Balances of the REMIC III Regular Interests. With respect to REMIC II Regular Interest LT-IO and REMIC III Regular Interest LT-IO and each Distribution Date listed below, the aggregate Uncertificated Principal Balance of the REMIC I Regular Interests ending with the designation "A" listed below: Distribution Date REMIC I Regular Interests 1 I-1-A through I-60-A 2 I-2-A through I-60-A 3 I-3-A through I-60-A 4 I-4-A through I-60-A 5 I-5-A through I-60A 6 I-6-A through I-60-A 7 I-7-A through I-60-A 8 I-8-A through I-60-A 9 I-9-A through I-60-A 10 I-10-A through I-60-A 11 I-11-A through I-60-A 12 I-12-A through I-60-A 13 I-13-A through I-60-A 14 I-14-A through I-60-A 15 I-15-A through I-60-A 16 I-16-A through I-60-A 17 I-17-A through I-60-A 18 I-18-A through I-60-A 19 I-19-A through I-60-A 20 I-20-A through I-60-A 21 I-21-A through I-60-A 22 I-22-A through I-60-A 23 I-23-A through I-60-A 24 I-24-A through I-60-A 25 I-25-A through I-60-A 26 I-26-A through I-60-A 27 I-27-A through I-60-A 28 I-28-A through I-60-A 29 I-29-A through I-60-A 30 I-30-A through I-60-A 31 I-31-A through I-60-A 32 I-32-A through I-60-A 33 I-33-A through I-60-A 34 I-34-A through I-60-A 35 I-35-A through I-60-A 36 I-36-A through I-60-A 37 I-37-A through I-60-A 38 I-38-A through I-60-A 39 I-39-A through I-60-A 40 I-40-A through I-60-A 41 I-41-A through I-60-A 42 I-42-A through I-60-A 43 I-43-A through I-60-A 44 I-44-A through I-60-A 45 I-45-A through I-60-A 46 I-46-A through I-60-A 47 I-47-A through I-60-A 48 I-48-A through I-60-A 49 I-49-A through I-60-A 50 I-50-A through I-60-A 51 I-51-A through I-60-A 52 I-52-A through I-60-A 53 I-53-A through I-60-A 54 I-54-A through I-60-A 55 I-55-A through I-60-A 56 I-56-A through I-60-A 57 I-57-A through I-60-A 58 I-58-A through I-60-A 59 I-59-A through I-60-A 60 I-60-A thereafter $0.00 With respect to REMIC IV Regular Interest IO, immediately prior to any Distribution Date, an amount equal to the Uncertificated Notional Amount of REMIC III Regular Interest LT-IO. Uncertificated Pass-Through Rate: The Uncertificated REMIC I Pass-Through Rate, the Uncertificated REMIC II Pass-Through Rate or the Uncertificated REMIC III Pass-Through Rate, as applicable. Uncertificated Principal Balance: The principal amount of any Uncertificated Regular Interest outstanding as of any date of determination. The Uncertificated Principal Balance of each REMIC Regular Interest shall never be less than zero. With respect to REMIC IV Regular Interest SB-PO the initial amount set forth with respect thereto in the Preliminary Statement as reduced by distributions deemed made in respect thereof pursuant to Section 4.02 and Realized Losses allocated thereto pursuant to Section 4.05. Uncertificated Regular Interests: The REMIC I Regular Interests, the REMIC II Regular Interests and the REMIC III Regular Interests. Uncertificated REMIC I Pass-Through Rate: With respect to each REMIC I Regular Interest ending with the designation "A," a per annum rate equal to the weighted average of the Net Mortgage Rates on the Mortgage Loans multiplied by two (2), subject to a maximum rate of 10.42%. With respect to each REMIC I Regular Interest ending with the designation "B," the greater of (x) a per annum rate equal to the excess, if any, of (i) 2 multiplied by the weighted average of the Net Mortgage Rates on the Mortgage Loans over (ii) 10.42% and (y) 0.00000%. With respect to REMIC I Regular Interest A-I, the weighted average of the Net Mortgage Rates on the Mortgage Loans. With respect to REMIC I Regular Interest I, the weighted average of the Net Mortgage Rates on the Group I Loans. With respect to REMIC I Regular Interest II, the weighted average of the Net Mortgage Rates on the Group II Loans. Uncertificated REMIC II Pass-Through Rate: With respect to any Distribution Date and (i) REMIC II Regular Interests Y-1 and Z-1, the Group I REMIC II Net WAC Rate, (ii) REMIC II Regular Interests Y-2 and Z-2, the Group II REMIC II Net WAC Rate, and (iii) REMIC II Regular Interest LT-IO, the excess of (i) the weighted average of the Uncertificated REMIC I Pass-Through Rates for REMIC I Regular Interests ending with the designation "A," over (ii) 2 multiplied by Swap LIBOR. Uncertificated REMIC III Pass-Through Rate: With respect to any Distribution Date and (i) REMIC III Regular Interests LT1, LT2 and LT-Y1, the Group I REMIC III Net WAC Rate, (ii) REMIC III Regular Interests LT5, LT6 and LT-Y2, the Group II REMIC III Net WAC Rate, (iii) REMIC III Regular Interests LT3 and LT7, zero (0.00%), (iv) REMIC III Regular Interest LT4, twice the Group I REMIC III Net WAC Rate, (v) REMIC II Regular Interest LT8, twice the Group II REMIC III Net WAC Rate; and (vi) REMIC III Regular Interest LT IO, the excess of (i) the weighted average of the Uncertificated REMIC I Pass-Through Rates for REMIC I Regular Interests ending with the designation "A," over (ii) 2 multiplied by Swap LIBOR. Uniform Single Attestation Program for Mortgage Bankers: The Uniform Single Attestation Program for Mortgage Bankers, as published by the Mortgage Bankers Association of America and effective with respect to fiscal periods ending on or after December 15, 1995. Uninsured Cause: Any cause of damage to property subject to a Mortgage such that the complete restoration of such property is not fully reimbursable by the hazard insurance policies. United States Person: Either (i) a citizen or resident of the United States, a corporation, partnership or other entity (treated as a corporation or partnership for United States federal income tax purposes) created or organized in, or under the laws of, the United States, any state thereof, or the District of Columbia (except in the case of a partnership, to the extent provided in Treasury regulations) provided that, for purposes solely of the restrictions on the transfer of Class R Certificates, no partnership or other entity treated as a partnership for United States federal income tax purposes shall be treated as a United States Person unless all persons that own an interest in such partnership either directly or through any entity that is not a corporation for United States federal income tax purposes are required by the applicable operative agreement to be United States Persons, or an estate that is described in Section 7701(a)(30)(D) of the Code, or a trust that is described in Section 7701(a)(30)(E) of the Code, or (ii) as defined in Regulation S, as the context may require. Voting Rights: The portion of the voting rights of all of the Certificates which is allocated to any Certificate. 98.00% of all of the Voting Rights shall be allocated among Holders of the Class A Certificates and Class M Certificates, in proportion to the outstanding Certificate Principal Balances of their respective Certificates; 1.00% of all of the Voting Rights shall be allocated to the Holders of the Class SB Certificates; and 1.00% of all of the Voting Rights shall be allocated to the Holders of the Class R Certificates; in each case to be allocated among the Certificates of such Class in accordance with their respective Percentage Interests. Section 1.02......Determination of LIBOR. LIBOR applicable to the calculation of the Pass-Through Rate on the LIBOR Certificates for any Interest Accrual Period will be determined as of each LIBOR Rate Adjustment Date. On each LIBOR Rate Adjustment Date, or if such LIBOR Rate Adjustment Date is not a Business Day, then on the next succeeding Business Day, LIBOR shall be established by the Trustee and, as to any Interest Accrual Period, will equal the rate for one month United States dollar deposits that appears on the Telerate Screen Page 3750 as of 11:00 a.m., London time, on such LIBOR Rate Adjustment Date. "Telerate Screen Page 3750" means the display designated as page 3750 on the Bridge Telerate Service (or such other page as may replace page 3750 on that service for the purpose of displaying London interbank offered rates of major banks). If such rate does not appear on such page (or such other page as may replace that page on that service, or if such service is no longer offered, LIBOR shall be so established by use of such other service for displaying LIBOR or comparable rates as may be selected by the Trustee after consultation with the Master Servicer), the rate will be the Reference Bank Rate. The "Reference Bank Rate" will be determined on the basis of the rates at which deposits in U.S. Dollars are offered by the reference banks (which shall be any three major banks that are engaged in transactions in the London interbank market, selected by the Trustee after consultation with the Master Servicer) as of 11:00 a.m., London time, on the LIBOR Rate Adjustment Date to prime banks in the London interbank market for a period of one month in amounts approximately equal to the aggregate Certificate Principal Balance of the LIBOR Certificates then outstanding. The Trustee shall request the principal London office of each of the reference banks to provide a quotation of its rate. If at least two such quotations are provided, the rate will be the arithmetic mean of the quotations rounded up to the next multiple of 1/16%. If on such date fewer than two quotations are provided as requested, the rate will be the arithmetic mean of the rates quoted by one or more major banks in New York City, selected by the Trustee after consultation with the Master Servicer, as of 11:00 a.m., New York City time, on such date for loans in U.S. Dollars to leading European banks for a period of one month in amounts approximately equal to the aggregate Certificate Principal Balance of the LIBOR Certificates then outstanding. If no such quotations can be obtained, the rate will be LIBOR for the prior Distribution Date; provided however, if, under the priorities described above, LIBOR for a Distribution Date would be based on LIBOR for the previous Distribution Date for the third consecutive Distribution Date, the Trustee, after consultation with the Master Servicer, shall select an alternative comparable index (over which the Trustee has no control), used for determining one-month Eurodollar lending rates that is calculated and published (or otherwise made available) by an independent party. The establishment of LIBOR by the Trustee on any LIBOR Rate Adjustment Date and the Trustee's subsequent calculation of the Pass-Through Rates applicable to the LIBOR Certificates for the relevant Interest Accrual Period, in the absence of manifest error, will be final and binding. Promptly following each LIBOR Rate Adjustment Date the Trustee shall supply the Master Servicer with the results of its determination of LIBOR on such date. Furthermore, the Trustee shall supply to any Certificateholder so requesting by calling 1-800-934-6802, the Pass-Through Rate on the LIBOR Certificates for the current and the immediately preceding Interest Accrual Period. -------------------------------------------------------------------------------- ARTICLE II CONVEYANCE OF MORTGAGE LOANS; ORIGINAL ISSUANCE OF CERTIFICATES Section 2.01 Conveyance of Mortgage Loans. (a) The Depositor, concurrently with the execution and delivery hereof, does hereby assign to the Trustee in respect of the Trust Fund without recourse all the right, title and interest of the Depositor in and to (i) the Mortgage Loans, including all interest and principal on or with respect to the Mortgage Loans due on or after the Cut-off Date (other than Monthly Payments due in the month of the Cut-off Date); and (ii) all proceeds of the foregoing. The Depositor, the Master Servicer and the Trustee agree that it is not intended that any mortgage loan be included in the Trust Fund that is either (i) a High-Cost Home Loan as defined in the New Jersey Home Ownership Act effective November 27, 2003, (ii) a High-Cost Home Loan as defined in the New Mexico Home Loan Protection Act effective January 1, 2004, (iii) a High-Cost Home Loan as defined in the Massachusetts Predatory Home Loan Practices Act effective November 7, 2004 or (iv) a High-Cost Home Loan as defined in the Indiana High Cost Home Loan Law Act effective January 1, 2005. (b) In connection with such assignment, and contemporaneously with the delivery of this Agreement, except as set forth in Section 2.01(c) below and subject to Section 2.01(d) below, the Depositor does hereby (1) with respect to each Mortgage Loan, deliver to the Master Servicer (or an Affiliate of the Master Servicer) each of the documents or instruments described in clause (ii) below (and the Master Servicer shall hold (or cause such Affiliate to hold) such documents or instruments in trust for the use and benefit of all present and future Certificateholders), (2) with respect to each MOM Loan, deliver to, and deposit with, the Trustee, or the Custodian, as the duly appointed agent of the Trustee for such purpose, the documents or instruments described in clauses (i) and (v) below, (3) with respect to each Mortgage Loan that is not a MOM Loan but is registered on the MERS(R) System, deliver to, and deposit with, the Trustee, or the Custodian, as the duly appointed agent of the Trustee for such purpose, the documents or instruments described in clauses (i), (iv) and (v) below and (4) with respect to each Mortgage Loan that is not a MOM Loan and is not registered on the MERS(R)System, deliver to, and deposit with, the Trustee, or the Custodian, as the duly appointed agent of the Trustee for such purpose, the documents or instruments described in clauses (i), (iii), (iv) and (v) below. (i) The original Mortgage Note, endorsed without recourse to the order of the Trustee and showing an unbroken chain of endorsements from the originator thereof to the Person endorsing it to the Trustee, or with respect to any Destroyed Mortgage Note, an original lost note affidavit from the related Seller or Residential Funding stating that the original Mortgage Note was lost, misplaced or destroyed, together with a copy of the related Mortgage Note. (ii) The original Mortgage, noting the presence of the MIN of the Mortgage Loan and language indicating that the Mortgage Loan is a MOM Loan if the Mortgage Loan is a MOM Loan, with evidence of recording indicated thereon, or a copy of the original Mortgage with evidence of recording indicated thereon. (iii) The assignment (which may be included in one or more blanket assignments if permitted by applicable law) of the Mortgage to the Trustee with evidence of recording indicated thereon or a copy of such assignment with evidence of recording indicated thereon. (iv) The original recorded assignment or assignments of the Mortgage showing an unbroken chain of title from the originator to the Person assigning it to the Trustee (or to MERS, if the Mortgage Loan is registered on the MERS(R)System and noting the presence of a MIN) with evidence of recordation noted thereon or attached thereto, or a copy of such assignment or assignments of the Mortgage with evidence of recording indicated thereon. (v) The original of each modification, assumption agreement or preferred loan agreement, if any, relating to such Mortgage Loan, or a copy of each modification, assumption agreement or preferred loan agreement. The Depositor may, in lieu of delivering the original of the documents set forth in Section 2.01(b)(iii), (iv) and (v) (or copies thereof) to the Trustee or the Custodian, deliver such documents to the Master Servicer, and the Master Servicer shall hold such documents in trust for the use and benefit of all present and future Certificateholders until such time as is set forth in the next sentence. Within thirty Business Days following the earlier of (i) the receipt of the original of all of the documents or instruments set forth in Section 2.01(b)(iii), (iv) and (v) (or copies thereof) for any Mortgage Loan and (ii) a written request by the Trustee to deliver those documents with respect to any or all of the Mortgage Loans then being held by the Master Servicer, the Master Servicer shall deliver a complete set of such documents to the Trustee or the Custodian, as duly appointed agent of the Trustee. (c) Notwithstanding the provisions of Section 2.01(b), in the event that in connection with any Mortgage Loan, if the Depositor cannot deliver the original of the Mortgage, any assignment, modification, assumption agreement or preferred loan agreement (or copy thereof as permitted by Section 2.01(b)) with evidence of recording thereon concurrently with the execution and delivery of this Agreement because of (i) a delay caused by the public recording office where such Mortgage, assignment, modification, assumption agreement or preferred loan agreement as the case may be, has been delivered for recordation, or (ii) a delay in the receipt of certain information necessary to prepare the related assignments, the Depositor shall deliver or cause to be delivered to the Trustee or the respective Custodian a copy of such Mortgage, assignment, modification, assumption agreement or preferred loan agreement. The Depositor shall promptly cause to be recorded in the appropriate public office for real property records the Assignment referred to in clause (iii) of Section 2.01(b), except (a) in states where, in an Opinion of Counsel acceptable to the Master Servicer, such recording is not required to protect the Trustee's interests in the Mortgage Loan or (b) if MERS is identified on the Mortgage or on a properly recorded assignment of the Mortgage, as applicable, as the mortgagee of record solely as nominee for Residential Funding and its successors and assigns. If any Assignment is lost or returned unrecorded to the Depositor because of any defect therein, the Depositor shall prepare a substitute Assignment or cure such defect, as the case may be, and cause such Assignment to be recorded in accordance with this paragraph. The Depositor shall promptly deliver or cause to be delivered to the applicable person described in Section 2.01(b), any Assignment or substitute Assignment (or copy thereof) recorded in connection with this paragraph, with evidence of recording indicated thereon upon receipt thereof from the public recording office or from the related Subservicer or Seller. If the Depositor delivers to the Trustee or Custodian any Mortgage Note or Assignment of Mortgage in blank, the Depositor shall, or shall cause the Custodian to, complete the endorsement of the Mortgage Note and the Assignment of Mortgage in the name of the Trustee in conjunction with the Interim Certification issued by the Custodian, as contemplated by Section 2.02. In connection with the assignment of any Mortgage Loan registered on the MERS(R) System, the Depositor further agrees that it will cause, at the Depositor's own expense, within 30 Business Days after the Closing Date, the MERS(R)System to indicate that such Mortgage Loans have been assigned by the Depositor to the Trustee in accordance with this Agreement for the benefit of the Certificateholders by including (or deleting, in the case of Mortgage Loans which are repurchased in accordance with this Agreement) in such computer files (a) the code in the field which identifies the specific Trustee and (b) the code in the field "Pool Field" which identifies the series of the Certificates issued in connection with such Mortgage Loans. The Depositor further agrees that it will not, and will not permit the Master Servicer to, and the Master Servicer agrees that it will not, alter the codes referenced in this paragraph with respect to any Mortgage Loan during the term of this Agreement unless and until such Mortgage Loan is repurchased in accordance with the terms of this Agreement. (d) It is intended that the conveyances by the Depositor to the Trustee of the Mortgage Loans as provided for in this Section 2.01 and the Uncertificated Regular Interests be construed as a sale by the Depositor to the Trustee of the Mortgage Loans and the Uncertificated Regular Interests for the benefit of the Certificateholders. Further, it is not intended that any such conveyance be deemed to be a pledge of the Mortgage Loans and the Uncertificated Regular Interests by the Depositor to the Trustee to secure a debt or other obligation of the Depositor. Nonetheless, (a) this Agreement is intended to be and hereby is a security agreement within the meaning of Articles 8 and 9 of the New York Uniform Commercial Code and the Uniform Commercial Code of any other applicable jurisdiction; (b) the conveyances provided for in this Section 2.01 shall be deemed to be (1) a grant by the Depositor to the Trustee of a security interest in all of the Depositor's right (including the power to convey title thereto), title and interest, whether now owned or hereafter acquired, in and to (A) the Mortgage Loans, including the related Mortgage Note, the Mortgage, any insurance policies and all other documents in the related Mortgage File, (B) all amounts payable pursuant to the Mortgage Loans or the Swap Agreement in accordance with the terms thereof, (C) any Uncertificated Regular Interests and any and all general intangibles, payment intangibles, accounts, chattel paper, instruments, documents, money, deposit accounts, certificates of deposit, goods, letters of credit, advices of credit and investment property and other property of whatever kind or description now existing or hereafter acquired consisting of, arising from or relating to any of the foregoing, and (D) all proceeds of the conversion, voluntary or involuntary, of the foregoing into cash, instruments, securities or other property, including without limitation all amounts from time to time held or invested in the Certificate Account or the Custodial Account, whether in the form of cash, instruments, securities or other property and (2) an assignment by the Depositor to the Trustee of any security interest in any and all of Residential Funding's right (including the power to convey title thereto), title and interest, whether now owned or hereafter acquired, in and to the property described in the foregoing clauses (1)(A), (B), (C) and (D) granted by Residential Funding to the Depositor pursuant to the Assignment Agreement; (c) the possession by the Trustee, the Custodian or any other agent of the Trustee of Mortgage Notes or such other items of property as constitute instruments, money, payment intangibles, negotiable documents, goods, deposit accounts, letters of credit, advices of credit, investment property, certificated securities or chattel paper shall be deemed to be "possession by the secured party," or possession by a purchaser or a person designated by such secured party, for purposes of perfecting the security interest pursuant to the Minnesota Uniform Commercial Code and the Uniform Commercial Code of any other applicable jurisdiction as in effect (including, without limitation, Sections 8-106, 9-313 and 9-106 thereof); and (d) notifications to persons holding such property, and acknowledgments, receipts or confirmations from persons holding such property, shall be deemed notifications to, or acknowledgments, receipts or confirmations from, securities intermediaries, bailees or agents of, or persons holding for, (as applicable) the Trustee for the purpose of perfecting such security interest under applicable law. The Depositor and, at the Depositor's direction, Residential Funding and the Trustee shall, to the extent consistent with this Agreement, take such reasonable actions as may be necessary to ensure that, if this Agreement were deemed to create a security interest in the Mortgage Loans and the Uncertificated Regular Interests and the other property described above, such security interest would be deemed to be a perfected security interest of first priority under applicable law and will be maintained as such throughout the term of this Agreement. Without limiting the generality of the foregoing, the Depositor shall prepare and deliver to the Trustee not less than 15 days prior to any filing date and, the Trustee shall forward for filing, or shall cause to be forwarded for filing, at the expense of the Depositor, all filings necessary to maintain the effectiveness of any original filings necessary under the Uniform Commercial Code as in effect in any jurisdiction to perfect the Trustee's security interest in or lien on the Mortgage Loans and the Uncertificated Regular Interests, as evidenced by an Officers' Certificate of the Depositor, including without limitation (x) continuation statements, and (y) such other statements as may be occasioned by (1) any change of name of Residential Funding, the Depositor or the Trustee (such preparation and filing shall be at the expense of the Trustee, if occasioned by a change in the Trustee's name), (2) any change of location of the place of business or the chief executive office of Residential Funding or the Depositor, (3) any transfer of any interest of Residential Funding or the Depositor in any Mortgage Loan or (4) any transfer of any interest of Residential Funding or the Depositor in any Uncertificated Regular Interests. Section 2.02 Acceptance by Trustee. The Trustee acknowledges receipt (or, with respect to Mortgage Loans subject to a Custodial Agreement, and based solely upon a receipt or certification executed by the Custodian, receipt by the respective Custodian as the duly appointed agent of the Trustee) of the documents referred to in Section 2.01(b)(i) above (except that for purposes of such acknowledgement only, a Mortgage Note may be endorsed in blank and an Assignment of Mortgage may be in blank) and declares that it, or the Custodian as its agent, holds and will hold such documents and the other documents constituting a part of the Custodial Files delivered to it, or a Custodian as its agent, in trust for the use and benefit of all present and future Certificateholders. The Trustee or Custodian (the Custodian being so obligated under a Custodial Agreement) agrees, for the benefit of Certificateholders, to review each Custodial File delivered to it pursuant to Section 2.01(b) within 90 days after the Closing Date to ascertain that all required documents (specifically as set forth in Section 2.01(b)), have been executed and received, and that such documents relate to the Mortgage Loans identified on the Mortgage Loan Schedule, as supplemented, that have been conveyed to it, and to deliver to the Trustee a certificate (the "Interim Certification") to the effect that all documents required to be delivered pursuant to Section 2.01(b) above have been executed and received and that such documents relate to the Mortgage Loans identified on the Mortgage Loan Schedule, except for any exceptions listed on Schedule A attached to such Interim Certification. Upon delivery of the Custodial Files by the Depositor or the Master Servicer, the Trustee shall acknowledge receipt (or, with respect to Mortgage Loans subject to a Custodial Agreement, and based solely upon a receipt or certification executed by the Custodian, receipt by the respective Custodian as the duly appointed agent of the Trustee) of the documents referred to in Section 2.01(b) above. If the Custodian, as the Trustee's agent, finds any document or documents constituting a part of a Custodial File to be missing or defective, upon receipt of notification from the Custodian as specified in the succeeding sentence, the Trustee shall promptly so notify or cause the Custodian to notify the Master Servicer and the Depositor. Pursuant to Section 2.3 of the Custodial Agreement, the Custodian will notify the Master Servicer, the Depositor and the Trustee of any such omission or defect found by it in respect of any Custodial File held by it in respect of the items received by it pursuant to the Custodial Agreement. If such omission or defect materially and adversely affects the interests in the related Mortgage Loan of the Certificateholders, the Master Servicer shall promptly notify the related Subservicer or Seller of such omission or defect and request that such Subservicer or Seller correct or cure such omission or defect within 60 days from the date the Master Servicer was notified of such omission or defect and, if such Subservicer or Seller does not correct or cure such omission or defect within such period, that such Subservicer or Seller purchase such Mortgage Loan from the Trust Fund at its Purchase Price, in either case within 90 days from the date the Master Servicer was notified of such omission or defect; provided that if the omission or defect would cause the Mortgage Loan to be other than a "qualified mortgage" as defined in Section 860G(a)(3) of the Code, any such cure or repurchase must occur within 90 days from the date such breach was discovered. The Purchase Price for any such Mortgage Loan shall be deposited or caused to be deposited by the Master Servicer in the Custodial Account maintained by it pursuant to Section 3.07 and, upon receipt by the Trustee of written notification of such deposit signed by a Servicing Officer, the Master Servicer, the Trustee or the Custodian, as the case may be, shall release the contents of any related Mortgage File in its possession to the owner of such Mortgage Loan (or such owner's designee) and the Trustee shall execute and deliver such instruments of transfer or assignment prepared by the Master Servicer, in each case without recourse, as shall be necessary to vest in the Subservicer or Seller or its designee, as the case may be, any Mortgage Loan released pursuant hereto and thereafter such Mortgage Loan shall not be part of the Trust Fund. In furtherance of the foregoing and Section 2.04, if the Subservicer or Seller or Residential Funding that repurchases the Mortgage Loan is not a member of MERS and the Mortgage is registered on the MERS(R)System, the Master Servicer, at its own expense and without any right of reimbursement, shall cause MERS to execute and deliver an assignment of the Mortgage in recordable form to transfer the Mortgage from MERS to such Subservicer or Seller or Residential Funding and shall cause such Mortgage to be removed from registration on the MERS(R)System in accordance with MERS' rules and regulations. It is understood and agreed that the obligation of the Subservicer or Seller, to so cure or purchase any Mortgage Loan as to which a material and adverse defect in or omission of a constituent document exists shall constitute the sole remedy respecting such defect or omission available to Certificateholders or the Trustee on behalf of Certificateholders. Section 2.03 Representations, Warranties and Covenants of the Master Servicer and the Depositor. (a) The Master Servicer hereby represents and warrants to the Trustee for the benefit of the Certificateholders that as of the Closing Date: (i) The Master Servicer is a limited liability company duly organized, validly existing and in good standing under the laws governing its creation and existence and is or will be in compliance with the laws of each state in which any Mortgaged Property is located to the extent necessary to ensure the enforceability of each Mortgage Loan in accordance with the terms of this Agreement; (ii) The execution and delivery of this Agreement by the Master Servicer and its performance and compliance with the terms of this Agreement will not violate the Master Servicer's Certificate of Formation or Limited Liability Company Agreement or constitute a material default (or an event which, with notice or lapse of time, or both, would constitute a material default) under, or result in the material breach of, any material contract, agreement or other instrument to which the Master Servicer is a party or which may be applicable to the Master Servicer or any of its assets; (iii) This Agreement, assuming due authorization, execution and delivery by the Trustee and the Depositor, constitutes a valid, legal and binding obligation of the Master Servicer, enforceable against it in accordance with the terms hereof subject to applicable bankruptcy, insolvency, reorganization, moratorium and other laws affecting the enforcement of creditors' rights generally and to general principles of equity, regardless of whether such enforcement is considered in a proceeding in equity or at law; (iv) The Master Servicer is not in default with respect to any order or decree of any court or any order, regulation or demand of any federal, state, municipal or governmental agency, which default might have consequences that would materially and adversely affect the condition (financial or other) or operations of the Master Servicer or its properties or might have consequences that would materially adversely affect its performance hereunder; (v) No litigation is pending or, to the best of the Master Servicer's knowledge, threatened against the Master Servicer which would prohibit its entering into this Agreement or performing its obligations under this Agreement; (vi) The Master Servicer shall comply in all material respects in the performance of this Agreement with all reasonable rules and requirements of each insurer under each Required Insurance Policy; (vii) No information, certificate of an officer, statement furnished in writing or report delivered to the Depositor, any Affiliate of the Depositor or the Trustee by the Master Servicer will, to the knowledge of the Master Servicer, contain any untrue statement of a material fact or omit a material fact necessary to make the information, certificate, statement or report not misleading; (viii) The Master Servicer has examined each existing, and will examine each new, Subservicing Agreement and is or will be familiar with the terms thereof. The terms of each existing Subservicing Agreement and each designated Subservicer are acceptable to the Master Servicer and any new Subservicing Agreements will comply with the provisions of Section 3.02; (ix) The Master Servicer is a member of MERS in good standing, and will comply in all material respects with the rules and procedures of MERS in connection with the servicing of the Mortgage Loans that are registered with MERS; and (x) The Servicing Guide of the Master Servicer requires that the Subservicer for each Mortgage Loan accurately and fully reports its borrower credit files to each of the Credit Repositories in a timely manner. It is understood and agreed that the representations and warranties set forth in this Section 2.03(a) shall survive delivery of the respective Custodial Files to the Trustee or the Custodian. Upon discovery by either the Depositor, the Master Servicer, the Trustee or the Custodian of a breach of any representation or warranty set forth in this Section 2.03(a) which materially and adversely affects the interests of the Certificateholders in any Mortgage Loan, the party discovering such breach shall give prompt written notice to the other parties (the Custodian being so obligated under a Custodial Agreement). Within 90 days of its discovery or its receipt of notice of such breach, the Master Servicer shall either (i) cure such breach in all material respects or (ii) to the extent that such breach is with respect to a Mortgage Loan or a related document, purchase such Mortgage Loan from the Trust Fund at the Purchase Price and in the manner set forth in Section 2.02; provided that if the breach would cause the Mortgage Loan to be other than a "qualified mortgage" as defined in Section 860G(a)(3) of the Code, any such cure or repurchase must occur within 90 days from the date such breach was discovered. The obligation of the Master Servicer to cure such breach or to so purchase such Mortgage Loan shall constitute the sole remedy in respect of a breach of a representation and warranty set forth in this Section 2.03(a) available to the Certificateholders or the Trustee on behalf of the Certificateholders. (b) The Depositor hereby represents and warrants to the Trustee for the benefit of the Certificateholders that as of the Closing Date (or, if otherwise specified below, as of the date so specified): (i) immediately prior to the conveyance of the Mortgage Loans to the Trustee, the Depositor had good title to, and was the sole owner of, each Mortgage Loan free and clear of any pledge, lien, encumbrance or security interest (other than rights to servicing and related compensation) and such conveyance validly transfers ownership of the Mortgage Loans to the Trustee free and clear of any pledge, lien, encumbrance or security interest; and (ii) each Mortgage Loan constitutes a "qualified mortgage" under Section 860G(a)(3)(A) of the Code and Treasury Regulation Section 1.860G-2(a)(1), (2), (4), (5), (6), (7) and (9), without reliance on the provisions of Treasury Regulation Section 1.860G-2(a)(3) or Treasury Regulation Section 1.860G-2(f)(2) or any other provision that would allow a Mortgage Loan to be treated as a "qualified mortgage" notwithstanding its failure to meet the requirements of Section 860G(a)(3)(A) of the Code and Treasury Regulation Section 1.860G-2(a)(1), (2), (4), (5), (6), (7) and (9). It is understood and agreed that the representations and warranties set forth in this Section 2.03(b) shall survive delivery of the respective Custodial Files to the Trustee or the Custodian. Upon discovery by any of the Depositor, the Master Servicer, the Trustee or the Custodian of a breach of any of the representations and warranties set forth in this Section 2.03(b) which materially and adversely affects the interests of the Certificateholders in any Mortgage Loan, the party discovering such breach shall give prompt written notice to the other parties (the Custodian being so obligated under a Custodial Agreement); provided, however, that in the event of a breach of the representation and warranty set forth in Section 2.03(b)(ii), the party discovering such breach shall give such notice within five days of discovery. Within 90 days of its discovery or its receipt of notice of breach, the Depositor shall either (i) cure such breach in all material respects or (ii) purchase such Mortgage Loan from the Trust Fund at the Purchase Price and in the manner set forth in Section 2.02; provided that the Depositor shall have the option to substitute a Qualified Substitute Mortgage Loan or Loans for such Mortgage Loan if such substitution occurs within two years following the Closing Date; provided that if the omission or defect would cause the Mortgage Loan to be other than a "qualified mortgage" as defined in Section 860G(a)(3) of the Code, any such cure, substitution or repurchase must occur within 90 days from the date such breach was discovered. Any such substitution shall be effected by the Depositor under the same terms and conditions as provided in Section 2.04 for substitutions by Residential Funding. It is understood and agreed that the obligation of the Depositor to cure such breach or to so purchase or substitute for any Mortgage Loan as to which such a breach has occurred and is continuing shall constitute the sole remedy respecting such breach available to the Certificateholders or the Trustee on behalf of the Certificateholders. Notwithstanding the foregoing, the Depositor shall not be required to cure breaches or purchase or substitute for Mortgage Loans as provided in this Section 2.03(b) if the substance of the breach of a representation set forth above also constitutes fraud in the origination of the Mortgage Loan. Section 2.04 Representations and Warranties of Sellers. The Depositor, as assignee of Residential Funding under the Assignment Agreement, hereby assigns to the Trustee for the benefit of the Certificateholders all of its right, title and interest in respect of the Assignment Agreement applicable to a Mortgage Loan as and to the extent set forth in the Assignment Agreement. Insofar as the Assignment Agreement relates to the representations and warranties made by Residential Funding in respect of such Mortgage Loan and any remedies provided thereunder for any breach of such representations and warranties, such right, title and interest may be enforced by the Master Servicer on behalf of the Trustee and the Certificateholders. Upon the discovery by the Depositor, the Master Servicer, the Trustee or the Custodian of a breach of any of the representations and warranties made in the Assignment Agreement in respect of any Mortgage Loan or of any Repurchase Event which materially and adversely affects the interests of the Certificateholders in such Mortgage Loan, the party discovering such breach shall give prompt written notice to the other parties (the Custodian being so obligated under a Custodial Agreement). The Master Servicer shall promptly notify Residential Funding of such breach or Repurchase Event and request that Residential Funding either (i) cure such breach or Repurchase Event in all material respects within 90 days from the date the Master Servicer was notified of such breach or Repurchase Event or (ii) purchase such Mortgage Loan from the Trust Fund at the Purchase Price and in the manner set forth in Section 2.02. Upon the discovery by the Depositor, the Master Servicer, the Trustee or the Custodian of a breach of any of such representations and warranties set forth in the Assignment Agreement in respect of any Mortgage Loan which materially and adversely affects the interests of the Certificateholders in such Mortgage Loan, the party discovering such breach shall give prompt written notice to the other parties (the Custodian being so obligated under a Custodial Agreement). The Master Servicer shall promptly notify Residential Funding of such breach of a representation or warranty set forth in the Assignment Agreement and request that Residential Funding either (i) cure such breach in all material respects within 90 days from the date the Master Servicer was notified of such breach or (ii) purchase such Mortgage Loan from the Trust Fund within 90 days of the date of such written notice of such breach at the Purchase Price and in the manner set forth in Section 2.02; provided that Residential Funding shall have the option to substitute a Qualified Substitute Mortgage Loan or Loans for such Mortgage Loan if such substitution occurs within two years following the Closing Date; provided that if the breach would cause the Mortgage Loan to be other than a "qualified mortgage" as defined in Section 860G(a)(3) of the Code, any such cure or substitution must occur within 90 days from the date the breach was discovered. If the breach of representation and warranty that gave rise to the obligation to repurchase or substitute a Mortgage Loan pursuant to Section 4 of the Assignment Agreement was the representation and warranty set forth in clause (xlv) of Section 4 thereof, then the Master Servicer shall request that Residential Funding pay to the Trust Fund, concurrently with and in addition to the remedies provided in the preceding sentence, an amount equal to any liability, penalty or expense that was actually incurred and paid out of or on behalf of the Trust Fund, and that directly resulted from such breach, or if incurred and paid by the Trust Fund thereafter, concurrently with such payment. In the event that Residential Funding elects to substitute a Qualified Substitute Mortgage Loan or Loans for a Deleted Mortgage Loan pursuant to this Section 2.04, Residential Funding shall deliver to the Trustee for the benefit of the Certificateholders with respect to such Qualified Substitute Mortgage Loan or Loans, the original Mortgage Note, the Mortgage, an Assignment of the Mortgage in recordable form, and such other documents and agreements as are required by Section 2.01, with the Mortgage Note endorsed as required by Section 2.01. No substitution will be made in any calendar month after the Determination Date for such month. Monthly Payments due with respect to Qualified Substitute Mortgage Loans in the month of substitution shall not be part of the Trust Fund and will be retained by the Master Servicer and remitted by the Master Servicer to Residential Funding on the next succeeding Distribution Date. For the month of substitution, distributions to the Certificateholders will include the Monthly Payment due on a Deleted Mortgage Loan for such month and thereafter Residential Funding shall be entitled to retain all amounts received in respect of such Deleted Mortgage Loan. The Master Servicer shall amend or cause to be amended the Mortgage Loan Schedule for the benefit of the Certificateholders to reflect the removal of such Deleted Mortgage Loan and the substitution of the Qualified Substitute Mortgage Loan or Loans and the Master Servicer shall deliver the amended Mortgage Loan Schedule to the Trustee. Upon such substitution, the Qualified Substitute Mortgage Loan or Loans shall be subject to the terms of this Agreement and the related Subservicing Agreement in all respects, Residential Funding shall be deemed to have made the representations and warranties with respect to the Qualified Substitute Mortgage Loan (other than those of a statistical nature) contained in the Assignment Agreement as of the date of substitution, and the covenants, representations and warranties set forth in this Section 2.04, and in Section 2.03(b) hereof. In connection with the substitution of one or more Qualified Substitute Mortgage Loans for one or more Deleted Mortgage Loans, the Master Servicer shall determine the amount (if any) by which the aggregate principal balance of all such Qualified Substitute Mortgage Loans as of the date of substitution is less than the aggregate Stated Principal Balance of all such Deleted Mortgage Loans (in each case after application of the principal portion of the Monthly Payments due in the month of substitution that are to be distributed to the Certificateholders in the month of substitution). Residential Funding shall deposit or cause the related Seller to deposit the amount of such shortfall into the Custodial Account on the day of substitution, without any reimbursement therefor. Residential Funding shall give notice in writing to the Trustee of such event, which notice shall be accompanied by an Officers' Certificate as to the calculation of such shortfall and (subject to Section 10.01(f)) by an Opinion of Counsel to the effect that such substitution will not cause (a) any federal tax to be imposed on the Trust Fund, including without limitation, any federal tax imposed on "prohibited transactions" under Section 860F(a)(1) of the Code or on "contributions after the startup date" under Section 860G(d)(1) of the Code or (b) any portion of any REMIC created hereunder to fail to qualify as a REMIC at any time that any Certificate is outstanding. It is understood and agreed that the obligation of the Seller or Residential Funding, as the case may be, to cure such breach or purchase (and in the case of Residential Funding to substitute for) such Mortgage Loan as to which such a breach has occurred and is continuing and to make any additional payments required under the Assignment Agreement in connection with a breach of the representation and warranty in clause (xlvii) of Section 4 thereof shall constitute the sole remedy respecting such breach available to the Certificateholders or the Trustee on behalf of the Certificateholders. If the Master Servicer is Residential Funding, then the Trustee shall also have the right to give the notification and require the purchase or substitution provided for in the second preceding paragraph in the event of such a breach of a representation or warranty made by Residential Funding in the Assignment Agreement. In connection with the purchase of or substitution for any such Mortgage Loan by Residential Funding, the Trustee shall assign to Residential Funding all of the right, title and interest in respect of the Seller's Agreement and the Assignment Agreement applicable to such Mortgage Loan. Section 2.05 Execution and Authentication of Certificates; Conveyance of Uncertificated REMIC Regular Interests. (a) The Trustee acknowledges the assignment to it of the Mortgage Loans and the delivery of the Custodial Files to it, or the Custodian on its behalf, subject to any exceptions noted, together with the assignment to it of all other assets included in the Trust Fund, receipt of which is hereby acknowledged. Concurrently with such delivery and in exchange therefor, the Trustee, pursuant to the written request of the Depositor executed by an officer of the Depositor, has executed and caused to be authenticated and delivered to or upon the order of the Depositor the Certificates in authorized denominations which evidence ownership of the entire Trust Fund. (b) The Depositor, concurrently with the execution and delivery hereof, does hereby transfer, assign, set over and otherwise convey in trust to the Trustee without recourse all the right, title and interest of the Depositor in and to the REMIC I Regular Interests, the REMIC II Regular Interests and the REMIC III Regular Interests for the benefit of the Holders of each Class of Certificates (other than the Class R Certificates in respect of Components I and II thereof). The Trustee acknowledges receipt of the REMIC I Regular Interests, REMIC II Regular Interests and REMIC III Regular Interests, and declares that it holds and will hold the same in trust for the exclusive use and benefit of the Holders of each Class of Certificates (other than the Class R Certificates in respect of Components I and II thereof). The interests evidenced by Component IV of the Class R Certificates, together with the REMIC IV Regular Interests, constitute the entire beneficial ownership interest in REMIC IV. Section 2.06 Purposes and Powers of the Trust. The purpose of the trust, as created hereunder, is to engage in the following activities: (a) to sell the Certificates to the Depositor in exchange for the Mortgage Loans; (b) to enter into and perform its obligations under this Agreement; (c) to engage in those activities that are necessary, suitable or convenient to accomplish the foregoing or are incidental thereto or connected therewith; and (d) subject to compliance with this Agreement, to engage in such other activities as may be required in connection with conservation of the Trust Fund and the making of distributions to the Certificateholders. The trust is hereby authorized to engage in the foregoing activities. Notwithstanding the provisions of Section 11.01, the trust shall not engage in any activity other than in connection with the foregoing or other than as required or authorized by the terms of this Agreement while any Certificate is outstanding, and this Section 2.06 may not be amended, without the consent of the Certificateholders evidencing a majority of the aggregate Voting Rights of the Certificates. Section 2.07 Agreement Regarding Ability to Disclose. The Depositor, the Master Servicer and the Trustee hereby agree that, notwithstanding any other express or implied agreement to the contrary, any and all Persons, and any of their respective employees, representatives, and other agents may disclose, immediately upon commencement of discussions, to any and all Persons, without limitation of any kind, the tax treatment and tax structure of the transaction and all materials of any kind (including opinions or other tax analyses) that are provided to any of them relating to such tax treatment and tax structure. For purposes of this paragraph, the terms "tax," "tax treatment," "tax structure," and "tax benefit" are defined under Treasury Regulationss. 1.6011-4(c). -------------------------------------------------------------------------------- ARTICLE III ADMINISTRATION AND SERVICING OF MORTGAGE LOANS Section 3.01 Master Servicer to Act as Servicer. (a) The Master Servicer shall service and administer the Mortgage Loans in accordance with the terms of this Agreement and the respective Mortgage Loans, following such procedures as it would employ in its good faith business judgment and which are normal and usual in its general mortgage servicing activities, and shall have full power and authority, acting alone or through Subservicers as provided in Section 3.02, to do any and all things which it may deem necessary or desirable in connection with such servicing and administration. Without limiting the generality of the foregoing, the Master Servicer in its own name or in the name of a Subservicer is hereby authorized and empowered by the Trustee when the Master Servicer or the Subservicer, as the case may be, believes it appropriate in its best judgment, to execute and deliver, on behalf of the Certificateholders and the Trustee or any of them, any and all instruments of satisfaction or cancellation, or of partial or full release or discharge, or of consent to assumption or modification in connection with a proposed conveyance, or of assignment of any Mortgage and Mortgage Note in connection with the repurchase of a Mortgage Loan and all other comparable instruments, or with respect to the modification or re-recording of a Mortgage for the purpose of correcting the Mortgage, the subordination of the lien of the Mortgage in favor of a public utility company or government agency or unit with powers of eminent domain, the taking of a deed in lieu of foreclosure, the commencement, prosecution or completion of judicial or non-judicial foreclosure, the conveyance of a Mortgaged Property to the related insurer, the acquisition of any property acquired by foreclosure or deed in lieu of foreclosure, or the management, marketing and conveyance of any property acquired by foreclosure or deed in lieu of foreclosure with respect to the Mortgage Loans and with respect to the Mortgaged Properties. The Master Servicer further is authorized and empowered by the Trustee, on behalf of the Certificateholders and the Trustee, in its own name or in the name of the Subservicer, when the Master Servicer or the Subservicer, as the case may be, believes it is appropriate in its best judgment to register any Mortgage Loan on the MERS(R)System, or cause the removal from the registration of any Mortgage Loan on the MERS(R)System, to execute and deliver, on behalf of the Trustee and the Certificateholders or any of them, any and all instruments of assignment and other comparable instruments with respect to such assignment or re-recording of a Mortgage in the name of MERS, solely as nominee for the Trustee and its successors and assigns. Any expenses incurred in connection with the actions described in the preceding sentence shall be borne by the Master Servicer in accordance with Section 3.16(c), with no right of reimbursement; provided, that if, as a result of MERS discontinuing or becoming unable to continue operations in connection with the MERS(R)System, it becomes necessary to remove any Mortgage Loan from registration on the MERS(R)System and to arrange for the assignment of the related Mortgages to the Trustee, then any related expenses shall be reimbursable to the Master Servicer as set forth in Section 3.10(a)(ii). Notwithstanding the foregoing, subject to Section 3.07(a), the Master Servicer shall not permit any modification with respect to any Mortgage Loan that would both constitute a sale or exchange of such Mortgage Loan within the meaning of Section 1001 of the Code and any proposed, temporary or final regulations promulgated thereunder (other than in connection with a proposed conveyance or assumption of such Mortgage Loan that is treated as a Principal Prepayment in Full pursuant to Section 3.13(d) hereof) and cause any REMIC created hereunder to fail to qualify as a REMIC under the Code. The Trustee shall furnish the Master Servicer with any powers of attorney and other documents necessary or appropriate to enable the Master Servicer to service and administer the Mortgage Loans. The Trustee shall not be liable for any action taken by the Master Servicer or any Subservicer pursuant to such powers of attorney or other documents. In servicing and administering any Nonsubserviced Mortgage Loan, the Master Servicer shall, to the extent not inconsistent with this Agreement, comply with the Program Guide as if it were the originator of such Mortgage Loan and had retained the servicing rights and obligations in respect thereof. If the Mortgage relating to a Mortgage Loan did not have a lien senior to the Mortgage Loan on the related Mortgaged Property as of the Cut-off Date, then the Master Servicer, in such capacity, may not consent to the placing of a lien senior to that of the Mortgage on the related Mortgaged Property. If the Mortgage relating to a Mortgage Loan had a lien senior to the Mortgage Loan on the related Mortgaged Property as of the Cut-off Date, then the Master Servicer, in such capacity, may consent to the refinancing of the prior senior lien, provided that the following requirements are met: (i) (A) the Mortgagor's debt-to-income ratio resulting from such refinancing is less than the original debt-to-income ratio as set forth on the Mortgage Loan Schedule; provided, however, that in no instance shall the resulting Combined Loan-to-Value Ratio ("Combined Loan-to-Value Ratio") of such Mortgage Loan be higher than that permitted by the Program Guide; or (B) the resulting Combined Loan-to-Value Ratio of such Mortgage Loan is no higher than the Combined Loan-to-Value Ratio prior to such refinancing; provided, however, if such refinanced mortgage loan is a "rate and term" mortgage loan (meaning, the Mortgagor does not receive any cash from the refinancing), the Combined Loan-to-Value Ratio may increase to the extent of either (x) the reasonable closing costs of such refinancing or (y) any decrease in the value of the related Mortgaged Property, if the Mortgagor is in good standing as defined by the Program Guide; (ii) the interest rate, or, in the case of an adjustable rate existing senior lien, the maximum interest rate, for the loan evidencing the refinanced senior lien is no more than 2.0% higher than the interest rate or the maximum interest rate, as the case may be, on the loan evidencing the existing senior lien immediately prior to the date of such refinancing; provided, however (A) if the loan evidencing the existing senior lien prior to the date of refinancing has an adjustable rate and the loan evidencing the refinanced senior lien has a fixed rate, then the current interest rate on the loan evidencing the refinanced senior lien may be up to 2.0% higher than the then-current loan rate of the loan evidencing the existing senior lien and (B) if the loan evidencing the existing senior lien prior to the date of refinancing has a fixed rate and the loan evidencing the refinanced senior lien has an adjustable rate, then the maximum interest rate on the loan evidencing the refinanced senior lien shall be less than or equal to (x) the interest rate on the loan evidencing the existing senior lien prior to the date of refinancing plus (y) 2.0%; and (iii) the loan evidencing the refinanced senior lien is not subject to negative amortization. (b) The Master Servicer shall, to the extent consistent with the servicing standards set forth herein, take whatever actions as may be necessary to file a claim under or enforce or allow the Trustee to file a claim under or enforce any title insurance policy with respect to any Mortgage Loan including, without limitation, joining in or causing any Seller or Subservicer (or any other party in possession of any title insurance policy) to join in any claims process, negotiations, actions or proceedings necessary to make a claim under or enforce any title insurance policy. Notwithstanding anything in this Agreement to the contrary, the Master Servicer shall not (unless the Mortgagor is in default with respect to the Mortgage Loan or such default is, in the judgment of the Master Servicer, reasonably foreseeable) make or permit any modification, waiver, or amendment of any term of any Mortgage Loan that would both (i) effect an exchange or reissuance of such Mortgage Loan under Section 1001 of the Code (or final, temporary or proposed Treasury regulations promulgated thereunder) (other than in connection with a proposed conveyance or assumption of such Mortgage Loan that is treated as a Principal Prepayment in Full pursuant to Section 3.13(d) hereof) and (ii) cause any REMIC formed hereunder to fail to qualify as a REMIC under the Code or the imposition of any tax on "prohibited transactions" or "contributions" after the startup date under the REMIC Provisions. (c) In connection with servicing and administering the Mortgage Loans, the Master Servicer and any Affiliate of the Master Servicer (i) may perform services such as appraisals and brokerage services that are customarily provided by Persons other than servicers of mortgage loans, and shall be entitled to reasonable compensation therefor in accordance with Section 3.10 and (ii) may, at its own discretion and on behalf of the Trustee, obtain credit information in the form of a "credit score" from a Credit Repository. (d) All costs incurred by the Master Servicer or by Subservicers in effecting the timely payment of taxes and assessments on the properties subject to the Mortgage Loans shall not, for the purpose of calculating monthly distributions to the Certificateholders, be added to the amount owing under the related Mortgage Loans, notwithstanding that the terms of such Mortgage Loan so permit, and such costs shall be recoverable to the extent permitted by Section 3.10(a)(ii). (e) The Master Servicer may enter into one or more agreements in connection with the offering of pass-through certificates evidencing interests in one or more of the Certificates providing for the payment by the Master Servicer of amounts received by the Master Servicer as servicing compensation hereunder and required to cover certain Prepayment Interest Shortfalls on the Mortgage Loans, which payment obligation will thereafter be an obligation of the Master Servicer hereunder. (f) The relationship of the Master Servicer (and of any successor to the Master Servicer) to the Depositor under this Agreement is intended by the parties to be that of an independent contractor and not that of a joint venturer, partner or agent. (g) The Master Servicer shall comply with the terms of Section 9 of the Assignment Agreement. Section 3.02 Subservicing Agreements Between Master Servicer and Subservicers; Enforcement of Subservicers' Obligations. (a) The Master Servicer may continue in effect Subservicing Agreements entered into by Residential Funding and Subservicers prior to the execution and delivery of this Agreement, and may enter into new Subservicing Agreements with Subservicers, for the servicing and administration of all or some of the Mortgage Loans. Each Subservicer shall be either (i) an institution the accounts of which are insured by the FDIC or (ii) another entity that engages in the business of originating or servicing mortgage loans, and in either case shall be authorized to transact business in the state or states in which the related Mortgaged Properties it is to service are situated, if and to the extent required by applicable law to enable the Subservicer to perform its obligations hereunder and under the Subservicing Agreement, and in either case shall be a Freddie Mac, Fannie Mae or HUD approved mortgage servicer. Each Subservicer of a Mortgage Loan shall be entitled to receive and retain, as provided in the related Subservicing Agreement and in Section 3.07, the related Subservicing Fee from payments of interest received on such Mortgage Loan after payment of all amounts required to be remitted to the Master Servicer in respect of such Mortgage Loan. For any Mortgage Loan that is a Nonsubserviced Mortgage Loan, the Master Servicer shall be entitled to receive and retain an amount equal to the Subservicing Fee from payments of interest. Unless the context otherwise requires, references in this Agreement to actions taken or to be taken by the Master Servicer in servicing the Mortgage Loans include actions taken or to be taken by a Subservicer on behalf of the Master Servicer. Each Subservicing Agreement will be upon such terms and conditions as are generally required by, permitted by or consistent with the Program Guide and are not inconsistent with this Agreement and as the Master Servicer and the Subservicer have agreed. With the approval of the Master Servicer, a Subservicer may delegate its servicing obligations to third-party servicers, but such Subservicer will remain obligated under the related Subservicing Agreement. The Master Servicer and a Subservicer may enter into amendments thereto or a different form of Subservicing Agreement, and the form referred to or included in the Program Guide is merely provided for information and shall not be deemed to limit in any respect the discretion of the Master Servicer to modify or enter into different Subservicing Agreements; provided, however, that any such amendments or different forms shall be consistent with and not violate the provisions of either this Agreement or the Program Guide in a manner which would materially and adversely affect the interests of the Certificateholders. The Program Guide and any other Subservicing Agreement entered into between the Master Servicer and any Subservicer shall require the Subservicer to accurately and fully report its borrower credit files to each of the Credit Repositories in a timely manner. (b) As part of its servicing activities hereunder, the Master Servicer, for the benefit of the Trustee and the Certificateholders, shall use its best reasonable efforts to enforce the obligations of each Subservicer under the related Subservicing Agreement and of each Seller under the related Seller's Agreement, to the extent that the non-performance of any such obligation would have a material and adverse effect on a Mortgage Loan, including, without limitation, the obligation to purchase a Mortgage Loan on account of defective documentation, as described in Section 2.02, or on account of a breach of a representation or warranty, as described in Section 2.04. Such enforcement, including, without limitation, the legal prosecution of claims, termination of Subservicing Agreements or Seller's Agreements, as appropriate, and the pursuit of other appropriate remedies, shall be in such form and carried out to such an extent and at such time as the Master Servicer would employ in its good faith business judgment and which are normal and usual in its general mortgage servicing activities. The Master Servicer shall pay the costs of such enforcement at its own expense, and shall be reimbursed therefor only (i) from a general recovery resulting from such enforcement to the extent, if any, that such recovery exceeds all amounts due in respect of the related Mortgage Loan or (ii) from a specific recovery of costs, expenses or attorneys fees against the party against whom such enforcement is directed. For purposes of clarification only, the parties agree that the foregoing is not intended to, and does not, limit the ability of the Master Servicer to be reimbursed for expenses that are incurred in connection with the enforcement of a Seller's obligations and are reimbursable pursuant to Section 3.10(a)(vii). Section 3.03 Successor Subservicers. The Master Servicer shall be entitled to terminate any Subservicing Agreement that may exist in accordance with the terms and conditions of such Subservicing Agreement and without any limitation by virtue of this Agreement; provided, however, that in the event of termination of any Subservicing Agreement by the Master Servicer or the Subservicer, the Master Servicer shall either act as servicer of the related Mortgage Loan or enter into a Subservicing Agreement with a successor Subservicer which will be bound by the terms of the related Subservicing Agreement. If the Master Servicer or any Affiliate of Residential Funding acts as servicer, it will not assume liability for the representations and warranties of the Subservicer which it replaces. If the Master Servicer enters into a Subservicing Agreement with a successor Subservicer, the Master Servicer shall use reasonable efforts to have the successor Subservicer assume liability for the representations and warranties made by the terminated Subservicer in respect of the related Mortgage Loans and, in the event of any such assumption by the successor Subservicer, the Master Servicer may, in the exercise of its business judgment, release the terminated Subservicer from liability for such representations and warranties. Section 3.04 Liability of the Master Servicer. Notwithstanding any Subservicing Agreement, any of the provisions of this Agreement relating to agreements or arrangements between the Master Servicer or a Subservicer or reference to actions taken through a Subservicer or otherwise, the Master Servicer shall remain obligated and liable to the Trustee, and Certificateholders for the servicing and administering of the Mortgage Loans in accordance with the provisions of Section 3.01 without diminution of such obligation or liability by virtue of such Subservicing Agreements or arrangements or by virtue of indemnification from the Subservicer or the Depositor and to the same extent and under the same terms and conditions as if the Master Servicer alone were servicing and administering the Mortgage Loans. The Master Servicer shall be entitled to enter into any agreement with a Subservicer or Seller for indemnification of the Master Servicer and nothing contained in this Agreement shall be deemed to limit or modify such indemnification. Section 3.05 No Contractual Relationship Between Subservicer and Trustee or Certificateholders. Any Subservicing Agreement that may be entered into and any other transactions or services relating to the Mortgage Loans involving a Subservicer in its capacity as such and not as an originator shall be deemed to be between the Subservicer and the Master Servicer alone, and the Trustee and Certificateholders shall not be deemed parties thereto and shall have no claims, rights, obligations, duties or liabilities with respect to the Subservicer in its capacity as such except as set forth in Section 3.06. The foregoing provision shall not in any way limit a Subservicer's obligation to cure an omission or defect or to repurchase a Mortgage Loan as referred to in Section 2.02 hereof. Section 3.06 Assumption or Termination of Subservicing Agreements by Trustee. (a) In the event the Master Servicer shall for any reason no longer be the master servicer (including by reason of an Event of Default), the Trustee, as successor Master Servicer, its designee or its successor shall thereupon assume all of the rights and obligations of the Master Servicer under each Subservicing Agreement that may have been entered into. The Trustee, its designee or the successor servicer for the Trustee shall be deemed to have assumed all of the Master Servicer's interest therein and to have replaced the Master Servicer as a party to the Subservicing Agreement to the same extent as if the Subservicing Agreement had been assigned to the assuming party except that the Master Servicer shall not thereby be relieved of any liability or obligations under the Subservicing Agreement. (b) The Master Servicer shall, upon request of the Trustee but at the expense of the Master Servicer, deliver to the assuming party all documents and records relating to each Subservicing Agreement and the Mortgage Loans then being serviced and an accounting of amounts collected and held by it and otherwise use its best efforts to effect the orderly and efficient transfer of each Subservicing Agreement to the assuming party. Section 3.07 Collection of Certain Mortgage Loan Payments; Deposits to Custodial Account. (a) The Master Servicer shall make reasonable efforts to collect all payments called for under the terms and provisions of the Mortgage Loans, and shall, to the extent such procedures shall be consistent with this Agreement and the terms and provisions of any related Primary Insurance Policy, follow such collection procedures as it would employ in its good faith business judgment and which are normal and usual in its general mortgage servicing activities. Consistent with the foregoing, the Master Servicer or a Subservicer may in its discretion (subject to the terms and conditions of the Assignment Agreement) (i) waive any late payment charge or any prepayment charge or penalty interest in connection with the prepayment of a Mortgage Loan and (ii) extend the Due Date for payments due on a Mortgage Loan in accordance with the Program Guide, provided, however, that the Master Servicer shall first determine that any such waiver or extension will not impair the coverage of any related Primary Insurance Policy or materially adversely affect the lien of the related Mortgage. Notwithstanding anything in this Section to the contrary, the Master Servicer or any Subservicer shall not enforce any prepayment charge to the extent that such enforcement would violate any applicable law. In the event of any such arrangement, the Master Servicer shall make timely advances on the related Mortgage Loan during the scheduled period in accordance with the amortization schedule of such Mortgage Loan without modification thereof by reason of such arrangements unless otherwise agreed to by the Holders of the Classes of Certificates affected thereby; provided, however, that no such extension shall be made if any advance would be a Nonrecoverable Advance. Consistent with the terms of this Agreement, the Master Servicer may also waive, modify or vary any term of any Mortgage Loan or consent to the postponement of strict compliance with any such term or in any manner grant indulgence to any Mortgagor if in the Master Servicer's determination such waiver, modification, postponement or indulgence is not materially adverse to the interests of the Certificateholders (taking into account any estimated Realized Loss that might result absent such action), provided, however, that the Master Servicer may not modify materially or permit any Subservicer to modify any Mortgage Loan, including without limitation any modification that would change the Mortgage Rate, forgive the payment of any principal or interest (unless in connection with the liquidation of the related Mortgage Loan or except in connection with prepayments to the extent that such reamortization is not inconsistent with the terms of the Mortgage Loan), capitalize any amounts owing on the Mortgage Loan by adding such amount to the outstanding principal balance of the Mortgage Loan, or extend the final maturity date of such Mortgage Loan, unless such Mortgage Loan is in default or, in the judgment of the Master Servicer, such default is reasonably foreseeable. No such modification shall reduce the Mortgage Rate on a Mortgage Loan below the greater of (A) one-half of the Mortgage Rate as in effect on the Cut-off Date and (B) one-half of the Mortgage Rate as in effect on the date of such modification, but not less than the sum of the Servicing Fee Rate and the per annum rate at which the Subservicing Fee accrues. The final maturity date for any Mortgage Loan shall not be extended beyond the Maturity Date. Also, the aggregate principal balance of all Reportable Modified Mortgage Loans subject to Servicing Modifications (measured at the time of the Servicing Modification and after giving effect to any Servicing Modification) can be no more than five percent of the aggregate principal balance of the Mortgage Loans as of the Cut-off Date, provided, that such limit may be increased from time to time if each Rating Agency provides written confirmation that an increase in excess of that limit will not reduce the rating assigned to any Class of Certificates by such Rating Agency below the lower of the then-current rating or the rating assigned to such Certificates as of the Closing Date by such Rating Agency. In addition, any amounts owing on a Mortgage Loan added to the outstanding principal balance of such Mortgage Loan must be fully amortized over the term of such Mortgage Loan, and such amounts may be added to the outstanding principal balance of a Mortgage Loan only once during the life of such Mortgage Loan. Also, the addition of such amounts described in the preceding sentence shall be implemented in accordance with the Program Guide and may be implemented only by Subservicers that have been approved by the Master Servicer for such purposes. In connection with any Curtailment of a Mortgage Loan, the Master Servicer, to the extent not inconsistent with the terms of the Mortgage Note and local law and practice, may permit the Mortgage Loan to be re-amortized such that the Monthly Payment is recalculated as an amount that will fully amortize the remaining principal balance thereof by the original maturity date based on the original Mortgage Rate; provided, that such reamortization shall not be permitted if it would constitute a reissuance of the Mortgage Loan for federal income tax purposes. (b) The Master Servicer shall establish and maintain a Custodial Account in which the Master Servicer shall deposit or cause to be deposited on a daily basis, except as otherwise specifically provided herein, the following payments and collections remitted by Subservicers or received by it in respect of the Mortgage Loans subsequent to the Cut-off Date (other than in respect of Monthly Payments due before or in the month of the Cut-off Date): (i) All payments on account of principal, including Principal Prepayments made by Mortgagors on the Mortgage Loans and the principal component of any Subservicer Advance or of any REO Proceeds received in connection with an REO Property for which an REO Disposition has occurred; (ii) All payments on account of interest at the Adjusted Mortgage Rate on the Mortgage Loans, including the interest component of any Subservicer Advance or of any REO Proceeds received in connection with an REO Property for which an REO Disposition has occurred; (iii) Insurance Proceeds, Subsequent Recoveries and Liquidation Proceeds (net of any related expenses of the Subservicer); (iv) All proceeds of any Mortgage Loans purchased pursuant to Section 2.02, 2.03, 2.04 or 4.07 (including amounts received from Residential Funding pursuant to the last paragraph of Section 4 of the Assignment Agreement in respect of any liability, penalty or expense that resulted from a breach of the representation and warranty set forth in clause (xlvii) of Section 4 of the Assignment Agreement) and all amounts required to be deposited in connection with the substitution of a Qualified Substitute Mortgage Loan pursuant to Section 2.03 or 2.04; and (v) Any amounts required to be deposited pursuant to Section 3.07(c) and any payments or collections received in the nature of prepayment charges. The foregoing requirements for deposit in the Custodial Account shall be exclusive, it being understood and agreed that, without limiting the generality of the foregoing, payments on the Mortgage Loans which are not part of the Trust Fund (consisting of Monthly Payments due before or in the month of the Cut-off Date) and payments or collections consisting of late payment charges or assumption fees may but need not be deposited by the Master Servicer in the Custodial Account. In the event any amount not required to be deposited in the Custodial Account is so deposited, the Master Servicer may at any time withdraw such amount from the Custodial Account, any provision herein to the contrary notwithstanding. Amounts received by the Master Servicer in connection with prepayment charges on the Mortgage Loans shall be remitted by the Master Servicer on the Certificate Account Deposit Date to the Trustee and shall be deposited by the Trustee, upon the receipt thereof and written direction with respect thereto, into the Certificate Account. The Custodial Account may contain funds that belong to one or more trust funds created for mortgage pass-through certificates of other series and may contain other funds respecting payments on mortgage loans belonging to the Master Servicer or serviced or master serviced by it on behalf of others. Notwithstanding such commingling of funds, the Master Servicer shall keep records that accurately reflect the funds on deposit in the Custodial Account that have been identified by it as being attributable to the Mortgage Loans. With respect to Insurance Proceeds, Liquidation Proceeds, REO Proceeds, Subsequent Recoveries and the proceeds of the purchase of any Mortgage Loan pursuant to Sections 2.02, 2.03, 2.04 and 4.07 received in any calendar month, the Master Servicer may elect to treat such amounts as included in the Available Distribution Amount for the Distribution Date in the month of receipt, but is not obligated to do so. If the Master Servicer so elects, such amounts will be deemed to have been received (and any related Realized Loss shall be deemed to have occurred) on the last day of the month prior to the receipt thereof. (c) The Master Servicer shall use its best efforts to cause the institution maintaining the Custodial Account to invest the funds in the Custodial Account attributable to the Mortgage Loans in Permitted Investments which shall mature not later than the Certificate Account Deposit Date next following the date of such investment (with the exception of the Amount Held for Future Distribution) and which shall not be sold or disposed of prior to their maturities. All income and gain realized from any such investment shall be for the benefit of the Master Servicer as additional servicing compensation and shall be subject to its withdrawal or order from time to time. The amount of any losses incurred in respect of any such investments attributable to the investment of amounts in respect of the Mortgage Loans shall be deposited in the Custodial Account by the Master Servicer out of its own funds immediately as realized. (d) The Master Servicer shall give written notice to the Trustee and the Depositor of any change in the location of the Custodial Account and the location of the Certificate Account prior to the use thereof. (e) Notwithstanding Section 3.07(a), the Master Servicer shall not waive (or permit a Subservicer to waive) any prepayment charge unless: (i) the enforceability thereof shall have been limited by bankruptcy, insolvency, moratorium, receivership and other similar laws relating to creditors' rights generally, (ii) the enforcement thereof is illegal, or any local, state or federal agency has threatened legal action if the prepayment penalty is enforced, (iii) the collectability thereof shall have been limited due to acceleration in connection with a foreclosure or other involuntary payment or (iv) such waiver is standard and customary in servicing similar Mortgage Loans and relates to a default or a reasonably foreseeable default and would, in the reasonable judgment of the Master Servicer, maximize recovery of total proceeds taking into account the value of such prepayment charge and the related Mortgage Loan. In no event will the Master Servicer waive a prepayment charge in connection with a refinancing of a Mortgage Loan that is not related to a default or a reasonably foreseeable default. If a prepayment charge is waived, but does not meet the standards described above, then the Master Servicer is required to remit the amount of such waived prepayment charge to the Trustee at the time that the amount prepaid on the related Mortgage Loan is required to be deposited into the Custodial Account, and upon receipt thereof and written direction with respect thereto, the Trustee shall deposit such amount into the Certificate Account. Notwithstanding any other provisions of this Agreement, any payments made by the Master Servicer in respect of any waived prepayment charges pursuant to this Section shall be deemed to be paid outside of the Trust Fund and not part of any REMIC. Section 3.08 Subservicing Accounts; Servicing Accounts. (a) In those cases where a Subservicer is servicing a Mortgage Loan pursuant to a Subservicing Agreement, the Master Servicer shall cause the Subservicer, pursuant to the Subservicing Agreement, to establish and maintain one or more Subservicing Accounts which shall be an Eligible Account or, if such account is not an Eligible Account, shall generally satisfy the requirements of the Program Guide and be otherwise acceptable to the Master Servicer and each Rating Agency. The Subservicer will be required thereby to deposit into the Subservicing Account on a daily basis all proceeds of Mortgage Loans received by the Subservicer, less its Subservicing Fees and unreimbursed advances and expenses, to the extent permitted by the Subservicing Agreement. If the Subservicing Account is not an Eligible Account, the Master Servicer shall be deemed to have received such monies upon receipt thereof by the Subservicer. The Subservicer shall not be required to deposit in the Subservicing Account payments or collections in the nature of late charges or assumption fees, or payments or collections received in the nature of prepayment charges to the extent that the Subservicer is entitled to retain such amounts pursuant to the Subservicing Agreement. On or before the date specified in the Program Guide, but in no event later than the Determination Date, the Master Servicer shall cause the Subservicer, pursuant to the Subservicing Agreement, to remit to the Master Servicer for deposit in the Custodial Account all funds held in the Subservicing Account with respect to each Mortgage Loan serviced by such Subservicer that are required to be remitted to the Master Servicer. The Subservicer will also be required, pursuant to the Subservicing Agreement, to advance on such scheduled date of remittance amounts equal to any scheduled monthly installments of principal and interest less its Subservicing Fees on any Mortgage Loans for which payment was not received by the Subservicer. This obligation to advance with respect to each Mortgage Loan will continue up to and including the first of the month following the date on which the related Mortgaged Property is sold at a foreclosure sale or is acquired by the Trust Fund by deed in lieu of foreclosure or otherwise. All such advances received by the Master Servicer shall be deposited promptly by it in the Custodial Account. (b) The Subservicer may also be required, pursuant to the Subservicing Agreement, to remit to the Master Servicer for deposit in the Custodial Account interest at the Adjusted Mortgage Rate (or Modified Net Mortgage Rate plus the rate per annum at which the Servicing Fee accrues in the case of a Modified Mortgage Loan) on any Curtailment received by such Subservicer in respect of a Mortgage Loan from the related Mortgagor during any month that is to be applied by the Subservicer to reduce the unpaid principal balance of the related Mortgage Loan as of the first day of such month, from the date of application of such Curtailment to the first day of the following month. Any amounts paid by a Subservicer pursuant to the preceding sentence shall be for the benefit of the Master Servicer as additional servicing compensation and shall be subject to its withdrawal or order from time to time pursuant to Sections 3.10(a)(iv) and (v). (c) In addition to the Custodial Account and the Certificate Account, the Master Servicer shall for any Nonsubserviced Mortgage Loan, and shall cause the Subservicers for Subserviced Mortgage Loans to, establish and maintain one or more Servicing Accounts and deposit and retain therein all collections from the Mortgagors (or advances from Subservicers) for the payment of taxes, assessments, hazard insurance premiums, Primary Insurance Policy premiums, if applicable, or comparable items for the account of the Mortgagors. Each Servicing Account shall satisfy the requirements for a Subservicing Account and, to the extent permitted by the Program Guide or as is otherwise acceptable to the Master Servicer, may also function as a Subservicing Account. Withdrawals of amounts related to the Mortgage Loans from the Servicing Accounts may be made only to effect timely payment of taxes, assessments, hazard insurance premiums, Primary Insurance Policy premiums, if applicable, or comparable items, to reimburse the Master Servicer or Subservicer out of related collections for any payments made pursuant to Sections 3.11 (with respect to the Primary Insurance Policy) and 3.12(a) (with respect to hazard insurance), to refund to any Mortgagors any sums as may be determined to be overages, to pay interest, if required, to Mortgagors on balances in the Servicing Account or to clear and terminate the Servicing Account at the termination of this Agreement in accordance with Section 9.01 or in accordance with the Program Guide. As part of its servicing duties, the Master Servicer shall, and the Subservicers will, pursuant to the Subservicing Agreements, be required to pay to the Mortgagors interest on funds in this account to the extent required by law. (d) The Master Servicer shall advance the payments referred to in the preceding subsection that are not timely paid by the Mortgagors or advanced by the Subservicers on the date when the tax, premium or other cost for which such payment is intended is due, but the Master Servicer shall be required so to advance only to the extent that such advances, in the good faith judgment of the Master Servicer, will be recoverable by the Master Servicer out of Insurance Proceeds, Liquidation Proceeds or otherwise. Section 3.09 Access to Certain Documentation and Information Regarding the Mortgage Loans. In the event that compliance with this Section 3.09 shall make any Class of Certificates legal for investment by federally insured savings and loan associations, the Master Servicer shall provide, or cause the Subservicers to provide, to the Trustee, the Office of Thrift Supervision or the FDIC and the supervisory agents and examiners thereof access to the documentation regarding the Mortgage Loans required by applicable regulations of the Office of Thrift Supervision, such access being afforded without charge but only upon reasonable request and during normal business hours at the offices designated by the Master Servicer. The Master Servicer shall permit such representatives to photocopy any such documentation and shall provide equipment for that purpose at a charge reasonably approximating the cost of such photocopying to the Master Servicer. Section 3.10 Permitted Withdrawals from the Custodial Account. (a) The Master Servicer may, from time to time as provided herein, make withdrawals from the Custodial Account of amounts on deposit therein pursuant to Section 3.07 that are attributable to the Mortgage Loans for the following purposes: (i) to make deposits into the Certificate Account in the amounts and in the manner provided for in Section 4.01; (ii) to reimburse itself or the related Subservicer for previously unreimbursed Advances, Servicing Advances or other expenses made pursuant to Sections 3.01, 3.07(a), 3.08, 3.11, 3.12(a), 3.14 and 4.04 or otherwise reimbursable pursuant to the terms of this Agreement, such withdrawal right being limited to amounts received on the related Mortgage Loans (including, for this purpose, REO Proceeds, Insurance Proceeds, Liquidation Proceeds and proceeds from the purchase of a Mortgage Loan pursuant to Section 2.02, 2.03, 2.04 or 4.07) which represent (A) Late Collections of Monthly Payments for which any such advance was made in the case of Subservicer Advances or Advances pursuant to Section 4.04 and (B) recoveries of amounts in respect of which such advances were made in the case of Servicing Advances; (iii) to pay to itself or the related Subservicer (if not previously retained by such Subservicer) out of each payment received by the Master Servicer on account of interest on a Mortgage Loan as contemplated by Sections 3.14 and 3.16, an amount equal to that remaining portion of any such payment as to interest (but not in excess of the Servicing Fee and the Subservicing Fee, if not previously retained) which, when deducted, will result in the remaining amount of such interest being interest at a rate per annum equal to the Net Mortgage Rate (or Modified Net Mortgage Rate in the case of a Modified Mortgage Loan) on the amount specified in the amortization schedule of the related Mortgage Loan as the principal balance thereof at the beginning of the period respecting which such interest was paid after giving effect to any previous Curtailments; (iv) to pay to itself as additional servicing compensation any interest or investment income earned on funds and other property deposited in or credited to the Custodial Account that it is entitled to withdraw pursuant to Section 3.07(c); (v) to pay to itself as additional servicing compensation any Foreclosure Profits, and any amounts remitted by Subservicers as interest in respect of Curtailments pursuant to Section 3.08(b); (vi) to pay to itself, a Subservicer, a Seller, Residential Funding, the Depositor or any other appropriate Person, as the case may be, with respect to each Mortgage Loan or property acquired in respect thereof that has been purchased or otherwise transferred pursuant to Section 2.02, 2.03, 2.04, 4.07 or 9.01, all amounts received thereon and not required to be distributed to Certificateholders as of the date on which the related Stated Principal Balance or Purchase Price is determined; (vii) to reimburse itself or the related Subservicer for any Nonrecoverable Advance or Advances in the manner and to the extent provided in subsection (c) below, and any Advance or Servicing Advance made in connection with a modified Mortgage Loan that is in default or, in the judgment of the Master Servicer, default is reasonably foreseeable pursuant to Section 3.07(a), to the extent the amount of the Advance or Servicing Advance was added to the Stated Principal Balance of the Mortgage Loan in a prior calendar month; (viii) to reimburse itself or the Depositor for expenses incurred by and reimbursable to it or the Depositor pursuant to Section 3.01(a), 3.11, 3.13, 3.14(c), 6.03, 10.01 or otherwise, or in connection with enforcing any repurchase, substitution or indemnification obligation of any Seller (other than the Depositor or an Affiliate of the Depositor) pursuant to the related Seller's Agreement; (ix) to reimburse itself for amounts expended by it (a) pursuant to Section 3.14 in good faith in connection with the restoration of property damaged by an Uninsured Cause, and (b) in connection with the liquidation of a Mortgage Loan or disposition of an REO Property to the extent not otherwise reimbursed pursuant to clause (ii) or (viii) above; and (x) to withdraw any amount deposited in the Custodial Account that was not required to be deposited therein pursuant to Section 3.07, including any payoff fees or penalties or any other additional amounts payable to the Master Servicer or Subservicer pursuant to the terms of the Mortgage Note. (b) Since, in connection with withdrawals pursuant to clauses (ii), (iii), (v) and (vi), the Master Servicer's entitlement thereto is limited to collections or other recoveries on the related Mortgage Loan, the Master Servicer shall keep and maintain separate accounting, on a Mortgage Loan by Mortgage Loan basis, for the purpose of justifying any withdrawal from the Custodial Account pursuant to such clauses. (c) The Master Servicer shall be entitled to reimburse itself or the related Subservicer for any advance made in respect of a Mortgage Loan that the Master Servicer determines to be a Nonrecoverable Advance by withdrawal from the Custodial Account of amounts on deposit therein attributable to the Mortgage Loans on any Certificate Account Deposit Date succeeding the date of such determination. Such right of reimbursement in respect of a Nonrecoverable Advance relating to an Advance made pursuant to Section 4.04 on any such Certificate Account Deposit Date shall be limited to an amount not exceeding the portion of such advance previously paid to Certificateholders (and not theretofore reimbursed to the Master Servicer or the related Subservicer). Section 3.11 Maintenance of Primary Insurance Coverage. (a) The Master Servicer shall not take, or permit any Subservicer to take, any action which would result in noncoverage under any applicable Primary Insurance Policy of any loss which, but for the actions of the Master Servicer or Subservicer, would have been covered thereunder. To the extent coverage is available, the Master Servicer shall keep or cause to be kept in full force and effect each such Primary Insurance Policy until the principal balance of the related Mortgage Loan secured by a Mortgaged Property is reduced to 80% or less of the Appraised Value at origination in the case of such a Mortgage Loan having a Loan-to-Value Ratio at origination in excess of 80%, provided that such Primary Insurance Policy was in place as of the Cut-off Date and the Master Servicer had knowledge of such Primary Insurance Policy. The Master Servicer shall not cancel or refuse to renew any such Primary Insurance Policy applicable to a Nonsubserviced Mortgage Loan, or consent to any Subservicer canceling or refusing to renew any such Primary Insurance Policy applicable to a Mortgage Loan subserviced by it, that is in effect at the date of the initial issuance of the Certificates and is required to be kept in force hereunder unless the replacement Primary Insurance Policy for such canceled or non-renewed policy is maintained with an insurer whose claims-paying ability is acceptable to each Rating Agency for mortgage pass-through certificates having a rating equal to or better than the lower of the then-current rating or the rating assigned to the Certificates as of the Closing Date by such Rating Agency. (b) In connection with its activities as administrator and servicer of the Mortgage Loans, the Master Servicer agrees to present or to cause the related Subservicer to present, on behalf of the Master Servicer, the Subservicer, if any, the Trustee and Certificateholders, claims to the insurer under any Primary Insurance Policies, in a timely manner in accordance with such policies, and, in this regard, to take or cause to be taken such reasonable action as shall be necessary to permit recovery under any Primary Insurance Policies respecting defaulted Mortgage Loans. Pursuant to Section 3.07, any Insurance Proceeds collected by or remitted to the Master Servicer under any Primary Insurance Policies shall be deposited in the Custodial Account, subject to withdrawal pursuant to Section 3.10. Section 3.12 Maintenance of Fire Insurance and Omissions and Fidelity Coverage. (a) The Master Servicer shall cause to be maintained for each Mortgage Loan fire insurance with extended coverage in an amount which is equal to the lesser of the principal balance owing on such Mortgage Loan (together with the principal balance of any mortgage loan secured by a lien that is senior to the Mortgage Loan) or 100% of the insurable value of the improvements; provided, however, that such coverage may not be less than the minimum amount required to fully compensate for any loss or damage on a replacement cost basis. To the extent it may do so without breaching the related Subservicing Agreement, the Master Servicer shall replace any Subservicer that does not cause such insurance, to the extent it is available, to be maintained. The Master Servicer shall also cause to be maintained on property acquired upon foreclosure, or deed in lieu of foreclosure, of any Mortgage Loan, fire insurance with extended coverage in an amount which is at least equal to the amount necessary to avoid the application of any co-insurance clause contained in the related hazard insurance policy. Pursuant to Section 3.07, any amounts collected by the Master Servicer under any such policies (other than amounts to be applied to the restoration or repair of the related Mortgaged Property or property thus acquired or amounts released to the Mortgagor in accordance with the Master Servicer's normal servicing procedures) shall be deposited in the Custodial Account, subject to withdrawal pursuant to Section 3.10. Any cost incurred by the Master Servicer in maintaining any such insurance shall not, for the purpose of calculating monthly distributions to Certificateholders, be added to the amount owing under the Mortgage Loan, notwithstanding that the terms of the Mortgage Loan so permit. Such costs shall be recoverable by the Master Servicer out of related late payments by the Mortgagor or out of Insurance Proceeds and Liquidation Proceeds to the extent permitted by Section 3.10. It is understood and agreed that no earthquake or other additional insurance is to be required of any Mortgagor or maintained on property acquired in respect of a Mortgage Loan other than pursuant to such applicable laws and regulations as shall at any time be in force and as shall require such additional insurance. Whenever the improvements securing a Mortgage Loan are located at the time of origination of such Mortgage Loan in a federally designated special flood hazard area, the Master Servicer shall cause flood insurance (to the extent available) to be maintained in respect thereof. Such flood insurance shall be in an amount equal to the lesser of (i) the amount required to compensate for any loss or damage to the Mortgaged Property on a replacement cost basis and (ii) the maximum amount of such insurance available for the related Mortgaged Property under the national flood insurance program (assuming that the area in which such Mortgaged Property is located is participating in such program). In the event that the Master Servicer shall obtain and maintain a blanket fire insurance policy with extended coverage insuring against hazard losses on all of the Mortgage Loans, it shall conclusively be deemed to have satisfied its obligations as set forth in the first sentence of this Section 3.12(a), it being understood and agreed that such policy may contain a deductible clause, in which case the Master Servicer shall, in the event that there shall not have been maintained on the related Mortgaged Property a policy complying with the first sentence of this Section 3.12(a) and there shall have been a loss which would have been covered by such policy, deposit in the Certificate Account the amount not otherwise payable under the blanket policy because of such deductible clause. Any such deposit by the Master Servicer shall be made on the Certificate Account Deposit Date next preceding the Distribution Date which occurs in the month following the month in which payments under any such policy would have been deposited in the Custodial Account. In connection with its activities as administrator and servicer of the Mortgage Loans, the Master Servicer agrees to present, on behalf of itself, the Trustee and Certificateholders, claims under any such blanket policy. (b) The Master Servicer shall obtain and maintain at its own expense and keep in full force and effect throughout the term of this Agreement a blanket fidelity bond and an errors and omissions insurance policy covering the Master Servicer's officers and employees and other persons acting on behalf of the Master Servicer in connection with its activities under this Agreement. The amount of coverage shall be at least equal to the coverage that would be required by Fannie Mae or Freddie Mac, whichever is greater, with respect to the Master Servicer if the Master Servicer were servicing and administering the Mortgage Loans for Fannie Mae or Freddie Mac. In the event that any such bond or policy ceases to be in effect, the Master Servicer shall obtain a comparable replacement bond or policy from an issuer or insurer, as the case may be, meeting the requirements, if any, of the Program Guide and acceptable to the Depositor. Coverage of the Master Servicer under a policy or bond obtained by an Affiliate of the Master Servicer and providing the coverage required by this Section 3.12(b) shall satisfy the requirements of this Section 3.12(b). Section 3.13 Enforcement of Due-on-Sale Clauses; Assumption and Modification Agreements; Certain Assignments. (a) When any Mortgaged Property is conveyed by the Mortgagor, the Master Servicer or Subservicer, to the extent it has knowledge of such conveyance, shall enforce any due-on-sale clause contained in any Mortgage Note or Mortgage, to the extent permitted under applicable law and governmental regulations, but only to the extent that such enforcement will not adversely affect or jeopardize coverage under any Required Insurance Policy. Notwithstanding the foregoing: (i) the Master Servicer shall not be deemed to be in default under this Section 3.13(a) by reason of any transfer or assumption which the Master Servicer is restricted by law from preventing; and (ii) if the Master Servicer determines that it is reasonably likely that any Mortgagor will bring, or if any Mortgagor does bring, legal action to declare invalid or otherwise avoid enforcement of a due-on-sale clause contained in any Mortgage Note or Mortgage, the Master Servicer shall not be required to enforce the due-on-sale clause or to contest such action. (b) Subject to the Master Servicer's or related Subservicer's duty to enforce any due-on-sale clause to the extent set forth in Section 3.13(a), in any case in which a Mortgaged Property is to be conveyed to a Person by a Mortgagor, and such Person is to enter into an assumption or modification agreement or supplement to the Mortgage Note or Mortgage which requires the signature of the Trustee, or if an instrument of release signed by the Trustee is required releasing the Mortgagor from liability on the Mortgage Loan, the Master Servicer is authorized, subject to the requirements of the sentence next following, to execute and deliver, on behalf of the Trustee, the assumption agreement with the Person to whom the Mortgaged Property is to be conveyed and such modification agreement or supplement to the Mortgage Note or Mortgage or other instruments as are reasonable or necessary to carry out the terms of the Mortgage Note or Mortgage or otherwise to comply with any applicable laws regarding assumptions or the transfer of the Mortgaged Property to such Person; provided, however, none of such terms and requirements shall both constitute a "significant modification" effecting an exchange or reissuance of such Mortgage Loan under the Code (or final, temporary or proposed Treasury regulations promulgated thereunder) and cause any REMIC created hereunder to fail to qualify as a REMIC under the Code or the imposition of any tax on "prohibited transactions" or "contributions" after the Startup Date under the REMIC Provisions. The Master Servicer shall execute and deliver such documents only if it reasonably determines that (i) its execution and delivery thereof will not conflict with or violate any terms of this Agreement or cause the unpaid balance and interest on the Mortgage Loan to be uncollectible in whole or in part, (ii) any required consents of insurers under any Required Insurance Policies have been obtained and (iii) subsequent to the closing of the transaction involving the assumption or transfer (A) the Mortgage Loan will continue to be secured by a first mortgage lien (or, with respect to any junior lien, a junior lien of the same priority in relation to any senior lien on such Mortgage Loan) pursuant to the terms of the Mortgage, (B) such transaction will not adversely affect the coverage under any Required Insurance Policies, (C) the Mortgage Loan will fully amortize over the remaining term thereof, (D) no material term of the Mortgage Loan (including the interest rate on the Mortgage Loan) will be altered nor will the term of the Mortgage Loan be changed and (E) if the seller/transferor of the Mortgaged Property is to be released from liability on the Mortgage Loan, the buyer/transferee of the Mortgaged Property would be qualified to assume the Mortgage Loan based on generally comparable credit quality and such release will not (based on the Master Servicer's or related Subservicer's good faith determination) adversely affect the collectability of the Mortgage Loan. Upon receipt of appropriate instructions from the Master Servicer in accordance with the foregoing, the Trustee shall execute any necessary instruments for such assumption or substitution of liability as directed by the Master Servicer. Upon the closing of the transactions contemplated by such documents, the Master Servicer shall cause the originals or true and correct copies of the assumption agreement, the release (if any), or the modification or supplement to the Mortgage Note or Mortgage to be deposited with the Mortgage File for such Mortgage Loan. Any fee collected by the Master Servicer or such related Subservicer for entering into an assumption or substitution of liability agreement will be retained by the Master Servicer or such related Subservicer as additional servicing compensation. (c) The Master Servicer or the related Subservicer, as the case may be, shall be entitled to approve a request from a Mortgagor for a partial release of the related Mortgaged Property, the granting of an easement thereon in favor of another Person, any alteration or demolition of the related Mortgaged Property or other similar matters if it has determined, exercising its good faith business judgment in the same manner as it would if it were the owner of the related Mortgage Loan, that the security for, and the timely and full collectability of, such Mortgage Loan would not be adversely affected thereby and that any REMIC created hereunder would not fail to continue to qualify as a REMIC under the Code as a result thereof and (subject to Section 10.01(f)) that no tax on "prohibited transactions" or "contributions" after the Startup Date would be imposed on any REMIC created hereunder as a result thereof. Any fee collected by the Master Servicer or the related Subservicer for processing such a request will be retained by the Master Servicer or such Subservicer as additional servicing compensation. (d) Subject to any other applicable terms and conditions of this Agreement, the Trustee and Master Servicer shall be entitled to approve an assignment in lieu of satisfaction with respect to any Mortgage Loan, provided the obligee with respect to such Mortgage Loan following such proposed assignment provides the Trustee and Master Servicer with a "Lender Certification for Assignment of Mortgage Loan" in the form attached hereto as Exhibit M, in form and substance satisfactory to the Trustee and Master Servicer, providing the following: (i) that the Mortgage Loan is secured by Mortgaged Property located in a jurisdiction in which an assignment in lieu of satisfaction is required to preserve lien priority, minimize or avoid mortgage recording taxes or otherwise comply with, or facilitate a refinancing under, the laws of such jurisdiction; (ii) that the substance of the assignment is, and is intended to be, a refinancing of such Mortgage Loan and that the form of the transaction is solely to comply with, or facilitate the transaction under, such local laws; (iii) that the Mortgage Loan following the proposed assignment will have a rate of interest more than the greater of (A) 3% and (B) 5% of the annual yield of the unmodified Mortgage Loan, below or above the rate of interest on such Mortgage Loan prior to such proposed assignment; and (iv) that such assignment is at the request of the borrower under the related Mortgage Loan. Upon approval of an assignment in lieu of satisfaction with respect to any Mortgage Loan, the Master Servicer shall receive cash in an amount equal to the unpaid principal balance of and accrued interest on such Mortgage Loan, and the Master Servicer shall treat such amount as a Principal Prepayment in Full with respect to such Mortgage Loan for all purposes hereof. Section 3.14 Realization Upon Defaulted Mortgage Loans. (a) The Master Servicer shall foreclose upon or otherwise comparably convert (which may include an REO Acquisition) the ownership of properties securing such of the Mortgage Loans as come into and continue in default and as to which no satisfactory arrangements can be made for collection of delinquent payments pursuant to Section 3.07. Alternatively, the Master Servicer may take other actions in respect of a defaulted Mortgage Loan, which may include (i) accepting a short sale (a payoff of the Mortgage Loan for an amount less than the total amount contractually owed in order to facilitate a sale of the Mortgaged Property by the Mortgagor) or permitting a short refinancing (a payoff of the Mortgage Loan for an amount less than the total amount contractually owed in order to facilitate refinancing transactions by the Mortgagor not involving a sale of the Mortgaged Property), (ii) arranging for a repayment plan or (iii) agreeing to a modification in accordance with Section 3.07. In connection with such foreclosure or other conversion or action, the Master Servicer shall, consistent with Section 3.11, follow such practices and procedures as it shall deem necessary or advisable, as shall be normal and usual in its general mortgage servicing activities and as shall be required or permitted by the Program Guide; provided that the Master Servicer shall not be liable in any respect hereunder if the Master Servicer is acting in connection with any such foreclosure or other conversion or action in a manner that is consistent with the provisions of this Agreement. The Master Servicer, however, shall not be required to expend its own funds or incur other reimbursable charges in connection with any foreclosure, or attempted foreclosure which is not completed, or towards the correction of any default on a related senior mortgage loan, or towards the restoration of any property unless it shall determine (i) that such restoration and/or foreclosure will increase the proceeds of liquidation of the Mortgage Loan to Holders of Certificates of one or more Classes after reimbursement to itself for such expenses or charges and (ii) that such expenses and charges will be recoverable to it through Liquidation Proceeds, Insurance Proceeds, or REO Proceeds (respecting which it shall have priority for purposes of withdrawals from the Custodial Account pursuant to Section 3.10, whether or not such expenses and charges are actually recoverable from related Liquidation Proceeds, Insurance Proceeds or REO Proceeds). In the event of such a determination by the Master Servicer pursuant to this Section 3.14(a), the Master Servicer shall be entitled to reimbursement of its funds so expended pursuant to Section 3.10. In addition, the Master Servicer may pursue any remedies that may be available in connection with a breach of a representation and warranty with respect to any such Mortgage Loan in accordance with Sections 2.03 and 2.04. However, the Master Servicer is not required to continue to pursue both foreclosure (or similar remedies) with respect to the Mortgage Loans and remedies in connection with a breach of a representation and warranty if the Master Servicer determines in its reasonable discretion that one such remedy is more likely to result in a greater recovery as to the Mortgage Loan. Upon the occurrence of a Cash Liquidation or REO Disposition, following the deposit in the Custodial Account of all Insurance Proceeds, Liquidation Proceeds and other payments and recoveries referred to in the definition of "Cash Liquidation" or "REO Disposition," as applicable, upon receipt by the Trustee of written notification of such deposit signed by a Servicing Officer, the Trustee or the Custodian, as the case may be, shall release to the Master Servicer the related Custodial File and the Trustee shall execute and deliver such instruments of transfer or assignment prepared by the Master Servicer, in each case without recourse, as shall be necessary to vest in the Master Servicer or its designee, as the case may be, the related Mortgage Loan, and thereafter such Mortgage Loan shall not be part of the Trust Fund. Notwithstanding the foregoing or any other provision of this Agreement, in the Master Servicer's sole discretion with respect to any defaulted Mortgage Loan or REO Property as to either of the following provisions, (i) a Cash Liquidation or REO Disposition may be deemed to have occurred if substantially all amounts expected by the Master Servicer to be received in connection with the related defaulted Mortgage Loan or REO Property have been received, and (ii) for purposes of determining the amount of any Liquidation Proceeds, Insurance Proceeds, REO Proceeds or other unscheduled collections or the amount of any Realized Loss, the Master Servicer may take into account minimal amounts of additional receipts expected to be received or any estimated additional liquidation expenses expected to be incurred in connection with the related defaulted Mortgage Loan or REO Property. (b) In the event that title to any Mortgaged Property is acquired by the Trust Fund as an REO Property by foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale shall be issued to the Trustee or to its nominee on behalf of Certificateholders. Notwithstanding any such acquisition of title and cancellation of the related Mortgage Loan, such REO Property shall (except as otherwise expressly provided herein) be considered to be an Outstanding Mortgage Loan held in the Trust Fund until such time as the REO Property shall be sold. Consistent with the foregoing for purposes of all calculations hereunder so long as such REO Property shall be considered to be an Outstanding Mortgage Loan it shall be assumed that, notwithstanding that the indebtedness evidenced by the related Mortgage Note shall have been discharged, such Mortgage Note and the related amortization schedule in effect at the time of any such acquisition of title (after giving effect to any previous Curtailments and before any adjustment thereto by reason of any bankruptcy or similar proceeding or any moratorium or similar waiver or grace period) remain in effect. (c) In the event that the Trust Fund acquires any REO Property as aforesaid or otherwise in connection with a default or imminent default on a Mortgage Loan, the Master Servicer on behalf of the Trust Fund shall dispose of such REO Property as soon as practicable, giving due consideration to the interests of the Certificateholders, but in all cases, within three full years after the taxable year of its acquisition by the Trust Fund for purposes of Section 860G(a)(8) of the Code (or such shorter period as may be necessary under applicable state (including any state in which such property is located) law to maintain the status of each REMIC created hereunder as a REMIC under applicable state law and avoid taxes resulting from such property failing to be foreclosure property under applicable state law) or, at the expense of the Trust Fund, request, more than 60 days before the day on which such grace period would otherwise expire, an extension of such grace period unless the Master Servicer (subject to Section 10.01(f)) obtains for the Trustee an Opinion of Counsel, addressed to the Trustee and the Master Servicer, to the effect that the holding by the Trust Fund of such REO Property subsequent to such period will not result in the imposition of taxes on "prohibited transactions" as defined in Section 860F of the Code or cause any REMIC created hereunder to fail to qualify as a REMIC (for federal (or any applicable State or local) income tax purposes) at any time that any Certificates are outstanding, in which case the Trust Fund may continue to hold such REO Property (subject to any conditions contained in such Opinion of Counsel). The Master Servicer shall be entitled to be reimbursed from the Custodial Account for any costs incurred in obtaining such Opinion of Counsel, as provided in Section 3.10. Notwithstanding any other provision of this Agreement, no REO Property acquired by the Trust Fund shall be rented (or allowed to continue to be rented) or otherwise used by or on behalf of the Trust Fund in such a manner or pursuant to any terms that would (i) cause such REO Property to fail to qualify as "foreclosure property" within the meaning of Section 860G(a)(8) of the Code or (ii) subject any REMIC created hereunder to the imposition of any federal income taxes on the income earned from such REO Property, including any taxes imposed by reason of Section 860G(c) of the Code, unless the Master Servicer has agreed to indemnify and hold harmless the Trust Fund with respect to the imposition of any such taxes. (d) The proceeds of any Cash Liquidation, REO Disposition or purchase or repurchase of any Mortgage Loan pursuant to the terms of this Agreement, as well as any recovery (other than Subsequent Recoveries) resulting from a collection of Liquidation Proceeds, Insurance Proceeds or REO Proceeds, will be applied in the following order of priority: first, to reimburse the Master Servicer or the related Subservicer in accordance with Section 3.10(a)(ii); second, to the Certificateholders to the extent of accrued and unpaid interest on the Mortgage Loan, and any related REO Imputed Interest, at the Net Mortgage Rate (or the Modified Net Mortgage Rate in the case of a Modified Mortgage Loan), to the Due Date in the related Due Period prior to the Distribution Date on which such amounts are to be distributed; third, to the Certificateholders as a recovery of principal on the Mortgage Loan (or REO Property); fourth, to all Servicing Fees and Subservicing Fees payable therefrom (and the Master Servicer and the Subservicer shall have no claims for any deficiencies with respect to such fees which result from the foregoing allocation); and fifth, to Foreclosure Profits. (e) In the event of a default on a Mortgage Loan one or more of whose obligors is not a United States Person, in connection with any foreclosure or acquisition of a deed in lieu of foreclosure (together, "foreclosure") in respect of such Mortgage Loan, the Master Servicer shall cause compliance with the provisions of Treasury Regulation Section 1.1445-2(d)(3) (or any successor thereto) necessary to assure that no withholding tax obligation arises with respect to the proceeds of such foreclosure except to the extent, if any, that proceeds of such foreclosure are required to be remitted to the obligors on such Mortgage Loan. Section 3.15 Trustee to Cooperate; Release of Custodial Files. (a) Upon becoming aware of the payment in full of any Mortgage Loan, or upon the receipt by the Master Servicer of a notification that payment in full will be escrowed in a manner customary for such purposes, the Master Servicer shall immediately notify the Trustee (if it holds the related Custodial File) or the Custodian by a certification of a Servicing Officer (which certification shall include a statement to the effect that all amounts received or to be received in connection with such payment which are required to be deposited in the Custodial Account pursuant to Section 3.07 have been or will be so deposited), substantially in the form attached hereto as Exhibit G, or, in the case of a Custodian, an electronic request in a form acceptable to the Custodian, requesting delivery to it of the Custodial File. Upon receipt of such certification and request, the Trustee shall promptly release, or cause the Custodian to release, the related Custodial File to the Master Servicer. The Master Servicer is authorized to execute and deliver to the Mortgagor the request for reconveyance, deed of reconveyance or release or satisfaction of mortgage or such instrument releasing the lien of the Mortgage, together with the Mortgage Note with, as appropriate, written evidence of cancellation thereon and to cause the removal from the registration on the MERS(R)System of such Mortgage and to execute and deliver, on behalf of the Trustee and the Certificateholders or any of them, any and all instruments of satisfaction or cancellation or of partial or full release, including any applicable UCC termination statements. No expenses incurred in connection with any instrument of satisfaction or deed of reconveyance shall be chargeable to the Custodial Account or the Certificate Account. (b) From time to time as is appropriate for the servicing or foreclosure of any Mortgage Loan, the Master Servicer shall deliver to the Custodian, with a copy to the Trustee, a certificate of a Servicing Officer substantially in the form attached as Exhibit G hereto, or, in the case of a Custodian, an electronic request in a form acceptable to the Custodian, requesting that possession of all, or any document constituting part of, the Custodial File be released to the Master Servicer and certifying as to the reason for such release and that such release will not invalidate any insurance coverage provided in respect of the Mortgage Loan under any Required Insurance Policy. Upon receipt of the foregoing, the Trustee shall deliver, or cause the Custodian to deliver, the Custodial File or any document therein to the Master Servicer. The Master Servicer shall cause each Custodial File or any document therein so released to be returned to the Trustee, or the Custodian as agent for the Trustee when the need therefor by the Master Servicer no longer exists, unless (i) the Mortgage Loan has been liquidated and the Liquidation Proceeds relating to the Mortgage Loan have been deposited in the Custodial Account or (ii) the Custodial File or such document has been delivered directly or through a Subservicer to an attorney, or to a public trustee or other public official as required by law, for purposes of initiating or pursuing legal action or other proceedings for the foreclosure of the Mortgaged Property either judicially or non-judicially, and the Master Servicer has delivered directly or through a Subservicer to the Trustee a certificate of a Servicing Officer certifying as to the name and address of the Person to which such Custodial File or such document was delivered and the purpose or purposes of such delivery. In the event of the liquidation of a Mortgage Loan, the Trustee shall deliver the Request for Release with respect thereto to the Master Servicer upon the Trustee's receipt of notification from the Master Servicer of the deposit of the related Liquidation Proceeds in the Custodial Account. (c) The Trustee or the Master Servicer on the Trustee's behalf shall execute and deliver to the Master Servicer, if necessary, any court pleadings, requests for trustee's sale or other documents necessary to the foreclosure or trustee's sale in respect of a Mortgaged Property or to any legal action brought to obtain judgment against any Mortgagor on the Mortgage Note or Mortgage or to obtain a deficiency judgment, or to enforce any other remedies or rights provided by the Mortgage Note or Mortgage or otherwise available at law or in equity. Together with such documents or pleadings (if signed by the Trustee), the Master Servicer shall deliver to the Trustee a certificate of a Servicing Officer requesting that such pleadings or documents be executed by the Trustee and certifying as to the reason such documents or pleadings are required and that the execution and delivery thereof by the Trustee shall not invalidate any insurance coverage under any Required Insurance Policy or invalidate or otherwise affect the lien of the Mortgage, except for the termination of such a lien upon completion of the foreclosure or trustee's sale. Section 3.16 Servicing and Other Compensation; Compensating Interest. (a) The Master Servicer, as compensation for its activities hereunder, shall be entitled to receive on each Distribution Date the amounts provided for by clauses (iii), (iv), (v) and (vi) of Section 3.10(a), subject to clause (e) below. The amount of servicing compensation provided for in such clauses shall be accounted for on a Mortgage Loan-by-Mortgage Loan basis. In the event that Liquidation Proceeds, Insurance Proceeds and REO Proceeds (net of amounts reimbursable therefrom pursuant to Section 3.10(a)(ii)) in respect of a Cash Liquidation or REO Disposition exceed the unpaid principal balance of such Mortgage Loan plus unpaid interest accrued thereon (including REO Imputed Interest) at a per annum rate equal to the related Net Mortgage Rate (or the Modified Net Mortgage Rate in the case of a Modified Mortgage Loan), the Master Servicer shall be entitled to retain therefrom and to pay to itself and/or the related Subservicer, any Foreclosure Profits and any Servicing Fee or Subservicing Fee considered to be accrued but unpaid. (b) Additional servicing compensation in the form of assumption fees, late payment charges, investment income on amounts in the Custodial Account or the Certificate Account or otherwise shall be retained by the Master Servicer or the Subservicer to the extent provided herein, subject to clause (e) below. Prepayment charges shall be deposited into the Certificate Account and shall be paid on each Distribution Date to the holders of the Class SB Certificates. (c) The Master Servicer shall be required to pay, or cause to be paid, all expenses incurred by it in connection with its servicing activities hereunder (including payment of premiums for the Primary Insurance Policies, if any, to the extent such premiums are not required to be paid by the related Mortgagors, and the fees and expenses of the Trustee and the Custodian) and shall not be entitled to reimbursement therefor except as specifically provided in Sections 3.10 and 3.14. (d) The Master Servicer's right to receive servicing compensation may not be transferred in whole or in part except in connection with the transfer of all of its responsibilities and obligations of the Master Servicer under this Agreement. (e) Notwithstanding clauses (a) and (b) above, the amount of servicing compensation that the Master Servicer shall be entitled to receive for its activities hereunder for the period ending on each Distribution Date shall be reduced (but not below zero) by the amount of Compensating Interest (if any) for such Distribution Date used to cover Prepayment Interest Shortfalls as provided in Section 3.16(f) below. Such reduction shall be applied during such period as follows: first, to any Servicing Fee or Subservicing Fee to which the Master Servicer is entitled pursuant to Section 3.10(a)(iii); and second, to any income or gain realized from any investment of funds held in the Custodial Account or the Certificate Account to which the Master Servicer is entitled pursuant to Sections 3.07(c) or 4.01(c), respectively. In making such reduction, the Master Servicer shall not withdraw from the Custodial Account any such amount representing all or a portion of the Servicing Fee to which it is entitled pursuant to Section 3.10(a)(iii) and shall not withdraw from the Custodial Account or Certificate Account any such amount to which it is entitled pursuant to Section 3.07(c) or 4.01(c). (f) With respect to any Distribution Date, Prepayment Interest Shortfalls on the Mortgage Loans will be covered first, by the Master Servicer, but only to the extent such Prepayment Interest Shortfalls do not exceed Eligible Master Servicing Compensation. (g) With respect to any Distribution Date, Compensating Interest derived from a particular Loan Group shall be used on such Distribution Date to cover any Prepayment Interest Shortfalls in such Loan Group and then to cover any Prepayment Interest Shortfalls on the other Loan Group in the same manner and priority as Excess Cash Flow would cover such shortfalls pursuant to Section 4.02. Section 3.17 Reports to the Trustee and the Depositor. Not later than fifteen days after it receives a written request from the Trustee or the Depositor, the Master Servicer shall forward to the Trustee and the Depositor a statement, certified by a Servicing Officer, setting forth the status of the Custodial Account as of the close of business on such Distribution Date as it relates to the Mortgage Loans and showing, for the period covered by such statement, the aggregate of deposits in or withdrawals from the Custodial Account in respect of the Mortgage Loans for each category of deposit specified in Section 3.07 and each category of withdrawal specified in Section 3.10. Section 3.18 Annual Statement as to Compliance and Servicing Assessment. The Master Servicer shall deliver to the Depositor and the Trustee on or before the earlier of (a) March 31 of each year or (b) with respect to any calendar year during which the Depositor's annual report on Form 10-K is required to be filed in accordance with the Exchange Act and the rules and regulations of the Commission, the date on which the annual report on Form 10-K is required to be filed in accordance with the Exchange Act and the rules and regulations of the Commission, (i) a servicing assessment as described in Section 4.03(f)(ii) and (ii) a servicer compliance statement, signed by an authorized officer of the Master Servicer, as described in Items 1122(a), 1122(b) and 1123 of Regulation AB, to the effect that: (A) A review of the Master Servicer's activities during the reporting period and of its performance under this Agreement has been made under such officer's supervision. (B) To the best of such officer's knowledge, based on such review, the Master Servicer has fulfilled all of its obligations under this Agreement in all material respects throughout the reporting period or, if there has been a failure to fulfill any such obligation in any material respect, specifying each such failure known to such officer and the nature and status thereof. The Master Servicer shall use commercially reasonable efforts to obtain from all other parties participating in the servicing function any additional certifications required under Item 1123 of Regulation AB to the extent required to be included in a Report on Form 10-K; provided, however, that a failure to obtain such certifications shall not be a breach of the Master Servicer's duties hereunder if any such party fails to deliver such a certification. Section 3.19 Annual Independent Public Accountants' Servicing Report. On or before the earlier of (a) March 31 of each year or (b) with respect to any calendar year during which the Depositor's annual report on Form 10-K is required to be filed in accordance with the Exchange Act and the rules and regulations of the Commission, the date on which the annual report is required to be filed in accordance with the Exchange Act and the rules and regulations of the Commission, the Master Servicer at its expense shall cause a firm of independent public accountants, which shall be members of the American Institute of Certified Public Accountants, to furnish to the Depositor and the Trustee the attestation required under Item 1122(b) of Regulation AB. In rendering such statement, such firm may rely, as to matters relating to the direct servicing of mortgage loans by Subservicers, upon comparable statements for examinations conducted by independent public accountants substantially in accordance with standards established by the American Institute of Certified Public Accountants (rendered within one year of such statement) with respect to such Subservicers. Section 3.20 Right of the Depositor in Respect of the Master Servicer. The Master Servicer shall afford the Depositor and the Trustee, upon reasonable notice, during normal business hours access to all records maintained by the Master Servicer in respect of its rights and obligations hereunder and access to officers of the Master Servicer responsible for such obligations. Upon request, the Master Servicer shall furnish the Depositor with its most recent financial statements and such other information as the Master Servicer possesses regarding its business, affairs, property and condition, financial or otherwise. The Master Servicer shall also cooperate with all reasonable requests for information including, but not limited to, notices, tapes and copies of files, regarding itself, the Mortgage Loans or the Certificates from any Person or Persons identified by the Depositor or Residential Funding. The Depositor may enforce the obligation of the Master Servicer hereunder and may, but it is not obligated to, perform or cause a designee to perform, any defaulted obligation of the Master Servicer hereunder or exercise the rights of the Master Servicer hereunder; provided that the Master Servicer shall not be relieved of any of its obligations hereunder by virtue of such performance by the Depositor or its designee. Neither the Depositor nor the Trustee shall have the responsibility or liability for any action or failure to act by the Master Servicer and they are not obligated to supervise the performance of the Master Servicer under this Agreement or otherwise. Section 3.21 [Reserved]. Section 3.22 Advance Facility. (a) The Master Servicer is hereby authorized to enter into a financing or other facility (any such arrangement, an "Advance Facility") under which (1) the Master Servicer sells, assigns or pledges to another Person (an "Advancing Person") the Master Servicer's rights under this Agreement to be reimbursed for any Advances or Servicing Advances and/or (2) an Advancing Person agrees to fund some or all Advances and/or Servicing Advances required to be made by the Master Servicer pursuant to this Agreement. No consent of the Depositor, the Trustee, the Certificateholders or any other party shall be required before the Master Servicer may enter into an Advance Facility. Notwithstanding the existence of any Advance Facility under which an Advancing Person agrees to fund Advances and/or Servicing Advances on the Master Servicer's behalf, the Master Servicer shall remain obligated pursuant to this Agreement to make Advances and Servicing Advances pursuant to and as required by this Agreement. If the Master Servicer enters into an Advance Facility, and for so long as an Advancing Person remains entitled to receive reimbursement for any Advances including Nonrecoverable Advances ("Advance Reimbursement Amounts") and/or Servicing Advances including Nonrecoverable Advances ("Servicing Advance Reimbursement Amounts" and together with Advance Reimbursement Amounts, "Reimbursement Amounts") (in each case to the extent such type of Reimbursement Amount is included in the Advance Facility), as applicable, pursuant to this Agreement, then the Master Servicer shall identify such Reimbursement Amounts consistent with the reimbursement rights set forth in Section 3.10(a)(ii) and (vii) and remit such Reimbursement Amounts in accordance with this Section 3.22 or otherwise in accordance with the documentation establishing the Advance Facility to such Advancing Person or to a trustee, agent or custodian (an "Advance Facility Trustee") designated by such Advancing Person in an Advance Facility Notice described below in Section 3.22(b). Notwithstanding the foregoing, if so required pursuant to the terms of the Advance Facility, the Master Servicer may direct, and if so directed in writing, the Trustee is hereby authorized to and shall pay to the Advance Facility Trustee the Reimbursement Amounts identified pursuant to the preceding sentence. An Advancing Person whose obligations hereunder are limited to the funding of Advances and/or Servicing Advances shall not be required to meet the qualifications of a Master Servicer or a Subservicer pursuant to Section 3.02(a) or 6.02(c) hereof and shall not be deemed to be a Subservicer under this Agreement. Notwithstanding anything to the contrary herein, in no event shall Advance Reimbursement Amounts or Servicing Advance Reimbursement Amounts be included in the Available Distribution Amount or distributed to Certificateholders. (b) If the Master Servicer enters into an Advance Facility and makes the election set forth in Section 3.22(a), the Master Servicer and the related Advancing Person shall deliver to the Trustee a written notice and payment instruction (an "Advance Facility Notice"), providing the Trustee with written payment instructions as to where to remit Advance Reimbursement Amounts and/or Servicing Advance Reimbursement Amounts (each to the extent such type of Reimbursement Amount is included within the Advance Facility) on subsequent Distribution Dates. The payment instruction shall require the applicable Reimbursement Amounts to be distributed to the Advancing Person or to an Advance Facility Trustee designated in the Advance Facility Notice. An Advance Facility Notice may only be terminated by the joint written direction of the Master Servicer and the related Advancing Person (and any related Advance Facility Trustee). (c) Reimbursement Amounts shall consist solely of amounts in respect of Advances and/or Servicing Advances made with respect to the Mortgage Loans for which the Master Servicer would be permitted to reimburse itself in accordance with Section 3.10(a)(ii) and (vii) hereof, assuming the Master Servicer or the Advancing Person had made the related Advance(s) and/or Servicing Advance(s). Notwithstanding the foregoing, except with respect to reimbursement of Nonrecoverable Advances as set forth in Section 3.10(c) of this Agreement, no Person shall be entitled to reimbursement from funds held in the Collection Account for future distribution to Certificateholders pursuant to this Agreement. Neither the Depositor nor the Trustee shall have any duty or liability with respect to the calculation of any Reimbursement Amount, nor shall the Depositor or the Trustee have any responsibility to track or monitor the administration of the Advance Facility and the Depositor shall not have any responsibility to track, monitor or verify the payment of Reimbursement Amounts to the related Advancing Person or Advance Facility Trustee. The Master Servicer shall maintain and provide to any successor master servicer a detailed accounting on a loan-by-loan basis as to amounts advanced by, sold, pledged or assigned to, and reimbursed to any Advancing Person. The successor master servicer shall be entitled to rely on any such information provided by the Master Servicer, and the successor master servicer shall not be liable for any errors in such information. (d) Upon the direction of and at the expense of the Master Servicer, the Trustee agrees to execute such acknowledgments, certificates, and other documents reasonably satisfactory to the Trustee provided by the Master Servicer and reasonably satisfactory to the Trustee recognizing the interests of any Advancing Person or Advance Facility Trustee in such Reimbursement Amounts as the Master Servicer may cause to be made subject to Advance Facilities pursuant to this Section 3.22, and such other documents in connection with such Advance Facility as may be reasonably requested from time to time by any Advancing Person or Advance Facility Trustee and reasonably satisfactory to the Trustee. (e) Reimbursement Amounts collected with respect to each Mortgage Loan shall be allocated to outstanding unreimbursed Advances or Servicing Advances (as the case may be) made with respect to that Mortgage Loan on a "first-in, first out" ("FIFO") basis, subject to the qualifications set forth below: (i) Any successor Master Servicer to Residential Funding (a "Successor Master Servicer") and the Advancing Person or Advance Facility Trustee shall be required to apply all amounts available in accordance with this Section 3.22(e) to the reimbursement of Advances and Servicing Advances in the manner provided for herein; provided, however, that after the succession of a Successor Master Servicer, (A) to the extent that any Advances or Servicing Advances with respect to any particular Mortgage Loan are reimbursed from payments or recoveries, if any, from the related Mortgagor, and Liquidation Proceeds or Insurance Proceeds, if any, with respect to that Mortgage Loan, reimbursement shall be made, first, to the Advancing Person or Advance Facility Trustee in respect of Advances and/or Servicing Advances related to that Mortgage Loan to the extent of the interest of the Advancing Person or Advance Facility Trustee in such Advances and/or Servicing Advances, second to the Master Servicer in respect of Advances and/or Servicing Advances related to that Mortgage Loan in excess of those in which the Advancing Person or Advance Facility Trustee Person has an interest, and third, to the Successor Master Servicer in respect of any other Advances and/or Servicing Advances related to that Mortgage Loan, from such sources as and when collected, and (B) reimbursements of Advances and Servicing Advances that are Nonrecoverable Advances shall be made pro rata to the Advancing Person or Advance Facility Trustee, on the one hand, and any such Successor Master Servicer, on the other hand, on the basis of the respective aggregate outstanding unreimbursed Advances and Servicing Advances that are Nonrecoverable Advances owed to the Advancing Person, Advance Facility Trustee or Master Servicer pursuant to this Agreement, on the one hand, and any such Successor Master Servicer, on the other hand, and without regard to the date on which any such Advances or Servicing Advances shall have been made. In the event that, as a result of the FIFO allocation made pursuant to this Section 3.22(e), some or all of a Reimbursement Amount paid to the Advancing Person or Advance Facility Trustee relates to Advances or Servicing Advances that were made by a Person other than Residential Funding or the Advancing Person or Advance Facility Trustee, then the Advancing Person or Advance Facility Trustee shall be required to remit any portion of such Reimbursement Amount to the Person entitled to such portion of such Reimbursement Amount. Without limiting the generality of the foregoing, Residential Funding shall remain entitled to be reimbursed by the Advancing Person or Advance Facility Trustee for all Advances and Servicing Advances funded by Residential Funding to the extent the related Reimbursement Amount(s) have not been assigned or pledged to an Advancing Person or Advance Facility Trustee. The documentation establishing any Advance Facility shall require Residential Funding to provide to the related Advancing Person or Advance Facility Trustee loan by loan information with respect to each Reimbursement Amount distributed to such Advancing Person or Advance Facility Trustee on each date of remittance thereof to such Advancing Person or Advance Facility Trustee, to enable the Advancing Person or Advance Facility Trustee to make the FIFO allocation of each Reimbursement Amount with respect to each Mortgage Loan. (ii) By way of illustration, and not by way of limiting the generality of the foregoing, if the Master Servicer resigns or is terminated at a time when the Master Servicer is a party to an Advance Facility, and is replaced by a Successor Master Servicer, and the Successor Master Servicer directly funds Advances or Servicing Advances with respect to a Mortgage Loan and does not assign or pledge the related Reimbursement Amounts to the related Advancing Person or Advance Facility Trustee, then all payments and recoveries received from the related Mortgagor or received in the form of Liquidation Proceeds with respect to such Mortgage Loan (including Insurance Proceeds collected in connection with a liquidation of such Mortgage Loan) will be allocated first to the Advancing Person or Advance Facility Trustee until the related Reimbursement Amounts attributable to such Mortgage Loan that are owed to the Master Servicer and the Advancing Person, which were made prior to any Advances or Servicing Advances made by the Successor Master Servicer, have been reimbursed in full, at which point the Successor Master Servicer shall be entitled to retain all related Reimbursement Amounts subsequently collected with respect to that Mortgage Loan pursuant to Section 3.10 of this Agreement. To the extent that the Advances or Servicing Advances are Nonrecoverable Advances to be reimbursed on an aggregate basis pursuant to Section 3.10 of this Agreement, the reimbursement paid in this manner will be made pro rata to the Advancing Person or Advance Facility Trustee, on the one hand, and the Successor Master Servicer, on the other hand, as described in clause (i)(B) above. (f) The Master Servicer shall remain entitled to be reimbursed for all Advances and Servicing Advances funded by the Master Servicer to the extent the related rights to be reimbursed therefor have not been sold, assigned or pledged to an Advancing Person. (g) Any amendment to this Section 3.22 or to any other provision of this Agreement that may be necessary or appropriate to effect the terms of an Advance Facility as described generally in this Section 3.22, including amendments to add provisions relating to a successor master servicer, may be entered into by the Trustee, the Depositor and the Master Servicer without the consent of any Certificateholder, with written confirmation from each Rating Agency that the amendment will not result in the reduction of the ratings on any Class of the Certificates below the lesser of the then current or original ratings on such Certificates and delivery of an Opinion of Counsel as required under Section 11.01(c), notwithstanding anything to the contrary in Section 11.01 of or elsewhere in this Agreement. (h) Any rights of set-off that the Trust Fund, the Trustee, the Depositor, any Successor Master Servicer or any other Person might otherwise have against the Master Servicer under this Agreement shall not attach to any rights to be reimbursed for Advances or Servicing Advances that have been sold, transferred, pledged, conveyed or assigned to any Advancing Person. (i) At any time when an Advancing Person shall have ceased funding Advances and/or Servicing Advances (as the case may be) and the Advancing Person or related Advance Facility Trustee shall have received Reimbursement Amounts sufficient in the aggregate to reimburse all Advances and/or Servicing Advances (as the case may be) the right to reimbursement for which were assigned to the Advancing Person, then upon the delivery of a written notice signed by the Advancing Person and the Master Servicer or its successor or assign) to the Trustee terminating the Advance Facility Notice (the "Notice of Facility Termination"), the Master Servicer or its Successor Master Servicer shall again be entitled to withdraw and retain the related Reimbursement Amounts from the Custodial Account pursuant to Section 3.10. (j) After delivery of any Advance Facility Notice, and until any such Advance Facility Notice has been terminated by a Notice of Facility Termination, this Section 3.22 may not be amended or otherwise modified without the prior written consent of the related Advancing Person. Section 3.23 Special Servicing. (a) Subject to the conditions described in Section 3.23(b) below, the Holder of the Class SB Certificates may (but is not obligated to) appoint a special servicer (each, a "Special Servicer") to service any Mortgage Loan which is delinquent in payment by 120 days or more as of the related Special Servicing Transfer Date; provided, however, that the aggregate Stated Principal Balance of Mortgage Loans transferred to a Special Servicer pursuant to this Section shall not equal or exceed 10% of the Cut-off Date Balance. The Holder of the Class SB Certificates shall give the Trustee and the Master Servicer not less than 40 days prior written notice of the date on which it anticipates the transfer of servicing with respect to any Mortgage Loan to a Special Servicer to occur (the "Special Servicing Transfer Date"), specifying (i) the Mortgage Loan(s) that it intends to transfer and (ii) the related Special Servicer. (b) Any Special Servicer appointed pursuant to Section 3.23(a) above shall (i) be rated in one of the two highest rating categories as a special servicer by at least two of Standard & Poor's, Moody's and Fitch Ratings, (ii) satisfy and be subject to all requirements and obligations of a Subservicer under this Agreement, including but not limited to, servicing in accordance with the Program Guide and this Agreement, (iii) be approved by the Master Servicer (which approval shall not be unreasonably withheld), (iv) be capable of full compliance with Regulation AB and (v) sign an acknowledgement agreeing to be bound by this Agreement. In addition, no Special Servicer may modify a Mortgage Loan without the prior written consent of the Master Servicer and such modification shall be in compliance with Section 3.07(a) hereof. (c) In connection with the transfer of the servicing of any Mortgage Loan to a Special Servicer, the Master Servicer or Subservicer of such Mortgage Loan (the "Transferring Servicer") shall, at such Special Servicer's expense, deliver to such Special Servicer all documents and records relating to such Mortgage Loan and an accounting of amounts collected or held by it and otherwise use its best efforts to effect the orderly and efficient transfer of the servicing of such Mortgage Loan to such Special Servicer. Such Special Servicer shall thereupon assume all of the rights and obligations of the Transferring Servicer hereunder arising from and after the Special Servicing Transfer Date, including the right to receive the related Subservicing Fee from payments of interest received on such Mortgage Loan (and shall have no rights or entitlement to compensation greater than that of the Transferring Servicer with respect to such Mortgage Loan) and the Transferring Servicer shall have no further rights or obligations hereunder with respect to such Mortgage Loan (except that the Master Servicer shall remain obligated to master service such Mortgage Loan pursuant to this Agreement). In connection with the transfer of the servicing of any Mortgage Loan to a Special Servicer, the Master Servicer shall amend the Mortgage Loan Schedule to reflect that such Mortgage Loans are subserviced by such Special Servicer. (d) On any Special Servicing Transfer Date, the related Special Servicer shall reimburse the Transferring Servicer for all unreimbursed Advances, Servicing Advances and Servicing Fees, as applicable, relating to the Mortgage Loans for which the servicing is being transferred. The related Special Servicer shall be entitled to be reimbursed pursuant to Section 3.10 or otherwise pursuant to this Agreement for all such Advances, Servicing Advances and Servicing Fees, as applicable, paid to the Transferring Servicer pursuant to this Section 3.23. In addition, in the event that the Transferring Servicer is a Subservicer, the Holder of the Class SB Certificates or the related Special Servicer shall pay any termination fees due to such Transferring Servicer pursuant to the applicable Subservicing Agreement. (e) Each Special Servicer agrees to indemnify and hold the Master Servicer and the Transferring Servicer harmless from and against any and all losses, claims, expenses, costs or liabilities (including attorneys fees and court costs) incurred by the Master Servicer or Transferring Servicer, as applicable, as a result of or in connection with the failure by such Special Servicer to perform the obligations or responsibilities imposed upon or undertaken by such Special Servicer under this Agreement from and after the related Special Servicing Transfer Date. The Master Servicer agrees to indemnify and hold each Special Servicer harmless from and against any and all losses, claims, expenses, costs or liabilities (including attorneys fees and court costs) incurred by such Special Servicer as a result of or in connection with the failure by the Master Servicer to perform the obligations or responsibilities imposed upon or undertaken by the Master Servicer under this Agreement. -------------------------------------------------------------------------------- ARTICLE IV PAYMENTS TO CERTIFICATEHOLDERS Section 4.01 Certificate Account. (a) The Master Servicer acting as agent of the Trustee shall establish and maintain a Certificate Account in which the Master Servicer shall cause to be deposited on behalf of the Trustee on or before 2:00 P.M. New York time on each Certificate Account Deposit Date by wire transfer of immediately available funds an amount equal to the sum of (i) any Advance for the immediately succeeding Distribution Date, (ii) any amount required to be deposited in the Certificate Account pursuant to Section 3.12(a), (iii) any amount required to be deposited in the Certificate Account pursuant to Section 3.16(e) or Section 4.07, (iv) any amount required to be paid pursuant to Section 9.01, and (v) other amounts constituting the Available Distribution Amount for the immediately succeeding Distribution Date. (b) On or prior to the Business Day immediately following each Determination Date, the Master Servicer shall determine any amounts owed by the Swap Counterparty under the Swap Agreement and inform the Supplemental Interest Trust Trustee in writing of the amount so calculated. (c) The Trustee shall, upon written request from the Master Servicer, invest or cause the institution maintaining the Certificate Account to invest the funds in the Certificate Account in Permitted Investments designated in the name of the Trustee for the benefit of the Certificateholders, which shall mature not later than the Business Day next preceding the Distribution Date next following the date of such investment (except that (i) if such Permitted Investment is an obligation of the institution that maintains such account or fund for which such institution serves as custodian, then such Permitted Investment may mature on such Distribution Date and (ii) any other investment may mature on such Distribution Date if the Trustee shall advance funds on such Distribution Date to the Certificate Account in the amount payable on such investment on such Distribution Date, pending receipt thereof to the extent necessary to make distributions on the Certificates) and shall not be sold or disposed of prior to maturity. All income and gain realized from any such investment shall be for the benefit of the Master Servicer and shall be subject to its withdrawal or order from time to time. The amount of any losses incurred in respect of any such investments shall be deposited in the Certificate Account by the Master Servicer out of its own funds immediately as realized. Section 4.02......Distributions. (a) On each Distribution Date, the Trustee (or the Paying Agent on behalf of the Trustee) shall allocate and distribute the Available Distribution Amount, if any, for such date to the interests issued in respect of REMIC I, REMIC II, REMIC III and REMIC IV as specified in this Section. (b) (1) On each Distribution Date, the REMIC I Distribution Amount shall be deemed to be distributed by REMIC I to REMIC II on account of the REMIC I Regular Interests represented thereby in the amounts and with the priorities set forth in the definition thereof. (2) On each Distribution Date, the REMIC II Distribution Amount shall be deemed to be distributed by REMIC II to REMIC III on account of the REMIC II Regular Interests represented thereby in the amounts and with the priorities set forth in the definition thereof. (3) On each Distribution Date, the REMIC III Distribution Amount shall be deemed to be distributed by REMIC III to REMIC IV on account of the REMIC III Regular Interests represented thereby in the amounts and with the priorities set forth in the definition thereof. (4) On each Distribution Date, the REMIC IV Distribution Amount shall be deemed to have been distributed by REMIC IV to the Certificateholders on account of the REMIC IV Regular Interests represented thereby in the amounts and with the priorities set forth in the definition thereof. (5) On each Distribution Date, the amount, if any, deemed received by the Class SB Certificates in respect of REMIC IV Regular Interest IO and under the SB-AB Swap Agreement shall be deemed to have been paid on behalf of the Class SB Certificates by the Supplemental Interest Trust Trustee pursuant to Section 4.10 in respect of the Net Swap Payment owed to the Swap Counterparty. On each Distribution Date, the amount, if any, received by the Supplemental Interest Trust Trustee from the Swap Counterparty in respect of the Swap Agreement shall be deemed to have been received by the Supplemental Interest Trust Trustee on behalf of the Class SB Certificate. On each Distribution Date, amounts paid to the Class A and Class M Certificates pursuant to Section 4.02(c)(vii) in respect of Basis Risk Shortfall shall be deemed to have been paid by the Class SB Certificateholders pursuant to the SB-AM Swap Agreement. (c) On each Distribution Date (x) the Master Servicer on behalf of the Trustee or (y) the Paying Agent appointed by the Trustee and the Supplemental Interest Trust Trustee, shall distribute to each Certificateholder of record on the next preceding Record Date (other than as provided in Section 9.01 respecting the final distribution) either in immediately available funds (by wire transfer or otherwise) to the account of such Certificateholder at a bank or other entity having appropriate facilities therefor, if such Certificateholder has so notified the Master Servicer or the Paying Agent, as the case may be, or, if such Certificateholder has not so notified the Master Servicer or the Paying Agent by the Record Date, by check mailed to such Certificateholder at the address of such Holder appearing in the Certificate Register such Certificateholder's share (which share with respect to each Class of Certificates, shall be based on the aggregate of the Percentage Interests represented by Certificates of the applicable Class held by such Holder of the following amounts), in the following order of priority, in each case to the extent of the Available Distribution Amount on deposit in the Certificate Account (except, with respect to clause (i) below, to the extent of and in the priority of the Class A Interest Distribution Priority) and the Supplemental Interest Trust Account pursuant to Section 4.10(c) (or, with respect to clause (xi)(B) below, to the extent of prepayment charges on deposit in the Certificate Account): (i) to the Class A Certificateholders, the Accrued Certificate Interest payable on the Class A Certificates with respect to such Distribution Date, which amounts shall be allocated pursuant to the Class A Interest Distribution Priority, plus any related amounts accrued pursuant to this clause (i) but remaining unpaid from any prior Distribution Date, being paid from and in reduction of the Available Distribution Amount for such Distribution Date; (ii) to the Class M Certificateholders, from the amount, if any, of the Available Distribution Amount remaining after the foregoing distributions, Accrued Certificate Interest payable on the Class M Certificates with respect to such Distribution Date, plus any related amounts accrued pursuant to this clause (ii) but remaining unpaid from any prior Distribution Date, sequentially, to the Class M-1S Certificateholders, Class M-2S Certificateholders, Class M-3S Certificateholders, Class M-4 Certificateholders, Class M-5 Certificateholders, Class M-6 Certificateholders, Class M-7 Certificateholders, Class M-8 Certificateholders and Class M-9 Certificateholders, in that order, being paid from and in reduction of the Available Distribution Amount for such Distribution Date; (iii) [reserved]; (iv) the Principal Distribution Amount shall be distributed as follows, to be applied to reduce the Certificate Principal Balance of the applicable Certificates in each case to the extent of the remaining Principal Distribution Amount: (A) first, concurrently, the Group I Principal Distribution Amount shall be distributed sequentially to the Class A-I-1 Certificateholders, Class A-I-2 Certificateholders, Class A-I-3 Certificateholders and Class A-I-4 Certificateholders, in that order, in each case until the Certificate Principal Balance thereof has been reduced to zero and the Group II Principal Distribution Amount, to the Class A-II Certificateholders, until the Certificate Principal Balance thereof has been reduced to zero; (B) second, after application of payments pursuant to clause (A), concurrently, the Group II Principal Distribution Amount, sequentially, to the Class A-I-1 Certificateholders, Class A-I-2 Certificateholders, Class A-I-3 Certificateholders and Class A-I-4 Certificateholders, in that order, in each case until the Certificate Principal Balance thereof has been reduced to zero and the Group I Principal Distribution Amount, to the Class A-II Certificateholders, until the Certificate Principal Balance thereof has been reduced to zero; (C) third, to the Class M-1S, Class M-2S and Class M-3S Certificateholders, in that order, the Sequential Class M Principal Distribution Amount, in each case until the Certificate Principal Balance thereof has been reduced to zero; (D) fourth, to the Class M-4 Certificateholders, the Class M-4 Principal Distribution Amount, until the Certificate Principal Balance of the Class M-4 Certificates has been reduced to zero; (E) fifth, to the Class M-5 Certificateholders, the Class M-5 Principal Distribution Amount, until the Certificate Principal Balance of the Class M-5 Certificates has been reduced to zero; (F) sixth, to the Class M-6 Certificateholders, the Class M-6 Principal Distribution Amount, until the Certificate Principal Balance of the Class M-6 Certificates has been reduced to zero; (G) seventh, to the Class M-7 Certificateholders, the Class M-7 Principal Distribution Amount, until the Certificate Principal Balance of the Class M-7 Certificates has been reduced to zero; (H) eighth, to the Class M-8 Certificateholders, the Class M-8 Principal Distribution Amount, until the Certificate Principal Balance of the Class M-8 Certificates has been reduced to zero; (I) ninth, to the Class M-9 Certificateholders, the Class M-9 Principal Distribution Amount, until the Certificate Principal Balance of the Class M-9 Certificates has been reduced to zero; and (v) to the Class A Certificateholders and Class M Certificateholders, the amount of any Prepayment Interest Shortfalls allocated thereto for such Distribution Date, on a pro rata basis based on Prepayment Interest Shortfalls allocated thereto to the extent not offset by Eligible Master Servicing Compensation on such Distribution Date; (vi) to the Class A Certificateholders and Class M Certificateholders, the amount of any Prepayment Interest Shortfalls previously allocated thereto remaining unpaid from prior Distribution Dates together with interest thereon at the related Pass-Through Rate, on a pro rata basis based on unpaid Prepayment Interest Shortfalls previously allocated thereto; (vii) (A) concurrently, (1) to the Class A-I Certificateholders, the amount of any unpaid Group I Basis Risk Shortfalls allocated thereto, on a pro rata basis based on the amount of unpaid Group I Basis Risk Shortfalls allocated thereto, and (2) to the Class A-II Certificateholders, the amount of any unpaid Group II Basis Risk Shortfalls allocated thereto, and (B) sequentially, to the Class M-1S Certificateholders, Class M-2S Certificateholders, Class M-3S Certificateholders, Class M-4 Certificateholders, Class M-5 Certificateholders, Class M-6 Certificateholders, Class M-7 Certificateholders, Class M-8 Certificateholders and Class M-9 Certificateholders, in that order, the related Class M Basis Risk Shortfall for such Class and that Distribution Date; (viii) to the Class A Certificateholders and Class M Certificateholders, Relief Act Shortfalls allocated thereto for such Distribution Date, on a pro rata basis based on Relief Act Shortfalls allocated thereto for such Distribution Date, (ix) first, to the Class A Certificateholders, the principal portion of any Realized Losses previously allocated to those Certificates and remaining unreimbursed, on a pro rata basis based on their respective principal portion of any Realized Losses previously allocated to those Certificates and remaining unreimbursed, and then, sequentially, to the Class M-1S, Class M-2S, Class M-3S, Class M-4, Class M-5, Class M-6, Class M-7, Class M-8 and Class M-9 Certificateholders, in that order, the principal portion of any Realized Losses previously allocated to such Class and remaining unreimbursed; (x) to the Supplemental Interest Trust Account for payment to the Swap Counterparty, any Swap Termination Payments due to a Swap Counterparty Trigger Event; (xi) to the Class SB Certificates, (A) from the amount, if any, of the Excess Cash Flow remaining after the foregoing distributions, the sum of (I) Accrued Certificate Interest thereon, (II) the amount of any Overcollateralization Reduction Amount for such Distribution Date and (III) for any Distribution Date after the Certificate Principal Balance of each Class of Class A Certificates and Class M Certificates has been reduced to zero, the Overcollateralization Amount, (B) from prepayment charges on deposit in the Certificate Account, any prepayment charges received on the Mortgage Loans during the related Prepayment Period and (C) from Net Swap Payments received by the Supplemental Interest Trust Trustee, if any, the amount of such Net Swap Payments remaining after the foregoing distributions; and (xii) to the Class R Certificateholders, the balance, if any, of the Excess Cash Flow. (d) Notwithstanding the foregoing clause (c), upon the reduction of the Certificate Principal Balance of a Class of Class A Certificates or Class M Certificates to zero, such Class of Certificates will not be entitled to further distributions pursuant to Section 4.02. (e) Each distribution with respect to a Book-Entry Certificate shall be paid to the Depository, as Holder thereof, and the Depository shall be responsible for crediting the amount of such distribution to the accounts of its Depository Participants in accordance with its normal procedures. Each Depository Participant shall be responsible for disbursing such distribution to the Certificate Owners that it represents and to each indirect participating brokerage firm (a "brokerage firm" or "indirect participating firm") for which it acts as agent. Each brokerage firm shall be responsible for disbursing funds to the Certificate Owners that it represents. None of the Trustee, the Certificate Registrar, the Depositor or the Master Servicer shall have any responsibility therefor except as otherwise provided by this Agreement or applicable law. (f) Except as otherwise provided in Section 9.01, if the Master Servicer anticipates that a final distribution with respect to any Class of Certificates will be made on a future Distribution Date, the Master Servicer shall, no later than 40 days prior to such Distribution Date, notify the Trustee and the Trustee shall, not earlier than the 15th day and not later than the 25th day of the month next preceding such Distribution Date, distribute, or cause to be distributed, on such date to each Holder of such Class of Certificates a notice to the effect that: (i) the Trustee anticipates that the final distribution with respect to such Class of Certificates will be made on such Distribution Date but only upon presentation and surrender of such Certificates at the office of the Trustee or as otherwise specified therein, and (ii) no interest shall accrue on such Certificates from and after the end of the prior calendar month. In the event that Certificateholders required to surrender their Certificates pursuant to Section 9.01(c) do not surrender their Certificates for final cancellation, the Trustee shall cause funds distributable with respect to such Certificates to be withdrawn from the Certificate Account and credited to a separate escrow account for the benefit of such Certificateholders as provided in Section 9.01(d). Section 4.03......Statements to Certificateholders; Statements to Rating Agencies; Exchange Act Reporting. (a) Concurrently with each distribution charged to the Certificate Account and with respect to each Distribution Date the Master Servicer shall forward to the Trustee and the Trustee shall forward by mail or otherwise make available electronically on its website (which may be obtained by any Certificateholder by telephoning the Trustee at (800) 934-6802) to each Holder and the Depositor a statement setting forth the following information as to each Class of Certificates, in each case to the extent applicable: (i) the applicable Record Date, Determination Date and Distribution Date, and the date on which the applicable Interest Accrual Period commenced; (ii) the aggregate amount of payments received with respect to the Mortgage Loans, including prepayment amounts; (iii) the Servicing Fee and Subservicing Fee payable to the Master Servicer and the Subservicer; (iv) the amount of any other fees or expenses paid, and the identity of the party receiving such fees or expenses; (v) (A) the amount of such distribution to the Certificateholders of such Class applied to reduce the Certificate Principal Balance thereof, and (B) the aggregate amount included therein representing Principal Prepayments; (vi) the amount of such distribution to Holders of such Class of Certificates allocable to interest (including amounts payable as a portion of the Excess Cash Flow); (vii) if the distribution to the Holders of such Class of Certificates is less than the full amount that would be distributable to such Holders if there were sufficient funds available therefor, the amount of the shortfall; (viii) the amount of any Advance by the Master Servicer with respect to the Group I Loans and Group II Loans pursuant to Section 4.04; (ix) the number and Stated Principal Balance of the Group I Loans, the Group II Loans and the Mortgage Loans in the aggregate after giving effect to the distribution of principal on such Distribution Date; (x) the Certificate Principal Balance of each Class of the Certificates, before and after giving effect to the amounts distributed on such Distribution Date; (xi) the Certificate Principal Balance of each Class of Class A Certificates as of the Closing Date; (xii) the Certificate Principal Balance of each Class of Class M Certificates as of the Closing Date; (xiii) the number and Stated Principal Balance of the Mortgage Loans after giving effect to the distribution of principal on such Distribution Date and the number of Mortgage Loans at the beginning and end of the related Due Period; (xiv) on the basis of the most recent reports furnished to it by Subservicers, (A) the number and Stated Principal Balances of Group I Loans and Group II Loans that are Delinquent (1) 30-59 days, (2) 60-89 days and (3) 90 or more days and the number and Stated Principal Balances of Group I Loans and Group II Loans that are in foreclosure, (B) the number and aggregate principal balances of the Group I Loans, Group II Loans and the Mortgage Loans in the aggregate that are Reportable Modified Mortgage Loans that are in foreclosure and are REO Property, indicating in each case capitalized Mortgage Loans, other Servicing Modifications and totals, and (C) for all Reportable Modified Mortgage Loans, the number and aggregate principal balances of the Group I Loans, Group II Loans and the Mortgage Loans in the aggregate that have been liquidated, the subject of pay-offs and that have been repurchased by the Master Servicer or Seller; (xv) the amount, terms and general purpose of any Advance by the Master Servicer pursuant to Section 4.04 and the amount of all Advances that have been reimbursed during the related Due Period; (xvi) any material modifications, extensions or waivers to the terms of the Mortgage Loans during the Due Period or that have cumulatively become material over time; (xvii) any material breaches of Mortgage Loan representations or warranties or covenants in the Agreement; (xviii) the number, aggregate principal balance and Stated Principal Balance of any REO Properties with respect to the Group I Loans and Group II Loans; (xix) the aggregate Accrued Certificate Interest remaining unpaid, if any, for each Class of Certificates, after giving effect to the distribution made on such Distribution Date; (xx) the aggregate amount of Realized Losses with respect to the Group I Loans and Group II Loans for such Distribution Date and the aggregate amount of Realized Losses with respect to the Group I Loans and Group II Loans incurred since the Cut-off Date; (xxi) the Pass-Through Rate on each Class of Certificates, the Group I Net WAC Cap Rate and the Group II Net WAC Cap Rate; (xxii) the Group I Basis Risk Shortfalls, Group II Basis Risk Shortfalls, Class M Basis Risk Shortfalls and Prepayment Interest Shortfalls; (xxiii) the Overcollateralization Amount and the Required Overcollateralization Amount following such Distribution Date; (xxiv) the number and aggregate principal balance of the Group I Loans and Group II Loans repurchased under Section 4.07; (xxv) the aggregate amount of any recoveries with respect to the Group I Loans and Group II Loans on previously foreclosed loans from Residential Funding; (xxvi) the weighted average remaining term to maturity of the Group I Loans and Group II Loans after giving effect to the amounts distributed on such Distribution Date; (xxvii) the weighted average Mortgage Rates of the Group I Loans and Group II Loans after giving effect to the amounts distributed on such Distribution Date; (xxviii) the amount of any Net Swap Payment payable to the Supplemental Interest Trust Trustee on behalf of the Supplemental Interest Trust, any Net Swap Payment payable to the Swap Counterparty, any Swap Termination Payment payable to the Trustee on behalf of the Supplemental Interest Trust and any Swap Termination Payment payable to the Swap Counterparty; and (xxix) the occurrence of the Stepdown Date. In the case of information furnished pursuant to clauses (i) and (ii) above, the amounts shall be expressed as a dollar amount per Certificate with a $1,000 denomination. In addition to the statement provided to the Trustee as set forth in this Section 4.03(a), the Master Servicer shall provide to any manager of a trust fund consisting of some or all of the Certificates, upon reasonable request, such additional information as is reasonably obtainable by the Master Servicer at no additional expense to the Master Servicer. Also, at the request of a Rating Agency, the Master Servicer shall provide the information relating to the Reportable Modified Mortgage Loans substantially in the form attached hereto as Exhibit U to such Rating Agency within a reasonable period of time; provided, however, that the Master Servicer shall not be required to provide such information more than four times in a calendar year to any Rating Agency. (b) Within a reasonable period of time after the Master Servicer receives a written request from a Holder of a Certificate, other than a Class R Certificate, the Master Servicer shall prepare, or cause to be prepared, and shall forward, or cause to be forwarded, to each Person who at any time during the calendar year was the Holder of a Certificate, other than a Class R Certificate, a statement containing the information set forth in clauses (iv) and (v) of subsection (a) above aggregated for such calendar year or applicable portion thereof during which such Person was a Certificateholder. Such obligation of the Master Servicer shall be deemed to have been satisfied to the extent that substantially comparable information shall be provided by the Master Servicer pursuant to any requirements of the Code. (c) Within a reasonable period of time after the Master Servicer receives a written request from any Holder of a Class R Certificate, the Master Servicer shall prepare, or cause to be prepared, and shall forward, or cause to be forwarded, to each Person who at any time during the calendar year was the Holder of a Class R Certificate, a statement containing the applicable distribution information provided pursuant to this Section 4.03 aggregated for such calendar year or applicable portion thereof during which such Person was the Holder of a Class R Certificate. Such obligation of the Master Servicer shall be deemed to have been satisfied to the extent that substantially comparable information shall be provided by the Master Servicer pursuant to any requirements of the Code. (d) Upon the written request of any Certificateholder, the Master Servicer, as soon as reasonably practicable, shall provide the requesting Certificateholder with such information as is necessary and appropriate, in the Master Servicer's sole discretion, for purposes of satisfying applicable reporting requirements under Rule 144A. (e) The Master Servicer shall, on behalf of the Depositor and in respect of the Trust Fund, sign and cause to be filed with the Commission any periodic reports required to be filed under the provisions of the Exchange Act, and the rules and regulations of the Commission thereunder, including without limitation, reports on Form 10-K, Form 10-D and Form 8-K. In connection with the preparation and filing of such periodic reports, the Trustee shall timely provide to the Master Servicer (I) a list of Certificateholders as shown on the Certificate Register as of the end of each calendar year, (II) copies of all pleadings, other legal process and any other documents relating to any claims, charges or complaints involving the Trustee, as trustee hereunder, or the Trust Fund that are received by a Responsible Officer of the Trustee, (III) notice of all matters that, to the actual knowledge of a Responsible Officer of the Trustee, have been submitted to a vote of the Certificateholders, other than those matters that have been submitted to a vote of the Certificateholders at the request of the Depositor or the Master Servicer, and (IV) notice of any failure of the Trustee to make any distribution to the Certificateholders as required pursuant to this Agreement. Neither the Master Servicer nor the Trustee shall have any liability with respect to the Master Servicer's failure to properly prepare or file such periodic reports resulting from or relating to the Master Servicer's inability or failure to obtain any information not resulting from the Master Servicer's own negligence or willful misconduct. (f) Any Form 10-K filed with the Commission in connection with this Section 4.03 shall include, with respect to the Certificates relating to such 10-K: (i) A certification, signed by the senior officer in charge of the servicing functions of the Master Servicer, in the form attached as Exhibit T-1 hereto or such other form as may be required or permitted by the Commission (the "Form 10-K Certification"), in compliance with Rules 13a-14 and 15d-14 under the Exchange Act and any additional directives of the Commission. (ii) A report regarding its assessment of compliance during the preceding calendar year with all applicable servicing criteria set forth in relevant Commission regulations with respect to mortgage-backed securities transactions taken as a whole involving the Master Servicer that are backed by the same types of assets as those backing the certificates, as well as similar reports on assessment of compliance received from other parties participating in the servicing function as required by relevant Commission regulations, as described in Item 1122(a) of Regulation AB. The Master Servicer shall obtain from all other parties participating in the servicing function any required assessments. (iii) With respect to each assessment report described immediately above, a report by a registered public accounting firm that attests to, and reports on, the assessment made by the asserting party, as set forth in relevant Commission regulations, as described in Regulation 1122(b) of Regulation AB and Section 3.19. (iv) The servicer compliance certificate required to be delivered pursuant Section 3.18. (g) In connection with the Form 10-K Certification, the Trustee shall provide the Master Servicer with a back-up certification substantially in the form attached hereto as Exhibit T-2. (h) This Section 4.03 may be amended in accordance with this Agreement without the consent of the Certificateholders. (i) The Trustee shall make available on the Trustee's internet website each of the reports filed with the Commission by or on behalf of the Depositor under the Exchange Act, as soon as reasonably practicable upon delivery of such report to the Trustee. Section 4.04 Distribution of Reports to the Trustee and the Depositor; Advances by the Master Servicer. (a) Prior to the close of business on the Business Day next succeeding each Determination Date, the Master Servicer shall furnish a written statement (which may be in a mutually agreeable electronic format) to the Trustee, any Paying Agent and the Depositor (the information in such statement to be made available to Certificateholders by the Master Servicer on request) (provided that the Master Servicer shall use its best efforts to deliver such written statement not later than 12:00 p.m. New York time on the second Business Day prior to the Distribution Date) setting forth (i) the Available Distribution Amount, (ii) the amounts required to be withdrawn from the Custodial Account and deposited into the Certificate Account on the immediately succeeding Certificate Account Deposit Date pursuant to clause (iii) of Section 4.01(a), (iii) the amount of Prepayment Interest Shortfalls and Basis Risk Shortfalls and (iv) the Swap Payments, if any, for such Distribution Date. The determination by the Master Servicer of such amounts shall, in the absence of obvious error, be presumptively deemed to be correct for all purposes hereunder and the Trustee shall be protected in relying upon the same without any independent check or verification. (b) On or before 2:00 P.M. New York time on each Certificate Account Deposit Date, the Master Servicer shall either (i) remit to the Trustee for deposit in the Certificate Account from its own funds, or funds received therefor from the Subservicers, an amount equal to the Advances to be made by the Master Servicer in respect of the related Distribution Date, which shall be in an aggregate amount equal to the sum of (A) the aggregate amount of Monthly Payments other than Balloon Payments (with each interest portion thereof adjusted to a per annum rate equal to the Net Mortgage Rate), less the amount of any related Servicing Modifications, Debt Service Reductions or Relief Act Shortfalls, on the Outstanding Mortgage Loans as of the related Due Date in the related Due Period, which Monthly Payments were due during the related Due Period and not received as of the close of business as of the related Determination Date; provided that no Advance shall be made if it would be a Nonrecoverable Advance and (B) with respect to each Balloon Loan delinquent in respect of its Balloon Payment as of the close of business on the related Determination Date, an amount equal to the assumed Monthly Payment (with each interest portion thereof adjusted to a per annum rate equal to the Net Mortgage Rate) that would have been due on the related Due Date based on the original amortization schedule for such Balloon Loan until such Balloon Loan is finally liquidated, over any payments of interest or principal (with each interest portion thereof adjusted to a per annum rate equal to the Net Mortgage Rate) received from the related Mortgagor as of the close of business on the related Determination Date and allocable to the Due Date during the related Due Period for each month until such Balloon Loan is finally liquidated, (ii) withdraw from amounts on deposit in the Custodial Account and remit to the Trustee for deposit in the Certificate Account all or a portion of the Amount Held for Future Distribution in discharge of any such Advance, or (iii) make advances in the form of any combination of clauses (i) and (ii) aggregating the amount of such Advance. Any portion of the Amount Held for Future Distribution so used shall be replaced by the Master Servicer by deposit in the Certificate Account on or before 11:00 A.M. New York time on any future Certificate Account Deposit Date to the extent that funds attributable to the Mortgage Loans that are available in the Custodial Account for deposit in the Certificate Account on such Certificate Account Deposit Date shall be less than payments to Certificateholders required to be made on the following Distribution Date. The Master Servicer shall be entitled to use any Advance made by a Subservicer as described in Section 3.07(b) that has been deposited in the Custodial Account on or before such Distribution Date as part of the Advance made by the Master Servicer pursuant to this Section 4.04. The determination by the Master Servicer that it has made a Nonrecoverable Advance or that any proposed Advance, if made, would constitute a Nonrecoverable Advance, shall be evidenced by a certificate of a Servicing Officer delivered to the Depositor and the Trustee. In the event that the Master Servicer determines as of the Business Day preceding any Certificate Account Deposit Date that it will be unable to deposit in the Certificate Account an amount equal to the Advance required to be made for the immediately succeeding Distribution Date, it shall give notice to the Trustee of its inability to advance (such notice may be given by telecopy), not later than 3:00 P.M., New York time, on such Business Day, specifying the portion of such amount that it will be unable to deposit. Not later than 3:00 P.M., New York time, on the Certificate Account Deposit Date the Trustee shall, unless by 12:00 Noon, New York time, on such day the Trustee shall have been notified in writing (by telecopy) that the Master Servicer shall have directly or indirectly deposited in the Certificate Account such portion of the amount of the Advance as to which the Master Servicer shall have given notice pursuant to the preceding sentence, pursuant to Section 7.01, (a) terminate all of the rights and obligations of the Master Servicer under this Agreement in accordance with Section 7.01 and (b) assume the rights and obligations of the Master Servicer hereunder, including the obligation to deposit in the Certificate Account an amount equal to the Advance for the immediately succeeding Distribution Date. The Trustee shall deposit all funds it receives pursuant to this Section 4.04(b) into the Certificate Account. Section 4.05 Allocation of Realized Losses. (a) Prior to each Distribution Date, the Master Servicer shall determine the total amount of Realized Losses, if any, that resulted from any Cash Liquidation, Servicing Modifications, Debt Service Reduction, Deficient Valuation or REO Disposition that occurred during the related Prepayment Period or, in the case of a Servicing Modification that constitutes a reduction of the interest rate on a Mortgage Loan, the amount of the reduction in the interest portion of the Monthly Payment due in the month in which such Distribution Date occurs. The amount of each Realized Loss shall be evidenced by an Officers' Certificate. (b) All Realized Losses on the Mortgage Loans shall be allocated as follows: (i) first, to Excess Cash Flow in the amounts and priority as provided in Section 4.02; (ii) second, in reduction of the Overcollateralization Amount, until such amount has been reduced to zero; (iii) third, to the Class M-9 Certificates, until the aggregate Certificate Principal Balance thereof has been reduced to zero; (iv) fourth, to the Class M-8 Certificates, until the aggregate Certificate Principal Balance thereof has been reduced to zero; (v) fifth, to the Class M-7 Certificates, until the aggregate Certificate Principal Balance thereof has been reduced to zero; (vi) sixth, to the Class M-6 Certificates, until the aggregate Certificate Principal Balance thereof has been reduced to zero; (vii) seventh, to the Class M-5 Certificates, until the aggregate Certificate Principal Balance thereof has been reduced to zero; (viii) eighth, to the Class M-4 Certificates, until the aggregate Certificate Principal Balance thereof has been reduced to zero; (ix) ninth, to the Class M-3S Certificates, until the aggregate Certificate Principal Balance thereof has been reduced to zero; (x) tenth, to the Class M-2S Certificates, until the aggregate Certificate Principal Balance thereof has been reduced to zero; (xi) eleventh, to the Class M-1S Certificates, until the aggregate Certificate Principal Balance thereof has been reduced to zero; and (xii) twelfth, for losses on the Group I Loans to the Class A-I-1, Class A-I-2, Class A-I-3 and Class A-I-4 Certificates on a pro rata basis, based on their then outstanding Certificate Principal Balances prior to giving effect to distributions to be made on such Distribution Date, until the aggregate Certificate Principal Balance of each such Class has been reduced to zero and for losses on the Group II Loans, to the Class A-II Certificates, until the Certificate Principal Balance thereof has been reduced to zero. (c) An allocation of a Realized Loss on a "pro rata basis" among two or more specified Classes of Certificates means an allocation on a pro rata basis, among the various Classes so specified, to each such Class of Certificates on the basis of their then outstanding Certificate Principal Balances prior to giving effect to distributions to be made on such Distribution Date in the case of the principal portion of a Realized Loss or based on the Accrued Certificate Interest thereon payable on such Distribution Date in the case of an interest portion of a Realized Loss. Any allocation of the principal portion of Realized Losses (other than Debt Service Reductions) to the Class A Certificates or Class M Certificates shall be made by reducing the Certificate Principal Balance thereof by the amount so allocated, which allocation shall be deemed to have occurred on such Distribution Date; provided, that no such reduction shall reduce the aggregate Certificate Principal Balance of the Certificates below the aggregate Stated Principal Balance of the Mortgage Loans. Allocations of the interest portions of Realized Losses (other than any interest rate reduction resulting from a Servicing Modification) shall be made by operation of the definition of "Accrued Certificate Interest" for each Class for such Distribution Date. Allocations of the interest portion of a Realized Loss resulting from an interest rate reduction in connection with a Servicing Modification shall be made by operation of the priority of payment provisions of Section 4.02(c). Allocations of the principal portion of Debt Service Reductions shall be made by operation of the priority of payment provisions of Section 4.02(c). All Realized Losses and all other losses allocated to a Class of Certificates hereunder will be allocated among the Certificates of such Class in proportion to the Percentage Interests evidenced thereby. (d) All Realized Losses on the Mortgage Loans shall be allocated on each Distribution Date to the REMIC I Regular Interests, the REMIC II Regular Interests and the REMIC III Regular Interests as provided in the definition of REMIC I Realized Losses, REMIC II Realized Losses and REMIC III Realized Losses, respectively. (e) Realized Losses allocated to the Excess Cash Flow or the Overcollateralization Amount pursuant to paragraphs (a), (b) or (c) of this Section, the definition of Accrued Certificate Interest and the operation of Section 4.02(c) shall be deemed allocated to the Class SB Certificates. Realized Losses allocated to the Class SB Certificates shall, to the extent such Realized Losses represent Realized Losses on an interest portion, be allocated to REMIC IV Regular Interest SB-IO. Realized Losses allocated to the Excess Cash Flow pursuant to paragraph (b) of this Section shall be deemed to reduce Accrued Certificate Interest on REMIC IV Regular Interest SB-IO. Realized Losses allocated to the Overcollateralization Amount pursuant to paragraph (b) of this Section shall be deemed first to reduce the principal balance of REMIC IV Regular Interest SB-PO until such principal balance shall have been reduced to zero and thereafter to reduce accrued and unpaid interest on REMIC IV Regular Interest SB-IO. Section 4.06 Reports of Foreclosures and Abandonment of Mortgaged Property. The Master Servicer or the Subservicers shall file information returns with respect to the receipt of mortgage interest received in a trade or business, the reports of foreclosures and abandonments of any Mortgaged Property and the informational returns relating to cancellation of indebtedness income with respect to any Mortgaged Property required by Sections 6050H, 6050J and 6050P of the Code, respectively, and deliver to the Trustee an Officers' Certificate on or before March 31 of each year, beginning with the first March 31 that occurs at least six months after the Cut-off Date, stating that such reports have been filed. Such reports shall be in form and substance sufficient to meet the reporting requirements imposed by such Sections 6050H, 6050J and 6050P of the Code. Section 4.07 Optional Purchase of Defaulted Mortgage Loans. (a) With respect to any Mortgage Loan which is delinquent in payment by 90 days or more, (i) the Holder of the Class SB Certificate may, at its option, upon twenty days prior written notice to the Master Servicer, purchase such Mortgage Loan from the Trustee at the Purchase Price therefore, except that in no event shall the Holder of the Class SB Certificate purchase such Mortgage Loan where the aggregate value of all such Mortgage Loans purchased by the Holder of the Class SB Certificate would be greater than three percent (3%) of the Certificate Principal Balance of any Certificate and (ii) if the Holder of the Class SB Certificate fails to provide notice pursuant to the immediately preceding sentence, the Master Servicer may, at its option, purchase such Mortgage Loan from the Trustee at the Purchase Price therefor; provided, that with respect to the Master Servicer, such Mortgage Loan that becomes 90 days or more delinquent during any given Calendar Quarter shall only be eligible for purchase pursuant to this Section during the period beginning on the first Business Day of the following Calendar Quarter, and ending at the close of business on the second-to-last Business Day of such following Calendar Quarter; and provided, further, that such Mortgage Loan is 90 days or more delinquent at the time of repurchase. Such option if not exercised shall not thereafter be reinstated as to any Mortgage Loan, unless the delinquency is cured and the Mortgage Loan thereafter again becomes delinquent in payment by 90 days or more in a subsequent Calendar Quarter. (b) If at any time the Master Servicer makes a payment to the Certificate Account covering the amount of the Purchase Price for such a Mortgage Loan as provided in clause (a) above, and the Master Servicer provides to the Trustee a certification signed by a Servicing Officer stating that the amount of such payment has been deposited in the Certificate Account, then the Trustee shall execute the assignment of such Mortgage Loan at the request of the Master Servicer without recourse to the Master Servicer which shall succeed to all the Trustee's right, title and interest in and to such Mortgage Loan, and all security and documents relative thereto. Such assignment shall be an assignment outright and not for security. The Master Servicer will thereupon own such Mortgage, and all such security and documents, free of any further obligation to the Trustee or the Certificateholders with respect thereto. Section 4.08 [Reserved]. Section 4.09 [Reserved]. Section 4.10 Swap Agreement. (a) On the Closing Date, the Supplemental Interest Trust Trustee shall (i) establish and maintain in its name, in trust for the benefit of the Certificateholders, the Supplemental Interest Trust Account and (ii) for the benefit of the Certificateholders, cause the Supplemental Interest Trust to enter into the Swap Agreement. (b) The Supplemental Interest Trust Trustee shall deposit in the Supplemental Interest Trust Account all payments that are payable to the Supplemental Interest Trust under the Swap Agreement. Net Swap Payments and Swap Termination Payments (other than Swap Termination Payments resulting from a Swap Counterparty Trigger Event) payable by the Supplemental Interest Trust to the Swap Counterparty pursuant to the Swap Agreement shall be excluded from the Available Distribution Amount and paid to the Swap Counterparty prior to any distributions to the Certificateholders. On each Distribution Date, such amounts will be remitted by the Supplemental Interest Trust Trustee to the Supplemental Interest Trust Account for payment to the Swap Counterparty, and such amounts (plus any amounts deposited into the Supplemental Interest Trust Account pursuant to Section 4.02(c)(x)) shall be paid to the Swap Counterparty in the following order of priority: first to make any Net Swap Payment owed to the Swap Counterparty pursuant to the Swap Agreement for such Distribution Date; and second to make any Swap Termination Payment (not due to a Swap Counterparty Trigger Event) owed to the Swap Counterparty pursuant to the Swap Agreement for such Distribution Date. For federal income tax purposes, such amounts paid to the Supplemental Interest Trust Account on each Distribution Date shall first be deemed paid to the Supplemental Interest Trust Account in respect of REMIC IV Regular Interest IO to the extent of the amount distributable on such REMIC IV Regular Interest IO on such Distribution Date, and any remaining amount shall be deemed paid to the Supplemental Interest Trust Account in respect of the SB-AM Swap Agreement. Any Swap Termination Payment triggered by a Swap Counterparty Trigger Event owed to the Swap Counterparty pursuant to the Swap Agreement will be subordinated to distributions to the Holders of the Class A Certificates and Class M Certificates and shall be paid as set forth under Section 4.02. (c) Net Swap Payments payable by the Swap Counterparty to the Supplemental Interest Trust Trustee on behalf of the Supplemental Interest Trust pursuant to the Swap Agreement shall be deposited by the Supplemental Interest Trust Trustee into the Supplemental Interest Trust Account and shall be applied in accordance with Section 4.02. (d) Subject to Sections 8.01 and 8.02 hereof, the Supplemental Interest Trust Trustee agrees to comply with the terms of the Swap Agreement and to enforce the terms and provisions thereof against the Swap Counterparty at the written direction of the Holders of Certificates entitled to at least 51% of the Voting Rights, or if the Supplemental Interest Trust Trustee does not receive such direction from such Certificateholders, then at the written direction of Residential Funding. (e) The Supplemental Interest Trust Account shall be an Eligible Account. Amounts held in the Supplemental Interest Trust Account from time to time shall continue to constitute assets of the Supplemental Interest Trust, but not of the REMICs, until released from the Supplemental Interest Trust Account pursuant to this Section 4.10. The Supplemental Interest Trust Account constitutes an "outside reserve fund" within the meaning of Treasury Regulation Section 1.860G-2(h) and is not an asset of the REMICs. The Class SB Certificateholders shall be the owners of the Supplemental Interest Trust Account. The Supplemental Interest Trust Trustee shall keep records that accurately reflect the funds on deposit in the Supplemental Interest Trust Account. The Supplemental Interest Trust Trustee shall, at the written direction of the Master Servicer, invest amounts on deposit in the Supplemental Interest Trust Account in Permitted Investments. In the absence of written direction to the Supplemental Interest Trust Trustee from the Master Servicer, all funds in the Supplemental Interest Trust Account shall remain uninvested. (f) The Supplemental Interest Trust Trustee shall, on behalf of the holders of each Class of Certificates (other than the Class SB Certificates and Class R Certificates) enter into the SB-AM Swap Agreement, with itself, on behalf of the holders of the Class SB Certificates. Pursuant to the SB-AM Swap Agreement, all holders of Certificates (other than the Class SB Certificates and Class R Certificates) shall be treated as having agreed to pay, on each Distribution Date, to the holder of the Class SB Certificates an aggregate amount equal to the excess, if any, of (i) the amount payable on such Distribution Date on the REMIC IV Regular Interest corresponding to such Class of Certificates over (ii) the amount payable on such Class of Certificates on such Distribution Date (such excess, a "Class IO Distribution Amount"). In addition, pursuant to the SB-AM Swap Agreement, the holder of the Class SB Certificates shall be treated as having agreed to pay the related Basis Risk Shortfalls to the holders of the Certificates (other than the Class SB Certificates and Class R Certificates) in accordance with the terms of this Agreement. Any payments to the Certificates from amounts deemed received in respect of the SB-AM Swap Agreement shall not be payments with respect to a "regular interest" in a REMIC within the meaning of Code Section 860G(a)(1). However, any payment from the Certificates (other than the Class SB Certificates and Class R Certificates) of a Class IO Distribution Amount shall be treated for tax purposes as having been received by the holders of such Certificates in respect of the REMIC IV Regular Interest corresponding to such Class of Certificates and as having been paid by such holders to the Supplemental Interest Trust Account pursuant to the SB-AM Swap Agreement. Thus, each Certificate (other than the Class R Certificates) shall be treated as representing not only ownership of regular interests in REMIC IV, but also ownership of an interest in, and obligations with respect to, a notional principal contract. (g) Upon the occurrence of an Early Termination Date, the Supplemental Interest Trust Trustee shall use reasonable efforts to appoint a successor swap counterparty. To the extent that the Supplemental Interest Trust Trustee receives a Swap Termination Payment from the Swap Counterparty, the Supplemental Interest Trust Trustee shall apply such Swap Termination Payment to appoint a successor swap counterparty. In the event that the Supplemental Interest Trust receives a Swap Termination Payment from the Swap Counterparty and a replacement swap agreement or similar agreement cannot be obtained within 30 days after receipt by the Supplemental Interest Trust Trustee of such Swap Termination Payment, then the Supplemental Interest Trust Trustee shall deposit such Swap Termination Payment into a separate, non interest bearing account and will, on each subsequent Distribution Date, withdraw from the amount then remaining on deposit in such reserve account an amount equal to the Net Swap Payment, if any, that would have been paid to the Supplemental Interest Trust by the original Swap Counterparty calculated in accordance with the terms of the original Swap Agreement, and deposit such amount into the Supplemental Interest Trust Account for distribution on such Distribution Date pursuant to Section 4.02(c). To the extent that the Supplemental Interest Trust is required to pay a Swap Termination Payment to the Swap Counterparty, any upfront payment received from the counterparty to a replacement swap agreement will be used to pay such Swap Termination Payment prior to using any portion of the Available Distribution Amount for such Distribution Date. (h) The Supplemental Interest Trust Trustee is hereby directed by the Depositor, on or before the Closing Date, to sign the Swap Agreement and the SB-AM Swap Agreement on behalf of the Supplemental Interest Trust for the benefit of the Certificateholders, in the form presented to it by the Depositor. The Supplemental Interest Trust Trustee shall have no responsibility for the contents, adequacy or sufficiency of the Swap Agreement or the SB-AM Swap Agreement, including, without limitation, any representations and warranties contained herein. -------------------------------------------------------------------------------- ARTICLE V THE CERTIFICATES Section 5.01 The Certificates. (a) The Class A Certificates, Class M Certificates, Class SB Certificates and Class R Certificates shall be substantially in the forms set forth in Exhibits A, B, C and D, respectively, and shall, on original issue, be executed and delivered by the Trustee to the Certificate Registrar for authentication and delivery to or upon the order of the Depositor upon receipt by the Trustee or the Custodian of the documents specified in Section 2.01. Each class of Class A Certificates and the Class M Certificates shall be issuable in minimum dollar denominations of $100,000 and integral multiples of $1 in excess thereof. The Class SB Certificates shall be issuable in registered, certificated form in minimum percentage interests of 5.00% and integral multiples of 0.01% in excess thereof. Each Class of Class R Certificates shall be issued in registered, certificated form in minimum percentage interests of 20.00% and integral multiples of 0.01% in excess thereof; provided, however, that one Class R Certificate of each Class will be issuable to the REMIC Administrator as "tax matters person" pursuant to Section 10.01(c) in a minimum denomination representing a Percentage Interest of not less than 0.01%. The Certificates shall be executed by manual or facsimile signature on behalf of an authorized officer of the Trustee. Certificates bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Trustee shall bind the Trustee, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Certificate or did not hold such offices at the date of such Certificates. No Certificate shall be entitled to any benefit under this Agreement, or be valid for any purpose, unless there appears on such Certificate a certificate of authentication substantially in the form provided for herein executed by the Certificate Registrar by manual signature, and such certificate upon any Certificate shall be conclusive evidence, and the only evidence, that such Certificate has been duly authenticated and delivered hereunder. All Certificates shall be dated the date of their authentication. (b) (i) The Class A Certificates and Class M Certificates shall initially be issued as one or more Certificates registered in the name of the Depository or its nominee and, except as provided below, registration of such Certificates may not be transferred by the Trustee except to another Depository that agrees to hold such Certificates for the respective Certificate Owners with Ownership Interests therein. The Certificate Owners shall hold their respective Ownership Interests in and to each Class A Certificate and Class M Certificate through the book-entry facilities of the Depository and, except as provided below, shall not be entitled to Definitive Certificates in respect of such Ownership Interests. All transfers by Certificate Owners of their respective Ownership Interests in the Book-Entry Certificates shall be made in accordance with the procedures established by the Depository Participant or brokerage firm representing such Certificate Owner. Each Depository Participant shall transfer the Ownership Interests only in the Book-Entry Certificates of Certificate Owners it represents or of brokerage firms for which it acts as agent in accordance with the Depository's normal procedures. (ii) The Trustee, the Master Servicer and the Depositor may for all purposes (including the making of payments due on the respective Classes of Book-Entry Certificates) deal with the Depository as the authorized representative of the Certificate Owners with respect to the respective Classes of Book-Entry Certificates for purposes of exercising the rights of Certificateholders hereunder. The rights of Certificate Owners with respect to the respective Classes of Book-Entry Certificates shall be limited to those established by law and agreements between such Certificate Owners and the Depository Participants and brokerage firms representing such Certificate Owners. Multiple requests and directions from, and votes of, the Depository as Holder of any Class of Book-Entry Certificates with respect to any particular matter shall not be deemed inconsistent if they are made with respect to different Certificate Owners. The Trustee may establish a reasonable record date in connection with solicitations of consents from or voting by Certificateholders and shall give notice to the Depository of such record date. (iii).If with respect to any Book-Entry Certificate (i)(A) the Depositor advises the Trustee in writing that the Depository is no longer willing or able to properly discharge its responsibilities as Depository with respect to such Book-Entry Certificate and (B) the Depositor is unable to locate a qualified successor, or (ii) (A) the Depositor at its option advises the Trustee in writing that it elects to terminate the book-entry system for such Book-Entry Certificate through the Depository and (B) upon receipt of notice from the Depository of the Depositor's election to terminate the book-entry system for such Book-Entry Certificate, the Depository Participants holding beneficial interests in such Book-Entry Certificates agree to initiate such termination, the Trustee shall notify all Certificate Owners of such Book-Entry Certificate, through the Depository, of the occurrence of any such event and of the availability of Definitive Certificates to Certificate Owners requesting the same. Upon surrender to the Trustee of the Book-Entry Certificates by the Depository, accompanied by registration instructions from the Depository for registration of transfer, the Trustee shall issue the Definitive Certificates. (iv) In addition, if an Event of Default has occurred and is continuing, each Certificate Owner materially adversely affected thereby may at its option request a Definitive Certificate evidencing such Certificate Owner's Percentage Interest in the related Class of Certificates. In order to make such request, such Certificate Owner shall, subject to the rules and procedures of the Depository, provide the Depository or the related Depository Participant with directions for the Certificate Registrar to exchange or cause the exchange of the Certificate Owner's interest in such Class of Certificates for an equivalent Percentage Interest in fully registered definitive form. Upon receipt by the Certificate Registrar of instructions from the Depository directing the Certificate Registrar to effect such exchange (such instructions to contain information regarding the Class of Certificates and the Certificate Principal Balance being exchanged, the Depository Participant account to be debited with the decrease, the registered holder of and delivery instructions for the Definitive Certificate, and any other information reasonably required by the Certificate Registrar), (i) the Certificate Registrar shall instruct the Depository to reduce the related Depository Participant's account by the aggregate Certificate Principal Balance of the Definitive Certificate, (ii) the Trustee shall execute and the Certificate Registrar shall authenticate and deliver, in accordance with the registration and delivery instructions provided by the Depository, a Definitive Certificate evidencing such Certificate Owner's Percentage Interest in such Class of Certificates and (iii) the Trustee shall execute and the Certificate Registrar shall authenticate a new Book-Entry Certificate reflecting the reduction in the aggregate Certificate Principal Balance of such Class of Certificates by the amount of the Definitive Certificates. (v) None of the Depositor, the Master Servicer or the Trustee shall be liable for any actions taken by the Depository or its nominee, including, without limitation, any delay in delivery of any instructions required under this Section 5.01 and may conclusively rely on, and shall be protected in relying on, such instructions. Upon the issuance of Definitive Certificates, the Trustee and the Master Servicer shall recognize the Holders of the Definitive Certificates as Certificateholders hereunder. (c) Each of the Certificates is intended to be a "security" governed by Article 8 of the Uniform Commercial Code as in effect in the State of New York and any other applicable jurisdiction, to the extent that any of such laws may be applicable. Section 5.02 Registration of Transfer and Exchange of Certificates. (a) The Trustee shall cause to be kept at one of the offices or agencies to be appointed by the Trustee in accordance with the provisions of Section 8.12 a Certificate Register in which, subject to such reasonable regulations as it may prescribe, the Trustee shall provide for the registration of Certificates and of transfers and exchanges of Certificates as herein provided. The Trustee is initially appointed Certificate Registrar for the purpose of registering Certificates and transfers and exchanges of Certificates as herein provided. The Certificate Registrar, or the Trustee, shall provide the Master Servicer with a certified list of Certificateholders as of each Record Date prior to the related Determination Date. (b) Upon surrender for registration of transfer of any Certificate at any office or agency of the Trustee maintained for such purpose pursuant to Section 8.12 and, in the case of any Class SB Certificate or Class R Certificate, upon satisfaction of the conditions set forth below, the Trustee shall execute and the Certificate Registrar shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Certificates of a like Class and aggregate Percentage Interest. (c) At the option of the Certificateholders, Certificates may be exchanged for other Certificates of authorized denominations of a like Class and aggregate Percentage Interest, upon surrender of the Certificates to be exchanged at any such office or agency. Whenever any Certificates are so surrendered for exchange the Trustee shall execute and the Certificate Registrar shall authenticate and deliver the Certificates of such Class which the Certificateholder making the exchange is entitled to receive. Every Certificate presented or surrendered for transfer or exchange shall (if so required by the Trustee or the Certificate Registrar) be duly endorsed by, or be accompanied by a written instrument of transfer in form satisfactory to the Trustee and the Certificate Registrar duly executed by, the Holder thereof or his attorney duly authorized in writing. (d) (i) No transfer, sale, pledge or other disposition of a Class SB Certificate or Class R Certificate shall be made unless such transfer, sale, pledge or other disposition is exempt from the registration requirements of the Securities Act, and any applicable state securities laws or is made in accordance with said Act and laws. (ii) Except as otherwise provided in this Section 5.02(d), in the event that a transfer of a Class SB Certificate or Class R Certificate is to be made, (i) unless the Depositor directs the Trustee otherwise, the Trustee shall require a written Opinion of Counsel acceptable to and in form and substance satisfactory to the Trustee and the Depositor that such transfer may be made pursuant to an exemption, describing the applicable exemption and the basis therefor, from said Act and laws or is being made pursuant to said Act and laws, which Opinion of Counsel shall not be an expense of the Trustee, the Trust Fund, the Depositor or the Master Servicer, and (ii) the Trustee shall require the transferee to execute a representation letter, substantially in the form of Exhibit I hereto, and the Trustee shall require the transferor to execute a representation letter, substantially in the form of Exhibit J hereto, each acceptable to and in form and substance satisfactory to the Depositor and the Trustee certifying to the Depositor and the Trustee the facts surrounding such transfer, which representation letters shall not be an expense of the Trustee, the Trust Fund, the Depositor or the Master Servicer. In lieu of the requirements set forth in the preceding sentence, Class SB Certificates or Class R Certificates may be made in accordance with this Section 5.02(d) if the prospective transferee of such a Certificate provides the Trustee and the Master Servicer with an investment letter substantially in the form of Exhibit N-1 attached hereto, which investment letter shall not be an expense of the Trustee, the Depositor, or the Master Servicer, and which investment letter states that, among other things, such transferee (i) is a Qualified Institutional Buyer, acting for its own account or the accounts of other Qualified Institutional Buyer, and (ii) is aware that the proposed transferor intends to rely on the exemption from registration requirements under the Securities Act provided by Rule 144A. The Holder of a Class SB Certificate or Class R Certificate desiring to effect any transfer, sale, pledge or other disposition shall, and does hereby agree to, indemnify the Trustee, the Depositor, the Master Servicer and the Certificate Registrar against any liability that may result if the transfer, sale, pledge or other disposition is not so exempt or is not made in accordance with such federal and state laws and this Agreement. (e) (i) In the case of any Class SB or Class R Certificate presented for registration in the name of any Person, either (A) the Trustee shall require an Opinion of Counsel acceptable to and in form and substance satisfactory to the Trustee, the Depositor and the Master Servicer to the effect that the purchase or holding of such Class SB or Class R Certificate is permissible under applicable law, will not constitute or result in any non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code (or comparable provisions of any subsequent enactments), and will not subject the Trustee, the Depositor or the Master Servicer to any obligation or liability (including obligations or liabilities under ERISA or Section 4975 of the Code) in addition to those undertaken in this Agreement, which Opinion of Counsel shall not be an expense of the Trustee, the Depositor or the Master Servicer, or (B) the prospective transferee shall be required to provide the Trustee, the Depositor and the Master Servicer with a certification to the effect set forth in Exhibit P (with respect to a Class SB Certificate) or in paragraph fifteen of Exhibit H-1 (with respect to a Class R Certificate), which the Trustee may rely upon without further inquiry or investigation, or such other certifications as the Trustee may deem desirable or necessary in order to establish that such transferee or the Person in whose name such registration is requested is not an employee benefit plan or other plan or arrangement subject to the prohibited transaction provisions of ERISA or Section 4975 of the Code, or any Person (including an insurance company investing its general accounts, an investment manager, a named fiduciary or a trustee of any such plan) who is using "plan assets" of any such plan to effect such acquisition (each of the foregoing, a "Plan Investor"). (ii) Any Transferee of a Class M Certificate (or interest therein) acquired after termination of the Swap Agreement will be deemed to have represented by virtue of its purchase or holding of such Certificate (or interest therein) that either (a) such Transferee is not a Plan Investor, (b) it has acquired and is holding such Certificate in reliance on U.S. Department of Labor Prohibited Transaction Exemption ("PTE") 94-29, as most recently amended by PTE 2002-41, 67 Fed. Reg. 54487 (Aug. 22, 2002) (the "RFC Exemption"), and that it understands that there are certain conditions to the availability of the RFC Exemption, including that such Certificate must be rated, at the time of purchase, not lower than "BBB-" (or its equivalent) by Fitch, Standard & Poor's or Moody's or (c) (x) such Transferee is an insurance company, (y) the source of funds used to purchase or hold such Certificate (or interest therein) is an "insurance company general account" (as defined in Prohibited Transaction Class Exemption ("PTCE") 95-60), and (z) the conditions set forth in Sections I and III of PTCE 95-60 have been satisfied (each entity that satisfies this clause (c), a "Complying Insurance Company"). (iii) If any Class M Certificate (or any interest therein) is acquired or held by any Person that does not satisfy the conditions described in paragraph (ii) above, then the last preceding Transferee that either (x) is not a Plan Investor, (y) acquired such Certificate in compliance with the RFC Exemption or (z) is a Complying Insurance Company shall be restored, to the extent permitted by law, to all rights and obligations as Certificate Owner thereof retroactive to the date of such Transfer of such Class M Certificate. The Trustee shall be under no liability to any Person for making any payments due on such Certificate to such preceding Transferee. (iv) Any purported Certificate Owner whose acquisition or holding of any Class SB or Class M Certificate (or interest therein) was effected in violation of the restrictions in this Section 5.02(e) shall indemnify and hold harmless the Depositor, the Trustee, the Master Servicer, any Subservicer, any underwriter and the Trust Fund from and against any and all liabilities, claims, costs or expenses incurred by such parties as a result of such acquisition or holding. (v) Each Holder of a Certificate or any interest therein acquired as of any date prior to the termination of the Swap Agreement that is a Plan Investor shall be deemed to have represented, by its acquisition or holding of such Certificate or any interest therein, that at least one of PTCE 84-14, 90-1, 91-38, 95-60 or 96-23 or other applicable exemption applies to such Holder's right to receive payments from the Supplemental Interest Trust. (vi) Any Transferee of a Class M Certificate will be deemed to have represented by virtue of its purchase or holding of such Certificate or interest therein that such Certificate, at the time of purchase, is rated not lower than "BBB-" (or its equivalent) by Fitch, Standard & Poors or Moodys. (f) (i) Each Person who has or who acquires any Ownership Interest in a Class R Certificate shall be deemed by the acceptance or acquisition of such Ownership Interest to have agreed to be bound by the following provisions and to have irrevocably authorized the Trustee or its designee under clause (iii)(A) below to deliver payments to a Person other than such Person and to negotiate the terms of any mandatory sale under clause (iii)(B) below and to execute all instruments of transfer and to do all other things necessary in connection with any such sale. The rights of each Person acquiring any Ownership Interest in a Class R Certificate are expressly subject to the following provisions: (A) Each Person holding or acquiring any Ownership Interest in a Class R Certificate shall be a Permitted Transferee and shall promptly notify the Trustee of any change or impending change in its status as a Permitted Transferee. (B) In connection with any proposed Transfer of any Ownership Interest in a Class R Certificate, the Trustee shall require delivery to it, and shall not register the Transfer of any Class R Certificate until its receipt of, (I) an affidavit and agreement (a "Transfer Affidavit and Agreement," in the form attached hereto as Exhibit H-1) from the proposed Transferee, in form and substance satisfactory to the Master Servicer, representing and warranting, among other things, that it is a Permitted Transferee, that it is not acquiring its Ownership Interest in the Class R Certificate that is the subject of the proposed Transfer as a nominee, trustee or agent for any Person who is not a Permitted Transferee, that for so long as it retains its Ownership Interest in a Class R Certificate, it will endeavor to remain a Permitted Transferee, and that it has reviewed the provisions of this Section 5.02(f) and agrees to be bound by them, and (II) a certificate, in the form attached hereto as Exhibit H-2, from the Holder wishing to transfer the Class R Certificate, in form and substance satisfactory to the Master Servicer, representing and warranting, among other things, that no purpose of the proposed Transfer is to impede the assessment or collection of tax. (C) Notwithstanding the delivery of a Transfer Affidavit and Agreement by a proposed Transferee under clause (B) above, if a Responsible Officer of the Trustee who is assigned to this Agreement has actual knowledge that the proposed Transferee is not a Permitted Transferee, no Transfer of an Ownership Interest in a Class R Certificate to such proposed Transferee shall be effected. (D) Each Person holding or acquiring any Ownership Interest in a Class R Certificate shall agree (x) to require a Transfer Affidavit and Agreement from any other Person to whom such Person attempts to transfer its Ownership Interest in a Class R Certificate and (y) not to transfer its Ownership Interest unless it provides a certificate to the Trustee in the form attached hereto as Exhibit H-2. (E) Each Person holding or acquiring an Ownership Interest in a Class R Certificate, by purchasing an Ownership Interest in such Certificate, agrees to give the Trustee written notice that it is a "pass-through interest holder" within the meaning of Temporary Treasury Regulations Section 1.67-3T(a)(2)(i)(A) immediately upon acquiring an Ownership Interest in a Class R Certificate, if it is, or is holding an Ownership Interest in a Class R Certificate on behalf of, a "pass-through interest holder." (ii) The Trustee shall register the Transfer of any Class R Certificate only if it shall have received the Transfer Affidavit and Agreement, a certificate of the Holder requesting such transfer in the form attached hereto as Exhibit H-2 and all of such other documents as shall have been reasonably required by the Trustee as a condition to such registration. Transfers of the Class R Certificates to Non-United States Persons and Disqualified Organizations (as defined in Section 860E(e)(5) of the Code) are prohibited. (A) If any Disqualified Organization shall become a holder of a Class R Certificate, then the last preceding Permitted Transferee shall be restored, to the extent permitted by law, to all rights and obligations as Holder thereof retroactive to the date of registration of such Transfer of such Class R Certificate. If a Non-United States Person shall become a holder of a Class R Certificate, then the last preceding United States Person shall be restored, to the extent permitted by law, to all rights and obligations as Holder thereof retroactive to the date of registration of such Transfer of such Class R Certificate. If a transfer of a Class R Certificate is disregarded pursuant to the provisions of Treasury Regulations Section 1.860E-1 or Section 1.860G-3, then the last preceding Permitted Transferee shall be restored, to the extent permitted by law, to all rights and obligations as Holder thereof retroactive to the date of registration of such Transfer of such Class R Certificate. The Trustee shall be under no liability to any Person for any registration of Transfer of a Class R Certificate that is in fact not permitted by this Section 5.02(f) or for making any payments due on such Certificate to the holder thereof or for taking any other action with respect to such holder under the provisions of this Agreement. (B) If any purported Transferee shall become a Holder of a Class R Certificate in violation of the restrictions in this Section 5.02(f) and to the extent that the retroactive restoration of the rights of the Holder of such Class R Certificate as described in clause (iii)(A) above shall be invalid, illegal or unenforceable, then the Master Servicer shall have the right, without notice to the holder or any prior holder of such Class R Certificate, to sell such Class R Certificate to a purchaser selected by the Master Servicer on such terms as the Master Servicer may choose. Such purported Transferee shall promptly endorse and deliver each Class R Certificate in accordance with the instructions of the Master Servicer. Such purchaser may be the Master Servicer itself or any Affiliate of the Master Servicer. The proceeds of such sale, net of the commissions (which may include commissions payable to the Master Servicer or its Affiliates), expenses and taxes due, if any, will be remitted by the Master Servicer to such purported Transferee. The terms and conditions of any sale under this clause (iii)(B) shall be determined in the sole discretion of the Master Servicer, and the Master Servicer shall not be liable to any Person having an Ownership Interest in a Class R Certificate as a result of its exercise of such discretion. (iii) The Master Servicer, on behalf of the Trustee, shall make available, upon written request from the Trustee, all information necessary to compute any tax imposed (A) as a result of the Transfer of an Ownership Interest in a Class R Certificate to any Person who is a Disqualified Organization, including the information regarding "excess inclusions" of such Class R Certificates required to be provided to the Internal Revenue Service and certain Persons as described in Treasury Regulations Sections 1.860D-1(b)(5) and 1.860E-2(a)(5), and (B) as a result of any regulated investment company, real estate investment trust, common trust fund, partnership, trust, estate or organization described in Section 1381 of the Code that holds an Ownership Interest in a Class R Certificate having as among its record holders at any time any Person who is a Disqualified Organization. Reasonable compensation for providing such information may be required by the Master Servicer from such Person. (iv) The provisions of this Section 5.02(f) set forth prior to this clause (iv) may be modified, added to or eliminated, provided that there shall have been delivered to the Trustee the following: (A) written notification from each Rating Agency to the effect that the modification, addition to or elimination of such provisions will not cause such Rating Agency to downgrade its then-current ratings, if any, of the Class A Certificates or Class M Certificates below the lower of the then-current rating or the rating assigned to such Certificates as of the Closing Date by such Rating Agency; and (B) a certificate of the Master Servicer stating that the Master Servicer has received an Opinion of Counsel, in form and substance satisfactory to the Master Servicer, to the effect that such modification, addition to or absence of such provisions will not cause any REMIC created hereunder to cease to qualify as a REMIC and will not cause (x) any REMIC created hereunder to be subject to an entity-level tax caused by the Transfer of any Class R Certificate to a Person that is a Disqualified Organization or (y) a Certificateholder or another Person to be subject to a REMIC-related tax caused by the Transfer of a Class R Certificate to a Person that is not a Permitted Transferee. (g) No service charge shall be made for any transfer or exchange of Certificates of any Class, but the Trustee may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer or exchange of Certificates. (h) All Certificates surrendered for transfer and exchange shall be destroyed by the Certificate Registrar. Section 5.03 Mutilated, Destroyed, Lost or Stolen Certificates. If (i) any mutilated Certificate is surrendered to the Certificate Registrar, or the Trustee and the Certificate Registrar receive evidence to their satisfaction of the destruction, loss or theft of any Certificate, and (ii) there is delivered to the Trustee and the Certificate Registrar such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Trustee or the Certificate Registrar that such Certificate has been acquired by a bona fide purchaser, the Trustee shall execute and the Certificate Registrar shall authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of like tenor, Class and Percentage Interest but bearing a number not contemporaneously outstanding. Upon the issuance of any new Certificate under this Section, the Trustee may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee and the Certificate Registrar) connected therewith. Any duplicate Certificate issued pursuant to this Section shall constitute complete and indefeasible evidence of ownership in the Trust Fund, as if originally issued, whether or not the lost, stolen or destroyed Certificate shall be found at any time. Section 5.04 Persons Deemed Owners. Prior to due presentation of a Certificate for registration of transfer, the Depositor, the Master Servicer, the Trustee, the Certificate Registrar and any agent of the Depositor, the Master Servicer, the Trustee or the Certificate Registrar may treat the Person in whose name any Certificate is registered as the owner of such Certificate for the purpose of receiving distributions pursuant to Section 4.02 and for all other purposes whatsoever, except as and to the extent provided in the definition of "Certificateholder," and neither the Depositor, the Master Servicer, the Trustee, the Certificate Registrar nor any agent of the Depositor, the Master Servicer, the Trustee or the Certificate Registrar shall be affected by notice to the contrary except as provided in Section 5.02(f). Section 5.05 Appointment of Paying Agent. The Trustee may appoint a Paying Agent for the purpose of making distributions to Certificateholders pursuant to Section 4.02. In the event of any such appointment, on or prior to each Distribution Date the Master Servicer on behalf of the Trustee shall deposit or cause to be deposited with the Paying Agent a sum sufficient to make the payments to Certificateholders in the amounts and in the manner provided for in Section 4.02, such sum to be held in trust for the benefit of Certificateholders. The Trustee shall cause each Paying Agent to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee that such Paying Agent will hold all sums held by it for the payment to Certificateholders in trust for the benefit of the Certificateholders entitled thereto until such sums shall be paid to such Certificateholders. Any sums so held by such Paying Agent shall be held only in Eligible Accounts to the extent such sums are not distributed to the Certificateholders on the date of receipt by such Paying Agent. -------------------------------------------------------------------------------- ARTICLE VI THE DEPOSITOR AND THE MASTER SERVICER Section 6.01 Respective Liabilities of the Depositor and the Master Servicer. The Depositor and the Master Servicer shall each be liable in accordance herewith only to the extent of the obligations specifically and respectively imposed upon and undertaken by the Depositor and the Master Servicer herein. By way of illustration and not limitation, the Depositor is not liable for the servicing and administration of the Mortgage Loans, nor is it obligated by Section 7.01 or Section 10.01 to assume any obligations of the Master Servicer or to appoint a designee to assume such obligations, nor is it liable for any other obligation hereunder that it may, but is not obligated to, assume unless it elects to assume such obligation in accordance herewith. Section 6.02 Merger or Consolidation of the Depositor or the Master Servicer; Assignment of Rights and Delegation of Duties by Master Servicer. (a) The Depositor and the Master Servicer shall each keep in full effect its existence, rights and franchises as a corporation under the laws of the state of its incorporation and as a limited liability company under the laws of the state of its organization, respectively, and will each obtain and preserve its qualification to do business as a foreign corporation or other Person in each jurisdiction in which such qualification is or shall be necessary to protect the validity and enforceability of this Agreement, the Certificates or any of the Mortgage Loans and to perform its respective duties under this Agreement. (b) Any Person into which the Depositor or the Master Servicer may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, conversion or consolidation to which the Depositor or the Master Servicer shall be a party, or any Person succeeding to the business of the Depositor or the Master Servicer, shall be the successor of the Depositor or the Master Servicer, as the case may be, hereunder, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything in this Section 6.02(b) to the contrary notwithstanding; provided, however, that the successor or surviving Person to the Master Servicer shall be qualified to service mortgage loans on behalf of Fannie Mae or Freddie Mac; and provided further that the Master Servicer (or the Depositor, as applicable) shall notify each Rating Agency and the Trustee in writing of any such merger, conversion or consolidation at least 30 days prior to the effective date of such event. (c) Notwithstanding anything else in this Section 6.02 and Section 6.04 to the contrary, the Master Servicer may assign its rights and delegate its duties and obligations under this Agreement; provided that the Person accepting such assignment or delegation shall be a Person which is qualified to service mortgage loans on behalf of Fannie Mae or Freddie Mac, is reasonably satisfactory to the Trustee and the Depositor, is willing to service the Mortgage Loans and executes and delivers to the Depositor and the Trustee an agreement, in form and substance reasonably satisfactory to the Depositor and the Trustee, which contains an assumption by such Person of the due and punctual performance and observance of each covenant and condition to be performed or observed by the Master Servicer under this Agreement; provided further that each Rating Agency's rating of the Classes of Certificates that have been rated in effect immediately prior to such assignment and delegation will not be qualified, reduced or withdrawn as a result of such assignment and delegation (as evidenced by a letter to such effect from each Rating Agency). In the case of any such assignment and delegation, the Master Servicer shall be released from its obligations under this Agreement, except that the Master Servicer shall remain liable for all liabilities and obligations incurred by it as Master Servicer hereunder prior to the satisfaction of the conditions to such assignment and delegation set forth in the next preceding sentence. Notwithstanding the foregoing, in the event of a pledge or assignment by the Master Servicer solely of its rights to purchase all assets of the Trust Fund under Section 9.01(a) (or, if so specified in Section 9.01(a), its rights to purchase the Mortgage Loans and property acquired related to such Mortgage Loans or its rights to purchase the Certificates related thereto), the provisos of the first sentence of this paragraph will not apply. Section 6.03 Limitation on Liability of the Depositor, the Master Servicer and Others. None of the Depositor, the Master Servicer or any of the directors, officers, employees or agents of the Depositor or the Master Servicer shall be under any liability to the Trust Fund or the Certificateholders for any action taken or for refraining from the taking of any action in good faith pursuant to this Agreement, or for errors in judgment; provided, however, that this provision shall not protect the Depositor, the Master Servicer or any such Person against any breach of warranties, representations or covenants made herein or any liability which would otherwise be imposed by reason of willful misfeasance, bad faith or gross negligence in the performance of duties or by reason of reckless disregard of obligations and duties hereunder. The Depositor, the Master Servicer and any director, officer, employee or agent of the Depositor or the Master Servicer may rely in good faith on any document of any kind prima facie properly executed and submitted by any Person respecting any matters arising hereunder. The Depositor, the Master Servicer and any director, officer, employee or agent of the Depositor or the Master Servicer shall be indemnified by the Trust Fund and held harmless against any loss, liability or expense incurred in connection with any legal action relating to this Agreement or the Certificates, other than any loss, liability or expense related to any specific Mortgage Loan or Mortgage Loans (except as any such loss, liability or expense shall be otherwise reimbursable pursuant to this Agreement) and any loss, liability or expense incurred by reason of willful misfeasance, bad faith or gross negligence in the performance of duties hereunder or by reason of reckless disregard of obligations and duties hereunder. Neither the Depositor nor the Master Servicer shall be under any obligation to appear in, prosecute or defend any legal or administrative action, proceeding, hearing or examination that is not incidental to its respective duties under this Agreement and which in its opinion may involve it in any expense or liability; provided, however, that the Depositor or the Master Servicer may in its discretion undertake any such action, proceeding, hearing or examination that it may deem necessary or desirable in respect to this Agreement and the rights and duties of the parties hereto and the interests of the Certificateholders hereunder. In such event, the legal expenses and costs of such action, proceeding, hearing or examination and any liability resulting therefrom shall be expenses, costs and liabilities of the Trust Fund, and the Depositor and the Master Servicer shall be entitled to be reimbursed therefor out of amounts attributable to the Mortgage Loans on deposit in the Custodial Account as provided by Section 3.10 and, on the Distribution Date(s) following such reimbursement, the aggregate of such expenses and costs shall be allocated in reduction of the Accrued Certificate Interest on each Class entitled thereto in the same manner as if such expenses and costs constituted a Prepayment Interest Shortfall. Section 6.04 Depositor and Master Servicer Not to Resign. Subject to the provisions of Section 6.02, neither the Depositor nor the Master Servicer shall resign from its respective obligations and duties hereby imposed on it except upon determination that its duties hereunder are no longer permissible under applicable law. Any such determination permitting the resignation of the Depositor or the Master Servicer shall be evidenced by an Opinion of Counsel (at the expense of the resigning party) to such effect delivered to the Trustee. No such resignation by the Master Servicer shall become effective until the Trustee or a successor servicer shall have assumed the Master Servicer's responsibilities and obligations in accordance with Section 7.02. -------------------------------------------------------------------------------- ARTICLE VII DEFAULT Section 7.01 Events of Default. Event of Default, wherever used herein, means any one of the following events (whatever reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (i) the Master Servicer shall fail to distribute or cause to be distributed to Holders of Certificates of any Class any distribution required to be made under the terms of the Certificates of such Class and this Agreement and, in either case, such failure shall continue unremedied for a period of 5 days after the date upon which written notice of such failure, requiring such failure to be remedied, shall have been given to the Master Servicer by the Trustee or the Depositor or to the Master Servicer, the Depositor and the Trustee by the Holders of Certificates of such Class evidencing Percentage Interests aggregating not less than 25%; or (ii) the Master Servicer shall fail to observe or perform in any material respect any other of the covenants or agreements on the part of the Master Servicer contained in the Certificates of any Class or in this Agreement and such failure shall continue unremedied for a period of 30 days (except that such number of days shall be 15 in the case of a failure to pay the premium for any Required Insurance Policy) after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Master Servicer by the Trustee or the Depositor, or to the Master Servicer, the Depositor and the Trustee by the Holders of Certificates of any Class evidencing, as to such Class, Percentage Interests aggregating not less than 25%; or (iii) a decree or order of a court or agency or supervisory authority having jurisdiction in the premises in an involuntary case under any present or future federal or state bankruptcy, insolvency or similar law or appointing a conservator or receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings, or for the winding-up or liquidation of its affairs, shall have been entered against the Master Servicer and such decree or order shall have remained in force undischarged or unstayed for a period of 60 days; or (iv) the Master Servicer shall consent to the appointment of a conservator or receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities, or similar proceedings of, or relating to, the Master Servicer or of, or relating to, all or substantially all of the property of the Master Servicer; or (v) the Master Servicer shall admit in writing its inability to pay its debts generally as they become due, file a petition to take advantage of, or commence a voluntary case under, any applicable insolvency or reorganization statute, make an assignment for the benefit of its creditors, or voluntarily suspend payment of its obligations; or (vi) the Master Servicer shall notify the Trustee pursuant to Section 4.04(b) that it is unable to deposit in the Certificate Account an amount equal to the Advance. If an Event of Default described in clauses (i)-(v) of this Section shall occur, then, and in each and every such case, so long as such Event of Default shall not have been remedied, either the Depositor or the Trustee shall at the direction of Holders of Certificates entitled to at least 51% of the Voting Rights by notice in writing to the Master Servicer (and to the Depositor if given by the Trustee or to the Trustee if given by the Depositor), terminate all of the rights and obligations of the Master Servicer under this Agreement and in and to the Mortgage Loans and the proceeds thereof, other than its rights as a Certificateholder hereunder; provided, however, that a successor to the Master Servicer is appointed pursuant to Section 7.02 and such successor Master Servicer shall have accepted the duties of Master Servicer effective upon the resignation of the Master Servicer. If an Event of Default described in clause (vi) hereof shall occur, the Trustee shall, by notice to the Master Servicer and the Depositor, immediately terminate all of the rights and obligations of the Master Servicer under this Agreement and in and to the Mortgage Loans and the proceeds thereof, other than its rights as a Certificateholder hereunder as provided in Section 4.04(b). On or after the receipt by the Master Servicer of such written notice, all authority and power of the Master Servicer under this Agreement, whether with respect to the Certificates (other than as a Holder thereof) or the Mortgage Loans or otherwise, shall subject to Section 7.02 pass to and be vested in the Trustee or the Trustee's designee appointed pursuant to Section 7.02; and, without limitation, the Trustee is hereby authorized and empowered to execute and deliver, on behalf of the Master Servicer, as attorney-in-fact or otherwise, any and all documents and other instruments, and to do or accomplish all other acts or things necessary or appropriate to effect the purposes of such notice of termination, whether to complete the transfer and endorsement or assignment of the Mortgage Loans and related documents, or otherwise. The Master Servicer agrees to cooperate with the Trustee (or its designee) as successor Master Servicer in effecting the termination of the Master Servicer's responsibilities and rights hereunder, including, without limitation, the transfer to the Trustee or its designee for administration by it of all cash amounts which shall at the time be credited to the Custodial Account or the Certificate Account or thereafter be received with respect to the Mortgage Loans. No such termination shall release the Master Servicer for any liability that it would otherwise have hereunder for any act or omission prior to the effective time of such termination. Notwithstanding any termination of the activities of Residential Funding in its capacity as Master Servicer hereunder, Residential Funding shall be entitled to receive, out of any late collection of a Monthly Payment on a Mortgage Loan which was due prior to the notice terminating Residential Funding's rights and obligations as Master Servicer hereunder and received after such notice, that portion to which Residential Funding would have been entitled pursuant to Sections 3.10(a)(ii), (vi) and (vii) as well as its Servicing Fee in respect thereof, and any other amounts payable to Residential Funding hereunder the entitlement to which arose prior to the termination of its activities hereunder. Upon the termination of Residential Funding as Master Servicer hereunder the Depositor shall deliver to the Trustee, as successor Master Servicer, a copy of the Program Guide. Section 7.02......Trustee or Depositor to Act; Appointment of Successor. (a) On and after the time the Master Servicer receives a notice of termination pursuant to Section 7.01 or resigns in accordance with Section 6.04, the Trustee or, upon notice to the Depositor and with the Depositor's consent (which shall not be unreasonably withheld) a designee (which meets the standards set forth below) of the Trustee, shall be the successor in all respects to the Master Servicer in its capacity as servicer under this Agreement and the transactions set forth or provided for herein and shall be subject to all the responsibilities, duties and liabilities relating thereto placed on the Master Servicer (except for the responsibilities, duties and liabilities contained in Sections 2.02 and 2.03(a), excluding the duty to notify related Subservicers as set forth in such Sections, and its obligations to deposit amounts in respect of losses incurred prior to such notice or termination on the investment of funds in the Custodial Account or the Certificate Account pursuant to Sections 3.07(c) and 4.01(c) by the terms and provisions hereof); provided, however, that any failure to perform such duties or responsibilities caused by the preceding Master Servicer's failure to provide information required by Section 4.04 shall not be considered a default by the Trustee hereunder as successor Master Servicer. As compensation therefor, the Trustee as successor Master Servicer shall be entitled to all funds relating to the Mortgage Loans which the Master Servicer would have been entitled to charge to the Custodial Account or the Certificate Account if the Master Servicer had continued to act hereunder and, in addition, shall be entitled to the income from any Permitted Investments made with amounts attributable to the Mortgage Loans held in the Custodial Account or the Certificate Account. If the Trustee has become the successor to the Master Servicer in accordance with Section 6.04 or Section 7.01, then notwithstanding the above, the Trustee may, if it shall be unwilling to so act, or shall, if it is unable to so act, appoint, or petition a court of competent jurisdiction to appoint, any established housing and home finance institution, which is also a Fannie Mae or Freddie Mac-approved mortgage servicing institution, having a net worth of not less than $10,000,000 as the successor to the Master Servicer hereunder in the assumption of all or any part of the responsibilities, duties or liabilities of the Master Servicer hereunder. Pending appointment of a successor to the Master Servicer hereunder, the Trustee shall become successor to the Master Servicer and shall act in such capacity as hereinabove provided. In connection with such appointment and assumption, the Trustee may make such arrangements for the compensation of such successor out of payments on Mortgage Loans as it and such successor shall agree; provided, however, that no such compensation shall be in excess of that permitted the initial Master Servicer hereunder. The Depositor, the Trustee, the Custodian and such successor shall take such action, consistent with this Agreement, as shall be necessary to effectuate any such succession. Any successor Master Servicer appointed pursuant to this Section 7.02 shall not receive a Servicing Fee with respect any Mortgage Loan not directly serviced by the Master Servicer on which the Subservicing Fee (i) accrues at a rate of less than 0.50% per annum and (ii) has to be increased to a rate of 0.50% per annum in order to hire a Subservicer. The Master Servicer shall pay the reasonable expenses of the Trustee in connection with any servicing transfer hereunder. (b) In connection with the termination or resignation of the Master Servicer hereunder, either (i) the successor Master Servicer, including the Trustee if the Trustee is acting as successor Master Servicer, shall represent and warrant that it is a member of MERS in good standing and shall agree to comply in all material respects with the rules and procedures of MERS in connection with the servicing of the Mortgage Loans that are registered with MERS, in which case the predecessor Master Servicer shall cooperate with the successor Master Servicer in causing MERS to revise its records to reflect the transfer of servicing to the successor Master Servicer as necessary under MERS' rules and regulations, or (ii) the predecessor Master Servicer shall cooperate with the successor Master Servicer in causing MERS to execute and deliver an assignment of Mortgage in recordable form to transfer the Mortgage from MERS to the Trustee and to execute and deliver such other notices, documents and other instruments as may be necessary or desirable to effect a transfer of such Mortgage Loan or servicing of such Mortgage Loan on the MERS(R)System to the successor Master Servicer. The predecessor Master Servicer shall file or cause to be filed any such assignment in the appropriate recording office. The predecessor Master Servicer shall bear any and all fees of MERS, costs of preparing any assignments of Mortgage, and fees and costs of filing any assignments of Mortgage that may be required under this subsection (b). The successor Master Servicer shall cause such assignment to be delivered to the Trustee or the Custodian promptly upon receipt of the original with evidence of recording thereon or a copy certified by the public recording office in which such assignment was recorded. Section 7.03......Notification to Certificateholders. (a) Upon any such termination or appointment of a successor to the Master Servicer, the Trustee shall give prompt written notice thereof to Certificateholders at their respective addresses appearing in the Certificate Register. (b) Within 60 days after the occurrence of any Event of Default, the Trustee shall transmit by mail to all Holders of Certificates notice of each such Event of Default hereunder known to the Trustee, unless such Event of Default shall have been cured or waived as provided in Section 7.04 hereof. Section 7.04......Waiver of Events of Default. The Holders representing at least 66% of the Voting Rights of Certificates affected by a default or Event of Default hereunder may waive any default or Event of Default; provided, however, that (a) a default or Event of Default under clause (i) of Section 7.01 may be waived only by all of the Holders of Certificates affected by such default or Event of Default and (b) no waiver pursuant to this Section 7.04 shall affect the Holders of Certificates in the manner set forth in Section 11.01(b)(i), (ii) or (iii). Upon any such waiver of a default or Event of Default by the Holders representing the requisite percentage of Voting Rights of Certificates affected by such default or Event of Default, such default or Event of Default shall cease to exist and shall be deemed to have been remedied for every purpose hereunder. No such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon except to the extent expressly so waived. -------------------------------------------------------------------------------- ARTICLE VIII CONCERNING THE TRUSTEE Section 8.01......Duties of Trustee. (a) The Trustee, prior to the occurrence of an Event of Default and after the curing of all Events of Default which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in this Agreement. In case an Event of Default has occurred (which has not been cured or waived), the Trustee shall exercise such of the rights and powers vested in it by this Agreement, and use the same degree of care and skill in their exercise as a prudent investor would exercise or use under the circumstances in the conduct of such investor's own affairs. (b) The Trustee, upon receipt of all resolutions, certificates, statements, opinions, reports, documents, orders or other instruments furnished to the Trustee which are specifically required to be furnished pursuant to any provision of this Agreement, shall examine them to determine whether they conform to the requirements of this Agreement. The Trustee shall notify the Certificateholders of any such documents which do not materially conform to the requirements of this Agreement in the event that the Trustee, after so requesting, does not receive satisfactorily corrected documents. The Trustee shall forward or cause to be forwarded in a timely fashion the notices, reports and statements required to be forwarded by the Trustee pursuant to Sections 4.03, 7.03, and 10.01. The Trustee shall furnish in a timely fashion to the Master Servicer such information as the Master Servicer may reasonably request from time to time for the Master Servicer to fulfill its duties as set forth in this Agreement. The Trustee covenants and agrees that it shall perform its obligations hereunder in a manner so as to maintain the status of each REMIC created hereunder as a REMIC under the REMIC Provisions and (subject to Section 10.01(f)) to prevent the imposition of any federal, state or local income, prohibited transaction, contribution or other tax on the Trust Fund to the extent that maintaining such status and avoiding such taxes are reasonably within the control of the Trustee and are reasonably within the scope of its duties under this Agreement. (c) No provision of this Agreement shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act or its own willful misconduct; provided, however, that: (i) Prior to the occurrence of an Event of Default, and after the curing or waiver of all such Events of Default which may have occurred, the duties and obligations of the Trustee shall be determined solely by the express provisions of this Agreement, the Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Agreement, no implied covenants or obligations shall be read into this Agreement against the Trustee and, in the absence of bad faith on the part of the Trustee, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Trustee by the Depositor or the Master Servicer and which on their face, do not contradict the requirements of this Agreement; (ii) The Trustee shall not be personally liable for an error of judgment made in good faith by a Responsible Officer or Responsible Officers of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; (iii) The Trustee shall not be personally liable with respect to any action taken, suffered or omitted to be taken by it in good faith in accordance with the direction of the Certificateholders holding Certificates which evidence, Percentage Interests aggregating not less than 25% of the affected Classes as to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Agreement; (iv) The Trustee shall not be charged with knowledge of any default (other than a default in payment to the Trustee) specified in clauses (i) and (ii) of Section 7.01 or an Event of Default under clauses (iii), (iv) and (v) of Section 7.01 unless a Responsible Officer of the Trustee assigned to and working in the Corporate Trust Office obtains actual knowledge of such failure or event or the Trustee receives written notice of such failure or event at its Corporate Trust Office from the Master Servicer, the Depositor or any Certificateholder; and (v) Except to the extent provided in Section 7.02, no provision in this Agreement shall require the Trustee to expend or risk its own funds (including, without limitation, the making of any Advance) or otherwise incur any personal financial liability in the performance of any of its duties as Trustee hereunder, or in the exercise of any of its rights or powers, if the Trustee shall have reasonable grounds for believing that repayment of funds or adequate indemnity against such risk or liability is not reasonably assured to it. (d) The Trustee shall timely pay, from its own funds, the amount of any and all federal, state and local taxes imposed on the Trust Fund or its assets or transactions including, without limitation, (A) "prohibited transaction" penalty taxes as defined in Section 860F of the Code, if, when and as the same shall be due and payable, (B) any tax on contributions to a REMIC after the Closing Date imposed by Section 860G(d) of the Code and (C) any tax on "net income from foreclosure property" as defined in Section 860G(c) of the Code, but only if such taxes arise out of a breach by the Trustee of its obligations hereunder, which breach constitutes negligence or willful misconduct of the Trustee. Section 8.02......Certain Matters Affecting the Trustee. (a) Except as otherwise provided in Section 8.01: (i) The Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, Officers' Certificate, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, appraisal, bond or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (ii) The Trustee may consult with counsel, and any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted by it hereunder in good faith and in accordance with such Opinion of Counsel; (iii) The Trustee shall be under no obligation to exercise any of the trusts or powers vested in it by this Agreement or to institute, conduct or defend any litigation hereunder or in relation hereto at the request, order or direction of any of the Certificateholders pursuant to the provisions of this Agreement, unless such Certificateholders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby; nothing contained herein shall, however, relieve the Trustee of the obligation, upon the occurrence of an Event of Default (which has not been cured), to exercise such of the rights and powers vested in it by this Agreement, and to use the same degree of care and skill in their exercise as a prudent investor would exercise or use under the circumstances in the conduct of such investor's own affairs; (iv) The Trustee shall not be personally liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Agreement; (v) Prior to the occurrence of an Event of Default hereunder and after the curing of all Events of Default which may have occurred, the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond or other paper or document, unless requested in writing so to do by the Holders of Certificates of any Class evidencing, as to such Class, Percentage Interests, aggregating not less than 50%; provided, however, that if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Agreement, the Trustee may require reasonable indemnity against such expense or liability as a condition to so proceeding. The reasonable expense of every such examination shall be paid by the Master Servicer, if an Event of Default shall have occurred and is continuing, and otherwise by the Certificateholder requesting the investigation; (vi) The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys provided that the Trustee shall remain liable for any acts of such agents or attorneys; and (vii) To the extent authorized under the Code and the regulations promulgated thereunder, each Holder of a Class R Certificate hereby irrevocably appoints and authorizes the Trustee to be its attorney-in-fact for purposes of signing any Tax Returns required to be filed on behalf of the Trust Fund. The Trustee shall sign on behalf of the Trust Fund and deliver to the Master Servicer in a timely manner any Tax Returns prepared by or on behalf of the Master Servicer that the Trustee is required to sign as determined by the Master Servicer pursuant to applicable federal, state or local tax laws, provided that the Master Servicer shall indemnify the Trustee for signing any such Tax Returns that contain errors or omissions. (b) Following the issuance of the Certificates (and except as provided for in Section 2.04), the Trustee shall not accept any contribution of assets to the Trust Fund unless (subject to Section 10.01(f)) it shall have obtained or been furnished with an Opinion of Counsel to the effect that such contribution will not (i) cause any REMIC created hereunder to fail to qualify as a REMIC at any time that any Certificates are outstanding or (ii) cause the Trust Fund to be subject to any federal tax as a result of such contribution (including the imposition of any federal tax on "prohibited transactions" imposed under Section 860F(a) of the Code). Section 8.03......Trustee Not Liable for Certificates or Mortgage Loans. The recitals contained herein and in the Certificates (other than the execution of the Certificates and relating to the acceptance and receipt of the Mortgage Loans) shall be taken as the statements of the Depositor or the Master Servicer as the case may be, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Agreement or of the Certificates (except that the Certificates shall be duly and validly executed and authenticated by it as Certificate Registrar) or of any Mortgage Loan or related document, or of MERS or the MERS(R) System. Except as otherwise provided herein, the Trustee shall not be accountable for the use or application by the Depositor or the Master Servicer of any of the Certificates or of the proceeds of such Certificates, or for the use or application of any funds paid to the Depositor or the Master Servicer in respect of the Mortgage Loans or deposited in or withdrawn from the Custodial Account or the Certificate Account by the Depositor or the Master Servicer. Section 8.04......Trustee May Own Certificates. The Trustee in its individual or any other capacity may become the owner or pledgee of Certificates with the same rights it would have if it were not Trustee. Section 8.05......Master Servicer to Pay Trustee's Fees and Expenses; Indemnification. (a) The Master Servicer covenants and agrees to pay to the Trustee and any co-trustee from time to time, and the Trustee and any co-trustee shall be entitled to, reasonable compensation (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust) for all services rendered by each of them in the execution of the trusts hereby created and in the exercise and performance of any of the powers and duties hereunder of the Trustee and any co-trustee, and the Master Servicer shall pay or reimburse the Trustee and any co-trustee upon request for all reasonable expenses, disbursements and advances incurred or made by the Trustee or any co-trustee in accordance with any of the provisions of this Agreement (including the reasonable compensation and the expenses and disbursements of its counsel and of all persons not regularly in its employ, and the expenses incurred by the Trustee or any co-trustee in connection with the appointment of an office or agency pursuant to Section 8.12) except any such expense, disbursement or advance as may arise from its negligence or bad faith. (b) The Master Servicer agrees to indemnify the Trustee for, and to hold the Trustee harmless against, any loss, liability or expense incurred without negligence or willful misconduct on its part, arising out of, or in connection with, the acceptance and administration of the Trust Fund, including its obligation to execute the DTC Letter in its individual capacity, and including the costs and expenses (including reasonable legal fees and expenses) of defending itself against any claim in connection with the exercise or performance of any of its powers or duties under this Agreement and the Swap Agreement, provided that: (i) with respect to any such claim, the Trustee shall have given the Master Servicer written notice thereof promptly after the Trustee shall have actual knowledge thereof; (ii) while maintaining control over its own defense, the Trustee shall cooperate and consult fully with the Master Servicer in preparing such defense; and (iii) notwithstanding anything in this Agreement to the contrary, the Master Servicer shall not be liable for settlement of any claim by the Trustee entered into without the prior consent of the Master Servicer which consent shall not be unreasonably withheld. No termination of this Agreement shall affect the obligations created by this Section 8.05(b) of the Master Servicer to indemnify the Trustee under the conditions and to the extent set forth herein. Notwithstanding the foregoing, the indemnification provided by the Master Servicer in this Section 8.05(b) shall not pertain to any loss, liability or expense of the Trustee, including the costs and expenses of defending itself against any claim, incurred in connection with any actions taken by the Trustee at the direction of Certificateholders pursuant to the terms of this Agreement. Section 8.06......Eligibility Requirements for Trustee. The Trustee hereunder shall at all times be a national banking association or a New York banking corporation having its principal office in a state and city acceptable to the Depositor and organized and doing business under the laws of such state or the United States of America, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $50,000,000 and subject to supervision or examination by federal or state authority. If such corporation or national banking association publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for purposes of this Section the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, the Trustee shall resign immediately in the manner and with the effect specified in Section 8.07. Section 8.07......Resignation and Removal of the Trustee. (a) The Trustee may at any time resign and be discharged from the trusts hereby created by giving written notice thereof to the Depositor and the Master Servicer. Upon receiving such notice of resignation, the Depositor shall promptly appoint a successor trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the successor trustee. If no successor trustee shall have been so appointed and have accepted appointment within 30 days after the giving of such notice of resignation, then the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor trustee. (b) If at any time the Trustee shall cease to be eligible in accordance with the provisions of Section 8.06 and shall fail to resign after written request therefor by the Depositor, or if at any time the Trustee shall become incapable of acting, or shall be adjudged bankrupt or insolvent, or a receiver of the Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then the Depositor may remove the Trustee and appoint a successor trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee. In addition, in the event that the Depositor determines that the Trustee has failed (i) to distribute or cause to be distributed to Certificateholders any amount required to be distributed hereunder, if such amount is held by the Trustee or its Paying Agent (other than the Master Servicer or the Depositor) for distribution or (ii) to otherwise observe or perform in any material respect any of its covenants, agreements or obligations hereunder, and such failure shall continue unremedied for a period of 5 days (in respect of clause (i) above) or 30 days (in respect of clause (ii) above, other than any failure to comply with the provisions of Article XII, in which case no notice or grace period shall be applicable) after the date on which written notice of such failure, requiring that the same be remedied, shall have been given to the Trustee by the Depositor, then the Depositor may remove the Trustee and appoint a successor trustee by written instrument delivered as provided in the preceding sentence. In connection with the appointment of a successor trustee pursuant to the preceding sentence, the Depositor shall, on or before the date on which any such appointment becomes effective, obtain from each Rating Agency written confirmation that the appointment of any such successor trustee will not result in the reduction of the ratings on any Class of the Certificates below the lesser of the then current or original ratings on such Certificates. (c) The Holders of Certificates entitled to at least 51% of the Voting Rights may at any time remove the Trustee and appoint a successor trustee by written instrument or instruments, in triplicate, signed by such Holders or their attorneys-in-fact duly authorized, one complete set of which instruments shall be delivered to the Depositor, one complete set to the Trustee so removed and one complete set to the successor so appointed. (d) Any resignation or removal of the Trustee and appointment of a successor trustee pursuant to any of the provisions of this Section shall become effective upon acceptance of appointment by the successor trustee as provided in Section 8.08. Section 8.08......Successor Trustee. (a) Any successor trustee appointed as provided in Section 8.07 shall execute, acknowledge and deliver to the Depositor and to its predecessor trustee an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the predecessor trustee shall become effective and such successor trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become fully vested with all the rights, powers, duties and obligations of its predecessor hereunder, with the like effect as if originally named as trustee herein. The predecessor trustee shall deliver to the successor trustee all Custodial Files and related documents and statements held by it hereunder (other than any Custodial Files at the time held by a Custodian, which shall become the agent of any successor trustee hereunder), and the Depositor, the Master Servicer and the predecessor trustee shall execute and deliver such instruments and do such other things as may reasonably be required for more fully and certainly vesting and confirming in the successor trustee all such rights, powers, duties and obligations. (b) No successor trustee shall accept appointment as provided in this Section unless at the time of such acceptance such successor trustee shall be eligible under the provisions of Section 8.06. (c) Upon acceptance of appointment by a successor trustee as provided in this Section, the Depositor shall mail notice of the succession of such trustee hereunder to all Holders of Certificates at their addresses as shown in the Certificate Register. If the Depositor fails to mail such notice within 10 days after acceptance of appointment by the successor trustee, the successor trustee shall cause such notice to be mailed at the expense of the Depositor. Section 8.09......Merger or Consolidation of Trustee. Any corporation or national banking association into which the Trustee may be merged or converted or with which it may be consolidated or any corporation or national banking association resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation or national banking association succeeding to the business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation or national banking association shall be eligible under the provisions of Section 8.06, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding. The Trustee shall mail notice of any such merger or consolidation to the Certificateholders at their address as shown in the Certificate Register. Section 8.10......Appointment of Co-Trustee or Separate Trustee. (a) Notwithstanding any other provisions hereof, at any time, for the purpose of meeting any legal requirements of any jurisdiction in which any part of the Trust Fund or property securing the same may at the time be located, the Master Servicer and the Trustee acting jointly shall have the power and shall execute and deliver all instruments to appoint one or more Persons approved by the Trustee to act as co-trustee or co-trustees, jointly with the Trustee, or separate trustee or separate trustees, of all or any part of the Trust Fund, and to vest in such Person or Persons, in such capacity, such title to the Trust Fund, or any part thereof, and, subject to the other provisions of this Section 8.10, such powers, duties, obligations, rights and trusts as the Master Servicer and the Trustee may consider necessary or desirable. If the Master Servicer shall not have joined in such appointment within 15 days after the receipt by it of a request so to do, or in case an Event of Default shall have occurred and be continuing, the Trustee alone shall have the power to make such appointment. No co-trustee or separate trustee hereunder shall be required to meet the terms of eligibility as a successor trustee under Section 8.06 hereunder, and no notice to Holders of Certificates of the appointment of co-trustee(s) or separate trustee(s) shall be required under Section 8.08 hereof. (b) In the case of any appointment of a co-trustee or separate trustee pursuant to this Section 8.10, all rights, powers, duties and obligations conferred or imposed upon the Trustee shall be conferred or imposed upon and exercised or performed by the Trustee, and such separate trustee or co-trustee jointly, except to the extent that under any law of any jurisdiction in which any particular act or acts are to be performed (whether as Trustee hereunder or as successor to the Master Servicer hereunder), the Trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations (including the holding of title to the Trust Fund or any portion thereof in any such jurisdiction) shall be exercised and performed by such separate trustee or co-trustee at the direction of the Trustee. (c) Any notice, request or other writing given to the Trustee shall be deemed to have been given to each of the then separate trustees and co-trustees, as effectively as if given to each of them. Every instrument appointing any separate trustee or co-trustee shall refer to this Agreement and the conditions of this Article VIII. Each separate trustee and co-trustee, upon its acceptance of the trusts conferred, shall be vested with the estates or property specified in its instrument of appointment, either jointly with the Trustee or separately, as may be provided therein, subject to all the provisions of this Agreement, specifically including every provision of this Agreement relating to the conduct of, affecting the liability of, or affording protection to, the Trustee. Every such instrument shall be filed with the Trustee. (d) Any separate trustee or co-trustee may, at any time, constitute the Trustee, its agent or attorney-in-fact, with full power and authority, to the extent not prohibited by law, to do any lawful act under or in respect of this Agreement on its behalf and in its name. If any separate trustee or co-trustee shall die, become incapable of acting, resign or be removed, all of its estates, properties, rights, remedies and trusts shall vest in and be exercised by the Trustee, to the extent permitted by law, without the appointment of a new or successor trustee. Section 8.11......Appointment of the Custodian. The Trustee may, with the consent of the Master Servicer and the Depositor, or shall, at the direction of the Master Servicer and the Depositor, appoint custodians who are not Affiliates of the Depositor or the Master Servicer to hold all or a portion of the Custodial Files as agent for the Trustee, by entering into a Custodial Agreement. The Trustee is hereby directed to enter into a Custodial Agreement with Wells Fargo Bank, N.A. Subject to Article VIII, the Trustee agrees to comply with the terms of each Custodial Agreement with respect to the Custodial Files and to enforce the terms and provisions thereof against the related custodian for the benefit of the Certificateholders. Each custodian shall be a depository institution subject to supervision by federal or state authority, shall have a combined capital and surplus of at least $15,000,000 and shall be qualified to do business in the jurisdiction in which it holds any Custodial File. Each Custodial Agreement, with respect to the Custodial Files, may be amended only as provided in Section 11.01. The Trustee shall notify the Certificateholders of the appointment of any custodian (other than the custodian appointed as of the Closing Date) pursuant to this Section 8.11. Section 8.12......Appointment of Office or Agency. The Trustee shall maintain an office or agency in the City of St. Paul, Minnesota where Certificates may be surrendered for registration of transfer or exchange. The Trustee initially designates its offices located at the Corporate Trust Office for the purpose of keeping the Certificate Register. The Trustee shall maintain an office at the address stated in Section 11.05(c) hereof where notices and demands to or upon the Trustee in respect of this Agreement may be served. Section 8.13......DTC Letter of Representations. The Trustee is hereby authorized and directed to, and agrees that it shall, enter into the DTC Letter on behalf of the Trust Fund and in its individual capacity as agent thereunder. Section 8.14......Swap Agreements. The Supplemental Interest Trust Trustee is hereby authorized and directed to, and agrees that it shall (a) enter into the Swap Agreement on behalf of the Supplemental Interest Trust and (b) enter into the SB-AM Swap Agreement on behalf of (i) the Class A Certificateholders and Class M Certificateholders on the one hand, and (ii) the Class SB Certificateholders on the other hand. -------------------------------------------------------------------------------- ARTICLE IX TERMINATION Section 9.01......Termination Upon Purchase or Liquidation of All Mortgage Loans. (a) Subject to Section 9.02, the respective obligations and responsibilities of the Depositor, the Master Servicer and the Trustee created hereby in respect of the Certificates (other than the obligation of the Trustee to make certain payments after the Final Distribution Date to Certificateholders and the obligation of the Depositor to send certain notices as hereinafter set forth) shall terminate upon the last action required to be taken by the Trustee on the Final Distribution Date pursuant to this Article IX following the earlier of: (i) the later of the final payment or other liquidation (or any Advance with respect thereto) of the last Mortgage Loan remaining in the Trust Fund or the disposition of all property acquired upon foreclosure or deed in lieu of foreclosure of any Mortgage Loan, or (ii) at the option of the Master Servicer or the Holder of the Class SB Certificates as provided in Section 9.01(f), the purchase of all Mortgage Loans and all property acquired in respect of any Mortgage Loan remaining in the Trust Fund, at a price equal to the sum of (A) 100% of the unpaid principal balance of each Mortgage Loan (or, if less than such unpaid principal balance, the fair market value of the related underlying property of such Mortgage Loan with respect to Mortgage Loans as to which title has been acquired if such fair market value is less than such unpaid principal balance) (and if such purchase is made by the Master Servicer only, net of any unreimbursed Advances attributable to principal) on the day of repurchase, plus accrued interest thereon at the Net Mortgage Rate (or Modified Net Mortgage Rate in the case of any Modified Mortgage Loan), to, but not including, the first day of the month in which such repurchase price is distributed, and (B) any unpaid Swap Termination Payment and any Net Swap Payments payable to the Swap Counterparty (or any Swap Termination Payment payable to the Swap Counterparty as a result of the exercise of the option provided for in this Section 9.01(a)(ii)); provided, however, that in no event shall the trust created hereby continue beyond the expiration of 21 years from the death of the last survivor of the descendants of Joseph P. Kennedy, the late ambassador of the United States to the Court of St. James, living on the date hereof; and provided further, that the purchase price set forth above shall be increased as is necessary, as determined by the Master Servicer, to avoid disqualification of any REMIC created hereunder as a REMIC. The purchase price paid by the Master Servicer or the Holder of the Class SB Certificates, as applicable, pursuant to Section 9.01(a)(ii) shall also include any amounts owed by Residential Funding pursuant to the last paragraph of Section 4 of the Assignment Agreement in respect of any liability, penalty or expense that resulted from a breach of the representation and warranty set forth in clause (xlvii) of Section 4 of the Assignment Agreement that remain unpaid on the date of such purchase. The right of the Master Servicer or the Holder of the Class SB Certificates, as applicable, to purchase all of the Mortgage Loans pursuant to clause (ii) above is conditioned upon the date of such purchase occurring on or after the Optional Termination Date. If such right is exercised by the Master Servicer, the Master Servicer shall be deemed to have been reimbursed for the full amount of any unreimbursed Advances theretofore made by it with respect to the Mortgage Loans being purchased. In addition, the Master Servicer shall provide to the Trustee the certification required by Section 3.15, and the Trustee and the Custodian shall, promptly following payment of the purchase price, release to the Master Servicer or the Holder of the Class SB Certificates, as applicable, the Custodial Files pertaining to the Mortgage Loans being purchased. In addition to the foregoing, on any Distribution Date on or after the Optional Termination Date, the Master Servicer or the Holder of the Class SB Certificates as provided in Section 9.01(f), shall have the right, at its option, to purchase the Class A Certificates, Class M Certificates and Class SB Certificates in whole, but not in part, at a price equal to the sum of the outstanding Certificate Principal Balance of such Certificates plus the sum of one month's Accrued Certificate Interest thereon, any previously unpaid Accrued Certificate Interest, and any unpaid Prepayment Interest Shortfalls previously allocated thereto and, in the case of Prepayment Interest Shortfalls, accrued interest thereon at the applicable Pass-Through Rate, plus, with respect to any optional termination by the Holder of the Class SB Certificates, an amount equal to all accrued and unpaid Servicing Fees and reimbursement for all unreimbursed Advances and Servicing Advances, in each case through the date of such optional termination. If the Master Servicer or the Holder of the Class SB Certificates, as applicable, exercises this right to purchase the outstanding Class A Certificates, Class M Certificates and Class SB Certificates, the Master Servicer or the Holder of the Class SB Certificates, as applicable, will promptly terminate the respective obligations and responsibilities created hereby in respect of these Certificates pursuant to this Article IX. (b) The Master Servicer or the Holder of the Class SB Certificates, as applicable, shall give the Trustee, the Supplemental Interest Trust Trustee (and the Master Servicer if the Holder of the Class SB Certificates is exercising its option) and the Swap Counterparty (so long as the Swap Agreement has not previously been terminated) not less than 40 days prior notice of the Distribution Date on which (1) the Master Servicer or the Holder of the Class SB Certificates, as applicable, anticipates that the final distribution will be made to Certificateholders as a result of the exercise by the Master Servicer or the Holder of the Class SB Certificates, as applicable, of its right to purchase the Mortgage Loans or on which (2) the Master Servicer or the Holder of the Class SB Certificates, as applicable, anticipates that the Certificates will be purchased as a result of the exercise by the Master Servicer or the Holder of the Class SB Certificates, as applicable, to purchase the outstanding Certificates. Notice of any termination, specifying the anticipated Final Distribution Date (which shall be a date that would otherwise be a Distribution Date) upon which the Certificateholders may surrender their Certificates to the Trustee (if so required by the terms hereof) for payment of the final distribution and cancellation or notice of any purchase of the outstanding Certificates, specifying the Distribution Date upon which the Holders may surrender their Certificates to the Trustee for payment, shall be given promptly by the Master Servicer (if it is exercising the right to purchase the Mortgage Loans or to purchase the outstanding Certificates), or by the Trustee (in any other case) by letter to the Certificateholders (with a copy to the Certificate Registrar) mailed (or distributed through the Depository with respect to any Book-Entry Certificates) not earlier than the 15th day and not later than the 25th day of the month next preceding the month of such final distribution specifying: (i) the anticipated Final Distribution Date upon which final payment of the Certificates is anticipated to be made upon presentation and surrender of Certificates at the office or agency of the Trustee therein designated where required pursuant to this Agreement or, in the case of the purchase by the Master Servicer or the Holder of the Class SB Certificates, as applicable, of the outstanding Certificates, the Distribution Date on which such purchase is made, (ii) the amount of any such final payment or, in the case of the purchase of the outstanding Certificates, the purchase price, in either case, if known, and (iii) that the Record Date otherwise applicable to such Distribution Date is not applicable, and that payment will be made only upon presentation and surrender of the Certificates at the office or agency of the Trustee therein specified. If the Master Servicer or the Trustee is obligated to give notice to Certificateholders as required above, it shall give such notice to the Certificate Registrar at the time such notice is given to Certificateholders. In the event of a purchase of the Mortgage Loans by the Master Servicer or the Holder of the Class SB Certificates, as applicable, the Master Servicer or the Holder of the Class SB Certificates, as applicable, shall deposit in the Certificate Account before the Final Distribution Date in immediately available funds an amount equal to the purchase price computed as provided above. As a result of the exercise by the Master Servicer or the Holder of the Class SB Certificates, as applicable, of its right to purchase the outstanding Certificates, the Master Servicer or the Holder of the Class SB Certificates, as applicable, shall deposit in the Certificate Account, before the Distribution Date on which such purchase is to occur, in immediately available funds, an amount equal to the purchase price for the Certificates computed as provided above, and provide notice of such deposit to the Trustee. The Trustee shall withdraw from such account the amount specified in subsection (c) below and distribute such amount to the Certificateholders as specified in subsection (c) below. The Master Servicer or the Holder of the Class SB Certificates, as applicable, shall provide to the Trustee written notification of any change to the anticipated Final Distribution Date as soon as practicable. If the Trust Fund is not terminated on the anticipated Final Distribution Date, for any reason, the Trustee shall promptly mail notice thereof to each affected Certificateholder. (c) Upon presentation and surrender of the Class A Certificates, Class M Certificates and Class SB Certificates by the Certificateholders thereof, the Trustee and the Supplemental Interest Trust Trustee, as applicable shall distribute to such Certificateholders (i) the amount otherwise distributable on such Distribution Date, if not in connection with the Master Servicer's or the Holder's of the Class SB Certificates, as applicable, election to repurchase the Mortgage Loans or the outstanding Class A Certificates, Class M Certificates and Class SB Certificates, or (ii) if the Master Servicer or the Holder of the Class SB Certificates, as applicable, elected to so repurchase the Mortgage Loans or the outstanding Class A Certificates, Class M Certificates and Class SB Certificates, an amount equal to the price paid pursuant to Section 9.01(a) as follows: first, with respect to any optional termination by the Holder of the Class SB Certificates, payment of any accrued and unpaid Servicing Fees and reimbursement for all unreimbursed Advances and Servicing Advances, in each case through the date of such optional termination, to the Master Servicer, second, with respect to the Class A Certificates, pari passu, the outstanding Certificate Principal Balance thereof, plus Accrued Certificate Interest thereon for the related Interest Accrual Period and any previously unpaid Accrued Certificate Interest, third, with respect to the Class M-1S Certificates, the outstanding Certificate Principal Balance thereof, plus Accrued Certificate Interest thereon for the related Interest Accrual Period and any previously unpaid Accrued Certificate Interest, fourth, with respect to the Class M-2S Certificates, the outstanding Certificate Principal Balance thereof, plus Accrued Certificate Interest thereon for the related Interest Accrual Period and any previously unpaid Accrued Certificate Interest, fifth, with respect to the Class M-3S Certificates, the outstanding Certificate Principal Balance thereof, plus Accrued Certificate Interest thereon for the related Interest Accrual Period and any previously unpaid Accrued Certificate Interest, sixth, with respect to the Class M-4 Certificates, the outstanding Certificate Principal Balance thereof, plus Accrued Certificate Interest thereon for the related Interest Accrual Period and any previously unpaid Accrued Certificate Interest, seventh, with respect to the Class M-5 Certificates, the outstanding Certificate Principal Balance thereof, plus Accrued Certificate Interest thereon for the related Interest Accrual Period and any previously unpaid Accrued Certificate Interest, eighth, with respect to the Class M-6 Certificates, the outstanding Certificate Principal Balance thereof, plus Accrued Certificate Interest thereon for the related Interest Accrual Period and any previously unpaid Accrued Certificate Interest, ninth, with respect to the Class M-7 Certificates, the outstanding Certificate Principal Balance thereof, plus Accrued Certificate Interest thereon for the related Interest Accrual Period and any previously unpaid Accrued Certificate Interest, tenth, with respect to the Class M-8 Certificates, the outstanding Certificate Principal Balance thereof, plus Accrued Certificate Interest thereon for the related Interest Accrual Period and any previously unpaid Accrued Certificate Interest, eleventh, with respect to the Class M-9 Certificates, the outstanding Certificate Principal Balance thereof, plus Accrued Certificate Interest thereon for the related Interest Accrual Period and any previously unpaid Accrued Certificate Interest, twelfth, to the Class A Certificates and Class M Certificates, the amount of any Prepayment Interest Shortfalls allocated thereto for such Distribution Date or remaining unpaid from prior Distribution Dates and accrued interest thereon at the applicable Pass-Through Rate, on a pro rata basis based on Prepayment Interest Shortfalls allocated thereto for such Distribution Date or remaining unpaid from prior Distribution Dates, thirteenth, to the Swap Counterparty (without duplication of amounts payable to the Swap Counterparty on such date in accordance with Section 4.02) any Swap Termination Payment payable to the Swap Counterparty then remaining unpaid or which is due to the exercise of any early termination of the Trust Fund pursuant to this Section 9.01, and fourteenth, to the Class SB Certificates, all remaining amounts. (d) In the event that any Certificateholders shall not surrender their Certificates for final payment and cancellation on or before the Final Distribution Date, the Master Servicer (if it exercised its right to purchase the Mortgage Loans) or the Trustee (in any other case), shall give a second written notice to the remaining Certificateholders to surrender their Certificates for cancellation and receive the final distribution with respect thereto. If within six months after the second notice any Certificate shall not have been surrendered for cancellation, the Trustee shall take appropriate steps as directed by the Master Servicer to contact the remaining Certificateholders concerning surrender of their Certificates. The costs and expenses of maintaining the Certificate Account and of contacting Certificateholders shall be paid out of the assets which remain in the Certificate Account. If within nine months after the second notice any Certificates shall not have been surrendered for cancellation, the Trustee shall pay to the Master Servicer all amounts distributable to the holders thereof and the Master Servicer shall thereafter hold such amounts until distributed to such Holders. No interest shall accrue or be payable to any Certificateholder on any amount held in the Certificate Account or by the Master Servicer as a result of such Certificateholder's failure to surrender its Certificate(s) for final payment thereof in accordance with this Section 9.01 and the Certificateholders shall look only to the Master Servicer for such payment. (e) If any Certificateholders do not surrender their Certificates on or before the Distribution Date on which a purchase of the outstanding Certificates is to be made, the Master Servicer shall give a second written notice to such Certificateholders to surrender their Certificates for payment of the purchase price therefor. If within six months after the second notice any Certificate shall not have been surrendered for cancellation, the Trustee shall take appropriate steps as directed by the Master Servicer to contact the Holders of such Certificates concerning surrender of their Certificates. The costs and expenses of maintaining the Certificate Account and of contacting Certificateholders shall be paid out of the assets which remain in the Certificate Account. If within nine months after the second notice any Certificates shall not have been surrendered for cancellation in accordance with this Section 9.01, the Trustee shall pay to the Master Servicer all amounts distributable to the Holders thereof and shall have no further obligation or liability therefor and the Master Servicer shall thereafter hold such amounts until distributed to such Holders. No interest shall accrue or be payable to any Certificateholder on any amount held in the Certificate Account or by the Master Servicer as a result of such Certificateholder's failure to surrender its Certificate(s) for payment in accordance with this Section 9.01. Any Certificate that is not surrendered on the Distribution Date on which a purchase pursuant to this Section 9.01 occurs as provided above will be deemed to have been purchased and the Holder as of such date will have no rights with respect thereto except to receive the purchase price therefor minus any costs and expenses associated with such Certificate Account and notices allocated thereto. Any Certificates so purchased or deemed to have been purchased on such Distribution Date shall remain outstanding hereunder. The Master Servicer shall be for all purposes the Holder thereof as of such date. (f) With respect to the first possible Optional Termination Date, the Master Servicer shall have the sole option to exercise the purchase options described in Section 9.01(a) and the Holder of the Class SB Certificates shall have no claim thereto. If, however, the Master Servicer elects not to exercise one of its options to purchase pursuant to Section 9.01(a) with respect to the first possible Optional Termination Date, the Holder of the Class SB Certificates shall have the sole option to exercise the purchase options described in Section 9.01(a) on the second possible Optional Termination Date and the Master Servicer shall have no claim thereto. If the Holder of the Class SB Certificates elects not to exercise one of its options to purchase pursuant to Section 9.01(a) with respect to the second possible Optional Termination Date, it shall lose such right and have no claim to exercise any purchase options pursuant to this Section 9.01 thereafter. Beginning with the third possible Optional Termination Date and thereafter, the Master Servicer shall again have the sole option to exercise the purchase options described in Section 9.01(a). Section 9.02......Additional Termination Requirements. (a) Any REMIC hereunder, as the case may be, shall be terminated in accordance with the following additional requirements, unless (subject to Section 10.01(f)) the Trustee and the Master Servicer have received an Opinion of Counsel (which Opinion of Counsel shall not be an expense of the Trustee) to the effect that the failure of any REMIC created hereunder as the case may be, to comply with the requirements of this Section 9.02 will not (i) result in the imposition on the Trust Fund of taxes on "prohibited transactions," as described in Section 860F of the Code, or (ii) cause any REMIC created hereunder to fail to qualify as a REMIC at any time that any Certificate is outstanding: (i) The Master Servicer shall establish a 90-day liquidation period for REMIC I, REMIC II, REMIC III or REMIC IV, as applicable, and any other related terminating REMICs, and specify the first day of such period in a statement attached to REMIC I's, REMIC II's, REMIC III's or REMIC IV's, as applicable, and any other related terminating REMICs', final Tax Return pursuant to Treasury Regulations Section 1.860F-1. The Master Servicer also shall satisfy all of the requirements of a qualified liquidation for each of REMIC I, REMIC II, REMIC III and REMIC IV under Section 860F of the Code and the regulations thereunder; (ii) The Master Servicer shall notify the Trustee at the commencement of such 90-day liquidation period and, at or prior to the time of making of the final payment on the Certificates, the Trustee shall sell or otherwise dispose of all of the remaining assets of the liquidating REMICs in accordance with the terms hereof; and (iii) If the Master Servicer is exercising its right to purchase the assets of the Trust Fund, the Master Servicer shall, during the 90-day liquidation period and at or prior to the Final Distribution Date, purchase all of the assets of the liquidating REMICs for cash. (b) Each Holder of a Certificate and the Trustee hereby irrevocably approves and appoints the Master Servicer as its attorney-in-fact to adopt a plan of complete liquidation for any REMIC hereunder at the expense of the Trust Fund in accordance with the terms and conditions of this Agreement. -------------------------------------------------------------------------------- ARTICLE X REMIC PROVISIONS Section 10.01.....REMIC Administration. (a) The REMIC Administrator shall make an election to treat all REMICs created hereunder as a REMIC under the Code and, if necessary, under applicable state law. Each such election will be made on Form 1066 or other appropriate federal tax or information return (including Form 8811) or any appropriate state return for the taxable year ending on the last day of the calendar year in which the Certificates are issued. The REMIC I Regular Interests shall be designated as the "regular interests" and Component I of the Class R Certificates shall be designated as the sole Class of "residual interests" in REMIC I. The REMIC II Regular Interests shall be designated as the "regular interests" and Component II of the Class R Certificates shall be designated as the sole Class of "residual interests" in REMIC II. The REMIC III Regular Interests shall be designated as the "regular interests" and Component III of the Class R Certificates shall be designated as the sole Class of "residual interests" in REMIC III. The REMIC IV Regular Interests shall be designated as the "regular interests" and Component IV of the Class R Certificates shall be designated as the sole Class of "residual interests" in REMIC IV. The REMIC Administrator and the Trustee shall not permit the creation of any "interests" (within the meaning of Section 860G of the Code) in REMIC I, REMIC II, REMIC III or REMIC IV other than the REMIC I Regular Interests, the REMIC II Regular Interests, the REMIC III Regular Interests, REMIC IV Regular Interest IO and the Certificates. (b) The Closing Date is hereby designated as the "startup day" of each of REMIC created hereunder within the meaning of Section 860G(a)(9) of the Code (the "Startup Date"). (c) The REMIC Administrator shall hold a Class R Certificate in each REMIC representing a 0.01% Percentage Interest of the Class R Certificates in each REMIC and shall be designated as the "tax matters person" with respect to each REMIC in the manner provided under Treasury regulations Section 1.860F-4(d) and Treasury regulations Section 301.6231(a)(7)-1. The REMIC Administrator, as tax matters person, shall (i) act on behalf of each REMIC in relation to any tax matter or controversy involving the Trust Fund and (ii) represent the Trust Fund in any administrative or judicial proceeding relating to an examination or audit by any governmental taxing authority with respect thereto. The legal expenses, including without limitation attorneys' or accountants' fees, and costs of any such proceeding and any liability resulting therefrom shall be expenses of the Trust Fund and the REMIC Administrator shall be entitled to reimbursement therefor out of amounts attributable to the Mortgage Loans on deposit in the Custodial Account as provided by Section 3.10 unless such legal expenses and costs are incurred by reason of the REMIC Administrator's willful misfeasance, bad faith or gross negligence. If the REMIC Administrator is no longer the Master Servicer hereunder, at its option the REMIC Administrator may continue its duties as REMIC Administrator and shall be paid reasonable compensation not to exceed $3,000 per year by any successor Master Servicer hereunder for so acting as the REMIC Administrator. (d) The REMIC Administrator shall prepare or cause to be prepared all of the Tax Returns that it determines are required with respect to the REMICs created hereunder and deliver such Tax Returns in a timely manner to the Trustee and the Trustee shall sign and file such Tax Returns in a timely manner. The expenses of preparing such returns shall be borne by the REMIC Administrator without any right of reimbursement therefor. The REMIC Administrator agrees to indemnify and hold harmless the Trustee with respect to any tax or liability arising from the Trustee's signing of Tax Returns that contain errors or omissions. The Trustee and Master Servicer shall promptly provide the REMIC Administrator with such information as the REMIC Administrator may from time to time request for the purpose of enabling the REMIC Administrator to prepare Tax Returns. (e) The REMIC Administrator shall provide (i) to any Transferor of a Class R Certificate such information as is necessary for the application of any tax relating to the transfer of a Class R Certificate to any Person who is not a Permitted Transferee, (ii) to the Trustee and the Trustee shall forward to the Certificateholders such information or reports as are required by the Code or the REMIC Provisions including reports relating to interest, original issue discount, if any, and market discount or premium (using the Prepayment Assumption) and (iii) to the Internal Revenue Service the name, title, address and telephone number of the person who will serve as the representative of each REMIC created hereunder. (f) The Master Servicer and the REMIC Administrator shall take such actions and shall cause each REMIC created hereunder to take such actions as are reasonably within the Master Servicer's or the REMIC Administrator's control and the scope of its duties more specifically set forth herein as shall be necessary or desirable to maintain the status thereof as a REMIC under the REMIC Provisions (and the Trustee shall assist the Master Servicer and the REMIC Administrator, to the extent reasonably requested by the Master Servicer and the REMIC Administrator to do so). In performing their duties as more specifically set forth herein, the Master Servicer and the REMIC Administrator shall not knowingly or intentionally take any action, cause the Trust Fund to take any action or fail to take (or fail to cause to be taken) any action reasonably within their respective control and the scope of duties more specifically set forth herein, that, under the REMIC Provisions, if taken or not taken, as the case may be, could (i) endanger the status of any REMIC created hereunder as a REMIC or (ii) result in the imposition of a tax upon any REMIC created hereunder (including but not limited to the tax on prohibited transactions as defined in Section 860F(a)(2) of the Code (except as provided in Section 2.04) and the tax on contributions to a REMIC set forth in Section 860G(d) of the Code) (either such event, in the absence of an Opinion of Counsel or the indemnification referred to in this sentence, an "Adverse REMIC Event") unless the Master Servicer or the REMIC Administrator, as applicable, has received an Opinion of Counsel (at the expense of the party seeking to take such action or, if such party fails to pay such expense, and the Master Servicer or the REMIC Administrator, as applicable, determines that taking such action is in the best interest of the Trust Fund and the Certificateholders, at the expense of the Trust Fund, but in no event at the expense of the Master Servicer, the REMIC Administrator or the Trustee) to the effect that the contemplated action will not, with respect to the Trust Fund created hereunder, endanger such status or, unless the Master Servicer or the REMIC Administrator or both, as applicable, determine in its or their sole discretion to indemnify the Trust Fund against the imposition of such a tax, result in the imposition of such a tax. Wherever in this Agreement a contemplated action may not be taken because the timing of such action might result in the imposition of a tax on the Trust Fund, or may only be taken pursuant to an Opinion of Counsel that such action would not impose a tax on the Trust Fund, such action may nonetheless be taken provided that the indemnity given in the preceding sentence with respect to any taxes that might be imposed on the Trust Fund has been given and that all other preconditions to the taking of such action have been satisfied. The Trustee shall not take or fail to take any action (whether or not authorized hereunder) as to which the Master Servicer or the REMIC Administrator, as applicable, has advised it in writing that it has received an Opinion of Counsel to the effect that an Adverse REMIC Event could occur with respect to such action or inaction, as the case may be. In addition, prior to taking any action with respect to the Trust Fund or its assets, or causing the Trust Fund to take any action, which is not expressly permitted under the terms of this Agreement, the Trustee shall consult with the Master Servicer or the REMIC Administrator, as applicable, or its designee, in writing, with respect to whether such action could cause an Adverse REMIC Event to occur with respect to the Trust Fund and the Trustee shall not take any such action or cause the Trust Fund to take any such action as to which the Master Servicer or the REMIC Administrator, as applicable, has advised it in writing that an Adverse REMIC Event could occur. The Master Servicer or the REMIC Administrator, as applicable, may consult with counsel to make such written advice, and the cost of same shall be borne by the party seeking to take the action not expressly permitted by this Agreement, but in no event at the expense of the Master Servicer or the REMIC Administrator. At all times as may be required by the Code, the Master Servicer or the REMIC Administrator, as applicable, will to the extent within its control and the scope of its duties more specifically set forth herein, maintain substantially all of the assets of the REMIC as "qualified mortgages" as defined in Section 860G(a)(3) of the Code and "permitted investments" as defined in Section 860G(a)(5) of the Code. (g) In the event that any tax is imposed on "prohibited transactions" of any REMIC created hereunder as defined in Section 860F(a)(2) of the Code, on "net income from foreclosure property" of any REMIC as defined in Section 860G(c) of the Code, on any contributions to any REMIC after the Startup Date therefor pursuant to Section 860G(d) of the Code, or any other tax imposed by the Code or any applicable provisions of state or local tax laws, such tax shall be charged (i) to the Master Servicer, if such tax arises out of or results from a breach by the Master Servicer in its role as Master Servicer or REMIC Administrator of any of its obligations under this Agreement or the Master Servicer has in its sole discretion determined to indemnify the Trust Fund against such tax, (ii) to the Trustee, if such tax arises out of or results from a breach by the Trustee of any of its obligations under this Article X, or (iii) otherwise against amounts on deposit in the Custodial Account as provided by Section 3.10 and on the Distribution Date(s) following such reimbursement the aggregate of such taxes shall be allocated in reduction of the Accrued Certificate Interest on each Class entitled thereto in the same manner as if such taxes constituted a Prepayment Interest Shortfall. (h) The Trustee and the Master Servicer shall, for federal income tax purposes, maintain books and records with respect to each REMIC on a calendar year and on an accrual basis or as otherwise may be required by the REMIC Provisions. (i) Following the Startup Date, neither the Master Servicer nor the Trustee shall accept any contributions of assets to any REMIC unless (subject to Section 10.01(f)) the Master Servicer and the Trustee shall have received an Opinion of Counsel (at the expense of the party seeking to make such contribution) to the effect that the inclusion of such assets in any REMIC will not cause any REMIC created hereunder to fail to qualify as a REMIC at any time that any Certificates are outstanding or subject any such REMIC to any tax under the REMIC Provisions or other applicable provisions of federal, state and local law or ordinances. (j) Neither the Master Servicer nor the Trustee shall (subject to Section 10.01(f)) enter into any arrangement by which any REMIC created hereunder will receive a fee or other compensation for services nor permit any REMIC created hereunder to receive any income from assets other than "qualified mortgages" as defined in Section 860G(a)(3) of the Code or "permitted investments" as defined in Section 860G(a)(5) of the Code. (k) Solely for purposes of Section 1.860G-1(a)(4)(iii) of the Treasury Regulations, the "latest possible maturity date" by which the principal balance of each regular interest in each REMIC would be reduced to zero is November 25, 2036, which is the Distribution Date in the month following the last scheduled payment on any Mortgage Loan. (l) Within 30 days after the Closing Date, the REMIC Administrator shall prepare and file with the Internal Revenue Service Form 8811, "Information Return for Real Estate Mortgage Investment Conduits (REMIC) and Issuers of Collateralized Debt Obligations" for the Trust Fund. (m) Neither the Trustee nor the Master Servicer shall sell, dispose of or substitute for any of the Mortgage Loans (except in connection with (i) the default, imminent default or foreclosure of a Mortgage Loan, including but not limited to, the acquisition or sale of a Mortgaged Property acquired by deed in lieu of foreclosure, (ii) the bankruptcy of the Trust Fund, (iii) the termination of any REMIC pursuant to Article IX of this Agreement or (iv) a purchase of Mortgage Loans pursuant to Article II or III of this Agreement) or acquire any assets for any REMIC or sell or dispose of any investments in the Custodial Account or the Certificate Account for gain, or accept any contributions to any REMIC after the Closing Date unless it has received an Opinion of Counsel that such sale, disposition, substitution or acquisition will not (a) affect adversely the status of any REMIC created hereunder as a REMIC or (b) unless the Master Servicer has determined in its sole discretion to indemnify the Trust Fund against such tax, cause any REMIC to be subject to a tax on "prohibited transactions" or "contributions" pursuant to the REMIC Provisions. Section 10.02.....Master Servicer, REMIC Administrator and Trustee Indemnification. (a) The Trustee agrees to indemnify the Trust Fund, the Depositor, the REMIC Administrator and the Master Servicer for any taxes and costs including, without limitation, any reasonable attorneys fees imposed on or incurred by the Trust Fund, the Depositor or the Master Servicer, as a result of a breach of the Trustee's covenants set forth in Article VIII or this Article X. In the event that Residential Funding is no longer the Master Servicer, the Trustee shall indemnify Residential Funding for any taxes and costs including, without limitation, any reasonable attorneys fees imposed on or incurred by Residential Funding as a result of a breach of the Trustee's covenants set forth in Article VIII or this Article X. (b) The REMIC Administrator agrees to indemnify the Trust Fund, the Depositor, the Master Servicer and the Trustee for any taxes and costs (including, without limitation, any reasonable attorneys' fees) imposed on or incurred by the Trust Fund, the Depositor, the Master Servicer or the Trustee, as a result of a breach of the REMIC Administrator's covenants set forth in this Article X with respect to compliance with the REMIC Provisions, including without limitation, any penalties arising from the Trustee's execution of Tax Returns prepared by the REMIC Administrator that contain errors or omissions; provided, however, that such liability will not be imposed to the extent such breach is a result of an error or omission in information provided to the REMIC Administrator by the Master Servicer in which case Section 10.02(c) will apply. (c) The Master Servicer agrees to indemnify the Trust Fund, the Depositor, the REMIC Administrator and the Trustee for any taxes and costs (including, without limitation, any reasonable attorneys' fees) imposed on or incurred by the Trust Fund, the Depositor, the REMIC Administrator or the Trustee, as a result of a breach of the Master Servicer's covenants set forth in this Article X or in Article III with respect to compliance with the REMIC Provisions, including without limitation, any penalties arising from the Trustee's execution of Tax Returns prepared by the Master Servicer that contain errors or omissions. -------------------------------------------------------------------------------- ARTICLE XI MISCELLANEOUS PROVISIONS Section 11.01.....Amendment. (a) This Agreement or any Custodial Agreement may be amended from time to time by the Depositor, the Master Servicer and the Trustee, without the consent of any of the Certificateholders: (i) to cure any ambiguity, (ii) to correct or supplement any provisions herein or therein, which may be inconsistent with any other provisions herein or therein or to correct any error, (iii) to modify, eliminate or add to any of its provisions to such extent as shall be necessary or desirable to maintain the qualification of any REMIC created hereunder as a REMIC at all times that any Certificate is outstanding or to avoid or minimize the risk of the imposition of any tax on the Trust Fund pursuant to the Code that would be a claim against the Trust Fund, provided that the Trustee has received an Opinion of Counsel to the effect that (A) such action is necessary or desirable to maintain such qualification or to avoid or minimize the risk of the imposition of any such tax and (B) such action will not adversely affect in any material respect the interests of any Certificateholder, (iv) to change the timing and/or nature of deposits into the Custodial Account or the Certificate Account or to change the name in which the Custodial Account is maintained, provided that (A) the Certificate Account Deposit Date shall in no event be later than the related Distribution Date, (B) such change shall not, as evidenced by an Opinion of Counsel, adversely affect in any material respect the interests of any Certificateholder and (C) such change shall not result in a reduction of the rating assigned to any Class of Certificates below the lower of the then-current rating or the rating assigned to such Certificates as of the Closing Date, as evidenced by a letter from each Rating Agency to such effect, (v) to modify, eliminate or add to the provisions of Section 5.02(f) or any other provision hereof restricting transfer of the Class R Certificates by virtue of their being the "residual interests" in the Trust Fund provided that (A) such change shall not result in reduction of the rating assigned to any such Class of Certificates below the lower of the then-current rating or the rating assigned to such Certificates as of the Closing Date, as evidenced by a letter from each Rating Agency to such effect, and (B) such change shall not (subject to Section 10.01(f)), as evidenced by an Opinion of Counsel (at the expense of the party seeking so to modify, eliminate or add such provisions), cause the Trust Fund or any of the Certificateholders (other than the transferor) to be subject to a federal tax caused by a transfer to a Person that is not a Permitted Transferee, or (vi) to make any other provisions with respect to matters or questions arising under this Agreement or such Custodial Agreement which shall not be materially inconsistent with the provisions of this Agreement, provided that such action shall not, as evidenced by an Opinion of Counsel, adversely affect in any material respect the interests of any Certificateholder and is authorized or permitted under Section 11.01. (b) This Agreement or any Custodial Agreement may also be amended from time to time by the Depositor, the Master Servicer, the Trustee and the Holders of Certificates evidencing in the aggregate not less than 66% of the Percentage Interests of each Class of Certificates with a Certificate Principal Balance greater than zero affected thereby for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement or such Custodial Agreement or of modifying in any manner the rights of the Holders of Certificates of such Class; provided, however, that no such amendment shall: (i) reduce in any manner the amount of, or delay the timing of, payments which are required to be distributed on any Certificate without the consent of the Holder of such Certificate, (ii) adversely affect in any material respect the interest of the Holders of Certificates of any Class in a manner other than as described in clause (i) hereof without the consent of Holders of Certificates of such Class evidencing, as to such Class, Percentage Interests aggregating not less than 66%, or (iii) reduce the aforesaid percentage of Certificates of any Class the Holders of which are required to consent to any such amendment, in any such case without the consent of the Holders of all Certificates of such Class then outstanding. (c) Notwithstanding any contrary provision of this Agreement, the Trustee shall not consent to any amendment to this Agreement unless it shall have first received an Opinion of Counsel (at the expense of the party seeking such amendment) to the effect that such amendment or the exercise of any power granted to the Master Servicer, the Depositor or the Trustee in accordance with such amendment will not result in the imposition of a federal tax on the Trust Fund or cause any REMIC created hereunder to fail to qualify as a REMIC at any time that any Certificate is outstanding; provided, that if the indemnity described in Section 10.01(f) with respect to any taxes that might be imposed on the Trust Fund has been given, the Trustee shall not require the delivery to it of the Opinion of Counsel described in this Section 11.01(c). The Trustee may but shall not be obligated to enter into any amendment pursuant to this Section that affects its rights, duties and immunities and this Agreement or otherwise; provided, however, such consent shall not be unreasonably withheld. (d) Promptly after the execution of any such amendment the Trustee shall furnish written notification of the substance of such amendment to each Certificateholder. It shall not be necessary for the consent of Certificateholders under this Section 11.01 to approve the particular form of any proposed amendment, but it shall be sufficient if such consent shall approve the substance thereof. The manner of obtaining such consents and of evidencing the authorization of the execution thereof by Certificateholders shall be subject to such reasonable regulations as the Trustee may prescribe. (e) The Depositor shall have the option, in its sole discretion, to obtain and deliver to the Trustee any corporate guaranty, payment obligation, irrevocable letter of credit, surety bond, insurance policy or similar instrument or a reserve fund, or any combination of the foregoing, for the purpose of protecting the Holders of the Class SB Certificates against any or all Realized Losses or other shortfalls. Any such instrument or fund shall be held by the Trustee for the benefit of the Class SB Certificateholders, but shall not be and shall not be deemed to be under any circumstances included in any REMIC. To the extent that any such instrument or fund constitutes a reserve fund for federal income tax purposes, (i) any reserve fund so established shall be an outside reserve fund and not an asset of such REMIC, (ii) any such reserve fund shall be owned by the Depositor, and (iii) amounts transferred by such REMIC to any such reserve fund shall be treated as amounts distributed by such REMIC to the Depositor or any successor, all within the meaning of Treasury Regulations Section 1.860G-2(h) in effect as of the Cut-off Date. In connection with the provision of any such instrument or fund, this Agreement and any provision hereof may be modified, added to, deleted or otherwise amended in any manner that is related or incidental to such instrument or fund or the establishment or administration thereof, such amendment to be made by written instrument executed or consented to by the Depositor and such related insurer but without the consent of any Certificateholder and without the consent of the Master Servicer or the Trustee being required unless any such amendment would impose any additional obligation on, or otherwise adversely affect the interests of the Certificateholders, the Master Servicer or the Trustee, as applicable; provided that the Depositor obtains an Opinion of Counsel (which need not be an opinion of Independent counsel) to the effect that any such amendment will not cause (a) any federal tax to be imposed on the Trust Fund, including without limitation, any federal tax imposed on "prohibited transactions" under Section 860F(a)(1) of the Code or on "contributions after the startup date" under Section 860G(d)(1) of the Code and (b) any REMIC created hereunder to fail to qualify as a REMIC at any time that any Certificate is outstanding. In the event that the Depositor elects to provide such coverage in the form of a limited guaranty provided by GMAC LLC, the Depositor may elect that the text of such amendment to this Agreement shall be substantially in the form attached hereto as Exhibit K (in which case Residential Funding's Subordinate Certificate Loss Obligation as described in such exhibit shall be established by Residential Funding's consent to such amendment) and that the limited guaranty shall be executed in the form attached hereto as Exhibit L, with such changes as the Depositor shall deem to be appropriate; it being understood that the Trustee has reviewed and approved the content of such forms and that the Trustee's consent or approval to the use thereof is not required. (f) Notwithstanding anything to the contrary set forth in Sections 11.01 (b), (c), (d), and (e), any amendment of Sections 4.02(c)(i) through (x) and Section 4.10 of this Agreement shall require the consent of the Swap Counterparty as a third-party beneficiary of Sections 4.02(c)(x) and 4.10 of this Agreement. Section 11.02.....Recordation of Agreement; Counterparts. (a) To the extent permitted by applicable law, this Agreement is subject to recordation in all appropriate public offices for real property records in all the counties or other comparable jurisdictions in which any or all of the properties subject to the Mortgages are situated, and in any other appropriate public recording office or elsewhere, such recordation to be effected by the Master Servicer and at its expense on direction by the Trustee (pursuant to the request of the Holders of Certificates entitled to at least 25% of the Voting Rights), but only upon direction accompanied by an Opinion of Counsel to the effect that such recordation materially and beneficially affects the interests of the Certificateholders. (b) For the purpose of facilitating the recordation of this Agreement as herein provided and for other purposes, this Agreement may be executed simultaneously in any number of counterparts, each of which counterparts shall be deemed to be an original, and such counterparts shall constitute but one and the same instrument. Section 11.03.....Limitation on Rights of Certificateholders. (a) The death or incapacity of any Certificateholder shall not operate to terminate this Agreement or the Trust Fund, nor entitle such Certificateholder's legal representatives or heirs to claim an accounting or to take any action or proceeding in any court for a partition or winding up of the Trust Fund, nor otherwise affect the rights, obligations and liabilities of any of the parties hereto. (b) No Certificateholder shall have any right to vote (except as expressly provided herein) or in any manner otherwise control the operation and management of the Trust Fund, or the obligations of the parties hereto, nor shall anything herein set forth, or contained in the terms of the Certificates, be construed so as to constitute the Certificateholders from time to time as partners or members of an association; nor shall any Certificateholder be under any liability to any third person by reason of any action taken by the parties to this Agreement pursuant to any provision hereof. (c) No Certificateholder shall have any right by virtue of any provision of this Agreement to institute any suit, action or proceeding in equity or at law upon or under or with respect to this Agreement, unless such Holder previously shall have given to the Trustee a written notice of default and of the continuance thereof, as hereinbefore provided, and unless also the Holders of Certificates of any Class evidencing in the aggregate not less than 25% of the related Percentage Interests of such Class, shall have made written request upon the Trustee to institute such action, suit or proceeding in its own name as Trustee hereunder and shall have offered to the Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby, and the Trustee, for 60 days after its receipt of such notice, request and offer of indemnity, shall have neglected or refused to institute any such action, suit or proceeding it being understood and intended, and being expressly covenanted by each Certificateholder with every other Certificateholder and the Trustee, that no one or more Holders of Certificates of any Class shall have any right in any manner whatever by virtue of any provision of this Agreement to affect, disturb or prejudice the rights of the Holders of any other of such Certificates of such Class or any other Class, or to obtain or seek to obtain priority over or preference to any other such Holder, or to enforce any right under this Agreement, except in the manner herein provided and for the common benefit of Certificateholders of such Class or all Classes, as the case may be. For the protection and enforcement of the provisions of this Section 11.03, each and every Certificateholder and the Trustee shall be entitled to such relief as can be given either at law or in equity. Section 11.04.....Governing Law. This agreement and the Certificates shall be governed by and construed in accordance with the laws of the State of New York, without regard to the conflict of law principles thereof, other than Sections 5-1401 and 5-1402 of the New York General Obligations Law, and the obligations, rights and remedies of the parties hereunder shall be determined in accordance with such laws. Section 11.05.....Notices. All demands and notices hereunder shall be in writing and shall be deemed to have been duly given if personally delivered at or mailed by registered mail, postage prepaid (except for notices to the Trustee which shall be deemed to have been duly given only when received), to (a) in the case of the Depositor, 8400 Normandale Lake Boulevard, Suite 250, Minneapolis, Minnesota 55437, Attention: President (RASC), or such other address as may hereafter be furnished to the Master Servicer and the Trustee in writing by the Depositor; (b) in the case of the Master Servicer, 2255 North Ontario Street, Burbank, California 91504-3120, Attention: Bond Administration or such other address as may be hereafter furnished to the Depositor and the Trustee by the Master Servicer in writing; (c) in the case of the Trustee, the Corporate Trust Office or such other address as may hereafter be furnished to the Depositor and the Master Servicer in writing by the Trustee; (d) in the case of Standard & Poor's, 55 Water Street, New York, New York 10041; Attention: Mortgage Surveillance or such other address as may be hereafter furnished to the Depositor, Trustee and Master Servicer by Standard & Poor's; (e) in the case of Moody's, 99 Church Street, New York, New York 10007, Attention: ABS Monitoring Department, or such other address as may be hereafter furnished to the Depositor, the Trustee and the Master Servicer in writing by Moody's, (f) in the case of Fitch, One Street Plaza, New York, New York 10004 or such other address as may be hereafter furnished to the Depositor, the Trustee and the Master Servicer in writing by Fitch, and (g) in the case of the Swap Counterparty, Barclays Bank PLC, 200 Park Avenue, New York, New York 10166, or such other address as may be hereafter furnished to the Depositor, the Trustee and the Master Servicer in writing by the Swap Counterparty. Any notice required or permitted to be mailed to a Certificateholder shall be given by first class mail, postage prepaid, at the address of such holder as shown in the Certificate Register. Any notice so mailed within the time prescribed in this Agreement shall be conclusively presumed to have been duly given, whether or not the Certificateholder receives such notice. Section 11.06.....Notices to Rating Agencies. The Depositor, the Master Servicer or the Trustee, as applicable, shall notify each Rating Agency and each Subservicer at such time as it is otherwise required pursuant to this Agreement to give notice of the occurrence of, any of the events described in clause (a), (b), (c), (d), (g), (h), (i) or (j) below or provide a copy to each Rating Agency and each Subservicer at such time as otherwise required to be delivered pursuant to this Agreement of any of the statements described in clauses (e) and (f) below: (a) a material change or amendment to this Agreement, (b) the occurrence of an Event of Default, (c) the termination or appointment of a successor Master Servicer or Trustee or a change in the majority ownership of the Trustee, (d) the filing of any claim under the Master Servicer's blanket fidelity bond and the errors and omissions insurance policy required by Section 3.12 or the cancellation or modification of coverage under any such instrument, (e) the statement required to be delivered to the Holders of each Class of Certificates pursuant to Section 4.03, (f) the statements required to be delivered pursuant to Sections 3.18 and 3.19, (g) a change in the location of the Custodial Account or the Certificate Account, (h) the occurrence of any monthly cash flow shortfall to the Holders of any Class of Certificates resulting from the failure by the Master Servicer to make an Advance pursuant to Section 4.04, (i) the occurrence of the Final Distribution Date, and (j) the repurchase of or substitution for any Mortgage Loan, provided, however, that with respect to notice of the occurrence of the events described in clauses (d), (g) or (h) above, the Master Servicer shall provide prompt written notice to each Rating Agency and each Subservicer of any such event known to the Master Servicer. Section 11.07.....Severability of Provisions. If any one or more of the covenants, agreements, provisions or terms of this Agreement shall be for any reason whatsoever held invalid, then such covenants, agreements, provisions or terms shall be deemed severable from the remaining covenants, agreements, provisions or terms of this Agreement and shall in no way affect the validity or enforceability of the other provisions of this Agreement or of the Certificates or the rights of the Holders thereof. Section 11.08.....Supplemental Provisions for Resecuritization. This Agreement may be supplemented by means of the addition of a separate Article hereto (a "Supplemental Article") for the purpose of resecuritizing any of the Certificates issued hereunder, under the following circumstances. With respect to any Class or Classes of Certificates issued hereunder, or any portion of any such Class, as to which the Depositor or any of its Affiliates (or any designee thereof) is the registered Holder (the "Resecuritized Certificates"), the Depositor may deposit such Resecuritized Certificates into a new REMIC, grantor trust or custodial arrangement (a "Restructuring Vehicle") to be held by the Trustee pursuant to a Supplemental Article. The instrument adopting such Supplemental Article shall be executed by the Depositor, the Master Servicer and the Trustee; provided, that neither the Master Servicer nor the Trustee shall withhold their consent thereto if their respective interests would not be materially adversely affected thereby. To the extent that the terms of the Supplemental Article do not in any way affect any provisions of this Agreement as to any of the Certificates initially issued hereunder, the adoption of the Supplemental Article shall not constitute an "amendment" of this Agreement. Each Supplemental Article shall set forth all necessary provisions relating to the holding of the Resecuritized Certificates by the Trustee, the establishment of the Restructuring Vehicle, the issuing of various classes of new certificates by the Restructuring Vehicle and the distributions to be made thereon, and any other provisions necessary to the purposes thereof. In connection with each Supplemental Article, the Depositor shall deliver to the Trustee an Opinion of Counsel to the effect that (i) the Restructuring Vehicle will qualify as a REMIC, grantor trust or other entity not subject to taxation for federal income tax purposes and (ii) the adoption of the Supplemental Article will not endanger the status of any REMIC created hereunder as a REMIC or result in the imposition of a tax upon the Trust Fund (including but not limited to the tax on prohibited transaction as defined in Section 860F(a)(2) of the Code and the tax on contributions to a REMIC as set forth in Section 860G(d) of the Code. Section 11.09.....Third-Party Beneficiary. The Swap Counterparty is an express third-party beneficiary of Sections 4.02(c)(x) and 4.10 of this Agreement, and shall have the right to enforce the provisions of Sections 4.02(c)(x) and 4.10 of this Agreement as if it were a party hereto. Section 11.10.....Tax Treatment. Each party to this Agreement and each holder of a Certificate by it acceptance of its ownership interest in such Certificate, hereby agrees to treat the payment made and received hereunder and any payments received with respect to any Certificate for federal income tax purposes consistently with the REMIC structure, the Swap Agreement and the SB-AM Swap Agreement as set forth herein or incorporated herein and with the deemed payments made with respect thereto as set forth herein. -------------------------------------------------------------------------------- ARTICLE XII COMPLIANCE WITH REGULATION AB Section 12.01.....Intent of Parties; Reasonableness. The Depositor, the Trustee and the Master Servicer acknowledge and agree that the purpose of this Article XII is to facilitate compliance by the Depositor with the provisions of Regulation AB and related rules and regulations of the Commission. The Depositor shall not exercise its right to request delivery of information or other performance under these provisions other than in good faith, or for purposes other than compliance with the Securities Act, the Exchange Act and the rules and regulations of the Commission under the Securities Act and the Exchange Act. Each of the Master Servicer and the Trustee acknowledges that interpretations of the requirements of Regulation AB may change over time, whether due to interpretive guidance provided by the Commission or its staff, consensus among participants in the mortgage-backed securities markets, advice of counsel, or otherwise, and agrees to comply with requests made by the Depositor in good faith for delivery of information under these provisions on the basis of evolving interpretations of Regulation AB. Each of the Master Servicer and the Trustee shall cooperate reasonably with the Depositor to deliver to the Depositor (including any of its assignees or designees), any and all disclosure, statements, reports, certifications, records and any other information necessary in the reasonable, good faith determination of the Depositor to permit the Depositor to comply with the provisions of Regulation AB. Section 12.02.....Additional Representations and Warranties of the Trustee. (a) The Trustee shall be deemed to represent to the Depositor as of the Closing Date and on each date on which information is provided to the Depositor under Sections 12.01, 12.02(b) or 12.03 that, except as disclosed in writing to the Depositor prior to such date: (i) it is not aware and has not received notice that any default, early amortization or other performance triggering event has occurred as to any other Securitization Transaction due to any default of the Trustee; (ii) there are no aspects of its financial condition that could have a material adverse effect on the performance by it of its trustee obligations under this Agreement or any other Securitization Transaction as to which it is the trustee; (iii) there are no material legal or governmental proceedings pending (or known to be contemplated) against it that would be material to Certificateholders; (iv) there are no relationships or transactions relating to the Trustee with respect to the Depositor or any sponsor, issuing entity, servicer, trustee, originator, significant obligor, enhancement or support provider or other material transaction party (as such terms are used in Regulation AB) relating to the Securitization Transaction contemplated by the Agreement, as identified by the Depositor to the Trustee in writing as of the Closing Date (each, a "Transaction Party") that are outside the ordinary course of business or on terms other than would be obtained in an arm's length transaction with an unrelated third party, apart from the Securitization Transaction, and that are material to the investors' understanding of the Certificates; and (v) the Trustee is not an affiliate of any Transaction Party. The Depositor shall notify the Trustee of any change in the identity of a Transaction Party after the Closing Date. (b) If so requested by the Depositor on any date following the Closing Date, the Trustee shall, within five Business Days following such request, confirm in writing the accuracy of the representations and warranties set forth in paragraph (a) of this Section or, if any such representation and warranty is not accurate as of the date of such confirmation, provide the pertinent facts, in writing, to the Depositor. Any such request from the Depositor shall not be given more than once each calendar quarter, unless the Depositor shall have a reasonable basis for a determination that any of the representations and warranties may not be accurate. Section 12.03.....Information to be Provided by the Trustee. For so long as the Certificates are outstanding, for the purpose of satisfying the Depositor's reporting obligation under the Exchange Act with respect to any Class of Certificates, the Trustee shall provide to the Depositor a written description of (a) any litigation or governmental proceedings pending against the Trustee as of the last day of each calendar month that would be material to Certificateholders, and (b) any affiliations or relationships (as described in Item 1119 of Regulation AB) that develop following the Closing Date between the Trustee and any Transaction Party of the type described in Section 12.02(a)(iv) or 12.02(a)(v) as of the last day of each calendar year. Any descriptions required with respect to legal proceedings, as well as updates to previously provided descriptions, under this Section 12.03 shall be given no later than five Business Days prior to the Determination Date following the month in which the relevant event occurs, and any notices and descriptions required with respect to affiliations, as well as updates to previously provided descriptions, under this Section 12.03 shall be given no later than January 31 of the calendar year following the year in which the relevant event occurs. As of the date the Depositor or Master Servicer files each Report on Form 10-D and Report on Form 10-K with respect to the Certificates, the Trustee will be deemed to represent that any information previously provided under this Article XII is materially correct and does not have any material omissions unless the Trustee has provided an update to such information. The Depositor will allow the Trustee to review any disclosure relating to material litigation against the Trustee prior to filing such disclosure with the Commission to the extent the Depositor changes the information provided by the Trustee. Section 12.04.....Report on Assessment of Compliance and Attestation. On or before March 15 of each calendar year, the Trustee shall: (a) deliver to the Depositor a report (in form and substance reasonably satisfactory to the Depositor) regarding the Trustee's assessment of compliance with the applicable Servicing Criteria during the immediately preceding calendar year, as required under Rules 13a-18 and 15d-18 of the Exchange Act and Item 1122 of Regulation AB. Such report shall be addressed to the Depositor and signed by an authorized officer of the Trustee, and shall address each of the Servicing Criteria specified on Exhibit S hereto; and (b) deliver to the Depositor a report of a registered public accounting firm reasonably acceptable to the Depositor that attests to, and reports on, the assessment of compliance made by the Trustee and delivered pursuant to the preceding paragraph. Such attestation shall be in accordance with Rules 1-02(a)(3) and 2-02(g) of Regulation S-X under the Securities Act and the Exchange Act. Section 12.05.....Indemnification; Remedies. (a) The Trustee shall indemnify the Depositor, each affiliate of the Depositor, the Master Servicer and each broker dealer acting as underwriter, placement agent or initial purchaser of the Certificates or each Person who controls any of such parties (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act); and the respective present and former directors, officers, employees and agents of each of the foregoing, and shall hold each of them harmless from and against any losses, damages, penalties, fines, forfeitures, legal fees and expenses and related costs, judgments, and any other costs, fees and expenses that any of them may sustain arising out of or based upon: (i) (A) any untrue statement of a material fact contained or alleged to be contained in any information, report, certification, accountants' attestation or other material provided under this Article XII by or on behalf of the Trustee (collectively, the "Trustee Information"), or (B) the omission or alleged omission to state in the Trustee Information a material fact required to be stated in the Trustee Information or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, by way of clarification, that clause (B) of this paragraph shall be construed solely by reference to the Trustee Information and not to any other information communicated in connection with a sale or purchase of securities, without regard to whether the Trustee Information or any portion thereof is presented together with or separately from such other information; or (ii) any failure by the Trustee to deliver any information, report, certification or other material when and as required under this Article XII, other than a failure by the Trustee to deliver the accountants' attestation. (b) In the case of any failure of performance described in clause (ii) of Section 12.05(a), the Trustee shall (i) promptly reimburse the Depositor for all costs reasonably incurred by the Depositor in order to obtain the information, report, certification, accountants' attestation or other material not delivered as required by the Trustee and (ii) cooperate with the Depositor to mitigate any damages that may result from such failure. (c) The Depositor and the Master Servicer shall indemnify the Trustee, each affiliate of the Trustee or each Person who controls the Trustee (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the respective present and former directors, officers, employees and agents of the Trustee, and shall hold each of them harmless from and against any losses, damages, penalties, fines, forfeitures, legal fees and expenses and related costs, judgments, and any other costs, fees and expenses that any of them may sustain arising out of or based upon (i) any untrue statement of a material fact contained or alleged to be contained in any information provided under this Agreement by or on behalf of the Depositor or Master Servicer for inclusion in any report filed with Commission under the Exchange Act (collectively, the "RFC Information"), or (ii) the omission or alleged omission to state in the RFC Information a material fact required to be stated in the RFC Information or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, by way of clarification, that clause (ii) of this paragraph shall be construed solely by reference to the RFC Information and not to any other information communicated in connection with a sale or purchase of securities, without regard to whether the RFC Information or any portion thereof is presented together with or separately from such other information. -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the Depositor, the Master Servicer and the Trustee have caused their names to be signed hereto by their respective officers thereunto duly authorized as of the day and year first above written. RESIDENTIAL ASSET SECURITIES CORPORATION By: /s/Tim Jacobson Name: Tim Jacobson Title: Vice President RESIDENTIAL FUNDING COMPANY, LLC By: /s/Joseph Orning Name: Joseph Orning Title: Associate U.S. BANK NATIONAL ASSOCIATION as Trustee By:/s/Tamara Shultz-Fugh Name: Tamara Shultz-Fugh Title: Vice President -------------------------------------------------------------------------------- STATE OF MINNESOTA ) ss.: COUNTY OF HENNEPIN ) On the ____ day of October 2006 before me, a notary public in and for said State, personally appeared Tim Jacobson known to me to be a Vice President of Residential Asset Securities Corporation, one of the corporations that executed the within instrument, and also known to me to be the person who executed it on behalf of said corporation, and acknowledged to me that such corporation executed the within instrument. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. Notary Public /s/Amy Sue Olson [Notarial Seal] -------------------------------------------------------------------------------- STATE OF MINNESOTA ) ss.: COUNTY OF HENNEPIN ) On the ____ day of October 2006 before me, a notary public in and for said State, personally appeared Joseph Orning, known to me to be an Associate of Residential Funding Company, LLC, a limited liability company that executed the within instrument, and also known to me to be the person who executed it on behalf of said limited liability company, and acknowledged to me that such limited liability company executed the within instrument. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. Notary Public /s/Amy Sue Olson [Notarial Seal] -------------------------------------------------------------------------------- STATE OF MINNESOTA ) ss.: COUNTY OF HENNEPIN ) On the ____ day of October 2006 before me, a notary public in and for said State, personally appeared Tamara Shultz-Fugh, known to me to be a Vice President of U.S. Bank National Association, a banking association organized under the laws of the United States that executed the within instrument, and also known to me to be the person who executed it on behalf of said banking corporation and acknowledged to me that such banking corporation executed the within instrument. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. Notary Public /s/Trisha L. Willett [Notarial Seal] -------------------------------------------------------------------------------- EXHIBIT A FORM OF CLASS A-[_] CERTIFICATE SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE IS A "REGULAR INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT," AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL REVENUE CODE OF 1986 COUPLED WITH THE RIGHT TO RECEIVE PAYMENTS UNDER THE SWAP AGREEMENT. THE CERTIFICATE PRINCIPAL BALANCE OF THIS CERTIFICATE WILL BE DECREASED BY THE PRINCIPAL PAYMENTS HEREON AND REALIZED LOSSES ALLOCABLE HERETO. ACCORDINGLY, FOLLOWING THE INITIAL ISSUANCE OF THE CERTIFICATES, THE CERTIFICATE PRINCIPAL BALANCE OF THIS CERTIFICATE WILL BE DIFFERENT FROM THE DENOMINATION SHOWN BELOW. ANYONE ACQUIRING THIS CERTIFICATE MAY ASCERTAIN ITS CERTIFICATE PRINCIPAL BALANCE BY INQUIRY OF THE TRUSTEE NAMED HEREIN. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE TRUSTEE OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. ANY TRANSFEREE OF THIS CERTIFICATE WILL BE DEEMED TO HAVE REPRESENTED THAT AS OF ANY DATE PRIOR TO THE TERMINATION OF THE SWAP AGREEMENT, EITHER IT IS NOT A PLAN INVESTOR OR AT LEAST ONE OF U.S. DEPARTMENT OF LABOR PROHIBITED TRANSACTION CLASS EXEMPTIONS 84-14, 90-1, 91-38, 95-60, 96-23 OR OTHER APPLICABLE EXEMPTION APPLIES TO SUCH HOLDER'S RIGHT TO RECEIVE PAYMENTS FROM THE SUPPLEMENTAL INTEREST TRUST. IF THIS CERTIFICATE (OR ANY INTEREST THEREIN) IS ACQUIRED OR HELD BY ANY PERSON THAT DOES NOT SATISFY THE CONDITIONS DESCRIBED IN THE PRECEDING PARAGRAPH, THEN THE LAST PRECEDING TRANSFEREE THAT SATISFIES SUCH CONDITIONS SHALL BE RESTORED, TO THE EXTENT PERMITTED BY LAW, TO ALL RIGHTS AND OBLIGATIONS AS CERTIFICATE OWNER THEREOF RETROACTIVE TO THE DATE OF SUCH TRANSFER OF THIS CERTIFICATE. THE TRUSTEE SHALL BE UNDER NO LIABILITY TO ANY PERSON FOR MAKING ANY PAYMENTS DUE ON THIS CERTIFICATE TO SUCH PRECEDING TRANSFEREE. ANY PURPORTED CERTIFICATE OWNER WHOSE ACQUISITION OR HOLDING OF THIS CERTIFICATE (OR INTEREST THEREIN) WAS EFFECTED IN VIOLATION OF THE RESTRICTIONS IN SECTION 5.02(E) OF THE POOLING AND SERVICING AGREEMENT SHALL INDEMNIFY AND HOLD HARMLESS THE DEPOSITOR, THE TRUSTEE, THE MASTER SERVICER, ANY SUBSERVICER, AND THE TRUST FUND FROM AND AGAINST ANY AND ALL LIABILITIES, CLAIMS, COSTS OR EXPENSES INCURRED BY SUCH PARTIES AS A RESULT OF SUCH ACQUISITION OR HOLDING. CUSIP: _____________________ Certificate No. A-[__]-__ Date of Pooling and Servicing Agreement [Adjustable Pass-Through Rate] and Cut-off Date: October 27, 2006 First Distribution Date: November 27, Aggregate Initial Certificate Principal 2006 Balance of the Class A-[_] Certificates: $___________________________ Master Servicer: Initial Certificate Principal Balance Residential Funding Company, LLC of this Class A-[_] Certificate: $___________________________ Final Scheduled Distribution Date: __________ __, 20__ -------------------------------------------------------------------------------- HOME EQUITY MORTGAGE ASSET-BACKED PASS-THROUGH CERTIFICATES SERIES 2006-KS9 evidencing a percentage interest in the distributions allocable to the Class A-[_] Certificates with respect to a Trust Fund consisting primarily of a pool of [fixed] [adjustable] interest rate, first [and junior] lien mortgage loans on one- to four-family residential properties sold by RESIDENTIAL ASSET SECURITIES CORPORATION This Certificate is payable solely from the assets of the Trust Fund, and does not represent an obligation of or interest in Residential Asset Securities Corporation, the Master Servicer, the Trustee referred to below or GMAC Mortgage Group, LLC or any of their affiliates. Neither this Certificate nor the underlying mortgage loans are guaranteed or insured by any governmental agency or instrumentality or by Residential Asset Securities Corporation, the Master Servicer, the Trustee or GMAC Mortgage Group, LLC or any of their affiliates. None of the Depositor, the Master Servicer, GMAC Mortgage Group, LLC or any of their affiliates will have any obligation with respect to any certificate or other obligation secured by or payable from payments on the Certificates. This certifies that [Cede & Co.] is the registered owner of the Percentage Interest evidenced by this Certificate in certain distributions with respect to the Trust Fund consisting primarily of an interest in a pool of [fixed] [adjustable] interest rate, first [and junior] lien mortgage loans on one- to four- family residential properties (the "Mortgage Loans"), sold by Residential Asset Securities Corporation (hereinafter called the "Depositor," which term includes any successor entity under the Agreement referred to below). The Trust Fund was created pursuant to a Pooling and Servicing Agreement dated as specified above (the "Agreement") among the Depositor, the Master Servicer and U.S. Bank National Association, as trustee (the "Trustee"), a summary of certain of the pertinent provisions of which is set forth hereafter. To the extent not defined herein, the capitalized terms used herein have the meanings assigned in the Agreement. This Certificate is issued under and is subject to the terms, provisions and conditions of the Agreement, to which Agreement the Holder of this Certificate by virtue of the acceptance hereof assents and by which such Holder is bound. Pursuant to the terms of the Agreement, a distribution will be made on the 25th day of each month or, if such 25th day is not a Business Day, the Business Day immediately following (the "Distribution Date"), commencing as described in the Agreement, to the Person in whose name this Certificate is registered at the close of business on the Business Day immediately preceding that Distribution Date (the "Record Date"), from the related Available Distribution Amount in an amount equal to the product of the Percentage Interest evidenced by this Certificate and the amount of interest and principal, if any, required to be distributed to Holders of Class A-[_] Certificates on such Distribution Date. Distributions on this Certificate will be made either by the Master Servicer acting on behalf of the Trustee or by a Paying Agent appointed by the Trustee in immediately available funds (by wire transfer or otherwise) for the account of the Person entitled thereto if such Person shall have so notified the Master Servicer or such Paying Agent, or by check mailed to the address of the Person entitled thereto, as such name and address shall appear on the Certificate Register. Each holder of this certificate is deemed to represent that as of any date prior to the termination of the Swap Agreement, either it is not a plan investor or at least one of U.S. Department of Labor Prohibited Transaction Class Exemptions 84-14, 90-1, 91-38, 95-60, 96-23 or other applicable exemption applies to such holder's right to receive payments from the Supplemental Interest Trust. Any purported Certificate owner whose acquisition or holding of this Certificate (or interest therein) was effected in violation of the restrictions in Section 5.02(e) of the Pooling and Servicing Agreement shall indemnify and hold harmless the Depositor, the Trustee, the Master Servicer, any Subservicer, and the Trust Fund from and against any and all liabilities, claims, costs or expenses incurred by such parties as a result of such acquisition or holding. Notwithstanding the above, the final distribution on this Certificate will be made after due notice of the pendency of such distribution and only upon presentation and surrender of, this Certificate at the office or agency appointed by the Trustee for that purpose in St. Paul, Minnesota. The Initial Certificate Principal Balance of this Certificate is set forth above. The Certificate Principal Balance hereof will be reduced [from time to time pursuant to the Agreement]. This Certificate is one of a duly authorized issue of Certificates issued in several Classes designated as Home Equity Mortgage Asset-Backed Pass-Through Certificates of the Series specified hereon (herein collectively called the "Certificates"). The Certificates are limited in right of payment to certain collections and recoveries respecting the Mortgage Loans, all as more specifically set forth herein and in the Agreement. In the event Master Servicer funds are advanced with respect to any Mortgage Loan, such advance is reimbursable to the Master Servicer, to the extent provided in the Agreement, from related recoveries on such Mortgage Loan or from other cash that would have been distributable to Certificateholders. As provided in the Agreement, withdrawals from the Custodial Account and/or the Certificate Account created for the benefit of Certificateholders may be made by the Master Servicer from time to time for purposes other than distributions to Certificateholders, such purposes including without limitation reimbursement to the Depositor and the Master Servicer of advances made, or certain expenses incurred, by either of them. The Agreement permits, with certain exceptions therein provided, the amendment of the Agreement and the modification of the rights and obligations of the Depositor, the Master Servicer and the Trustee and the rights of the Certificateholders under the Agreement from time to time by the Depositor, the Master Servicer and the Trustee with the consent of the Holders of Certificates evidencing in the aggregate not less than 66% of the Percentage Interests of each Class of Certificates affected thereby. Any such consent by the Holder of this Certificate shall be conclusive and binding on such Holder and upon all future holders of this Certificate and of any Certificate issued upon the transfer hereof or in exchange herefor or in lieu hereof whether or not notation of such consent is made upon the Certificate. The Agreement also permits the amendment thereof in certain circumstances without the consent of the Holders of any of the Certificates and, in certain additional circumstances, without the consent of the Holders of certain Classes of Certificates. As provided in the Agreement and subject to certain limitations therein set forth, the transfer of this Certificate is registrable in the Certificate Register upon surrender of this Certificate for registration of transfer at the offices or agencies appointed by the Trustee in St. Paul, Minnesota, duly endorsed by, or accompanied by an assignment in the form below or other written instrument of transfer in form satisfactory to the Trustee and the Certificate Registrar duly executed by the Holder hereof or such Holder's attorney duly authorized in writing, and there upon one or more new Certificates of authorized denominations evidencing the same Class and aggregate Percentage Interest will be issued to the designated transferee or transferees. The Certificates are issuable only as registered Certificates without coupons in Classes and in denominations specified in the Agreement. As provided in the Agreement and subject to certain limitations therein set forth, Certificates are exchangeable for new Certificates of authorized denominations evidencing the same Class and aggregate Percentage Interest, as requested by the Holder surrendering the same. No service charge will be made for any such registration of transfer or exchange, but the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. The Depositor, the Master Servicer, the Trustee, and the Certificate Registrar and any agent of the Depositor, the Master Servicer, the Trustee or the Certificate Registrar may treat the Person in whose name this Certificate is registered as the owner hereof for all purposes, and none of the Depositor, the Master Servicer, the Trustee or any such agent shall be affected by notice to the contrary. This Certificate shall be governed by and construed in accordance with the laws of the State of New York. The obligations created by the Agreement in respect of the Certificates and the Trust Fund created thereby shall terminate upon the payment to Certificateholders of all amounts held by or on behalf of the Trustee and required to be paid to them pursuant to the Agreement following the earlier of (i) the maturity or other liquidation of the last Mortgage Loan subject thereto or the disposition of all property acquired upon foreclosure or deed in lieu of foreclosure of any Mortgage Loan, and (ii) the purchase by the Holder of the Class SB Certificates or the Master Servicer, as described in the Agreement, from the Trust Fund of all remaining Mortgage Loans and all property acquired in respect of such Mortgage Loans or the Certificates, in either case thereby effecting early retirement of the Certificates. The Agreement permits, but does not require, the Holder of the Class SB Certificates or the Master Servicer, as described in the Agreement, (i) to purchase, at a price determined as provided in the Agreement, all remaining Mortgage Loans and all property acquired in respect of any Mortgage Loan or (ii) to purchase in whole, but not in part, all of the Certificates from the Holders thereof, provided, that any such option may only be exercised if the Stated Principal Balance before giving effect to the distributions to be made on such Distribution Date of the Mortgage Loans, as of the Distribution Date upon which the proceeds of any such purchase are distributed is less than ten percent of the Cut-off Date Balance. Unless the certificate of authentication hereon has been executed by the Certificate Registrar, by manual signature, this Certificate shall not be entitled to any benefit under the Agreement or be valid for any purpose. -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly executed. U.S. BANK NATIONAL ASSOCIATION, as Trustee By:_________________________________ Authorized Signatory Dated:_____________________ CERTIFICATE OF AUTHENTICATION This is one of the Class A-[_] Certificates referred to in the within-mentioned Agreement. U.S. BANK NATIONAL ASSOCIATION, as Certificate Registrar By: _______________________________ Authorized Signatory -------------------------------------------------------------------------------- ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto (Please print or typewrite name and address including postal zip code of assignee) the beneficial interest evidenced by the within Trust Certificate and hereby authorizes the transfer of registration of such interest to assignee on the Certificate Register of the Trust Fund. I (We) further direct the Certificate Registrar to issue a new Certificate of a like denomination and Class, to the above named assignee and deliver such Certificate to the following address: ______________________________________________________________________________ Dated:_____________________ ____________________________________ Signature by or on behalf of assignor ______________________________________________________________________________ Signature Guaranteed DISTRIBUTION INSTRUCTIONS The assignee should include the following for purposes of distribution: Distributions shall be made, by wire transfer or otherwise, in immediately available fund to____________________________________________________________________________ for the account of ___________________________________________________________ account number _______________________________________________________________ or, if mailed by check, to ___________________________________________________ Applicable statements should be mailed to:______________________________ ______________________________________________________________________________ ______________________________________________________________________________ This information is provided by ___________________________________, the assignee named above, or ______________________________, as its agent. -------------------------------------------------------------------------------- EXHIBIT B FORM OF CLASS M-[_] CERTIFICATE THIS CERTIFICATE IS SUBORDINATED IN RIGHT OF PAYMENT TO THE CLASS A AND CLASS M-[_] CERTIFICATES AS DESCRIBED IN THE AGREEMENT (AS DEFINED HEREIN). THE CERTIFICATE PRINCIPAL BALANCE OF THIS CERTIFICATE WILL BE DECREASED BY THE PRINCIPAL PAYMENTS HEREON AND REALIZED LOSSES ALLOCABLE HERETO. ACCORDINGLY, FOLLOWING THE INITIAL ISSUANCE OF THE CERTIFICATES, THE CERTIFICATE PRINCIPAL BALANCE OF THIS CERTIFICATE WILL BE DIFFERENT FROM THE DENOMINATION SHOWN BELOW. ANYONE ACQUIRING THIS CERTIFICATE MAY ASCERTAIN ITS CERTIFICATE PRINCIPAL BALANCE BY INQUIRY OF THE TRUSTEE NAMED HEREIN. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE IS A "REGULAR INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT," AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL REVENUE CODE OF 1986 (THE "CODE") COUPLED WITH THE RIGHT TO RECEIVE PAYMENTS UNDER THE SWAP AGREEMENT. ANY TRANSFEREE OF THIS CERTIFICATE (OR INTEREST THEREIN) ACQUIRED AFTER TERMINATION OF THE SWAP AGREEMENT WILL BE DEEMED TO HAVE REPRESENTED BY VIRTUE OF ITS PURCHASE OR HOLDING OF THIS CERTIFICATE (OR INTEREST THEREIN) THAT EITHER (A) SUCH TRANSFEREE IS NOT AN EMPLOYEE BENEFIT PLAN OR OTHER PLAN OR ARRANGEMENT SUBJECT TO THE PROHIBITED TRANSACTION PROVISIONS OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR SECTION 4975 OF THE CODE OR A PERSON (INCLUDING AN INSURANCE COMPANY INVESTING ITS GENERAL ACCOUNT, AN INVESTMENT MANAGER, A NAMED FIDUCIARY OR A TRUSTEE OF ANY SUCH PLAN) WHO IS USING "PLAN ASSETS" OF ANY SUCH PLAN TO EFFECT SUCH ACQUISITION (EACH OF THE FOREGOING, A "PLAN INVESTOR"), (B) IT HAS ACQUIRED AND IS HOLDING THIS CERTIFICATE IN RELIANCE ON U.S. DEPARTMENT OF LABOR PROHIBITED TRANSACTION EXEMPTION ("PTE") 94-29, 59 FED. REG. 14674 (MARCH 29, 1994), AS MOST RECENTLY AMENDED BY PTE 2002-41, 67 FED. REG. 54487 (AUGUST 22, 2002) (THE "RFC EXEMPTION"), AND THAT IT UNDERSTANDS THAT THERE ARE CERTAIN CONDITIONS TO THE AVAILABILITY OF THE RFC EXEMPTION INCLUDING THAT THIS CERTIFICATE MUST BE RATED, AT THE TIME OF PURCHASE, NOT LOWER THAN "BBB-" (OR ITS EQUIVALENT) BY STANDARD & POOR'S, FITCH OR MOODY'S OR (C) (I) THE TRANSFEREE IS AN INSURANCE COMPANY, (II) THE SOURCE OF FUNDS USED TO PURCHASE OR HOLD THIS CERTIFICATE IS AN "INSURANCE COMPANY GENERAL ACCOUNT" (AS DEFINED IN U.S. DEPARTMENT OF LABOR PROHIBITED TRANSACTION CLASS EXEMPTION ("PTCE") 95-60), AND (III) THE CONDITIONS SET FORTH IN SECTIONS I AND III OF PTCE 95-60 HAVE BEEN SATISFIED (EACH ENTITY THAT SATISFIES THIS CLAUSE (C), A "COMPLYING INSURANCE COMPANY"). EACH HOLDER OF THIS CERTIFICATE IS DEEMED TO REPRESENT THAT, AS OF ANY DATE PRIOR TO THE TERMINATION OF THE SWAP AGREEMENT, EITHER IT IS NOT A PLAN INVESTOR OR AT LEAST ONE OF U.S. DEPARTMENT OF LABOR PROHIBITED TRANSACTION CLASS EXEMPTIONS 84-14, 90-1, 91-38, 95-60, 96-23 OR OTHER APPLICABLE EXEMPTION APPLIES TO SUCH HOLDER'S RIGHT TO RECEIVE PAYMENTS FROM THE SUPPLEMENTAL INTEREST TRUST. IF THIS CERTIFICATE (OR ANY INTEREST THEREIN) IS ACQUIRED OR HELD BY ANY PERSON THAT DOES NOT SATISFY THE CONDITIONS DESCRIBED IN THE PRECEDING PARAGRAPH, THEN THE LAST PRECEDING TRANSFEREE THAT EITHER (I) IS NOT A PLAN INVESTOR, (II) ACQUIRED SUCH CERTIFICATE IN COMPLIANCE WITH THE TRANSFER RESTRICTIONS DESCRIBED ABOVE, OR (III) IS A COMPLYING INSURANCE COMPANY SHALL BE RESTORED, TO THE EXTENT PERMITTED BY LAW, TO ALL RIGHTS AND OBLIGATIONS AS CERTIFICATE OWNER THEREOF RETROACTIVE TO THE DATE OF SUCH TRANSFER OF THIS CERTIFICATE. THE TRUSTEE SHALL BE UNDER NO LIABILITY TO ANY PERSON FOR MAKING ANY PAYMENTS DUE ON THIS CERTIFICATE TO SUCH PRECEDING TRANSFEREE. ANY TRANSFEREE OF A CLASS M CERTIFICATE THAT IS A PLAN INVESTOR WILL BE DEEMED TO HAVE REPRESENTED BY VIRTUE OF ITS PURCHASE OR HOLDING OF SUCH CERTIFICATE OR INTEREST THEREIN THAT SUCH CERTIFICATE, AT THE TIME OF PURCHASE, IS RATED NOT LOWER THAN "BBB-" (OR ITS EQUIVALENT) BY FITCH, STANDARD & POOR'S OR MOODY'S. ANY PURPORTED CERTIFICATE OWNER WHOSE ACQUISITION OR HOLDING OF THIS CERTIFICATE (OR INTEREST THEREIN) WAS EFFECTED IN VIOLATION OF THE RESTRICTIONS IN SECTION 5.02(E) OF THE POOLING AND SERVICING AGREEMENT SHALL INDEMNIFY AND HOLD HARMLESS THE DEPOSITOR, THE TRUSTEE, THE MASTER SERVICER, ANY SUBSERVICER, AND THE TRUST FUND FROM AND AGAINST ANY AND ALL LIABILITIES, CLAIMS, COSTS OR EXPENSES INCURRED BY SUCH PARTIES AS A RESULT OF SUCH ACQUISITION OR HOLDING. CUSIP: _____________________ Certificate No. M-[__]-__ Date of Pooling and Servicing Agreement [Adjustable Pass-Through Rate] and Cut-off Date: October 27, 2006 [Fixed Pass-Through Rate] First Distribution Date: November 27, Aggregate Initial Certificate Principal 2006 Balance of the Class M-[_] Certificates: $___________________________ Master Servicer: Initial Certificate Principal Balance Residential Funding Company, LLC of this Class M-[_] Certificate: $___________________________ Final Scheduled Distribution Date: __________ __, 20__ -------------------------------------------------------------------------------- HOME EQUITY MORTGAGE ASSET-BACKED PASS-THROUGH CERTIFICATES SERIES 2006-KS9 evidencing a percentage interest in the distributions allocable to the Class M-[_] Certificates with respect to a Trust Fund consisting primarily of a pool of [fixed] [adjustable] interest rate, first [and junior] lien mortgage loans on one- to four-family residential properties sold by RESIDENTIAL ASSET SECURITIES CORPORATION This Certificate is payable solely from the assets of the Trust Fund, and does not represent an obligation of or interest in Residential Asset Securities Corporation, the Master Servicer, the Trustee referred to below or GMAC Mortgage Group, LLC or any of their affiliates. Neither this Certificate nor the underlying mortgage loans are guaranteed or insured by any governmental agency or instrumentality or by Residential Asset Securities Corporation, the Master Servicer, the Trustee or GMAC Mortgage Group, LLC or any of their affiliates. None of the Depositor, the Master Servicer, GMAC Mortgage Group, LLC or any of their affiliates will have any obligation with respect to any certificate or other obligation secured by or payable from payments on the Certificates. This certifies that [Cede & Co.] is the registered owner of the Percentage Interest evidenced by this Certificate in certain distributions with respect to the Trust Fund consisting primarily of an interest in a pool of [fixed] [adjustable] interest rate, first [and junior] lien mortgage loans on one- to four- family residential properties (the "Mortgage Loans"), sold by Residential Asset Securities Corporation (hereinafter called the "Depositor," which term includes any successor entity under the Agreement referred to below). The Trust Fund was created pursuant to a Pooling and Servicing Agreement dated as specified above (the "Agreement") among the Depositor, the Master Servicer and U.S. Bank National Association, as trustee (the "Trustee"), a summary of certain of the pertinent provisions of which is set forth hereafter. To the extent not defined herein, the capitalized terms used herein have the meanings assigned in the Agreement. This Certificate is issued under and is subject to the terms, provisions and conditions of the Agreement, to which Agreement the Holder of this Certificate by virtue of the acceptance hereof assents and by which such Holder is bound. Pursuant to the terms of the Agreement, a distribution will be made on the 25th day of each month or, if such 25th day is not a Business Day, the Business Day immediately following (the "Distribution Date"), commencing as described in the Agreement, to the Person in whose name this Certificate is registered at the close of business on the Business Day immediately preceding that Distribution Date (the "Record Date"), from the related Available Distribution Amount in an amount equal to the product of the Percentage Interest evidenced by this Certificate and the amount of interest and principal, if any, required to be distributed to Holders of Class M-[_] Certificates on such Distribution Date. Distributions on this Certificate will be made either by the Master Servicer acting on behalf of the Trustee or by a Paying Agent appointed by the Trustee in immediately available funds (by wire transfer or otherwise) for the account of the Person entitled thereto if such Person shall have so notified the Master Servicer or such Paying Agent, or by check mailed to the address of the Person entitled thereto, as such name and address shall appear on the Certificate Register. Any Transferee of this Certificate will be deemed to have represented by virtue of its purchase or holding of this Certificate (or interest therein) after termination of the Swap Agreement that either (a) such transferee is not an employee benefit plan or other plan or arrangement subject to the prohibited transaction provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of the code or a person (including an insurance company investing its general account, an investment manager, a named fiduciary or a trustee of any such plan) who is using "plan assets" of any such plan to effect such acquisition (each of the foregoing, a "Plan Investor"), (b) it has acquired and is holding this Certificate in reliance on U.S. Department of Labor Prohibited Transaction Exemption ("PTE") 94-29, 59 Fed. Reg. 14674 (March 29, 1994), as most recently amended by PTE 2002-41, 67 Fed. Reg. 54487 (August 22, 2002) (the "RFC Exemption"), and that it understands that there are certain conditions to the availability of the RFC Exemption including that this Certificate must be rated, at the time of purchase, not lower than "BBB-" (or its equivalent) by Standard & Poor's, Fitch or Moody's or (c) (i) the transferee is an insurance company, (ii) the source of funds used to purchase or hold this certificate is an "insurance company general account" (as defined in U.S. Department of Labor Prohibited Transaction Class Exemption ("PTCE") 95-60), and (iii) the conditions set forth in sections I and III of PTCE 95-60 have been satisfied (each entity that satisfies this clause (c), a "Complying Insurance Company"). Each holder of this Certificate is deemed to represent that, as of any date prior to the termination of the Swap Agreement, either it is not a plan investor or at least one of U.S. Department of Labor Prohibited Transaction Class Exemptions 84-14, 90-1, 91-38, 95-60, 96-23 or other applicable exemption applies to such holder's right to receive payments from the Supplemental Interest Trust. If this Certificate (or any interest therein) is acquired or held by any person that does not satisfy the conditions described in the preceding paragraph, then the last preceding transferee that either (i) is not a Plan Investor, (ii) acquired such Certificate in compliance with the transfer restrictions described above, or (iii) is a Complying Insurance Company shall be restored, to the extent permitted by law, to all rights and obligations as Certificate owner thereof retroactive to the date of such transfer of this Certificate. The Trustee shall be under no liability to any person for making any payments due on this Certificate to such preceding transferee. Any purported Certificate owner whose acquisition or holding of this Certificate (or interest therein) was effected in violation of the restrictions in Section 5.02(e) of the Pooling and Servicing Agreement shall indemnify and hold harmless the Depositor, the Trustee, the Master Servicer, any Subservicer, and the Trust Fund from and against any and all liabilities, claims, costs or expenses incurred by such parties as a result of such acquisition or holding. Any Transferee of a Class M Certificate that is a plan investor will be deemed to have represented by virtue of its purchase or holding of such Certificate or interest therein that such Certificate, at the time of purchase, is rated not lower than "BBB-" (or its equivalent) by Fitch, Standard & Poors or Moodys. Notwithstanding the above, the final distribution on this Certificate will be made after due notice of the pendency of such distribution and only upon presentation and surrender of, this Certificate at the office or agency appointed by the Trustee for that purpose in St. Paul, Minnesota. The Initial Certificate Principal Balance of this Certificate is set forth above. The Certificate Principal Balance hereof will be reduced to the extent of distributions allocable to principal and any Realized Losses allocable hereto. This Certificate is one of a duly authorized issue of Certificates issued in several Classes designated as Home Equity Mortgage Asset-Backed Pass-Through Certificates of the Series specified hereon (herein collectively called the "Certificates"). The Certificates are limited in right of payment to certain collections and recoveries respecting the Mortgage Loans, all as more specifically set forth herein and in the Agreement. In the event Master Servicer funds are advanced with respect to any Mortgage Loan, such advance is reimbursable to the Master Servicer, to the extent provided in the Agreement, from related recoveries on such Mortgage Loan or from other cash that would have been distributable to Certificateholders. As provided in the Agreement, withdrawals from the Custodial Account and/or the Certificate Account created for the benefit of Certificateholders may be made by the Master Servicer from time to time for purposes other than distributions to Certificateholders, such purposes including without limitation reimbursement to the Depositor and the Master Servicer of advances made, or certain expenses incurred, by either of them. The Agreement permits, with certain exceptions therein provided, the amendment of the Agreement and the modification of the rights and obligations of the Depositor, the Master Servicer and the Trustee and the rights of the Certificateholders under the Agreement from time to time by the Depositor, the Master Servicer and the Trustee with the consent of the Holders of Certificates evidencing in the aggregate not less than 66% of the Percentage Interests of each Class of Certificates affected thereby. Any such consent by the Holder of this Certificate shall be conclusive and binding on such Holder and upon all future holders of this Certificate and of any Certificate issued upon the transfer hereof or in exchange herefor or in lieu hereof whether or not notation of such consent is made upon the Certificate. The Agreement also permits the amendment thereof in certain circumstances without the consent of the Holders of any of the Certificates and, in certain additional circumstances, without the consent of the Holders of certain Classes of Certificates. As provided in the Agreement and subject to certain limitations therein set forth, the transfer of this Certificate is registrable in the Certificate Register upon surrender of this Certificate for registration of transfer at the offices or agencies appointed by the Trustee in St. Paul, Minnesota, duly endorsed by, or accompanied by an assignment in the form below or other written instrument of transfer in form satisfactory to the Trustee and the Certificate Registrar duly executed by the Holder hereof or such Holder's attorney duly authorized in writing, and there upon one or more new Certificates of authorized denominations evidencing the same Class and aggregate Percentage Interest will be issued to the designated transferee or transferees. The Certificates are issuable only as registered Certificates without coupons in Classes and in denominations specified in the Agreement. As provided in the Agreement and subject to certain limitations therein set forth, Certificates are exchangeable for new Certificates of authorized denominations evidencing the same Class and aggregate Percentage Interest, as requested by the Holder surrendering the same. No service charge will be made for any such registration of transfer or exchange, but the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. The Depositor, the Master Servicer, the Trustee, and the Certificate Registrar and any agent of the Depositor, the Master Servicer, the Trustee or the Certificate Registrar may treat the Person in whose name this Certificate is registered as the owner hereof for all purposes, and none of the Depositor, the Master Servicer, the Trustee or any such agent shall be affected by notice to the contrary. This Certificate shall be governed by and construed in accordance with the laws of the State of New York. The obligations created by the Agreement in respect of the Certificates and the Trust Fund created thereby shall terminate upon the payment to Certificateholders of all amounts held by or on behalf of the Trustee and required to be paid to them pursuant to the Agreement following the earlier of (i) the maturity or other liquidation of the last Mortgage Loan subject thereto or the disposition of all property acquired upon foreclosure or deed in lieu of foreclosure of any Mortgage Loan, and (ii) the purchase by the Holder of the Class SB Certificates or the Master Servicer, as described in the Agreement, from the Trust Fund of all remaining Mortgage Loans and all property acquired in respect of such Mortgage Loans or the Certificates, in either case thereby effecting early retirement of the Certificates. The Agreement permits, but does not require, the Holder of the Class SB Certificates or the Master Servicer, as described in the Agreement, (i) to purchase, at a price determined as provided in the Agreement, all remaining Mortgage Loans and all property acquired in respect of any Mortgage Loan or (ii) to purchase in whole, but not in part, all of the Certificates from the Holders thereof, provided, that any such option may only be exercised if the Stated Principal Balance before giving effect to the distributions to be made on such Distribution Date of the Mortgage Loans, as of the Distribution Date upon which the proceeds of any such purchase are distributed is less than ten percent of the Cut-off Date Balance. Unless the certificate of authentication hereon has been executed by the Certificate Registrar, by manual signature, this Certificate shall not be entitled to any benefit under the Agreement or be valid for any purpose. -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly executed. U.S. BANK NATIONAL ASSOCIATION, as Trustee By:_________________________________ Authorized Signatory Dated:_____________________ CERTIFICATE OF AUTHENTICATION This is one of the Class M-[_] Certificates referred to in the within-mentioned Agreement. U.S. BANK NATIONAL ASSOCIATION, as Certificate Registrar By: _______________________________ Authorized Signatory -------------------------------------------------------------------------------- ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto (Please print or typewrite name and address including postal zip code of assignee) the beneficial interest evidenced by the within Trust Certificate and hereby authorizes the transfer of registration of such interest to assignee on the Certificate Register of the Trust Fund. I (We) further direct the Certificate Registrar to issue a new Certificate of a like denomination and Class, to the above named assignee and deliver such Certificate to the following address: ______________________________________________________________________________ Dated:_____________________ ____________________________________ Signature by or on behalf of assignor ______________________________________________________________________________ Signature Guaranteed DISTRIBUTION INSTRUCTIONS The assignee should include the following for purposes of distribution: Distributions shall be made, by wire transfer or otherwise, in immediately available fund to____________________________________________________________________________ for the account of ___________________________________________________________ account number _______________________________________________________________ or, if mailed by check, to ___________________________________________________ Applicable statements should be mailed to:______________________________ ______________________________________________________________________________ ______________________________________________________________________________ This information is provided by ___________________________________, the assignee named above, or ______________________________, as its agent. -------------------------------------------------------------------------------- EXHIBIT C CLASS SB-[_] CERTIFICATE THIS CERTIFICATE IS SUBORDINATED IN RIGHT OF PAYMENT TO THE CLASS A AND CLASS M CERTIFICATES AS DESCRIBED IN THE AGREEMENT (AS DEFINED HEREIN). SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE IS A "REGULAR INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT," AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL REVENUE CODE OF 1986 (THE "CODE") COUPLED WITH THE RIGHT TO RECEIVE PAYMENTS UNDER THE SWAP AGREEMENT. THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE RESOLD OR TRANSFERRED UNLESS IT IS REGISTERED PURSUANT TO SUCH ACT AND LAWS OR IS SOLD OR TRANSFERRED IN TRANSACTIONS WHICH ARE EXEMPT FROM REGISTRATION UNDER SUCH ACT AND UNDER APPLICABLE STATE LAW AND IS TRANSFERRED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 5.02 OF THE POOLING AND SERVICING AGREEMENT (THE "AGREEMENT"). NO TRANSFER OF THIS CERTIFICATE OR ANY INTEREST THEREIN SHALL BE MADE TO ANY EMPLOYEE BENEFIT PLAN OR OTHER PLAN OR ARRANGEMENT SUBJECT TO THE PROHIBITED TRANSACTION PROVISIONS OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR SECTION 4975 OF THE CODE, OR ANY PERSON (INCLUDING AN INSURANCE COMPANY INVESTING ITS GENERAL ACCOUNT, AN INVESTMENT MANAGER, A NAMED FIDUCIARY OR A TRUSTEE OF ANY SUCH PLAN) WHO IS USING "PLAN ASSETS" OF ANY SUCH PLAN TO EFFECT SUCH ACQUISITION (EACH OF THE FOREGOING, A "PLAN INVESTOR") UNLESS THE TRUSTEE, THE DEPOSITOR AND THE MASTER SERVICER ARE PROVIDED WITH AN OPINION OF COUNSEL ACCEPTABLE TO AND IN FORM AND SUBSTANCE SATISFACTORY TO THE TRUSTEE, THE DEPOSITOR AND THE MASTER SERVICER TO THE EFFECT THAT THE PURCHASE OR HOLDING OF THIS CERTIFICATE IS PERMISSIBLE UNDER APPLICABLE LAW, WILL NOT CONSTITUTE OR RESULT IN ANY NON-EXEMPT PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE (OR COMPARABLE PROVISIONS OF ANY SUBSEQUENT ENACTMENTS), AND WILL NOT SUBJECT THE TRUSTEE, THE DEPOSITOR OR THE MASTER SERVICER TO ANY OBLIGATION OR LIABILITY (INCLUDING OBLIGATIONS OR LIABILITIES UNDER ERISA OR SECTION 4975 OF THE CODE) IN ADDITION TO THOSE UNDERTAKEN IN THE AGREEMENT, WHICH OPINION OF COUNSEL SHALL NOT BE AN EXPENSE OF THE TRUSTEE, THE DEPOSITOR OR THE MASTER SERVICER. ANY PURPORTED CERTIFICATE OWNER WHOSE ACQUISITION OR HOLDING OF THIS CERTIFICATE (OR INTEREST THEREIN) WAS EFFECTED IN VIOLATION OF THE RESTRICTIONS IN SECTION 5.02(E) OF THE POOLING AND SERVICING AGREEMENT SHALL INDEMNIFY AND HOLD HARMLESS THE DEPOSITOR, THE TRUSTEE, THE MASTER SERVICER, ANY SUBSERVICER, AND THE TRUST FUND FROM AND AGAINST ANY AND ALL LIABILITIES, CLAIMS, COSTS OR EXPENSES INCURRED BY SUCH PARTIES AS A RESULT OF SUCH ACQUISITION OR HOLDING. CUSIP: _____________________ Certificate No. SB-[__]-1 Date of Pooling and Servicing Agreement Percentage Interest: [__]% and Cut-off Date: October 27, 2006 First Distribution Date: November 27, Aggregate Initial Certificate 2006 Principal Balance of the Class SB-[_] Certificates: $___________________________ Master Servicer: Initial Certificate Principal Balance Residential Funding Company, LLC of this Class SB-[_] Certificate: $___________________________ Maturity Date: __________ __, 20__ -------------------------------------------------------------------------------- HOME EQUITY MORTGAGE ASSET-BACKED PASS-THROUGH CERTIFICATES SERIES 2006-KS9 evidencing a percentage interest in the distributions allocable to the Class SB-[_] Certificates with respect to a Trust Fund consisting primarily of a pool of [fixed] [adjustable] interest rate, first [and junior] lien mortgage loans on one- to four-family residential properties sold by RESIDENTIAL ASSET SECURITIES CORPORATION This Certificate is payable solely from the assets of the Trust Fund, and does not represent an obligation of or interest in Residential Asset Securities Corporation, the Master Servicer, the Trustee referred to below or any of their affiliates. Neither this Certificate nor the underlying mortgage loans are guaranteed or insured by any governmental agency or instrumentality or by Residential Asset Securities Corporation, the Master Servicer, the Trustee or any of their affiliates. None of the Depositor, the Master Servicer or any of their affiliates will have any obligation with respect to any certificate or other obligation secured by or payable from payments on the Certificates. This certifies that [Barclays Capital Inc.] is the registered owner of the Percentage Interest evidenced by this Certificate in certain distributions with respect to the Trust Fund consisting primarily of an interest in a pool of [fixed] [adjustable] interest rate, first [and junior] lien mortgage loans on one- to four-family residential properties (the "Mortgage Loans"), sold by Residential Asset Securities Corporation (hereinafter called the "Depositor," which term includes any successor entity under the Agreement referred to below). The Trust Fund was created pursuant to a Pooling and Servicing Agreement dated as specified above (the "Agreement") among the Depositor, the Master Servicer and U.S. Bank National Association, as trustee (the "Trustee"), a summary of certain of the pertinent provisions of which is set forth hereafter. To the extent not defined herein, the capitalized terms used herein have the meanings assigned in the Agreement. This Certificate is issued under and is subject to the terms, provisions and conditions of the Agreement, to which Agreement the Holder of this Certificate by virtue of the acceptance hereof, assents and by which such Holder is bound. Pursuant to the terms of the Agreement, a distribution will be made on the 25th day of each month or, if such 25th day is not a Business Day, the Business Day immediately following (the "Distribution Date"), commencing as described in the Agreement, to the Person in whose name this Certificate is registered at the close of business on the last Business Day of the month immediately preceding the month of such distribution (the "Record Date"), from the Available Distribution Amount in an amount equal to the product of the Percentage Interest evidenced by this Certificate and the amount of interest and principal, if any, required to be distributed to Holders of Class SB-[_] Certificates on such Distribution Date. Distributions on this Certificate will be made either by the Master Servicer acting on behalf of the Trustee or by a Paying Agent appointed by the Trustee in immediately available funds (by wire transfer or otherwise) for the account of the Person entitled thereto if such Person shall have so notified the Master Servicer or such Paying Agent, or by check mailed to the address of the Person entitled thereto, as such name and address shall appear on the Certificate Register. Notwithstanding the above, the final distribution on this Certificate will be made after due notice of the pendency of such distribution and only upon presentation and surrender of this Certificate at the office or agency appointed by the Trustee for that purpose in St. Paul, Minnesota. The Notional Amount of this Class SB-[_] Certificate as of any date of determination will be calculated as described in the Agreement. This Class SB-[_] Certificate will accrue interest at the Pass-Through Rate on the Notional Amount as indicated in the definition of Accrued Certificate Interest in the Agreement. This Class SB-[_] Certificate will not accrue interest on its Certificate Principal Balance. No transfer of this Certificate or any interest therein shall be made to any employee benefit plan or other plan or arrangement subject to the prohibited transaction provisions of ERISA or Section 4975 of the Code, or any person (including an insurance company investing its general account, an investment manager, a named fiduciary or a trustee of any such plan) who is using "plan assets" of any such plan to effect such acquisition (each of the foregoing, a "Plan Investor") unless the Trustee, the Depositor and the Master Servicer are provided with an Opinion of Counsel acceptable to and in form and substance satisfactory to the Trustee, the Depositor and the Master Servicer to the effect that the purchase or holding of this Certificate is permissible under applicable law, will not constitute or result in any non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code (or comparable provisions of any subsequent enactments), and will not subject the Trustee, the Depositor or the Master Servicer to any obligation or liability (including obligations or liabilities under ERISA or Section 4975 of the Code) in addition to those undertaken in the Agreement, which Opinion of Counsel shall not be an expense of the Trustee, the Depositor or the Master Servicer. Any purported Certificate owner whose acquisition or holding of this Certificate (or interest therein) was effected in violation of the restrictions in Section 5.02(e) of the Pooling and Servicing Agreement shall indemnify and hold harmless the Depositor, the Trustee, the Master Servicer, any Subservicer, and the Trust Fund from and against any and all liabilities, claims, costs or expenses incurred by such parties as a result of such acquisition or holding. This Certificate is one of a duly authorized issue of Certificates issued in several Classes designated as Home Equity Mortgage Asset-Backed Pass-Through Certificates of the Series specified hereon (herein collectively called the "Certificates"). The Certificates are limited in right of payment to certain collections and recoveries respecting the Mortgage Loans, all as more specifically set forth herein and in the Agreement. In the event Master Servicer funds are advanced with respect to any Mortgage Loan, such advance is reimbursable to the Master Servicer, to the extent provided in the Agreement, from related recoveries on such Mortgage Loan or from other cash that would have been distributable to Certificateholders. As provided in the Agreement, withdrawals from the Custodial Account and/or the Certificate Account created for the benefit of Certificateholders may be made by the Master Servicer from time to time for purposes other than distributions to Certificateholders, such purposes including without limitation reimbursement to the Depositor and the Master Servicer of advances made, or certain expenses incurred, by either of them. The Agreement permits, with certain exceptions therein provided, the amendment of the Agreement and the modification of the rights and obligations of the Depositor, the Master Servicer and the Trustee and the rights of the Certificateholders under the Agreement from time to time by the Depositor, the Master Servicer and the Trustee with the consent of the Holders of Certificates evidencing in the aggregate not less than 66% of the Percentage Interests of each Class of Certificates affected thereby. Any such consent by the Holder of this Certificate shall be conclusive and binding on such Holder and upon all future holders of this Certificate and of any Certificate issued upon the transfer hereof or in exchange herefor or in lieu hereof whether or not notation of such consent is made upon the Certificate. The Agreement also permits the amendment thereof in certain circumstances without the consent of the Holders of any of the Certificates and, in certain additional circumstances, without the consent of the Holders of certain Classes of Certificates. As provided in the Agreement and subject to certain limitations therein set forth, the transfer of this Certificate is registrable in the Certificate Register upon surrender of this Certificate for registration of transfer at the offices or agencies appointed by the Trustee in St. Paul, Minnesota, duly endorsed by, or accompanied by an assignment in the form below or other written instrument of transfer in form satisfactory to the Trustee and the Certificate Registrar duly executed by the Holder hereof or such Holder's attorney duly authorized in writing, and thereupon one or more new Certificates of authorized denominations evidencing the same Class and aggregate Percentage Interest will be issued to the designated transferee or transferees. The Certificates are issuable only as registered Certificates without coupons in Classes and in denominations specified in the Agreement. As provided in the Agreement and subject to certain limitations therein set forth, Certificates are exchangeable for new Certificates of authorized denominations evidencing the same Class and aggregate Percentage Interest, as requested by the Holder surrendering the same. No service charge will be made for any such registration of transfer or exchange, but the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. The Depositor, the Master Servicer, the Trustee, the Certificate Registrar and any agent of the Depositor, the Master Servicer, the Trustee or the Certificate Registrar may treat the Person in whose name this Certificate is registered as the owner hereof for all purposes, and none of the Depositor, the Master Servicer, the Trustee or any such agent shall be affected by notice to the contrary. This Certificate shall be governed by and construed in accordance with the laws of the State of New York. The obligations created by the Agreement in respect of the Certificates and the Trust Fund created thereby shall terminate upon the payment to Certificateholders of all amounts held by or on behalf of the Trustee and required to be paid to them pursuant to the Agreement following the earlier of (i) the maturity or other liquidation of the last Mortgage Loan subject thereto or the disposition of all property acquired upon foreclosure or deed in lieu of foreclosure of any Mortgage Loan, and (ii) the purchase by the Holder of the Class SB Certificates or the Master Servicer, as described in the Agreement, from the Trust Fund of all remaining Mortgage Loans and all property acquired in respect of such Mortgage Loans or the Certificates, in either case thereby effecting early retirement of the Certificates. The Agreement permits, but does not require, the Holder of the Class SB Certificates or the Master Servicer, as described in the Agreement, (i) to purchase, at a price determined as provided in the Agreement, all remaining Mortgage Loans and all property acquired in respect of any Mortgage Loan or (ii) to purchase in whole, but not in part, all of the Certificates from the Holders thereof, provided, that any such option may only be exercised if the Stated Principal Balance before giving effect to the distributions to be made on such Distribution Date of the Mortgage Loans, as of the Distribution Date upon which the proceeds of any such purchase are distributed is less than ten percent of the Cut-off Date Balance. Unless the certificate of authentication hereon has been executed by the Certificate Registrar by manual signature, this Certificate shall not be entitled to any benefit under the Agreement or be valid for any purpose. -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly executed. U.S. BANK NATIONAL ASSOCIATION, as Trustee By:_________________________________ Authorized Signatory Dated:_____________________ CERTIFICATE OF AUTHENTICATION This is one of the Class SB-[_] Certificates referred to in the within-mentioned Agreement. U.S. BANK NATIONAL ASSOCIATION, as Certificate Registrar By: _______________________________ Authorized Signatory -------------------------------------------------------------------------------- ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto (Please print or typewrite name and address including postal zip code of assignee) the beneficial interest evidenced by the within Trust Certificate and hereby authorizes the transfer of registration of such interest to assignee on the Certificate Register of the Trust Fund. I (We) further direct the Certificate Registrar to issue a new Certificate of a like denomination and Class, to the above named assignee and deliver such Certificate to the following address: ______________________________________________________________________________ Dated:_____________________ ____________________________________ Signature by or on behalf of assignor ______________________________________________________________________________ Signature Guaranteed DISTRIBUTION INSTRUCTIONS The assignee should include the following for purposes of distribution: Distributions shall be made, by wire transfer or otherwise, in immediately available fund to____________________________________________________________________________ for the account of ___________________________________________________________ account number _______________________________________________________________ or, if mailed by check, to ___________________________________________________ Applicable statements should be mailed to:______________________________ ______________________________________________________________________________ ______________________________________________________________________________ This information is provided by ___________________________________, the assignee named above, or ______________________________, as its agent. -------------------------------------------------------------------------------- EXHIBIT D FORM OF CLASS R CERTIFICATE THE CLASS R CERTIFICATE WILL NOT BE ENTITLED TO PAYMENTS CONSTITUTING THE AVAILABLE DISTRIBUTION AMOUNT UNTIL SUCH TIME AS DESCRIBED IN THE POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN (THE "AGREEMENT"). THIS CLASS R CERTIFICATE IS SUBORDINATE TO THE CLASS A, CLASS M AND CLASS SB CERTIFICATES, TO THE EXTENT DESCRIBED HEREIN AND IN THE AGREEMENT. THIS CERTIFICATE MAY NOT BE HELD BY OR TRANSFERRED TO A NON-UNITED STATES PERSON OR A DISQUALIFIED ORGANIZATION (AS DEFINED BELOW). SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE IS A "RESIDUAL INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT" AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL REVENUE CODE OF 1986 (THE "CODE"). THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE RESOLD OR TRANSFERRED UNLESS IT IS REGISTERED PURSUANT TO SUCH ACT AND LAWS OR IS SOLD OR TRANSFERRED IN TRANSACTIONS WHICH ARE EXEMPT FROM REGISTRATION UNDER SUCH ACT AND UNDER APPLICABLE STATE LAW AND IS TRANSFERRED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 5.02 OF THE POOLING AND SERVICING AGREEMENT (THE "AGREEMENT"). THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE RESOLD OR TRANSFERRED UNLESS IT IS REGISTERED PURSUANT TO SUCH ACT AND LAWS OR IS SOLD OR TRANSFERRED IN TRANSACTIONS WHICH ARE EXEMPT FROM REGISTRATION UNDER SUCH ACT AND UNDER APPLICABLE STATE LAW AND IS TRANSFERRED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 5.02 OF THE POOLING AND SERVICING AGREEMENT (THE "AGREEMENT"). NO TRANSFER OF THIS CERTIFICATE OR ANY INTEREST THEREIN SHALL BE MADE TO ANY EMPLOYEE BENEFIT PLAN OR OTHER PLAN OR ARRANGEMENT SUBJECT TO THE PROHIBITED TRANSACTION PROVISIONS OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR SECTION 4975 OF THE CODE, OR ANY PERSON (INCLUDING AN INSURANCE COMPANY INVESTING ITS GENERAL ACCOUNT, AN INVESTMENT MANAGER, A NAMED FIDUCIARY OR A TRUSTEE OF ANY SUCH PLAN) WHO IS USING "PLAN ASSETS" OF ANY SUCH PLAN TO EFFECT SUCH ACQUISITION (EACH OF THE FOREGOING, A "PLAN INVESTOR") UNLESS THE TRUSTEE, THE DEPOSITOR AND THE MASTER SERVICER ARE PROVIDED WITH AN OPINION OF COUNSEL ACCEPTABLE TO AND IN FORM AND SUBSTANCE SATISFACTORY TO THE TRUSTEE, THE DEPOSITOR AND THE MASTER SERVICER TO THE EFFECT THAT THE PURCHASE OR HOLDING OF THIS CERTIFICATE IS PERMISSIBLE UNDER APPLICABLE LAW, WILL NOT CONSTITUTE OR RESULT IN ANY NON-EXEMPT PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE (OR COMPARABLE PROVISIONS OF ANY SUBSEQUENT ENACTMENTS), AND WILL NOT SUBJECT THE TRUSTEE, THE DEPOSITOR OR THE MASTER SERVICER TO ANY OBLIGATION OR LIABILITY (INCLUDING OBLIGATIONS OR LIABILITIES UNDER ERISA OR SECTION 4975 OF THE CODE) IN ADDITION TO THOSE UNDERTAKEN IN THE AGREEMENT, WHICH OPINION OF COUNSEL SHALL NOT BE AN EXPENSE OF THE TRUSTEE, THE DEPOSITOR OR THE MASTER SERVICER. ANY PURPORTED CERTIFICATE OWNER WHOSE ACQUISITION OR HOLDING OF THIS CERTIFICATE (OR INTEREST THEREIN) WAS EFFECTED IN VIOLATION OF THE RESTRICTIONS IN SECTION 5.02(E) OF THE POOLING AND SERVICING AGREEMENT SHALL INDEMNIFY AND HOLD HARMLESS THE DEPOSITOR, THE TRUSTEE, THE MASTER SERVICER, ANY SUBSERVICER, AND THE TRUST FUND FROM AND AGAINST ANY AND ALL LIABILITIES, CLAIMS, COSTS OR EXPENSES INCURRED BY SUCH PARTIES AS A RESULT OF SUCH ACQUISITION OR HOLDING. ANY RESALE, TRANSFER OR OTHER DISPOSITION OF THIS CERTIFICATE MAY BE MADE ONLY IF THE PROPOSED TRANSFEREE PROVIDES A TRANSFER AFFIDAVIT TO THE MASTER SERVICER AND THE TRUSTEE THAT (1) SUCH TRANSFEREE IS NOT (A) THE UNITED STATES, ANY STATE OR POLITICAL SUBDIVISION THEREOF, ANY POSSESSION OF THE UNITED STATES, OR ANY AGENCY OR INSTRUMENTALITY OF ANY OF THE FOREGOING (OTHER THAN AN INSTRUMENTALITY WHICH IS A CORPORATION IF ALL OF ITS ACTIVITIES ARE SUBJECT TO TAX AND EXCEPT FOR FREDDIE MAC, A MAJORITY OF ITS BOARD OF DIRECTORS IS NOT SELECTED BY SUCH GOVERNMENTAL UNIT), (B) A FOREIGN GOVERNMENT, ANY INTERNATIONAL ORGANIZATION, OR ANY AGENCY OR INSTRUMENTALITY OF EITHER OF THE FOREGOING, (C) ANY ORGANIZATION (OTHER THAN CERTAIN FARMERS' COOPERATIVES DESCRIBED IN SECTION 521 OF THE CODE) WHICH IS EXEMPT FROM THE TAX IMPOSED BY CHAPTER 1 OF THE CODE UNLESS SUCH ORGANIZATION IS SUBJECT TO THE TAX IMPOSED BY SECTION 511 OF THE CODE (INCLUDING THE TAX IMPOSED BY SECTION 511 OF THE CODE ON UNRELATED BUSINESS TAXABLE INCOME), (D) RURAL ELECTRIC AND TELEPHONE COOPERATIVES DESCRIBED IN SECTION 1381(A)(2)(C) OF THE CODE, (E) AN ELECTING LARGE PARTNERSHIP UNDER SECTION 775(A) OF THE CODE (ANY SUCH PERSON DESCRIBED IN THE FOREGOING CLAUSES (A), (B), (C), (D) OR (E) BEING HEREIN REFERRED TO AS A "DISQUALIFIED ORGANIZATION"), OR (F) AN AGENT OF A DISQUALIFIED ORGANIZATION, (2) NO PURPOSE OF SUCH TRANSFER IS TO IMPEDE THE ASSESSMENT OR COLLECTION OF TAX AND (3) SUCH TRANSFEREE SATISFIES CERTAIN ADDITIONAL CONDITIONS RELATING TO THE FINANCIAL CONDITION OF THE PROPOSED TRANSFEREE. NOTWITHSTANDING THE REGISTRATION IN THE CERTIFICATE REGISTER OR ANY TRANSFER, SALE OR OTHER DISPOSITION OF THIS CERTIFICATE TO A DISQUALIFIED ORGANIZATION OR AN AGENT OF A DISQUALIFIED ORGANIZATION, SUCH REGISTRATION SHALL BE DEEMED TO BE OF NO LEGAL FORCE OR EFFECT WHATSOEVER AND SUCH PERSON SHALL NOT BE DEEMED TO BE A CERTIFICATEHOLDER FOR ANY PURPOSE HEREUNDER, INCLUDING, BUT NOT LIMITED TO, THE RECEIPT OF DISTRIBUTIONS ON THIS CERTIFICATE. EACH HOLDER OF THIS CERTIFICATE BY ACCEPTANCE OF THIS CERTIFICATE SHALL BE DEEMED TO HAVE CONSENTED TO THE PROVISIONS OF THIS PARAGRAPH. Certificate No. R-1 Percentage Interest: 100.00% Date of Pooling and Servicing Agreement Master Servicer: and Cut-off Date: October 27, 2006 Residential Funding Company, LLC HOME EQUITY MORTGAGE ASSET-BACKED PASS-THROUGH CERTIFICATES SERIES 2006-KS9 evidencing a percentage interest in the distributions allocable to the Class R Certificates with respect to a Trust Fund consisting primarily of mortgage loans on one- to four-family residential properties sold by RESIDENTIAL ASSET SECURITIES CORPORATION This Certificate is payable solely from the assets of the Trust Fund and does not represent an obligation of or interest in Residential Asset Securities Corporation, the Master Servicer, the Trustee referred to below or any of their affiliates. Neither this Certificate nor the underlying Mortgage Loans are guaranteed or insured by any governmental agency or instrumentality or by Residential Asset Securities Corporation, the Master Servicer, the Trustee or any of their affiliates. None of the Depositor, the Master Servicer or any of their affiliates will have any obligation with respect to any certificate or other obligation secured by or payable from payments on the Certificates. This certifies that [Residential Funding Company, LLC] is the registered owner of the Percentage Interest evidenced by this Certificate in certain distributions with respect to the Trust Fund consisting primarily of a pool of adjustable rate, first [and junior] lien mortgage loans on one- to four-family residential properties (the "Mortgage Loans"), sold by Residential Asset Securities Corporation (hereinafter called the "Depositor," which term includes any successor entity under the Agreement referred to below). The Trust Fund was created pursuant to a Pooling and Servicing Agreement dated as specified above (the "Agreement) among the Depositor, the Master Servicer and U.S. Bank National Association, as trustee (the "Trustee"), a summary of certain of the pertinent provisions of which is set forth hereafter. To the extent not defined herein, the capitalized terms used herein have the meanings assigned in the Agreement. This Certificate is issued under and is subject to the terms, provisions and conditions of the Agreement, to which Agreement the Holder of this Certificate by virtue of the acceptance hereof assents and by which such Holder is bound. Pursuant to the terms of the Agreement, a distribution will be made on the 25th day of each month or, if such 25th day is not a Business Day, the Business Day immediately following (the "Distribution Date"), commencing as described in the Agreement, to the Person in whose name this Certificate is registered at the close of business on the last Business Day of the month immediately preceding the month of such distribution (the "Record Date"), from the related Available Distribution Amount in an amount equal to the product of the Percentage Interest evidenced by this Certificate and, the amount of interest and principal, if any, required to be distributed to the Holders of Class R Certificates on such Distribution Date. Each Holder of this Certificate will be deemed to have agreed to be bound by the restrictions set forth in the Agreement to the effect that (i) each person holding or acquiring any Ownership Interest in this Certificate must be a United States Person and a Permitted Transferee, (ii) the transfer of any Ownership Interest in this Certificate will be conditioned upon the delivery to the Trustee of, among other things, an affidavit to the effect that it is a United States Person and Permitted Transferee, (ii) any attempted or purported transfer of any Ownership Interest in this Certificate in violation of such restrictions will be absolutely null and void and will vest no rights in the purported transferee, and (iv) if any person other than a United States Person and a Permitted Transferee acquires any Ownership Interest in this Certificate in violation of such restrictions, then the Master Servicer will have the right, in its sole discretion and without notice to the Holder of this Certificate, to sell this Certificate to a purchaser selected by the Master Servicer, which purchaser may be the Master Servicer, or any affiliate of the Master Servicer, on such terms and conditions as the Master Servicer may choose. Notwithstanding the above, the final distribution on this Certificate will be made after due notice of the pendency of such distribution and only upon presentation and surrender of this Certificate at the office or agency appointed by the Trustee for that purpose in St. Paul, Minnesota. The Holder of this Certificate may have additional obligations with respect to this Certificate, including tax liabilities. No transfer of this Class R Certificate will be made unless such transfer is exempt from the registration requirements of the Securities Act of 1933, as amended, and any applicable state securities laws or is made in accordance with said Act and laws. In the event that such a transfer is to be made, (i) the Trustee or the Depositor may require an opinion of counsel acceptable to and in form and substance satisfactory to the Trustee and the Depositor that such transfer is exempt (describing the applicable exemption and the basis therefor) from or is being made pursuant to the registration requirements of the Securities Act of 1933, as amended, and of any applicable statute of any state and (ii) the transferee shall execute an investment letter in the form described by the Agreement. The Holder hereof desiring to effect such transfer shall, and does hereby agree to, indemnify the Trustee, the Depositor, the Master Servicer and the Certificate Registrar acting on behalf of the Trustee against any liability that may result if the transfer is not so exempt or is not made in accordance with such Federal and state laws. Any Transferee of this Certificate will be deemed to have represented by virtue of its purchase or holding of this Certificate (or interest therein) that such transferee is not an employee benefit plan or other plan or arrangement subject to the prohibited transaction provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Code or a person (including an insurance company investing its general account, an investment manager, a named fiduciary or a trustee of any such plan) who is using "plan assets" of any such plan to effect such acquisition. This Certificate is one of a duly authorized issue of Certificates issued in several Classes designated as Home Equity Mortgage Asset-Backed Pass-Through Certificates of the Series specified hereon (herein collectively called the "Certificates"). The Certificates are limited in right of payment to certain collections and recoveries respecting the Mortgage Loans, all as more specifically set forth herein and in the Agreement. In the event Master Servicer funds are advanced with respect to any Mortgage Loan, such advance is reimbursable to the Master Servicer, to the extent provided in the Agreement, from related recoveries on such Mortgage Loan or from other cash that would have been distributable to Certificateholders. As provided in the Agreement, withdrawals from the Custodial Account and/or the Certificate Account created for the benefit of Certificateholders may be made by the Master Servicer from time to time for purposes other than distributions to Certificateholders, such purposes including without limitation reimbursement to the Depositor and the Master Servicer of advances made, or certain expenses incurred, by either of them. The Agreement permits, with certain exceptions therein provided, the amendment of the Agreement and the modification of the rights and obligations of the Depositor, the Master Servicer and the Trustee and the rights of the Certificateholders under the Agreement from time to time by the Depositor, the Master Servicer and the Trustee with the consent of the Holders of Certificates evidencing in the aggregate not less than 66% of the Percentage Interests of each Class of Certificates affected thereby. Any such consent by the Holder of this Certificate shall be conclusive and binding on such Holder and upon all future holders of this Certificate and of any Certificate issued upon the transfer hereof or in exchange herefor or in lieu hereof whether or not notation of such consent is made upon the Certificate. The Agreement also permits the amendment thereof in certain circumstances without the consent of the Holders of any of the Certificates and, in certain additional circumstances, without the consent of the Holders of certain Classes of Certificates. As provided in the Agreement and subject to certain limitations therein set forth, the transfer of this Certificate is registrable in the Certificate Register upon surrender of this Certificate for registration of transfer at the offices or agencies appointed by the Trustee in St. Paul, Minnesota, duly endorsed by, or accompanied by an assignment in the form below or other written instrument of transfer in form satisfactory to the Trustee and the Certificate Registrar duly executed by the Holder hereof or such Holder's attorney duly authorized in writing, and thereupon one or more new Certificates of authorized denominations evidencing the same Class and aggregate Percentage Interest will be issued to the designated transferee or transferees. The Certificates are issuable only as registered Certificates without coupons in Classes and in denominations specified in the Agreement. As provided in the Agreement and subject to certain limitations therein set forth, Certificates are exchangeable for new Certificates of authorized denominations evidencing the same Class and aggregate Percentage Interest, as requested by the Holder surrendering the same. No service charge will be made for any such registration of transfer or exchange, but the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. The Depositor, the Master Servicer, the Trustee, the Certificate Registrar and any agent of the Depositor, the Master Servicer, the Trustee or the Certificate Registrar may treat the Person in whose name this Certificate is registered as the owner hereof for all purposes, and none of the Depositor, the Master Servicer, the Trustee or any such agent shall be affected by notice to the contrary. This Certificate shall be governed by and construed in accordance with the laws of the State of New York. The obligations created by the Agreement in respect of the Certificates and the Trust Fund created thereby shall terminate upon the payment to Certificateholders of all amounts held by or on behalf of the Trustee and required to be paid to them pursuant to the Agreement. Unless the certificate of authentication hereon has been executed by the Certificate Registrar, by manual signature, this Certificate shall not be entitled to any benefit under the Agreement or be valid for any purpose. -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly executed. U.S. BANK NATIONAL ASSOCIATION, as Trustee By:_________________________________ Authorized Signatory Dated:_____________________ CERTIFICATE OF AUTHENTICATION This is one of the Class R Certificates referred to in the within-mentioned Agreement. U.S. BANK NATIONAL ASSOCIATION, as Certificate Registrar By: _______________________________ Authorized Signatory -------------------------------------------------------------------------------- ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto (Please print or typewrite name and address including postal zip code of assignee) the beneficial interest evidenced by the within Trust Certificate and hereby authorizes the transfer of registration of such interest to assignee on the Certificate Register of the Trust Fund. I (We) further direct the Certificate Registrar to issue a new Certificate of a like denomination and Class, to the above named assignee and deliver such Certificate to the following address: ______________________________________________________________________________ Dated:_____________________ ____________________________________ Signature by or on behalf of assignor ______________________________________________________________________________ Signature Guaranteed DISTRIBUTION INSTRUCTIONS The assignee should include the following for purposes of distribution: Distributions shall be made, by wire transfer or otherwise, in immediately available fund to____________________________________________________________________________ for the account of ___________________________________________________________ account number _______________________________________________________________ or, if mailed by check, to ___________________________________________________ Applicable statements should be mailed to:______________________________ ______________________________________________________________________________ ______________________________________________________________________________ This information is provided by ___________________________________, the assignee named above, or ______________________________, as its agent. -------------------------------------------------------------------------------- EXHIBIT E FORM OF CUSTODIAL AGREEMENT THIS CUSTODIAL AGREEMENT (as amended and supplemented from time to time, the "Agreement"), dated as of October 27, 2006, by and among U.S. BANK NATIONAL ASSOCIATION, as trustee (including its successors under the Pooling Agreement defined below, the "Trustee"), RESIDENTIAL ASSET SECURITIES CORPORATION (together with any successor in interest, the "Company"), RESIDENTIAL FUNDING COMPANY, LLC, as master servicer (together with any successor in interest or successor under the Pooling Agreement referred to below, the "Master Servicer") and WELLS FARGO BANK, NATIONAL ASSOCIATION (together with any successor in interest or any successor appointed hereunder, the "Custodian"). W I T N E S S E T H T H A T: WHEREAS, the Company, the Master Servicer, and the Trustee have entered into a Pooling and Servicing Agreement, dated as of October 27, 2006, relating to the issuance of Residential Asset Securities Corporation, Home Equity Mortgage Asset-Backed Pass-Through Certificates, Series 2006-KS9 (as in effect on the date of this Agreement, the "Original Pooling Agreement," and as amended and supplemented from time to time, the "Pooling Agreement"); and WHEREAS, the Custodian has agreed to act as agent for the Trustee for the purposes of receiving and holding certain documents and other instruments delivered by the Company and the Master Servicer under the Pooling Agreement, all upon the terms and conditions and subject to the limitations hereinafter set forth; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements hereinafter set forth, the Trustee, the Company, the Master Servicer and the Custodian hereby agree as follows: -------------------------------------------------------------------------------- ARTICLE I Definitions Capitalized terms used in this Agreement and not defined herein shall have the meanings assigned in the Original Pooling Agreement, unless otherwise required by the context herein. -------------------------------------------------------------------------------- ARTICLE II Custody of Mortgage Documents Section 2.1 Custodian to Act as Agent: Acceptance of Custodial Files. The Company and the Master Servicer hereby direct the Trustee to appoint Wells Fargo Bank, National Association as the Custodian hereunder. The Custodian, as the duly appointed agent of the Trustee for these purposes, acknowledges receipt of the Custodial Files relating to the Mortgage Loans identified on the schedule attached hereto (the "Custodial Files") and declares that it holds and will hold the Custodial Files as agent for the Trustee, in trust, for the use and benefit of all present and future Certificateholders. Section 2.2 Recordation of Assignments. If any Custodial File includes one or more assignments of the related Mortgages to the Trustee that have not been recorded, each such assignment shall be delivered by the Custodian to the Company for the purpose of recording it in the appropriate public office for real property records, and the Company, at no expense to the Custodian, shall promptly cause to be recorded in the appropriate public office for real property records each such assignment and, upon receipt thereof from such public office, shall return each such assignment to the Custodian. Section 2.3 Review of Custodial Files. (a) On or prior to the Closing Date, the Custodian shall deliver to the Trustee an Initial Certification in the form annexed hereto as Exhibit One evidencing receipt of a Custodial File for each Mortgage Loan listed on the Schedule attached hereto (the "Mortgage Loan Schedule"). The parties hereto acknowledge that certain documents referred to in Subsection 2.01(b)(i) of the Pooling Agreement may be missing on or prior to the Closing Date and such missing documents shall be listed as a Schedule to Exhibit One. (b) Within 45 days after the Closing Date, the Custodian agrees, for the benefit of Certificateholders, to review each Custodial File and to deliver to the Trustee an Interim Certification in the form annexed hereto as Exhibit Two to the effect that all documents required to be delivered pursuant to Section 2.01 (b) of the Pooling Agreement have been executed and received and that such documents relate to the Mortgage Loans identified on the Mortgage Loan Schedule, except for any exceptions listed on Schedule A attached to such Interim Certification. For purposes of such review, the Custodian shall compare the following information in each Custodial File to the corresponding information in the Mortgage Loan Schedule: (i) the loan number, (ii) the borrower name and (iii) the original principal balance. In the event that any Mortgage Note or Assignment of Mortgage has been delivered to the Custodian by the Company in blank, the Custodian, upon the direction of the Company, shall cause each such Mortgage Note to be endorsed to the Trustee and each such Assignment of Mortgage to be completed in the name of the Trustee prior to the date on which such Interim Certification is delivered to the Trustee. Within 45 days of receipt of the documents required to be delivered pursuant to Section 2.01(c) of the Pooling Agreement, the Custodian agrees, for the benefit of the Certificateholders, to review each such document, and upon the written request of the Trustee to deliver to the Trustee an updated Schedule A to the Interim Certification. The Custodian shall be under no duty or obligation to inspect, review or examine said documents, instruments, certificates or other papers to determine that the same are genuine, enforceable, or appropriate for the represented purpose or that they have actually been recorded or that they are other than what they purport to be on their face, or that the MIN is accurate. If in performing the review required by this Section 2.3 the Custodian finds any document or documents constituting a part of a Custodial File to be missing or defective in respect of the items reviewed as described in this Section 2.3(b), the Custodian shall promptly so notify the Company, the Master Servicer and the Trustee. (c) Upon receipt of all documents required to be in the Custodial Files the Custodian shall deliver to the Trustee a Final Certification in the form annexed hereto as Exhibit Three evidencing the completeness of the Custodial Files. Upon receipt of written request from the Trustee, the Company or the Master Servicer, the Custodian shall as soon as practicable supply the Trustee with a list of all of the documents relating to the Mortgage Loans required to be delivered pursuant to Section 2.01(b) of the Pooling Agreement not then contained in the Custodial Files. Section 2.4_Notification of Breaches of Representations and Warranties. If the Custodian discovers, in the course of performing its custodial functions, a breach of a representation or warranty made by the Master Servicer or the Company as set forth in the Pooling Agreement with respect to a Mortgage Loan relating to a Custodial File, the Custodian shall give prompt written notice to the Company, the Master Servicer and the Trustee. Section 2.5 Custodian to Cooperate: Release of Custodial Files. Upon the repurchase or substitution of any Mortgage Loan pursuant to Article II of the Pooling Agreement or payment in full of any Mortgage Loan, or the receipt by the Master Servicer of a notification that payment in full will be escrowed in a manner customary for such purposes, the Master Servicer shall immediately notify the Custodian by delivering to the Custodian a Request for Release (in the form of Exhibit Four attached hereto or a mutually acceptable electronic form) and shall request delivery to it of the Custodial File. The Custodian agrees, upon receipt of such Request for Release, promptly to release to the Master Servicer the related Custodial File. Upon receipt of a Request for Release from the Master Servicer, signed by a Servicing Officer, stating that (i) the Master Servicer or a Subservicer, as the case may be, has made a deposit into the Certificate Account in payment for the purchase of the related Mortgage Loan in an amount equal to the Purchase Price for such Mortgage Loan or (ii) the Company has chosen to substitute a Qualified Substitute Mortgage Loan for such Mortgage Loan, the Custodian shall release to the Master Servicer the related Custodial File. Upon written notification of a substitution, the Master Servicer shall deliver to the Custodian and the Custodian agrees to accept the Mortgage Note and other documents constituting the Custodial File with respect to any Qualified Substitute Mortgage Loan, upon receiving written notification from the Master Servicer of such substitution. From time to time as is appropriate for the servicing or foreclosures of any Mortgage Loan, including, for this purpose, collection under any Primary Insurance Policy or any Mortgage Pool Insurance Policy, the Master Servicer shall deliver to the Custodian a Request for Release certifying as to the reason for such release. Upon receipt of the foregoing, the Custodian shall deliver the Custodial File or such document to the Master Servicer. All Custodial Files so released to the Master Servicer shall be held by it in trust for the Trustee for the use and benefit of all present and future Certificateholders. The Master Servicer shall cause each Custodial File or any document therein so released to be returned to the Custodian when the need therefor by the Master Servicer no longer exists, unless (i) the Mortgage Loan has been liquidated and the Liquidation Proceeds relating to the Mortgage Loan have been deposited in the Custodial Account or (ii) the Custodial File or such document has been delivered to an attorney, or to a public trustee or other public official as required by law, for purposes of initiating or pursuing legal action or other proceedings for the foreclosure of the Mortgaged Property either judicially or non-judicially, and the Master Servicer has delivered to the Custodian an updated Request for Release signed by a Servicing Officer certifying as to the name and address of the Person to which such Custodial File or such document was delivered and the purpose or purposes of such delivery. Immediately upon receipt of any Custodial File returned to the Custodian by the Master Servicer, the Custodian shall deliver a signed acknowledgement to the Master Servicer, confirming receipt of such Custodial File. Upon the written request of the Master Servicer, the Custodian will send to the Master Servicer copies of any documents contained in the Custodial File. Section 2.6 Assumption Agreements. In the event that any assumption agreement or substitution of liability agreement is entered into with respect to any Mortgage Loan subject to this Agreement in accordance with the terms and provisions of the Pooling Agreement, the Master Servicer shall notify the Custodian that such assumption or substitution agreement has been completed by forwarding to the Custodian the original of such assumption or substitution agreement, which shall be added to the related Custodial File and, for all purposes, shall be considered a part of such Custodial File to the same extent as all other documents and instruments constituting parts thereof. -------------------------------------------------------------------------------- ARTICLE III Concerning the Custodian Section 3.1_Custodian a Bailee and Agent of the Trustee. With respect to each Mortgage Note, Mortgage and other documents constituting each Custodial File which are delivered to the Custodian, the Custodian is exclusively the bailee and agent of the Trustee and has no instructions to hold any Mortgage Note or Mortgage for the benefit of any person other than the Trustee, holds such documents for the benefit of Certificateholders and undertakes to perform such duties and only such duties as are specifically set forth in this Agreement. Except upon compliance with the provisions of Section 2.5 of this Agreement, no Mortgage Note, Mortgage or other document constituting a part of a Custodial File shall be delivered by the Custodian to the Company or the Master Servicer or otherwise released from the possession of the Custodian. The Master Servicer shall promptly notify the Custodian in writing if it shall no longer be a member of MERS, or if it otherwise shall no longer be capable of registering and recording Mortgage Loans using MERS. In addition, the Master Servicer shall (i) promptly notify the Custodian in writing when a MERS Mortgage Loan is no longer registered with and recorded under MERS and (ii) concurrently with any such deregistration of a MERS Mortgage Loan, prepare, execute and record an original assignment from MERS to the Trustee and deliver such assignment to the Custodian. Section 3.2_Indemnification. The Company hereby agrees to indemnify and hold the Custodian harmless from and against all claims, liabilities, losses, actions, suits or proceedings at law or in equity, or any other expenses, fees or charges of any character or nature, which the Custodian may incur or with which the Custodian may be threatened by reason of its acting as custodian under this Agreement, including indemnification of the Custodian against any and all expenses, including attorney's fees if counsel for the Custodian has been approved by the Company, and the cost of defending any action, suit or proceedings or resisting any claim. Notwithstanding the foregoing, it is specifically understood and agreed that in the event any such claim, liability, loss, action, suit or proceeding or other expense, fee or charge shall have been caused by reason of any negligent act, negligent failure to act or willful misconduct on the part of the Custodian, or which shall constitute a willful breach of its duties hereunder, the indemnification provisions of this Agreement shall not apply. Section 3.3_Custodian May Own Certificates. The Custodian in its individual or any other capacity may become the owner or pledgee of Certificates with the same rights it would have if it were not Custodian. Section 3.4_Master Servicer to Pay Custodian's Fees and Expenses. The Master Servicer covenants and agrees to pay to the Custodian from time to time, and the Custodian shall be entitled to, reasonable compensation for all services rendered by it in the exercise and performance of any of the powers and duties hereunder of the Custodian, and the Master Servicer shall pay or reimburse the Custodian upon its request for all reasonable expenses, disbursements and advances incurred or made by the Custodian in accordance with any of the provisions of this Agreement (including the reasonable compensation and the expenses and disbursements of its counsel and of all persons not regularly in its employ), except any such expense, disbursement or advance as may arise from its negligence or bad faith. Section 3.5_Custodian May Resign; Trustee May Remove Custodian. The Custodian may resign from the obligations and duties hereby imposed upon it as such obligations and duties relate to its acting as Custodian of the Mortgage Loans. Upon receiving such notice of resignation, the Trustee shall either take custody of the Custodial Files itself and give prompt notice thereof to the Company, the Master Servicer and the Custodian, or promptly appoint a successor Custodian by written instrument, in duplicate, one copy of which instrument shall be delivered to the resigning Custodian and one copy to the successor Custodian. If the Trustee shall not have taken custody of the Custodial Files and no successor Custodian shall have been so appointed and have accepted appointment within 30 days after the giving of such notice of resignation, the resigning Custodian may petition any court of competent jurisdiction for the appointment of a successor Custodian. The Trustee, at the direction of the Master Servicer and the Company, may remove the Custodian at any time. In such event, the Trustee shall appoint, or petition a court of competent jurisdiction to appoint, a successor Custodian hereunder. Any successor Custodian shall be a depository institution subject to supervision or examination by federal or state authority and shall be able to satisfy the other requirements contained in Section 3.7 and shall be unaffiliated with the Master Servicer or the Company. Any resignation or removal of the Custodian and appointment of a successor Custodian pursuant to any of the provisions of this Section 3.5 shall become effective upon acceptance of appointment by the successor Custodian. The Trustee shall give prompt notice to the Company and the Master Servicer of the appointment of any successor Custodian. No successor Custodian shall be appointed by the Trustee without the prior approval of the Company and the Master Servicer. Section 3.6_Merger or Consolidation of Custodian. Any Person into which the Custodian may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, conversion or consolidation to which the Custodian shall be a party, or any Person succeeding to the business of the Custodian, shall be the successor of the Custodian hereunder, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding; provided that such successor is a depository institution subject to supervision or examination by federal or state authority and is able to satisfy the other requirements contained in Section 3.7 and is unaffiliated with the Master Servicer or the Company. Section 3.7_Representations of the Custodian. The Custodian hereby represents that it is a depository institution subject to supervision or examination by a federal or state authority, has a combined capital and surplus of at least $15,000,000 and is qualified to do business in the jurisdictions in which it will hold any Custodial File. -------------------------------------------------------------------------------- ARTICLE IV Compliance with Regulation AB Section 4.1_Intent of the Parties; Reasonableness. The parties hereto acknowledge and agree that the purpose of this Article IV is to facilitate compliance by the Company with the provisions of Regulation AB and related rules and regulations of the Commission. The Company shall not exercise its right to request delivery of information or other performance under these provisions other than in good faith, or for purposes other than compliance with the Securities Act, the Exchange Act and the rules and regulations of the Commission under the Securities Act and the Exchange Act. Each of the parties hereto acknowledges that interpretations of the requirements of Regulation AB may change over time, whether due to interpretive guidance provided by the Commission or its staff, consensus among participants in the mortgage-backed securities markets, advice of counsel, or otherwise, and agrees to comply with requests made by the Company in good faith for delivery of information under these provisions on the basis of evolving interpretations of Regulation AB. The Custodian shall cooperate reasonably with the Company to deliver to the Company (including any of its assignees or designees), any and all disclosure, statements, reports, certifications, records and any other information necessary in the reasonable, good faith determination of the Company to permit the Company to comply with the provisions of Regulation AB. Section 4.2 Additional Representations and Warranties of the Custodian. (a) The Custodian hereby represents and warrants that the information set forth under the caption "Pooling and Servicing Agreement--Custodial Arrangements" (the "Custodian Disclosure") in the preliminary prospectus supplement relating to the Certificates and the final prospectus supplement relating to the Certificates does not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (b) The Custodian shall be deemed to represent to the Company as of the date hereof and on each date on which information is provided to the Company under Section 4.3 that, except as disclosed in writing to the Company prior to such date: (i) there are no aspects of its financial condition that could have a material adverse effect on the performance by it of its Custodian obligations under this Agreement or any other Securitization Transaction as to which it is the custodian; (ii) there are no material legal or governmental proceedings pending (or known to be contemplated) against it; and (iii) there are no affiliations, relationships or transactions relating to the Custodian with respect to the Company or any sponsor, issuing entity, servicer, trustee, originator, significant obligor, enhancement or support provider or other material transaction party (as such terms are used in Regulation AB) relating to the Securitization Transaction contemplated by the Agreement, as identified by the Company to the Custodian in writing as of the Closing Date (each, a "Transaction Party"). (c) If so requested by the Company on any date following the Closing Date, the Custodian shall, within five Business Days following such request, confirm in writing the accuracy of the representations and warranties set forth in paragraph (a) of this Section or, if any such representation and warranty is not accurate as of the date of such confirmation, provide reasonably adequate disclosure of the pertinent facts, in writing, to the requesting party. Any such request from the Company shall not be given more than once each calendar quarter, unless the Company shall have a reasonable basis for a determination that any of the representations and warranties may not be accurate. Section 4.3 Additional Information to Be Provided by the Custodian. For so long as the Certificates are outstanding, for the purpose of satisfying the Company's reporting obligation under the Exchange Act with respect to any class of Certificates, the Custodian shall (a) notify the Company in writing of any material litigation or governmental proceedings pending against the Custodian that would be material to Certificateholders, and (b) provide to the Company a written description of such proceedings. Any notices and descriptions required under this Section 4.3 shall be given no later than five Business Days prior to the Determination Date following the month in which the Custodian has knowledge of the occurrence of the relevant event. As of the date the Company or Master Servicer files each Report on Form 10-D or Form 10-K with respect to the Certificates, the Custodian will be deemed to represent that any information previously provided under this Section 4.3, if any, is materially correct and does not have any material omissions unless the Custodian has provided an update to such information. For purposes of this Section 4.3, "Determination Date" shall mean, with respect to any Distribution Date, the 20th day (or if such 20th day is not a Business Day, the Business Day immediately following such 20th day) of the month of the related Distribution Date and "Distribution Date" shall mean, the 25th day of any month beginning in November 2006 or, if such 25th day is not a Business Day, the Business Day immediately following such 25th day. Section 4.4 Report on Assessment of Compliance and Attestation. On or before March 15 of each calendar year, the Custodian shall: (a) deliver to the Company a report (in form and substance reasonably satisfactory to the Company) regarding the Custodian's assessment of compliance with the Servicing Criteria during the immediately preceding calendar year, as required under Rules 13a-18 and 15d-18 of the Exchange Act and Item 1122 of Regulation AB. Such report shall be addressed to the Company and signed by an authorized officer of the Custodian, and shall address each of the Servicing Criteria specified on a certification substantially in the form of Exhibit Five hereto; and (b) deliver to the Company a report of a registered public accounting firm reasonably acceptable to the Company that attests to, and reports on, the assessment of compliance made by the Custodian and delivered pursuant to the preceding paragraph. Such attestation shall be in accordance with Rules 1-02(a)(3) and 2-02(g) of Regulation S-X under the Securities Act and the Exchange Act. Section 4.5 Indemnification; Remedies. (a) The Custodian shall indemnify the Company, each affiliate of the Company, the Master Servicer and each broker dealer acting as underwriter, placement agent or initial purchaser of the Certificates or each Person who controls any of such parties (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act); and the respective present and former directors, officers, employees and agents of each of the foregoing, and shall hold each of them harmless from and against any losses, damages, penalties, fines, forfeitures, legal fees and expenses and related costs, judgments, and any other costs, fees and expenses that any of them may sustain arising out of or based upon: (i) (A) any untrue statement of a material fact contained or alleged to be contained in the Custodian Disclosure and any information, report, certification, accountants' attestation or other material provided under this Article IV by or on behalf of the Custodian (collectively, the "Custodian Information"), or (B) the omission or alleged omission to state in the Custodian Information a material fact required to be stated in the Custodian Information or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; or (ii) any failure by the Custodian to deliver any information, report, certification, accountants' attestation or other material when and as required under this Article IV. (b) In the case of any failure of performance described in clause (ii) of Section 4.5(a), the Custodian shall promptly reimburse the Company for all costs reasonably incurred by the Company in order to obtain the information, report, certification, accountants' letter or other material not delivered as required by the Custodian. -------------------------------------------------------------------------------- ARTICLE V Miscellaneous Provisions Section 5.1_Notices. All notices, requests, consents and demands and other communications required under this Agreement or pursuant to any other instrument or document delivered hereunder shall be in writing and, unless otherwise specifically provided, may be delivered personally, by telegram or telex, or by registered or certified mail, postage prepaid, return receipt requested, at the addresses specified on the signature page hereof (unless changed by the particular party whose address is stated herein by similar notice in writing); in each case the notice will be deemed delivered when received. Section 5.2 Amendments. No modification or amendment of or supplement to this Agreement shall be valid or effective unless the same is in writing and signed by all parties hereto, and none of the Company, the Master Servicer or the Trustee shall enter into any amendment of or supplement to this Agreement except as permitted by the Pooling Agreement. The Trustee shall give prompt notice to the Custodian of any amendment or supplement to the Pooling Agreement and furnish the Custodian with written copies thereof. Section 5.3 GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF, OTHER THAN SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW. Section 5.4 Recordation of Agreement. To the extent permitted by applicable law, this Agreement is subject to recordation in all appropriate public offices for real property records in all the counties or other comparable jurisdictions in which any or all of the properties subject to the Mortgages are situated, and in any other appropriate public recording office or elsewhere, such recordation to be effected by the Master Servicer and at its expense on direction by the Trustee (pursuant to the request of holders of Certificates evidencing undivided interests in the aggregate of not less than 25% of the Trust Fund), but only upon direction accompanied by an Opinion of Counsel reasonably satisfactory to the Master Servicer to the effect that the failure to effect such recordation is likely to materially and adversely affect the interests of the Certificateholders. For the purpose of facilitating the recordation of this Agreement as herein provided and for other purposes, this Agreement may be executed simultaneously in any number of counterparts, each of which counterparts shall be deemed to be an original, and such counterparts shall constitute but one and the same instrument. Section 5.5 Severability of Provisions. If any one or more of the covenants, agreements, provisions or terms of this Agreement shall be for any reason whatsoever held invalid, then such covenants, agreements, provisions or terms shall be deemed severable from the remaining covenants, agreements, provisions or terms of this Agreement and shall in no way affect the validity or enforceability of the other provisions of this Agreement or of the Certificates or the rights of the holders thereof. [Signatures begin on following page] -------------------------------------------------------------------------------- IN WITNESS WHEREOF, this Agreement is executed as of the date first above written. Address: U.S. BANK NATIONAL ASSOCIATION, as Trustee 60 Livingston Avenue EP-MN-WS3D St. Paul, MN 55107 By:__________________________________ Attention: Structured Finance/RASC Name: Series 2006-KS9 Title: Address: RESIDENTIAL ASSET SECURITIES CORPORATION 8400 Normandale Lake Boulevard Suite 250 Minneapolis, Minnesota 55437 By:___________________________________ Name: Tim Jacobson Title:Vice President Address: RESIDENTIAL FUNDING COMPANY, LLC, as Master Servicer 8400 Normandale Lake Boulevard Suite 250 Minneapolis, Minnesota 55437 By:___________________________________ Name: Joseph Orning Title:Associate Address: WELLS FARGO BANK, NATIONAL ASSOCIATION, as Custodian Mortgage Document Custody One Meridian Crossings - LL Richfield, Minnesota 55423 By:___________________________________ Name: Title: Assistant Vice President -------------------------------------------------------------------------------- STATE OF MINNESOTA ) )ss.: COUNTY OF RAMSEY ) On the ____ day of October 2006, before me, a notary public in and for said State, personally appeared _____________, known to me to be a _________ of U.S. BANK NATIONAL ASSOCIATION, a national banking association that executed the within instrument, and also known to me to be the person who executed it on behalf of said national banking association and acknowledged to me that such national banking association executed the within instrument. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. ___________________________________ Notary Public [Notarial Seal] -------------------------------------------------------------------------------- STATE OF MINNESOTA ) )ss.: COUNTY OF HENNEPIN ) On the ____ day of October 2006, before me, a notary public in and for said State, personally appeared ___________________, known to me to be a ______________ of Residential Asset Securities Corporation, one of the corporations that executed the within instrument, and also known to me to be the person who executed it on behalf of said corporation, and acknowledged to me that such corporation executed the within instrument. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. ___________________________________ Notary Public [Notarial Seal] -------------------------------------------------------------------------------- STATE OF MINNESOTA ) )ss.: COUNTY OF HENNEPIN ) On the ____ day of October 2006, before me, a notary public in and for said State, personally appeared ___________________, known to me to be a ______________ of Residential Funding Company, LLC, a limited liability company that executed the within instrument, and also known to me to be the person who executed it on behalf of said limited liability company, and acknowledged to me that such limited liability company executed the within instrument. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. ___________________________________ Notary Public [Notarial Seal] -------------------------------------------------------------------------------- STATE OF ) )ss.: COUNTY OF ) On the ____ day of October 2006, before me, a notary public in and for said State, personally appeared ______________________, known to me to be a ______________________________ Wells Fargo Bank, National Association, one of the entities that executed the within instrument, and also known to me to be the person who executed it on behalf of said national banking association, and acknowledged to me that such national banking association executed the within instrument. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. ____________________________________ Notary Public [Notarial Seal] -------------------------------------------------------------------------------- EXHIBIT ONE FORM OF CUSTODIAN INITIAL CERTIFICATION October ___, 2006 U.S. Bank National Association EP-MN-WS3D 60 Livingston Avenue St. Paul, MN 55107 Attn: Structured Finance/RASC Series 2006-KS9 Re: Custodial Agreement, dated as of October 27, 2006, by and among U.S. Bank National Association, Residential Asset Securities Corporation, Residential Funding Company, LLC and Wells Fargo Bank, National Association, relating to Home Equity Mortgage Asset-Backed Pass-Through Certificates Series 2006-KS9 Ladies and Gentlemen: In accordance with Section 2.3 of the above-captioned Custodial Agreement, and subject to Section 2.02 of the Pooling Agreement, the undersigned, as Custodian, hereby certifies that it has received a Custodial File (which contains an original Mortgage Note or an original Lost Note Affidavit with a copy of the related Mortgage Note) to the extent required in Section 2.01(b) of the Pooling Agreement with respect to each Mortgage Loan listed in the Mortgage Loan Schedule, with any exceptions listed on Schedule A attached hereto. Capitalized words and phrases used herein shall have the respective meanings assigned to them in the above-captioned Custodial Agreement. WELLS FARGO BANK, NATIONAL ASSOCIATION By:________________________________ Name:______________________________ Title:_______________________________ -------------------------------------------------------------------------------- EXHIBIT TWO FORM OF CUSTODIAN INTERIM CERTIFICATION October ___, 2006 U.S. Bank National Association EP-MN-WS3D 60 Livingston Avenue St. Paul, MN 55107 Attn: Structured Finance, RASC Series 2006-KS9 Re: Custodial Agreement, dated as of October 27, 2006, by and among U.S. Bank National Association, Residential Asset Securities Corporation, Residential Funding Company, LLC and Wells Fargo Bank, National Association, relating to Home Equity Mortgage Asset-Backed Pass-Through Certificates Series 2006-KS9 Ladies and Gentlemen: In accordance with Section 2.3 of the above-captioned Custodial Agreement, the undersigned, as Custodian, hereby certifies that it has received a Custodial File to the extent required pursuant to Section 2.01(b) of the Pooling Agreement with respect to each Mortgage Loan listed in the Mortgage Loan Schedule, and it has reviewed the Custodial File and the Mortgage Loan Schedule and has determined that: all required documents have been executed and received and that such documents relate to the Mortgage Loans identified on the Mortgage Loan Schedule, with any exceptions listed on Schedule A attached hereto. Capitalized words and phrases used herein shall have the respective meanings assigned to them in the above-captioned Custodial Agreement. WELLS FARGO BANK, NATIONAL ASSOCIATION By:________________________________ Name:______________________________ Title:_______________________________ -------------------------------------------------------------------------------- EXHIBIT THREE FORM OF CUSTODIAN FINAL CERTIFICATION October ___, 2006 U.S. Bank National Association EP-MN-WS3D 60 Livingston Avenue St. Paul, MN 55107 Attn: Structured Finance, RASC Series 2006-KS9 Re: Custodial Agreement, dated as of October 27, 2006, by and among U.S. Bank National Association, Residential Asset Securities Corporation, Residential Funding Company, LLC and Wells Fargo Bank, National Association, relating to Mortgage Asset-Backed Pass-Through Certificates, Series 2006-KS9 Ladies and Gentlemen: In accordance with Section 2.3 of the above-captioned Custodial Agreement, the undersigned, as Custodian, hereby certifies that it has received a Custodial File with respect to each Mortgage Loan listed in the Mortgage Loan Schedule and it has reviewed the Custodial File and the Mortgage Loan Schedule and has determined that: all required documents referred to in Section 2.01(b) of the Pooling Agreement have been executed and received and that such documents relate to the Mortgage Loans identified on the Mortgage Loan Schedule. Capitalized words and phrases used herein shall have the respective meanings assigned to them in the above-captioned Custodial Agreement. WELLS FARGO BANK, NATIONAL ASSOCIATION By:________________________________ Name:______________________________ Title:_______________________________ -------------------------------------------------------------------------------- EXHIBIT FOUR FORM OF REQUEST FOR RELEASE DATE: TO: RE: REQUEST FOR RELEASE OF DOCUMENTS In connection with the administration of the pool of Mortgage Loans held by you for the referenced pool, we request the release of the Mortgage Loan File described below. Pooling and Servicing Agreement, Dated: Series#: Account#: Pool#: Loan#: MIN#: Borrower Name(s): Reason for Document Request: (circle one) Mortgage Loan Prepaid in Full Mortgage Loan Repurchased "We hereby certify that all amounts received or to be received in connection with such payments which are required to be deposited have been or will be so deposited as provided in the Pooling and Servicing Agreement." ______________________________ Residential Funding Company, LLC Authorized Signature **************************************************************** TO CUSTODIAN/TRUSTEE: Please acknowledge this request, and check off documents being enclosed with a copy of this form. You should retain this form for your files in accordance with the terms of the Pooling and Servicing Agreement. Enclosed Documents: [ ] Promissory Note [ ] Primary Insurance Policy [ ] Mortgage or Deed of Trust [ ] Assignment(s) of Mortgage or Deed of Trust [ ] Title Insurance Policy [ ] Other: ________________________ ___________________________ Name ___________________________ Title ___________________________ Date -------------------------------------------------------------------------------- EXHIBIT FIVE SERVICING CRITERIA TO BE ADDRESSED IN ASSESSMENT OF COMPLIANCE The assessment of compliance to be delivered by the Custodian shall address, at a minimum, the criteria identified as below as "Applicable Servicing Criteria": ---------------------------------------------------------------------------------------- APPLICABLE SERVICING CRITERIA SERVICING CRITERIA ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- REFERENCE CRITERIA ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- GENERAL SERVICING CONSIDERATIONS ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- 1122(d)(1)(i) Policies and procedures are instituted to monitor any performance or other triggers and events of default in accordance with the transaction agreements. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- If any material servicing activities are outsourced to third parties, policies and procedures are instituted to monitor the third party's performance and compliance with 1122(d)(1)(ii) such servicing activities. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Any requirements in the transaction agreements to maintain a back-up servicer for 1122(d)(1)(iii) the pool assets are maintained. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- A fidelity bond and errors and omissions policy is in effect on the party participating in the servicing function throughout the reporting period in the amount of coverage required by and otherwise in accordance with the terms of the transaction 1122(d)(1)(iv) agreements. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- CASH COLLECTION AND ADMINISTRATION ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Payments on pool assets are deposited into the appropriate custodial bank accounts and related bank clearing accounts no more than two business days following receipt, or such other number of days specified in the 1122(d)(2)(i) transaction agreements. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Disbursements made via wire transfer on behalf of an obligor or to an investor are 1122(d)(2)(ii) made only by authorized personnel. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Advances of funds or guarantees regarding collections, cash flows or distributions, and any interest or other fees charged for such advances, are made, reviewed and approved as 1122(d)(2)(iii) specified in the transaction agreements. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- The related accounts for the transaction, such as cash reserve accounts or accounts established as a form of overcollateralization, are separately maintained (e.g., with respect to commingling of cash) as set forth in the transaction 1122(d)(2)(iv) agreements. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Each custodial account is maintained at a federally insured depository institution as set forth in the transaction agreements. For purposes of this criterion, "federally insured depository institution" with respect to a foreign financial institution means a foreign financial institution that meets the requirements of Rule 13k-1(b)(1) of the 1122(d)(2)(v) Securities Exchange Act. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Unissued checks are safeguarded so as to 1122(d)(2)(vi) prevent unauthorized access. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Reconciliations are prepared on a monthly basis for all asset-backed securities related bank accounts, including custodial accounts and related bank clearing accounts. These reconciliations are (A) mathematically accurate; (B) prepared within 30 calendar days after the bank statement cutoff date, or such other number of days specified in the transaction agreements; (C) reviewed and approved by someone other than the person who prepared the reconciliation; and (D) contain explanations for reconciling items. These reconciling items are resolved within 90 calendar days of their original identification, or such other number of days 1122(d)(2)(vii) specified in the transaction agreements. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- INVESTOR REMITTANCES AND REPORTING ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Reports to investors, including those to be filed with the Commission, are maintained in accordance with the transaction agreements and applicable Commission requirements. Specifically, such reports (A) are prepared in accordance with timeframes and other terms set forth in the transaction agreements; (B) provide information calculated in accordance with the terms specified in the transaction agreements; (C) are filed with the Commission as required by its rules and regulations; and (D) agree with investors' or the trustee's records as to the total unpaid principal balance and number of pool assets serviced by 1122(d)(3)(i) the servicer. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Amounts due to investors are allocated and remitted in accordance with timeframes, distribution priority and other terms set 1122(d)(3)(ii) forth in the transaction agreements. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Disbursements made to an investor are posted within two business days to the servicer's investor records, or such other number of 1122(d)(3)(iii) days specified in the transaction agreements. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Amounts remitted to investors per the investor reports agree with cancelled checks, or other form of payment, or custodial bank 1122(d)(3)(iv) statements. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- POOL ASSET ADMINISTRATION ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Collateral or security on pool assets is maintained as required by the transaction 1122(d)(4)(i) agreements or related asset pool documents. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Pool assets and related documents are safeguarded as required by the transaction 1122(d)(4)(ii) agreements. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Any additions, removals or substitutions to the asset pool are made, reviewed and approved in accordance with any conditions or 1122(d)(4)(iii) requirements in the transaction agreements. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Payments on pool assets, including any payoffs, made in accordance with the related pool asset documents are posted to the servicer's obligor records maintained no more than two business days after receipt, or such other number of days specified in the transaction agreements, and allocated to principal, interest or other items (e.g., escrow) in accordance with the related pool 1122(d)(4)(iv) asset documents. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- The servicer's records regarding the pool assets agree with the servicer's records with respect to an obligor's unpaid principal 1122(d)(4)(v) balance. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Changes with respect to the terms or status of an obligor's pool asset (e.g., loan modifications or re-agings) are made, reviewed and approved by authorized personnel in accordance with the transaction agreements 1122(d)(4)(vi) and related pool asset documents. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Loss mitigation or recovery actions (e.g., forbearance plans, modifications and deeds in lieu of foreclosure, foreclosures and repossessions, as applicable) are initiated, conducted and concluded in accordance with the timeframes or other requirements 1122(d)(4)(vii) established by the transaction agreements. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Records documenting collection efforts are maintained during the period a pool asset is delinquent in accordance with the transaction agreements. Such records are maintained on at least a monthly basis, or such other period specified in the transaction agreements, and describe the entity's activities in monitoring delinquent pool assets including, for example, phone calls, letters and payment rescheduling plans in cases where delinquency is deemed temporary (e.g., illness or 1122(d)(4)(viii) unemployment). ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Adjustments to interest rates or rates of return for pool assets with variable rates are computed based on the related pool asset 1122(d)(4)(ix) documents. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Regarding any funds held in trust for an obligor (such as escrow accounts): (A) such funds are analyzed, in accordance with the obligor's pool asset documents, on at least an annual basis, or such other period specified in the transaction agreements; (B) interest on such funds is paid, or credited, to obligors in accordance with applicable pool asset documents and state laws; and (C) such funds are returned to the obligor within 30 calendar days of full repayment of the related pool asset, or such other number of 1122(d)(4)(x) days specified in the transaction agreements. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Payments made on behalf of an obligor (such as tax or insurance payments) are made on or before the related penalty or expiration dates, as indicated on the appropriate bills or notices for such payments, provided that such support has been received by the servicer at least 30 calendar days prior to these dates, or such other number of days 1122(d)(4)(xi) specified in the transaction agreements. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Any late payment penalties in connection with any payment to be made on behalf of an obligor are paid from the servicer's funds and not charged to the obligor, unless the late payment was due to the obligor's error 1122(d)(4)(xii) or omission. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Disbursements made on behalf of an obligor are posted within two business days to the obligor's records maintained by the servicer, or such other number of days specified in the 1122(d)(4)(xiii) transaction agreements. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Delinquencies, charge-offs and uncollectible accounts are recognized and recorded in 1122(d)(4)(xiv) accordance with the transaction agreements. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Any external enhancement or other support, identified in Item 1114(a)(1) through (3) or Item 1115 of Regulation AB, is maintained as 1122(d)(4)(xv) set forth in the transaction agreements. ---------------------------------------------------------------------------------------- -------------------------------------------------------------------------------- EXHIBIT F-1 GROUP I LOAN SCHEDULE [FILED HEREWITH AS EXHIBIT 99.1] -------------------------------------------------------------------------------- EXHIBIT F-2 GROUP II LOAN SCHEDULE [FILED HEREWITH AS EXHIBIT 99.1] -------------------------------------------------------------------------------- EXHIBIT G FORM OF REQUEST FOR RELEASE DATE: TO: RE: REQUEST FOR RELEASE OF DOCUMENTS In connection with the administration of the pool of Mortgage Loans held by you for the referenced pool, we request the release of the Mortgage Loan File described below. Pooling and Servicing Agreement, Dated: Series#: Account#: Pool#: Loan#: MIN#: Borrower Name(s): Reason for Document Request: (circle one) Mortgage Loan Prepaid in Full Mortgage Loan Repurchased "We hereby certify that all amounts received or to be received in connection with such payments which are required to be deposited have been or will be so deposited as provided in the Pooling and Servicing Agreement." ______________________________ Residential Funding Company, LLC Authorized Signature **************************************************************** TO CUSTODIAN/TRUSTEE: Please acknowledge this request, and check off documents being enclosed with a copy of this form. You should retain this form for your files in accordance with the terms of the Pooling and Servicing Agreement. Enclosed Documents: [ ] Promissory Note [ ] Primary Insurance Policy [ ] Mortgage or Deed of Trust [ ] Assignment(s) of Mortgage or Deed of Trust [ ] Title Insurance Policy [ ] Other: ________________________ ___________________________ Name ___________________________ Title ___________________________ Date -------------------------------------------------------------------------------- EXHIBIT H-1 FORM OF TRANSFER AFFIDAVIT AND AGREEMENT STATE OF ) ) ss.: COUNTY OF ) [NAME OF OFFICER], being first duly sworn, deposes and says: 1. That he is [Title of Officer] of [Name of Owner] (record or beneficial owner of the Home Equity Mortgage Asset-Backed Pass-Through Certificates, Series 2006-KS9, Class R (the "Owner")), a [savings institution] [corporation] duly organized and existing under the laws of [the State of ________________] [the United States], on behalf of which he makes this affidavit and agreement. 2. That the Owner (i) is not and will not be a "disqualified organization" or an electing large partnership as of [date of transfer] within the meaning of Section 860E(e)(5) and 775, respectively, of the Internal Revenue Code of 1986, as amended (the "Code") or an electing large partnership under Section 775(a) of the Code, (ii) will endeavor to remain other than a disqualified organization for so long as it retains its ownership interest in the Class R Certificates, and (iii) is acquiring the Class R Certificates for its own account or for the account of another Owner from which it has received an affidavit and agreement in substantially the same form as this affidavit and agreement. (For this purpose, a "disqualified organization" means an electing large partnership under Section 775 of the Code, the United States, any state or political subdivision thereof, any agency or instrumentality of any of the foregoing (other than an instrumentality all of the activities of which are subject to tax and, except for the Federal Home Loan Mortgage Corporation, a majority of whose board of directors is not selected by any such governmental entity) or any foreign government, international organization or any agency or instrumentality of such foreign government or organization, any rural electric or telephone cooperative, or any organization (other than certain farmers' cooperatives) that is generally exempt from federal income tax unless such organization is subject to the tax on unrelated business taxable income). 3. That the Owner is aware (i) of the tax that would be imposed on transfers of Class R Certificates to disqualified organizations or an electing large partnership under the Code, that applies to all transfers of Class R Certificates after March 31, 1988; (ii) that such tax would be on the transferor (or, with respect to transfers to electing large partnerships, on each such partnership), or, if such transfer is through an agent (which person includes a broker, nominee or middleman) for a disqualified organization, on the agent; (iii) that the person (other than with respect to transfers to electing large partnerships) otherwise liable for the tax shall be relieved of liability for the tax if the transferee furnishes to such person an affidavit that the transferee is not a disqualified organization and, at the time of transfer, such person does not have actual knowledge that the affidavit is false; and (iv) that the Class R Certificates may be "noneconomic residual interests" within the meaning of Treasury regulations promulgated pursuant to the Code and that the transferor of a noneconomic residual interest will remain liable for any taxes due with respect to the income on such residual interest, unless no significant purpose of the transfer was to impede the assessment or collection of tax. 4. That the Owner is aware of the tax imposed on a "pass-through entity" holding Class R Certificates if either the pass-through entity is an electing large partnership under Section 775 of the Code or if at any time during the taxable year of the pass-through entity a disqualified organization is the record holder of an interest in such entity. (For this purpose, a "pass through entity" includes a regulated investment company, a real estate investment trust or common trust fund, a partnership, trust or estate, and certain cooperatives.) 5. That the Owner is aware that the Trustee will not register the transfer of any Class R Certificates unless the transferee, or the transferee's agent, delivers to it an affidavit and agreement, among other things, in substantially the same form as this affidavit and agreement. The Owner expressly agrees that it will not consummate any such transfer if it knows or believes that any of the representations contained in such affidavit and agreement are false. 6. That the Owner has reviewed the restrictions set forth on the face of the Class R -__ Certificates and the provisions of Section 5.02(f) of the Pooling and Servicing Agreement under which the Class R Certificates were issued (in particular, clause (iii)(A) and (iii)(B) of Section 5.02(f) which authorize the Trustee to deliver payments to a person other than the Owner and negotiate a mandatory sale by the Trustee in the event the Owner holds such Certificates in violation of Section 5.02(f)). The Owner expressly agrees to be bound by and to comply with such restrictions and provisions. 7. That the Owner consents to any additional restrictions or arrangements that shall be deemed necessary upon advice of counsel to constitute a reasonable arrangement to ensure that the Class R Certificates will only be owned, directly or indirectly, by an Owner that is not a disqualified organization. 8. The Owner's Taxpayer Identification Number is ____________________. 9. This affidavit and agreement relates only to the Class R Certificates held by the Owner and not to any other holder of the Class R Certificates. The Owner understands that the liabilities described herein relate only to the Class R Certificates. 10. That no purpose of the Owner relating to the transfer of any of the Class R Certificates by the Owner is or will be to impede the assessment or collection of any tax; in making this representation, the Owner warrants that the Owner is familiar with (i) Treasury Regulation 1.860E-1(c) and recent amendments thereto, effective as of July 19, 2002, and (ii) the preamble describing the adoption of the amendments to such regulation, which is attached hereto as Annex I. 11. That the Owner has no present knowledge or expectation that it will be unable to pay any United States taxes owed by it so long as any of the Certificates remain outstanding. In this regard, the Owner hereby represents to and for the benefit of the person from whom it acquired the Class R Certificate that the Owner intends to pay taxes associated with holding such Class R Certificate as they become due, fully understanding that it may incur tax liabilities in excess of any cash flows generated by the Class R Certificate. 12. That the Owner has no present knowledge or expectation that it will become insolvent or subject to a bankruptcy proceeding for so long as any of the Class R Certificates remain outstanding. 13. The Owner is either (i) a citizen or resident of the United States, (ii) a corporation, partnership or other entity treated as a corporation or a partnership for U.S. federal income tax purposes and created or organized in, or under the laws of, the United States, any state thereof or the District of Columbia (other than a partnership that is not treated as a United States person under any applicable Treasury regulations), (iii) an estate that is described in Section 7701(a)(30)(D) of the Code, or (iv) a trust that is described in Section 7701(a)(30)(E) of the Code. 14. The Owner hereby agrees that it will not cause income from the Class R Certificates to be attributable to a foreign permanent establishment or fixed base (within the meaning of an applicable income tax treaty) of the Owner or another United States taxpayer. 15. The Owner hereby certifies, represents and warrants to, and covenants with the Depositor, the Trustee and the Master Servicer that the following statements in (a) or (b) are accurate: (a) The Certificates are not being acquired by, and will not be transferred to, any employee benefit plan or other plan or arrangement subject to the prohibited transaction provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code"), or any person (including an insurance company investing its general account, an investment manager, a named fiduciary or a trustee of any such plan) who is using "plan assets" of any such plan to effect such acquisition (each of the foregoing, a "Plan Investor"); or (b) The Owner has provided the Trustee, the Depositor and the Master Servicer with an Opinion of Counsel acceptable to and in form and substance satisfactory to the Trustee, the Depositor and the Master Servicer to the effect that the purchase or holding of Certificates is permissible under applicable law, will not constitute or result in any nonexempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code (or comparable provisions of any subsequent enactments), and will not subject the Trustee, the Depositor, or the Master Servicer to any obligation or liability (including obligations or liabilities under ERISA or Section 4975 of the Code) in addition to those undertaken in the Pooling and Servicing Agreement, which Opinion of Counsel shall not be at the expense of the Trustee, the Depositor or the Master Servicer. In addition, the Owner hereby certifies, represents and warrants to, and covenants with, the Depositor, the Trustee and the Master Servicer that the Owner will not transfer such Certificates to any Plan Investor or person unless either such Plan Investor or person meets the requirements set forth in either (a) or (b) above. Capitalized terms used but not defined herein shall have the meanings assigned in the Pooling and Servicing Agreement. -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the Owner has caused this instrument to be executed on its behalf, pursuant to the authority of its Board of Directors, by its [Title of Officer] and its corporate seal to be hereunto attached, attested by its [Assistant] Secretary, this ____ day of ______________ 200__. [NAME OF OWNER] By: ___________________________________ [Name of Officer] [Title of Officer] [Corporate Seal] ATTEST: ______________________________ [Assistant] Secretary Personally appeared before me the above-named [Name of Officer], known or proved to me to be the same person who executed the foregoing instrument and to be the [Title of Officer] of the Owner, and acknowledged to me that he executed the same as his free act and deed and the free act and deed of the Owner. Subscribed and sworn before me this _______________ day of ___________, 200_. __________________________________________ NOTARY PUBLIC COUNTY OF ______________________________ STATE OF ________________________________ My Commission expires the ___ day of __________, 20__ -------------------------------------------------------------------------------- ANNEX I TO EXHIBIT H-1 DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Parts 1 and 602 [TD 9004] RIN 1545-AW98 Real Estate Mortgage Investment Conduits AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Final regulations. ----------------------------------------------------------------------- SUMMARY: This document contains final regulations relating to safe harbor transfers of noneconomic residual interests in real estate mortgage investment conduits (REMICs). The final regulations provide additional limitations on the circumstances under which transferors may claim safe harbor treatment. DATES: Effective Date: These regulations are effective July 19, 2002. Applicability Date: For dates of applicability, see Sec. 1.860E-(1)(c)(10). FOR FURTHER INFORMATION CONTACT: Courtney Shepardson at (202) 622-3940 (not a toll-free number). SUPPLEMENTARY INFORMATION: Paperwork Reduction Act The collection of information in this final rule has been reviewed and, pending receipt and evaluation of public comments, approved by the Office of Management and Budget (OMB) under 44 U.S.C. 3507 and assigned control number 1545-1675. The collection of information in this regulation is in Sec. 1.860E-1(c)(5)(ii). This information is required to enable the IRS to verify that a taxpayer is complying with the conditions of this regulation. The collection of information is mandatory and is required. Otherwise, the taxpayer will not receive the benefit of safe harbor treatment as provided in the regulation. The likely respondents are businesses and other for-profit institutions. Comments on the collection of information should be sent to the Office of Management and Budget, Attn: Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC, 20503, with copies to the Internal Revenue Service, Attn: IRS Reports Clearance Officer, W:CAR:MP:FP:S, Washington, DC 20224. Comments on the collection of information should be received by September 17, 2002. Comments are specifically requested concerning: o Whether the collection of information is necessary for the proper performance of the functions of the Internal Revenue Service, including whether the information will have practical utility; o The accuracy of the estimated burden associated with the collection of information (see below); o How the quality, utility, and clarity of the information to be collected may be enhanced; o How the burden of complying with the collection of information may be minimized, including through the application of automated collection techniques or other forms of information technology; and o Estimates of capital or start-up costs and costs of operation, maintenance, and purchase of service to provide information. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number assigned by the Office of Management and Budget. The estimated total annual reporting burden is 470 hours, based on an estimated number of respondents of 470 and an estimated average annual burden hours per respondent of one hour. Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103. Background This document contains final regulations regarding the proposed amendments to 26 CFR part 1 under section 860E of the Internal Revenue Code (Code). The regulations provide the circumstances under which a transferor of a noneconomic REMIC residual interest meeting the investigation and representation requirements may avail itself of the safe harbor by satisfying either the formula test or the asset test. Final regulations governing REMICs, issued in 1992, contain rules governing the transfer of noneconomic REMIC residual interests. In general, a transfer of a noneconomic residual interest is disregarded for all tax purposes if a significant purpose of the transfer is to enable the transferor to impede the assessment or collection of tax. A purpose to impede the assessment or collection of tax (a wrongful purpose) exists if the transferor, at the time of the transfer, either knew or should have known that the transferee would be unwilling or unable to pay taxes due on its share of the REMIC's taxable income. Under a safe harbor, the transferor of a REMIC noneconomic residual interest is presumed not to have a wrongful purpose if two requirements are satisfied: (1) the transferor conducts a reasonable investigation of the transferee's financial condition (the investigation requirement); and (2) the transferor secures a representation from the transferee to the effect that the transferee understands the tax obligations associated with holding a residual interest and intends to pay those taxes (the representation requirement). The IRS and Treasury have been concerned that some transferors of noneconomic residual interests claim they satisfy the safe harbor even in situations where the economics of the transfer clearly indicate the transferee is unwilling or unable to pay the tax associated with holding the interest. For this reason, on February 7, 2000, the IRS published in the Federal Register (65 FR 5807) a notice of proposed rulemaking (REG-100276-97; REG-122450-98) designed to clarify the safe harbor by adding the "formula test," an economic test. The proposed regulation provides that the safe harbor is unavailable unless the present value of the anticipated tax liabilities associated with holding the residual interest does not exceed the sum of: (1) The present value of any consideration given to the transferee to acquire the interest; (2) the present value of the expected future distributions on the interest; and (3) the present value of the anticipated tax savings associated with holding the interest as the REMIC generates losses. The notice of proposed rulemaking also contained rules for FASITs. Section 1.860H-6(g) of the proposed regulations provides requirements for transfers of FASIT ownership interests and adopts a safe harbor by reference to the safe harbor provisions of the REMIC regulations. In February 2001, the IRS published Rev. Proc. 2001-12 (2001-3 I.R.B. 335) to set forth an alternative safe harbor that taxpayers could use while the IRS and the Treasury considered comments on the proposed regulations. Under the alternative safe harbor, if a transferor meets the investigation requirement and the representation requirement but the transfer fails to meet the formula test, the transferor may invoke the safe harbor if the transferee meets a two-prong test (the asset test). A transferee generally meets the first prong of this test if, at the time of the transfer, and in each of the two years preceding the year of transfer, the transferee's gross assets exceed $100 million and its net assets exceed $10 million. A transferee generally meets the second prong of this test if it is a domestic, taxable corporation and agrees in writing not to transfer the interest to any person other than another domestic, taxable corporation that also satisfies the requirements of the asset test. A transferor cannot rely on the asset test if the transferor knows, or has reason to know, that the transferee will not comply with its written agreement to limit the restrictions on subsequent transfers of the residual interest. Rev. Proc. 2001-12 provides that the asset test fails to be satisfied in the case of a transfer or assignment of a noneconomic residual interest to a foreign branch of an otherwise eligible transferee. If such a transfer or assignment were permitted, a corporate taxpayer might seek to claim that the provisions of an applicable income tax treaty would resource excess inclusion income as foreign source income, and that, as a consequence, any U.S. tax liability attributable to the excess inclusion income could be offset by foreign tax credits. Such a claim would impede the assessment or collection of U.S. tax on excess inclusion income, contrary to the congressional purpose of assuring that such income will be taxable in all events. See, e.g., sections 860E(a)(1), (b), (e) and 860G(b) of the Code. The Treasury and the IRS have learned that certain taxpayers transferring noneconomic residual interests to foreign branches have attempted to rely on the formula test to obtain safe harbor treatment in an effort to impede the assessment or collection of U.S. tax on excess inclusion income. Accordingly, the final regulations provide that if a noneconomic residual interest is transferred to a foreign permanent establishment or fixed base of a U.S. taxpayer, the transfer is not eligible for safe harbor treatment under either the asset test or the formula test. The final regulations also require a transferee to represent that it will not cause income from the noneconomic residual interest to be attributable to a foreign permanent establishment or fixed base. Section 1.860E-1(c)(8) provides computational rules that a taxpayer may use to qualify for safe harbor status under the formula test. Section 1.860E-1(c)(8)(i) provides that the transferee is presumed to pay tax at a rate equal to the highest rate of tax specified in section 11(b). Some commentators were concerned that this presumed rate of taxation was too high because it does not take into consideration taxpayers subject to the alternative minimum tax rate. In light of the comments received, this provision has been amended in the final regulations to allow certain transferees that compute their taxable income using the alternative minimum tax rate to use the alternative minimum tax rate applicable to corporations. Additionally, Sec. 1.860E-1(c)(8)(iii) provides that the present values in the formula test are to be computed using a discount rate equal to the applicable Federal short-term rate prescribed by section 1274(d). This is a change from the proposed regulation and Rev. Proc. 2001-12. In those publications the provision stated that "present values are computed using a discount rate equal to the applicable Federal rate prescribed in section 1274(d) compounded semiannually" and that "[a] lower discount rate may be used if the transferee can demonstrate that it regularly borrows, in the course of its trade or business, substantial funds at such lower rate from an unrelated third party." The IRS and the Treasury Department have learned that, based on this provision, certain taxpayers have been attempting to use unrealistically low or zero interest rates to satisfy the formula test, frustrating the intent of the test. Furthermore, the Treasury Department and the IRS believe that a rule allowing for a rate other than a rate based on an objective index would add unnecessary complexity to the safe harbor. As a result, the rule in the proposed regulations that permits a transferee to use a lower discount rate, if the transferee can demonstrate that it regularly borrows substantial funds at such lower rate, is not included in the final regulations; and the Federal short-term rate has been substituted for the applicable Federal rate. To simplify taxpayers' computations, the final regulations allow use of any of the published short-term rates, provided that the present values are computed with a corresponding period of compounding. With the exception of the provisions relating to transfers to foreign branches, these changes generally have the proposed applicability date of February 4, 2000, but taxpayers may choose to apply the interest rate formula set forth in the proposed regulation and Rev. Proc. 2001-12 for transfers occurring before November 19, 2002. It is anticipated that when final regulations are adopted with respect to FASITs, Sec. 1.860H-6(g) of the proposed regulations will be adopted in substantially its present form, with the result that the final regulations contained in this document will also govern transfers of FASIT ownership interests with substantially the same applicability date as is contained in this document. Effect on Other Documents Rev. Proc. 2001-12 (2001-3 I.R.B. 335) is obsolete for transfers of noneconomic residual interests in REMICs occurring on or after November 19, 2002. Special Analyses It is hereby certified that these regulations will not have a significant economic impact on a substantial number of small entities. This certification is based on the fact that it is unlikely that a substantial number of small entities will hold REMIC residual interests. Therefore, a Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been determined that sections 553(b) and 553(d) of the Administrative Procedure Act (5 U.S.C. chapter 5) do not apply to these regulations. Drafting Information The principal author of these regulations is Courtney Shepardson. However, other personnel from the IRS and Treasury Department participated in their development. List of Subjects 26 CFR Part 1 Income taxes, Reporting and record keeping requirements. 26 CFR Part 602 Reporting and record keeping requirements. Adoption of Amendments to the Regulations Accordingly, 26 CFR parts 1 and 602 are amended as follows: PART 1--INCOME TAXES Paragraph 1. The authority citation for part 1 continues to read in part as follows: Authority: 26 U.S.C. 7805 * * * -------------------------------------------------------------------------------- EXHIBIT H-2 FORM OF TRANSFEROR CERTIFICATE ______________, 20__ U.S. Bank National Association EP-MN-WS3D 60 Livingston Avenue St. Paul, MN 55107 Attention: Structured Finance/RASC Series 2006-KS9 Re: Mortgage Asset-Backed Pass-Through Certificates, Series 2006-KS9 Ladies and Gentlemen: This letter is delivered to you in connection with the transfer by ________________________ (the "Seller") to ______________________ (the "Purchaser") of $___________ Initial Certificate Principal Balance of Mortgage Asset-Backed Pass-Through Certificates, Series 2006-KS9, Class R (the "Certificates"), pursuant to Section 5.02 of the Pooling and Servicing Agreement (the "Pooling and Servicing Agreement"), dated as of October 27, 2006 among Residential Asset Securities Corporation, as depositor (the "Depositor"), Residential Funding Company, LLC, as master servicer, and U.S. Bank National Association, as trustee (the "Trustee"). All terms used herein and not otherwise defined shall have the meanings set forth in the Pooling and Servicing Agreement. The Seller hereby certifies, represents and warrants to, and covenants with, the Depositor and the Trustee that: 1. No purpose of the Seller relating to the transfer of the Certificate by the Seller to the Purchaser is or will be to impede the assessment or collection of any tax. 2. The Seller understands that the Purchaser has delivered to the Trustee and the Master Servicer a transfer affidavit and agreement in the form attached to the Pooling and Servicing Agreement as Exhibit H-1. The Seller does not know or believe that any representation contained therein is false. 3. The Seller has at the time of the transfer conducted a reasonable investigation of the financial condition of the Purchaser as contemplated by Treasury Regulations Section 1.860E-1(c)(4)(i) and, as a result of that investigation, the Seller has determined that the Purchaser has historically paid its debts as they become due and has found no significant evidence to indicate that the Purchaser will not continue to pay its debts as they become due in the future. The Seller understands that the transfer of a Class R Certificate may not be respected for United States income tax purposes (and the Seller may continue to be liable for United States income taxes associated therewith) unless the Seller has conducted such an investigation. 4. The Seller has no actual knowledge that the proposed Transferee is not both a United States Person and a Permitted Transferee. Very truly yours, _______________________________________ (Seller) By: ____________________________________ Name: __________________________________ Title: ___________________________________ -------------------------------------------------------------------------------- EXHIBIT I FORM OF INVESTOR REPRESENTATION LETTER ______________, 20__ Residential Asset Securities Corporation 8400 Normandale Lake Boulevard Suite 250 Minneapolis, MN 55437 U.S. Bank National Association EP-MN-WS3D 60 Livingston Avenue St. Paul, MN 55107 Attention: Structured Finance/RASC Series 2006-KS9 Residential Funding Company, LLC 8400 Normandale Lake Boulevard Suite 250 Minneapolis, MN 55437 Attention: Residential Funding Company, LLC Series 2006-KS9 Re: Home Equity Mortgage Asset-Backed Pass-Through Certificates, Series 2006-KS9, Class [SB] [R] Ladies and Gentlemen: _________________________ (the "Purchaser") intends to purchase from ___________________________ (the "Seller") $_____________ Initial Certificate Principal Balance of Home Equity Mortgage Asset-Backed Pass-Through Certificates, Series 2006-KS9, Class [SB] [R] (the "Certificates"), issued pursuant to the Pooling and Servicing Agreement (the "Pooling and Servicing Agreement"), dated as of October 27, 2006 among Residential Asset Securities Corporation, as depositor (the "Depositor"), Residential Funding Company, LLC, as master servicer (the "Master Servicer"), and U.S. Bank National Association, as trustee (the "Trustee"). All terms used herein and not otherwise defined shall have the meanings set forth in the Pooling and Servicing Agreement. The Purchaser hereby certifies, represents and warrants to, and covenants with, the Depositor, the Trustee and the Master Servicer that: 1. The Purchaser understands that (a) the Certificates have not been and will not be registered or qualified under the Securities Act of 1933, as amended (the "Act") or any state securities law, (b) the Depositor is not required to so register or qualify the Certificates, (c) the Certificates may be resold only if registered and qualified pursuant to the provisions of the Act or any state securities law, or if an exemption from such registration and qualification is available, (d) the Pooling and Servicing Agreement contains restrictions regarding the transfer of the Certificates and (e) the Certificates will bear a legend to the foregoing effect. 2. The Purchaser is acquiring the Certificates for its own account for investment only and not with a view to or for sale in connection with any distribution thereof in any manner that would violate the Act or any applicable state securities laws. 3. The Purchaser is (a) a substantial, sophisticated institutional investor having such knowledge and experience in financial and business matters, and, in particular, in such matters related to securities similar to the Certificates, such that it is capable of evaluating the merits and risks of investment in the Certificates, (b) able to bear the economic risks of such an investment and (c) an "accredited investor" within the meaning of Rule 501(a) promulgated pursuant to the Act. 4. The Purchaser has been furnished with, and has had an opportunity to review (a) [a copy of the Private Placement Memorandum, dated ___________________, 20__, relating to the Certificates (b)] a copy of the Pooling and Servicing Agreement and [b] [c] such other information concerning the Certificates, the Mortgage Loans and the Depositor as has been requested by the Purchaser from the Depositor or the Seller and is relevant to the Purchaser's decision to purchase the Certificates. The Purchaser has had any questions arising from such review answered by the Depositor or the Seller to the satisfaction of the Purchaser. [If the Purchaser did not purchase the Certificates from the Seller in connection with the initial distribution of the Certificates and was provided with a copy of the Private Placement Memorandum (the "Memorandum") relating to the original sale (the "Original Sale") of the Certificates by the Depositor, the Purchaser acknowledges that such Memorandum was provided to it by the Seller, that the Memorandum was prepared by the Depositor solely for use in connection with the Original Sale and the Depositor did not participate in or facilitate in any way the purchase of the Certificates by the Purchaser from the Seller, and the Purchaser agrees that it will look solely to the Seller and not to the Depositor with respect to any damage, liability, claim or expense arising out of, resulting from or in connection with (a) error or omission, or alleged error or omission, contained in the Memorandum, or (b) any information, development or event arising after the date of the Memorandum.] 5. The Purchaser has not and will not nor has it authorized or will it authorize any person to (a) offer, pledge, sell, dispose of or otherwise transfer any Certificate, any interest in any Certificate or any other similar security to any person in any manner, (b) solicit any offer to buy or to accept a pledge, disposition of other transfer of any Certificate, any interest in any Certificate or any other similar security from any person in any manner, (c) otherwise approach or negotiate with respect to any Certificate, any interest in any Certificate or any other similar security with any person in any manner, (d) make any general solicitation by means of general advertising or in any other manner or (e) take any other action, that (as to any of (a) through (e) above) would constitute a distribution of any Certificate under the Act, that would render the disposition of any Certificate a violation of Section 5 of the Act or any state securities law, or that would require registration or qualification pursuant thereto. The Purchaser will not sell or otherwise transfer any of the Certificates, except in compliance with the provisions of the Pooling and Servicing Agreement. 6. The Purchaser hereby certifies, represents and warrants to, and covenants with the Depositor, the Trustee and the Master Servicer that the following statements in (a) or (b) are correct: (a) The Purchaser is not an employee benefit plan or other plan or arrangement subject to the prohibited transaction provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code"), or any person (including an insurance company investing its general account, an investment manager, a named fiduciary or a trustee of any such plan) who is using "plan assets" of any such plan to effect such acquisition (each of the foregoing, a "Plan Investor"); or (b) the Purchaser has provided the Trustee, the Depositor and the Master Servicer with an Opinion of Counsel acceptable to and in form and substance satisfactory to the Trustee, the Depositor and the Master Servicer to the effect that the purchase or holding of Certificates is permissible under applicable law, will not constitute or result in any nonexempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code (or comparable provisions of any subsequent enactments), and will not subject the Trustee, the Depositor or the Master Servicer to any obligation or liability (including obligations or liabilities under ERISA or Section 4975 of the Code) in addition to those undertaken in the Pooling and Servicing Agreement, which Opinion of Counsel shall not be an expense of the Trustee, the Depositor or the Master Servicer. -------------------------------------------------------------------------------- In addition, the Purchaser hereby certifies, represents and warrants to, and covenants with, the Depositor, the Trustee and the Master Servicer that the Purchaser will not transfer such Certificates to any Plan Investor or person unless either such Plan Investor or person meets the requirements set forth in either (a) or (b) above. Very truly yours, ____________________________________ (Purchaser) By:_________________________________ Name:_______________________________ Title:______________________________ -------------------------------------------------------------------------------- EXHIBIT J FORM OF TRANSFEROR REPRESENTATION LETTER ______________, 20__ Residential Asset Securities Corporation 8400 Normandale Lake Boulevard Suite 250 Minneapolis, Minnesota 55437 U.S. Bank National Association EP-MN-WS3D 60 Livingston Avenue St. Paul, MN 55107 Attention: Structured Finance/RASC Series 2006-KS9 Re: Home Equity Mortgage Asset-Backed Pass-Through Certificates, Series 2006-KS9, Class [SB] [R] Ladies and Gentlemen: In connection with the sale by __________ (the "Seller") to __________ (the "Purchaser") of $__________ Initial Certificate Principal Balance of Home Equity Mortgage Asset- Backed Pass-Through Certificates, Series 2006-KS9, Class [SB] [R] (the "Certificates"), issued pursuant to the Pooling and Servicing Agreement (the "Pooling and Servicing Agreement"), dated as of October 27, 2006 among Residential Asset Securities Corporation, as depositor (the "Depositor"), Residential Funding Company, LLC, as master servicer, and U.S. Bank National Association, as trustee (the "Trustee"). The Seller hereby certifies, represents and warrants to, and covenants with, the Depositor and the Trustee that: Neither the Seller nor anyone acting on its behalf has (a) offered, pledged, sold, disposed of or otherwise transferred any Certificate, any interest in any Certificate or any other similar security to any person in any manner, (b) has solicited any offer to buy or to accept a pledge, disposition or other transfer of any Certificate, any interest in any Certificate or any other similar security from any person in any manner, (c) has otherwise approached or negotiated with respect to any Certificate, any interest in any Certificate or any other similar security with any person in any manner, (d) has made any general solicitation by means of general advertising or in any other manner, or (e) has taken any other action, that (as to any of (a) through (e) above) would constitute a distribution of the Certificates under the Securities Act of 1933 (the "Act"), that would render the disposition of any Certificate a violation of Section 5 of the Act or any state securities law, or that would require registration or qualification pursuant thereto. The Seller will not act, in any manner set forth in the foregoing sentence with respect to any Certificate. The Seller has not and will not sell or otherwise transfer any of the Certificates, except in compliance with the provisions of the Pooling and Servicing Agreement. Very truly yours, ____________________________________ (Purchaser) By:_________________________________ Name:_______________________________ Title:______________________________ -------------------------------------------------------------------------------- EXHIBIT K TEXT OF AMENDMENT TO POOLING AND SERVICING AGREEMENT PURSUANT TO SECTION 11.01(e) FOR A LIMITED GUARANTY ARTICLE XIII Subordinate Certificate Loss Coverage; Limited Guaranty Section 13.01. Subordinate Certificate Loss Coverage; Limited Guaranty. (a) Subject to subsection (c) below, prior to the later of the third Business Day prior to each Distribution Date or the related Determination Date, the Master Servicer shall determine whether it or any Subservicer will be entitled to any reimbursement pursuant to Section 3.10 on such Distribution Date for Advances or Subservicer Advances previously made, (which will not be Advances or Subservicer Advances that were made with respect to delinquencies which were subsequently determined to be Excess Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses or Extraordinary Losses) and, if so, the Master Servicer shall demand payment from Residential Funding of an amount equal to the amount of any Advances or Subservicer Advances reimbursed pursuant to Section 3.10, to the extent such Advances or Subservicer Advances have not been included in the amount of the Realized Loss in the related Mortgage Loan, and shall distribute the same to the Class SB Certificateholders in the same manner as if such amount were to be distributed pursuant to Section 4.02. (b) Subject to subsection (c) below, prior to the later of the third Business Day prior to each Distribution Date or the related Determination Date, the Master Servicer shall determine whether any Realized Losses (other than Excess Special Hazard Losses, Excess Bankruptcy Losses, Excess Fraud Losses and Extraordinary Losses) will be allocated to the Class SB Certificates on such Distribution Date pursuant to Section 4.05, and, if so, the Master Servicer shall demand payment from Residential Funding of the amount of such Realized Loss and shall distribute the same to the Class SB Certificateholders in the same manner as if such amount were to be distributed pursuant to Section 4.02; provided, however, that the amount of such demand in respect of any Distribution Date shall in no event be greater than the sum of (i) the additional amount of Accrued Certificate Interest that would have been paid for the Class SB Certificateholders on such Distribution Date had such Realized Loss or Losses not occurred plus (ii) the amount of the reduction in the Certificate Principal Balances of the Class SB Certificates on such Distribution Date due to such Realized Loss or Losses. Notwithstanding such payment, such Realized Losses shall be deemed to have been borne by the Certificateholders for purposes of Section 4.05. Excess Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses and Extraordinary Losses allocated to the Class SB Certificates will not be covered by the Subordinate Certificate Loss Obligation. (c) Demands for payments pursuant to this Section shall be made prior to the later of the third Business Day prior to each Distribution Date or the related Determination Date by the Master Servicer with written notice thereof to the Trustee. The maximum amount that Residential Funding shall be required to pay pursuant to this Section on any Distribution Date (the "Amount Available") shall be equal to the lesser of (X) ________ minus the sum of (i) all previous payments made under subsections (a) and (b) hereof and (ii) all draws under the Limited Guaranty made in lieu of such payments as described below in subsection (d) and (Y) the then outstanding Certificate Principal Balances of the Class SB Certificates, or such lower amount as may be established pursuant to Section 13.02. Residential Funding's obligations as described in this Section are referred to herein as the "Subordinate Certificate Loss Obligation." (d) The Trustee will promptly notify GMAC LLC of any failure of Residential Funding to make any payments hereunder and shall demand payment pursuant to the limited guaranty (the "Limited Guaranty"), executed by GMAC LLC, of Residential Funding's obligation to make payments pursuant to this Section, in an amount equal to the lesser of (i) the Amount Available and (ii) such required payments, by delivering to GMAC LLC a written demand for payment by wire transfer, not later than the second Business Day prior to the Distribution Date for such month, with a copy to the Master Servicer. (e) All payments made by Residential Funding pursuant to this Section or amounts paid under the Limited Guaranty shall be deposited directly in the Certificate Account, for distribution on the Distribution Date for such month to the Class SB Certificateholders. (f) The Depositor shall have the option, in its sole discretion, to substitute for either or both of the Limited Guaranty or the Subordinate Certificate Loss Obligation another instrument in the form of a corporate guaranty, an irrevocable letter of credit, a surety bond, insurance policy or similar instrument or a reserve fund; provided that (i) the Depositor obtains (subject to the provisions of Section 10.01(f) as if the Depositor was substituted for the Master Servicer solely for the purposes of such provision) an Opinion of Counsel (which need not be an opinion of independent counsel) to the effect that obtaining such substitute corporate guaranty, irrevocable letter of credit, surety bond, insurance policy or similar instrument or reserve fund will not cause either (a) any federal tax to be imposed on the Trust Fund, including without limitation, any federal tax imposed on "prohibited transactions" under Section 860(F)(a)(1) of the Code or on "contributions after the startup date" under Section 860(G)(d)(1) of the Code or (b) the Trust Fund to fail to qualify as a REMIC at any time that any Certificate is outstanding, and (ii) no such substitution shall be made unless (A) the substitute Limited Guaranty or Subordinate Certificate Loss Obligation is for an initial amount not less than the then current Amount Available and contains provisions that are in all material respects equivalent to the original Limited Guaranty or Subordinate Certificate Loss Obligation (including that no portion of the fees, reimbursements or other obligations under any such instrument will be borne by the Trust Fund), (B) the long term debt obligations of any obligor of any substitute Limited Guaranty or Subordinate Certificate Loss Obligation (if not supported by the Limited Guaranty) shall be rated at least the lesser of (a) the rating of the long term debt obligations of GMAC LLC as of the date of issuance of the Limited Guaranty and (b) the rating of the long term debt obligations of GMAC LLC at the date of such substitution and (C) if the Class SB Certificates have been rated, the Depositor obtains written confirmation from each Rating Agency that rated the Class SB Certificates at the request of the Depositor that such substitution shall not lower the rating on the Class SB Certificates below the lesser of (a) the then-current rating assigned to the Class SB Certificates by such Rating Agency and (b) the original rating assigned to the Class SB Certificates by such Rating Agency. Any replacement of the Limited Guaranty or Subordinate Certificate Loss Obligation pursuant to this Section shall be accompanied by a written Opinion of Counsel to the substitute guarantor or obligor, addressed to the Master Servicer and the Trustee, that such substitute instrument constitutes a legal, valid and binding obligation of the substitute guarantor or obligor, enforceable in accordance with its terms, and concerning such other matters as the Master Servicer and the Trustee shall reasonably request. Neither the Depositor, the Master Servicer nor the Trustee shall be obligated to substitute for or replace the Limited Guaranty or Subordinate Certificate Loss Obligation under any circumstance. Section 13.02. Amendments Relating to the Limited Guaranty. Notwithstanding Sections 11.01 or 13.01: (i) the provisions of this Article XIII may be amended, superseded or deleted, (ii) the Limited Guaranty or Subordinate Certificate Loss Obligation may be amended, reduced or canceled, and (iii) any other provision of this Agreement which is related or incidental to the matters described in this Article XIII may be amended in any manner; in each case by written instrument executed or consented to by the Depositor and Residential Funding but without the consent of any Certificateholder and without the consent of the Master Servicer or the Trustee being required unless any such amendment would impose any additional obligation on, or otherwise adversely affect the interests of, the Master Servicer or the Trustee, as applicable; provided that the Depositor shall also obtain a letter from each Rating Agency that rated the Class SB Certificates at the request of the Depositor to the effect that such amendment, reduction, deletion or cancellation will not lower the rating on the Class SB Certificates below the lesser of (a) the then-current rating assigned to the Class SB Certificates by such Rating Agency and (b) the original rating assigned to the Class SB Certificates by such Rating Agency, unless (A) the Holder of 100% of the Class SB Certificates is Residential Funding or an Affiliate of Residential Funding, or (B) such amendment, reduction, deletion or cancellation is made in accordance with Section 11.01(e) and, provided further that the Depositor obtains (subject to the provisions of Section 10.01(f) as if the Depositor was substituted for the Master Servicer solely for the purposes of such provision), in the case of a material amendment or supersession (but not a reduction, cancellation or deletion of the Limited Guaranty or the Subordinate Certificate Loss Obligation), an Opinion of Counsel (which need not be an opinion of independent counsel) to the effect that any such amendment or supersession will not cause either (a) any federal tax to be imposed on the Trust Fund, including without limitation, any federal tax imposed on "prohibited transactions" under Section 860F(a)(1) of the Code or on "contributions after the startup date" under Section 860G(d)(1) of the Code or (b) the Trust Fund to fail to qualify as a REMIC at any time that any Certificate is outstanding. A copy of any such instrument shall be provided to the Trustee and the Master Servicer together with an Opinion of Counsel that such amendment complies with this Section 13.02. -------------------------------------------------------------------------------- EXHIBIT L FORM OF LIMITED GUARANTY RESIDENTIAL ASSET SECURITIES CORPORATION Home Equity Mortgage Asset-Backed Pass-Through Certificates Series 2006-KS9 __________, 20__ U.S. Bank National Association EP-MN-WS3D 60 Livingston Avenue St. Paul, MN 55107 Attention: Structured Finance/RASC Series 2006-KS9 Ladies and Gentlemen: WHEREAS, Residential Funding Company, LLC, a Delaware limited liability company ("Residential Funding"), an indirect wholly-owned subsidiary of GMAC LLC, a Delaware limited liability company ("GMAC"), plans to incur certain obligations as described under Section 12.01 of the Pooling and Servicing Agreement dated as of October 27, 2006 (the "Servicing Agreement"), among Residential Asset Securities Corporation (the "Depositor"), Residential Funding and U.S. Bank National Association (the "Trustee") as amended by Amendment No. ___ thereto, dated as of ________, with respect to the Home Equity Mortgage Asset-Backed Pass-Through Certificates, Series 2006-KS9 (the "Certificates"); and WHEREAS, pursuant to Section 12.01 of the Servicing Agreement, Residential Funding agrees to make payments to the Holders of the Class SB Certificates with respect to certain losses on the Mortgage Loans as described in the Servicing Agreement; and WHEREAS, GMAC desires to provide certain assurances with respect to the ability of Residential Funding to secure sufficient funds and faithfully to perform its Subordinate Certificate Loss Obligation; NOW THEREFORE, in consideration of the premises herein contained and certain other good and valuable consideration, the receipt of which is hereby acknowledged, GMAC agrees as follows: 2. Provision of Funds. (a) GMAC agrees to contribute and deposit in the Certificate Account on behalf of Residential Funding (or otherwise provide to Residential Funding, or to cause to be made available to Residential Funding), either directly or through a subsidiary, in any case prior to the related Distribution Date, such moneys as may be required by Residential Funding to perform its Subordinate Certificate Loss Obligation when and as the same arises from time to time upon the demand of the Trustee in accordance with Section 12.01 of the Servicing Agreement. (b) The agreement set forth in the preceding clause (a) shall be absolute, irrevocable and unconditional and shall not be affected by the transfer by GMAC or any other person of all or any part of its or their interest in Residential Funding, by any insolvency, bankruptcy, dissolution or other proceeding affecting Residential Funding or any other person, by any defense or right of counterclaim, set-off or recoupment that GMAC may have against Residential Funding or any other person or by any other fact or circumstance. Notwithstanding the foregoing, GMAC's obligations under clause (a) shall terminate upon the earlier of (x) substitution for this Limited Guaranty pursuant to Section 12.01(f) of the Servicing Agreement, or (y) the termination of the Trust Fund pursuant to the Servicing Agreement. 3. Waiver. GMAC hereby waives any failure or delay on the part of Residential Funding, the Trustee or any other person in asserting or enforcing any rights or in making any claims or demands hereunder. Any defective or partial exercise of any such rights shall not preclude any other or further exercise of that or any other such right. GMAC further waives demand, presentment, notice of default, protest, notice of acceptance and any other notices with respect to this Limited Guaranty, including, without limitation, those of action or non-action on the part of Residential Funding or the Trustee. 4. Modification, Amendment and Termination. This Limited Guaranty may be modified, amended or terminated only by the written agreement of GMAC and the Trustee and only if such modification, amendment or termination is permitted under Section 12.02 of the Servicing Agreement. The obligations of GMAC under this Limited Guaranty shall continue and remain in effect so long as the Servicing Agreement is not modified or amended in any way that might affect the obligations of GMAC under this Limited Guaranty without the prior written consent of GMAC. 5. Successor. Except as otherwise expressly provided herein, the guarantee herein set forth shall be binding upon GMAC and its respective successors. 6. Governing Law. This Limited Guaranty shall be governed by the laws of the State of New York. 7. Authorization and Reliance. GMAC understands that a copy of this Limited Guaranty shall be delivered to the Trustee in connection with the execution of Amendment No. __ to the Servicing Agreement and GMAC hereby authorizes the Depositor and the Trustee to rely on the covenants and agreements set forth herein. 8. Definitions. Capitalized terms used but not otherwise defined herein shall have the meaning given them in the Servicing Agreement. 9. Counterparts. This Limited Guaranty may be executed in any number of counterparts, each of which shall be deemed to be an original and such counterparts shall constitute but one and the same instrument. -------------------------------------------------------------------------------- IN WITNESS WHEREOF, GMAC has caused this Limited Guaranty to be executed and delivered by its respective officers thereunto duly authorized as of the day and year first above written. GENERAL MOTORS ACCEPTANCE CORPORATION By:_________________________________ Name:_______________________________ Title:______________________________ Acknowledged by: U.S. BANK NATIONAL ASSOCIATION, as Trustee By:_________________________________ Name:_______________________________ Title:______________________________ RESIDENTIAL ASSET SECURITIES CORPORATION By:_________________________________ Name:_______________________________ Title:______________________________ -------------------------------------------------------------------------------- EXHIBIT M FORM OF LENDER CERTIFICATION FOR ASSIGNMENT OF MORTGAGE LOAN __________, 20__ Residential Asset Securities Corporation 8400 Normandale Lake Boulevard Suite 250 Minneapolis, Minnesota 55437 U.S. Bank National Association EP-MN-WS3D 60 Livingston Avenue St. Paul, MN 55107 Attention: Structured Finance/RASC Series 2006-KS9 Re: Home Equity Mortgage Asset-Backed Pass-Through Certificates, Series 2006-KS9 Assignment of Mortgage Loan Ladies and Gentlemen: This letter is delivered to you in connection with the assignment by U.S Bank National Association (the "Trustee") to _______________________ (the "Lender") of _______________ (the "Mortgage Loan") pursuant to Section 3.13(d) of the Pooling and Servicing Agreement (the "Pooling and Servicing Agreement"), dated as of October 27, 2006 among Residential Asset Securities Corporation, as depositor (the "Depositor"), Residential Funding Company, LLC, as master servicer, and the Trustee. All terms used herein and not otherwise defined shall have the meanings set forth in the Pooling and Servicing Agreement. The Lender hereby certifies, represents and warrants to, and covenants with, the Master Servicer and the Trustee that: (ii) the Mortgage Loan is secured by Mortgaged Property located in a jurisdiction in which an assignment in lieu of satisfaction is required to preserve lien priority, minimize or avoid mortgage recording taxes or otherwise comply with, or facilitate a refinancing under, the laws of such jurisdiction; (iii) the substance of the assignment is, and is intended to be, a refinancing of such Mortgage Loan and the form of the transaction is solely to comply with, or facilitate the transaction under, such local laws; (iv) the Mortgage Loan following the proposed assignment will be modified to have a rate of interest at least 0.25 percent below or above the rate of interest on such Mortgage Loan prior to such proposed assignment; and (v) such assignment is at the request of the borrower under the related Mortgage Loan. Very truly yours, ____________________________________ (Lender) By:_________________________________ Name:_______________________________ Title:______________________________ -------------------------------------------------------------------------------- EXHIBIT N FORM OF RULE 144A INVESTMENT REPRESENTATION Description of Rule 144A Securities, including numbers: _______________________________________________ _______________________________________________ _______________________________________________ _______________________________________________ The undersigned seller, as registered holder (the "Seller"), intends to transfer the Rule 144A Securities described above to the undersigned buyer (the "Buyer"). 1. In connection with such transfer and in accordance with the agreements pursuant to which the Rule 144A Securities were issued, the Seller hereby certifies the following facts: Neither the Seller nor anyone acting on its behalf has offered, transferred, pledged, sold or otherwise disposed of the Rule 144A Securities, any interest in the Rule 144A Securities or any other similar security to, or solicited any offer to buy or accept a transfer, pledge or other disposition of the Rule 144A Securities, any interest in the Rule 144A Securities or any other similar security from, or otherwise approached or negotiated with respect to the Rule 144A Securities, any interest in the Rule 144A Securities or any other similar security with, any person in any manner, or made any general solicitation by means of general advertising or in any other manner, or taken any other action, that would constitute a distribution of the Rule 144A Securities under the Securities Act of 1933, as amended (the "1933 Act"), or that would render the disposition of the Rule 144A Securities a violation of Section 5 of the 1933 Act or require registration pursuant thereto, and that the Seller has not offered the Rule 144A Securities to any person other than the Buyer or another "qualified institutional buyer" as defined in Rule 144A under the 1933 Act. 2. The Buyer, pursuant to Section 5.02 of the Pooling and Servicing Agreement (the "Agreement"), dated as of October 27, 2006 among Residential Funding Company, LLC, as master servicer (the "Master Servicer"), Residential Asset Securities Corporation, as depositor (the "Depositor"), and U.S. Bank National Association, as trustee (the "Trustee") warrants and represents to, and covenants with, the Seller, the Trustee and the Master Servicer as follows: a. The Buyer understands that the Rule 144A Securities have not been registered under the 1933 Act or the securities laws of any state. b. The Buyer considers itself a substantial, sophisticated institutional investor having such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of investment in the Rule 144A Securities. c. The Buyer has been furnished with all information regarding the Rule 144A Securities that it has requested from the Seller, the Trustee or the Servicer. d. Neither the Buyer nor anyone acting on its behalf has offered, transferred, pledged, sold or otherwise disposed of the Rule 144A Securities, any interest in the Rule 144A Securities or any other similar security to, or solicited any offer to buy or accept a transfer, pledge or other disposition of the Rule 144A Securities, any interest in the Rule 144A Securities or any other similar security from, or otherwise approached or negotiated with respect to the Rule 144A Securities, any interest in the Rule 144A Securities or any other similar security with, any person in any manner, or made any general solicitation by means of general advertising or in any other manner, or taken any other action, that would constitute a distribution of the Rule 144A Securities under the 1933 Act or that would render the disposition of the Rule 144A Securities a violation of Section 5 of the 1933 Act or require registration pursuant thereto, nor will it act, nor has it authorized or will it authorize any person to act, in such manner with respect to the Rule 144A Securities. e. The Buyer is a "qualified institutional buyer" as that term is defined in Rule 144A under the 1933 Act and has completed either of the forms of certification to that effect attached hereto as Annex I or Annex II. The Buyer is aware that the sale to it is being made in reliance on Rule 144A. The Buyer is acquiring the Rule 144A Securities for its own account or the accounts of other qualified institutional buyers, understands that such Rule 144A Securities may be resold, pledged or transferred only (i) to a person reasonably believed to be a qualified institutional buyer that purchases for its own account or for the account of a qualified institutional buyer to whom notice is given that the resale, pledge or transfer is being made in reliance on Rule 144A, or (ii) pursuant to another exemption from registration under the 1933 Act. 3. The Buyer of Class SB Certificates or Class R Certificates: a. is not an employee benefit plan or other plan or arrangement subject to the prohibited transaction provisions of ERISA or Section 4975 of the Code, or any person (including an insurance company investing its general account, an investment manager, a named fiduciary or a trustee of any such plan) who is using "plan assets" of any such plan to effect such acquisition; or b. has provided the Trustee, the Depositor and the Master Servicer with the Opinion of Counsel described in Section 5.02(e)(i) of the Agreement, which shall be acceptable to and in form and substance satisfactory to the Trustee, the Depositor, and the Master Servicer to the effect that the purchase or holding of this Certificate is permissible under applicable law, will not constitute or result in any nonexempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code (or comparable provisions of any subsequent enactments), and will not subject the Trustee, the Depositor, or the Master Servicer to any obligation or liability (including obligations or liabilities under ERISA or Section 4975 of the Code) in addition to those undertaken in the Agreement, which Opinion of Counsel shall not be an expense of the Trustee, the Depositor or the Master Servicer. 4. This document may be executed in one or more counterparts and by the different parties hereto on separate counterparts, each of which, when so executed, shall be deemed to be an original; such counterparts, together, shall constitute one and the same document. -------------------------------------------------------------------------------- IN WITNESS WHEREOF, each of the parties has executed this document as of the date set forth below. ______________________________ ______________________________ Print Name of Seller Print Name of Purchaser By:___________________________________ By: ___________________________________ Name: Name: Title: Title: Taxpayer Identification: Taxpayer Identification: No.___________________________________ No.____________________________________ Date:_________________________________ Date:__________________________________ -------------------------------------------------------------------------------- ANNEX I TO EXHIBIT N QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A [For Buyers Other Than Registered Investment Companies] The undersigned hereby certifies as follows in connection with the Rule 144A Investment Representation to which this Certification is attached: 1. As indicated below, the undersigned is the President, Chief Financial Officer, Senior Vice President or other executive officer of the Buyer. 2. In connection with purchases by the Buyer, the Buyer is a "qualified institutional buyer" as that term is defined in Rule 144A under the Securities Act of 1933 ("Rule 144A") because (i) the Buyer owned and/or invested on a discretionary basis $______________________ in securities (except for the excluded securities referred to below) as of the end of the Buyer's most recent fiscal year (such amount being calculated in accordance with Rule 144A) and (ii) the Buyer satisfies the criteria in the category marked below. ___ Corporation, etc. The Buyer is a corporation (other than a bank, savings and loan association or similar institution), Massachusetts or similar business trust, partnership, or charitable organization described in Section 501(c)(3) of the Internal Revenue Code. ___ Bank. The Buyer (a) is a national bank or banking institution organized under the laws of any State, territory or the District of Columbia, the business of which is substantially confined to banking and is supervised by the State or territorial banking commission or similar official or is a foreign bank or equivalent institution, and (b) has an audited net worth of at least $25,000,000 as demonstrated in its latest annual financial statements, a copy of which is attached hereto. ___ Savings and Loan. The Buyer (a) is a savings and loan association, building and loan association, cooperative bank, homestead association or similar institution, which is supervised and examined by a State or Federal authority having supervision over any such institutions or is a foreign savings and loan association or equivalent institution and (b) has an audited net worth of at least $25,000,000 as demonstrated in its latest annual financial statements. ___ Broker-Dealer. The Buyer is a dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934. ___ Insurance Company. The Buyer is an insurance company whose primary and predominant business activity is the writing of insurance or the reinsuring of risks underwritten by insurance companies and which is subject to supervision by the insurance commissioner or a similar official or agency of a State or territory or the District of Columbia. ___ State or Local Plan. The Buyer is a plan established and maintained by a State, its political subdivisions, or any agency or instrumentality of the State or its political subdivisions, for the benefit of its employees. ___ ERISA Plan. The Buyer is an employee benefit plan within the meaning of Title I of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). ___ Investment Adviser. The Buyer is an investment adviser registered under the Investment Advisers Act of 1940. ___ SBIC. The Buyer is a Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958. ___ Business Development Company. The Buyer is a business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940. ___ Trust Fund. The Buyer is a trust fund whose trustee is a bank or trust company and whose participants are exclusively (a) plans established and maintained by a State, its political subdivisions, or any agency or instrumentality of the State or its political subdivisions, for the benefit of its employees, or (b) employee benefit plans within the meaning of Title I of the Employee Retirement Income Security Act of 1974, but is not a trust fund that includes as participants individual retirement accounts or H.R. 10 plans. 3. The term "securities" as used herein does not include (i) securities of issuers that are affiliated with the Buyer, (ii) securities that are part of an unsold allotment to or subscription by the Buyer, if the Buyer is a dealer, (iii) bank deposit notes and certificates of deposit, (iv) loan participations, (v) repurchase agreements, (vi) securities owned but subject to a repurchase agreement and (vii) currency, interest rate and commodity swaps. 4. For purposes of determining the aggregate amount of securities owned and/or invested on a discretionary basis by the Buyer, the Buyer used the cost of such securities to the Buyer and did not include any of the securities referred to in the preceding paragraph. Further, in determining such aggregate amount, the Buyer may have included securities owned by subsidiaries of the Buyer, but only if such subsidiaries are consolidated with the Buyer in its financial statements prepared in accordance with generally accepted accounting principles and if the investments of such subsidiaries are managed under the Buyer's direction. However, such securities were not included if the Buyer is a majority-owned, consolidated subsidiary of another enterprise and the Buyer is not itself a reporting company under the Securities Exchange Act of 1934. 5. The Buyer acknowledges that it is familiar with Rule 144A and understands that the seller to it and other parties related to the Certificates are relying and will continue to rely on the statements made herein because one or more sales to the Buyer may be in reliance on Rule 144A. ____ ___ Will the Buyer be purchasing the Rule 144A Yes No Securities for the Buyer's own account? 6. If the answer to the foregoing question is "no", the Buyer agrees that, in connection with any purchase of securities sold to the Buyer for the account of a third party (including any separate account) in reliance on Rule 144A, the Buyer will only purchase for the account of a third party that at the time is a "qualified institutional buyer" within the meaning of Rule 144A. In addition, the Buyer agrees that the Buyer will not purchase securities for a third party unless the Buyer has obtained a current representation letter from such third party or taken other appropriate steps contemplated by Rule 144A to conclude that such third party independently meets the definition of "qualified institutional buyer" set forth in Rule 144A. 7. The Buyer will notify each of the parties to which this certification is made of any changes in the information and conclusions herein. Until such notice is given, the Buyer's purchase of Rule 144A Securities will constitute a reaffirmation of this certification as of the date of such purchase. __________________________________________ Print Name of Buyer By: ____________________________________ Name: Title: Date: ____________________________________ -------------------------------------------------------------------------------- ANNEX II TO EXHIBIT N QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A [For Buyers That Are Registered Investment Companies] The undersigned hereby certifies as follows in connection with the Rule 144A Investment Representation to which this Certification is attached: 8. As indicated below, the undersigned is the President, Chief Financial Officer or Senior Vice President of the Buyer or, if the Buyer is a "qualified institutional buyer" as that term is defined in Rule 144A under the Securities Act of 1933 ("Rule 144A") because Buyer is part of a Family of Investment Companies (as defined below), is such an officer of the Adviser. 9. In connection with purchases by Buyer, the Buyer is a "qualified institutional buyer" as defined in SEC Rule 144A because (i) the Buyer is an investment company registered under the Investment Company Act of 1940, and (ii) as marked below, the Buyer alone, or the Buyer's Family of Investment Companies, owned at least $100,000,000 in securities (other than the excluded securities referred to below) as of the end of the Buyer's most recent fiscal year. For purposes of determining the amount of securities owned by the Buyer or the Buyer's Family of Investment Companies, the cost of such securities was used. ____ The Buyer owned $___________________ in securities (other than the excluded securities referred to below) as of the end of the Buyer's most recent fiscal year (such amount being calculated in accordance with Rule 144A). ____ The Buyer is part of a Family of Investment Companies which owned in the aggregate $______________ in securities (other than the excluded securities referred to below) as of the end of the Buyer's most recent fiscal year (such amount being calculated in accordance with Rule 144A). 10. The term "Family of Investment Companies" as used herein means two or more registered investment companies (or series thereof) that have the same investment adviser or investment advisers that are affiliated (by virtue of being majority owned subsidiaries of the same parent or because one investment adviser is a majority owned subsidiary of the other). 11. The term "securities" as used herein does not include (i) securities of issuers that are affiliated with the Buyer or are part of the Buyer's Family of Investment Companies, (ii) bank deposit notes and certificates of deposit, (iii) loan participations, (iv) repurchase agreements, (v) securities owned but subject to a repurchase agreement and (vi) currency, interest rate and commodity swaps. 12. The Buyer is familiar with Rule 144A and understands that each of the parties to which this certification is made are relying and will continue to rely on the statements made herein because one or more sales to the Buyer will be in reliance on Rule 144A. In addition, the Buyer will only purchase for the Buyer's own account. 13. The undersigned will notify each of the parties to which this certification is made of any changes in the information and conclusions herein. Until such notice, the Buyer's purchase of Rule 144A Securities will constitute a reaffirmation of this certification by the undersigned as of the date of such purchase. __________________________________________ Print Name of Buyer By: ____________________________________ Name: Title: IF AN ADVISER: Print Name of Buyer Date: ____________________________________ -------------------------------------------------------------------------------- EXHIBIT O SWAP AGREEMENT [FILED HEREWITH AS EXHIBIT 10.3] -------------------------------------------------------------------------------- EXHIBIT P FORM OF ERISA REPRESENTATION LETTER __________, 20__ Residential Asset Securities Corporation 8400 Normandale Lake Boulevard Suite 250 Minneapolis, Minnesota 55437 U.S. Bank National Association EP-MN-WS3D 60 Livingston Avenue St. Paul, MN 55107 Attention: Structured Finance/RASC Series 2006-KS9 Residential Funding Company, LLC 8400 Normandale Lake Boulevard Suite 250 Minneapolis, Minnesota 55437 Attention: Residential Asset Securities Corporation Series 2006-KS9 Re: Home Equity Mortgage Asset-Backed Pass-Through Certificates, Series 2006-KS9, Class [__] Ladies and Gentlemen: [____________________________________] (the "Purchaser") intends to purchase from [______________________________] (the "Seller") $[____________] Initial Certificate Principal Balance of Home Equity Mortgage Asset-Backed Pass-Through Certificates, Series 2006-KS9, Class ____ (the "Certificates"), issued pursuant to the Pooling and Servicing Agreement (the "Pooling and Servicing Agreement"), dated as of October 27, 2006 among Residential Asset Securities Corporation, as the depositor (the "Depositor"), Residential Funding Company, LLC, as master servicer (the "Master Servicer") and U.S. Bank National Association, as trustee (the "Trustee"). All terms used herein and not otherwise defined shall have the meanings set forth in the Pooling and Servicing Agreement. The Purchaser hereby certifies, represents and warrants to, and covenants with, the Depositor, the Trustee and the Master Servicer that: (a) The Purchaser is not an employee benefit plan or other plan or arrangement subject to the prohibited transaction provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code"), or any person (including an insurance company investing its general account, an investment manager, a named fiduciary or a trustee of any such plan) who is using "plan assets" of any such plan to effect such acquisition (each of the foregoing, a "Plan Investor"); or (b) The Purchaser has provided the Trustee, the Depositor and the Master Servicer with the Opinion of Counsel described in Section 5.02(e)(i) of the Agreement, which shall be acceptable to and in form and substance satisfactory to the Trustee, the Depositor and the Master Servicer to the effect that the purchase or holding of Certificates is permissible under applicable law, will not constitute or result in any non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code (or comparable provisions of any subsequent enactments), and will not subject the Trustee, the Depositor or the Master Servicer to any obligation or liability (including obligations or liabilities under ERISA or Section 4975 of the Code) in addition to those undertaken in the Pooling and Servicing Agreement, which Opinion of Counsel shall not be at the expense of the Trustee, the Depositor or the Master Servicer. In addition, the Purchaser hereby certifies, represents and warrants to, and covenants with, the Depositor, the Trustee and the Master Servicer that the Purchaser will not transfer such Certificates to any Plan Investor or person unless such Plan Investor or person meets the requirements set forth in either (a) or (b) above. . Very truly yours, _______________________________________ (Purchaser) By: ____________________________________ Name: __________________________________ Title: ___________________________________ -------------------------------------------------------------------------------- EXHIBIT Q FORM OF SB-AM SWAP AGREEMENT DATE: October 27, 2006 TO: U.S. Bank National Association, not in its individual capacity but solely as trustee for the benefit of RASC Series 2006-KS9 Trust, acting on behalf of the Class A Certificateholders and Class M Certificateholders under the Pooling and Servicing Agreement identified below ("PARTY A") ATTENTION: RASC Series 2006-KS9 FROM: U.S. Bank National Association, not in its individual capacity but solely as trustee for the benefit of RASC Series 2006-KS9 Trust, acting on behalf of the Class SB Certificateholders under the Pooling and Servicing Agreement identified below ("PARTY B") SUBJECT: Payment Swap Confirmation and Agreement REFERENCE NUMBER The purpose of this letter agreement (the "Agreement") is to confirm the terms and conditions of the Transaction entered into on the Trade Date specified below (the "Transaction") between Party A and Party B. This Agreement, which evidences a complete and binding agreement between you and us to enter into the Transaction on the terms set forth below, constitutes a "Confirmation" as referred to in the ISDA Form Master Agreement (as defined below), as well as a "Schedule" as referred to in the ISDA Form Master Agreement. o This Agreement is subject to and incorporates the 2000 ISDA Definitions (the "Definitions"), as published by the International Swaps and Derivatives Association, Inc. ("ISDA"). You and we have agreed to enter into this Agreement in lieu of negotiating a Schedule to the 1992 ISDA Master Agreement (Multicurrency-Cross Border) form (the "ISDA Form Master Agreement") but, rather, an ISDA Form Master Agreement shall be deemed to have been executed by you and us on the date we entered into the Transaction. In the event of any inconsistency between the provisions of this Agreement and the Definitions or the ISDA Form Master Agreement, this Agreement shall prevail for purposes of the Transaction. Terms used and not otherwise defined herein, in the ISDA Form Master Agreement or the Definitions shall have the meanings assigned to them in the Pooling and Servicing Agreement, dated as of October 27, 2006, among Residential Asset Securities Corporation, as depositor, Residential Funding Company, LLC, as master servicer, and U.S. Bank National Association, as trustee (the "Pooling and Servicing Agreement"). Each reference to a "Section" or to a "Section" "of this Agreement" will be construed as a reference to a Section of the 1992 ISDA Form Master Agreement. Each capitalized term used herein that is not defined herein or in the 1992 ISDA Form Master Agreement shall have the meaning defined in the Pooling and Servicing Agreement. Notwithstanding anything herein to the contrary, should any provision of this Agreement conflict with any provision of the Pooling and Servicing Agreement, the provision of the Pooling and Servicing Agreement shall apply. o The terms of the particular Transaction to which this Confirmation relates are as follows: Trade Date: Effective Date: Termination Date: November 25, 2036 subject to adjustment in accordance with the Business Day Convention. Business Days: California, Minnesota, Texas, New York, Illinois. Business Day Convention: Following. PARTY A PAYMENTS: Party A Payment Dates: Each Distribution Date under the Pooling and Servicing Agreement. Party A Payment Amounts: On each Party A Payment Date, the amount, if any, equal to the aggregate amount of Net Swap Payments and Swap Termination Payments owed to the Swap Counterparty remaining unpaid after application of the sum of (A) from the Adjusted Available Distribution Amount that would have remained had the Adjusted Available Distribution Amount been applied on such Distribution Date to make the distributions for such Distribution Date under Section 4.02(c) clauses (i) through (x) of the Pooling and Servicing Agreement, of (I) Accrued Certificate Interest on the Class SB Certificates, (II) the amount of any Overcollateralization Reduction Amount and (III) for each Distribution Date after the Certificate Principal Balance of each Class of Class A Certificates and Class M Certificates has been reduced to zero, the Overcollateralization Amount, (B) from prepayment charges on deposit in the Certificate Amount, any prepayment charges received on the Mortgage Loans during the related Prepayment Period and (C) from the amount distributable with respect to the REMIC III Regular Interest IO. PARTY B PAYMENTS: Party B Payment Dates: Each Distribution Date under the Pooling and Servicing Agreement Party B Payment Amounts: On each Party B Payment Date, an amount equal to the lesser of (a) the Available Distribution Amount remaining on such Distribution Date after the distributions on such Distribution Date under Section 4.02(c) clauses (i) through (vi) of the Pooling and Servicing Agreement and (b) the aggregate unpaid Basis Risk Shortfalls allocated to the Class A Certificateholders and the Class M Certificateholders for such Distribution Date. o Additional Provisions: Each party hereto is hereby advised and acknowledges that the other party has engaged in (or refrained from engaging in) substantial financial transactions and has taken (or refrained from taking) other material actions in reliance upon the entry by the parties into the Transaction being entered into on the terms and conditions set forth herein and in the ISDA Form Master Agreement relating to such Transaction, as applicable. o Provisions Deemed Incorporated in a Schedule to the ISDA Form Master Agreement: o Termination Provisions. For purposes of the ISDA Form Master Agreement: |X| "Specified Entity" is not applicable to Party A or Party B for any purpose. |X| "Specified Transaction" is not applicable to Party A or Party B for any purpose, and, accordingly, Section 5(a)(v) shall not apply to Party A or Party B. |X| The "Cross Default" provisions of Section 5(a)(vi) shall not apply to Party A or Party B. |X| The "Credit Event Upon Merger" provisions of Section 5(b)(iv) will not apply to Party A or Party B. |X| With respect to Party A and Party B, the "Bankruptcy" provision of Section 5(a)(vii)(2) of the ISDA Form Master Agreement will be deleted in its entirety. |X| The "Automatic Early Termination" provision of Section 6(a) will not apply to Party A or to Party B. |X| Payments on Early Termination. For the purpose of Section 6(e) of the ISDA Form Master Agreement: o Market Quotation will apply. o The Second Method will apply. |X| "Termination Currency" means United States Dollars. |X| The provisions of Sections 5(a)(ii), 5(a)(iii) and 5(a)(iv) shall not apply to Party A or Party B. |X| Tax Event. The provisions of Section 2(d)(i)(4) and 2(d)(ii) of the ISDA Form Master Agreement shall not apply to Party A and Party A shall not be required to pay any additional amounts referred to therein. o Tax Representations. |X| Payer Representations. For the purpose of Section 3(e) of the ISDA Form Master Agreement, each of Party A and Party B will make the following representations: It is not required by any applicable law, as modified by the practice of any relevant governmental revenue authority, of any Relevant Jurisdiction to make any deduction or withholding for or on account of any Tax from any payment (other than interest under Section 2(e), 6(d)(ii) or 6(e) of the ISDA Form Master Agreement) to be made by it to the other party under this Agreement. In making this representation, it may rely on: o the accuracy of any representations made by the other party pursuant to Section 3(f) of the ISDA Form Master Agreement; o the satisfaction of the agreement contained in Sections 4(a)(i) or 4(a)(iii) of the ISDA Form Master Agreement and the accuracy and effectiveness of any document provided by the other party pursuant to Sections 4(a)(i) or 4(a)(iii) of the ISDA Form Master Agreement; and o the satisfaction of the agreement of the other party contained in Section 4(d) of the ISDA Form Master Agreement, provided that it shall not be a breach of this representation where reliance is placed on clause (ii) and the other party does not deliver a form or document under Section 4(a)(iii) by reason of material prejudice to its legal or commercial position. |X| Payee Representations. For the purpose of Section 3(f) of the ISDA Form Master Agreement, Party A and Party B make the following representations: None o Documents to be Delivered. For the purpose of Section 4(a) (i) and 4(a) (iii): o Tax forms, documents, or certificates to be delivered are: PARTY REQUIRED FORM/DOCUMENT/ DATE BY WHICH TO TO DELIVER CERTIFICATE BE DELIVERED DOCUMENT Party A and Any documents Promptly after the earlier of Party B required or (i) reasonable demand by either reasonably requested party or (ii) learning that such to allow the other form or document is required party to make payments under this Agreement without any deduction or withholding for or on the account of any Tax or with such deduction or withholding at a reduced rate o Other documents to be delivered are: PARTY REQUIRED FORM/DOCUMENT/ DATE BY WHICH COVERED BY TO DELIVER CERTIFICATE TO BE DELIVERED SECTION 3(D) DOCUMENT REPRESENTATION Party A and Party B Any documents required Upon execution Yes by the receiving party and delivery of to evidence the this Agreement authority of the and such delivering party for it Confirmation to execute and deliver this Agreement, any Confirmation to which it is a party, and to evidence the authority of the delivering party to perform its obligations under this Agreement and such Confirmation. Party A and Party B A certificate of an Upon the Yes authorized officer of execution and the party, as to the delivery of incumbency and authority this Agreement of the respective and such officers of the party Confirmation signing this Agreement o Miscellaneous. Miscellaneous |X| Address for Notices: For the purposes of Section 12(a) of this Agreement: Address for notices or communications to Party A: Address: RASC Series 2006-KS9 Trust c/o U.S. Bank National Association 60 Livingston Avenue EP-MN-WS3D St. Paul, MN 55107 with a copy to: Residential Funding Company, LLC 8400 Normandale Lake Blvd., Suite 600 Minneapolis, MN 55437 Attention: Andrea Villanueva Facsimile: (952) 979-0867 (For all purposes) Address for notices or communications to Party B: Address: RASC Series 2006-KS9 Trust c/o U.S. Bank National Association 60 Livingston Avenue EP-MN-WS3D St. Paul, MN 55107 with a copy to: Residential Funding Company, LLC 8400 Normandale Lake Blvd., Suite 600 Minneapolis, MN 55437 Attention: Andrea Villanueva Facsimile No.: (952) 979-0867 (For all purposes) |X| Process Agent. For the purpose of Section 13(c): Party A: Not Applicable Party B: Not Applicable |X| Offices. The provisions of Section 10(a) will not apply to this Agreement; neither Party A nor Party B have any Offices other than as set forth in the Notices Section. |X| Multibranch Party. For the purpose of Section 10(c) of the ISDA Form Master Agreement, neither Party A nor Party B is a Multibranch. Party. |X| Calculation Agent. The Calculation Agent is Residential Funding Company, LLC. |X| Credit Support Document. Not Applicable |X| Credit Support Provider. Not Applicable |X| Governing Law. The parties to this ISDA Agreement hereby agree that the law of the State of New York shall govern their rights and duties in whole, without regard to the conflict of law provision thereof, other than New York General Obligations Law Sections 5-1401 and 5-1402. |X| Non-Petition. Party A and Party B each hereby irrevocably and unconditionally agrees that it will not institute against, or join any other person in instituting against or cause any other person to institute against RASC Series 2006-KS9 Trust, Mortgage Asset-Backed Pass-Through Certificates, Series 2006-KS9, or the other party any bankruptcy, reorganization, arrangement, insolvency, or similar proceeding under the laws of the United States, or any other jurisdiction for the non-payment of any amount due hereunder or any other reason until the payment in full of the Certificates and the expiration of a period of one year plus ten days (or, if longer, the applicable preference period) following such payment. |X| Severability. If any term, provision, covenant, or condition of this Agreement, or the application thereof to any party or circumstance, shall be held to be invalid or unenforceable (in whole or in part) for any reason, the remaining terms, provisions, covenants, and conditions hereof shall continue in full force and effect as if this Agreement had been executed with the invalid or unenforceable portion eliminated, so long as this Agreement as so modified continues to express, without material change, the original intentions of the parties as to the subject matter of this Agreement and the deletion of such portion of this Agreement will not substantially impair the respective benefits or expectations of the parties. The parties shall endeavor to engage in good faith negotiations to replace any invalid or unenforceable term, provision, covenant or condition with a valid or enforceable term, provision, covenant or condition, the economic effect of which comes as close as possible to that of the invalid or unenforceable term, provision, covenant or condition. |X| [Intentionally Omitted]. |X| Waiver of Jury Trial. Each party to this Agreement respectively waives any right it may have to a trial by jury in respect of any Proceedings relating to this Agreement or any Credit Support Document. |X| Set-Off. Notwithstanding any provision of this Agreement or any other existing or future agreement, each party irrevocably waives any and all rights it may have to set off, net, recoup or otherwise withhold or suspend or condition payment or performance of any obligation between it and the other party hereunder against any obligation between it and the other party under any other agreements. The provisions for Set-off set forth in Section 6(e) of the ISDA Form Master Agreement shall not apply for purposes of this Transaction. |X| This Agreement may be executed in several counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. |X| Trustee Liability Limitations. It is expressly understood and agreed by the parties hereto that (a) this Agreement is executed and delivered by U.S. Bank National Association, not individually or personally but solely as Trustee of Party A and Party B, in the exercise of the powers and authority conferred and vested in it and that U.S. Bank National Association shall perform its duties and obligations hereunder in accordance with the standard of care set forth in Article VIII of the Pooling and Servicing Agreement, (b) each of the representations, undertakings and agreements herein made on the part of Party A and Party B is made and intended not as personal representations, undertakings and agreements by U.S. Bank National Association but is made and intended for the purpose of binding only Party A and Party B, (c) nothing herein contained shall be construed as creating any liability on U.S. Bank National Association, individually or personally, to perform any covenant either expressed or implied contained herein, all such liability, if any, being expressly waived by the parties hereto and by any Person claiming by, through or under the parties hereto; provided that nothing in this paragraph shall relieve U.S. Bank National Association from performing its duties and obligations hereunder and under the Pooling and Servicing Agreement in accordance with the standard of care set forth therein, and (d) under no circumstances shall U.S. Bank National Association be personally liable for the payment of any indebtedness or expenses of Party A or Party B or be liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by Party A or Party B under this Agreement or any other related documents; provided, that nothing in this paragraph shall relieve U.S. Bank National Association from performing its duties and obligations hereunder and under the Pooling and Servicing Agreement in accordance with the standard of care set forth herein and therein. o "Affiliate". Party A and Party B shall be deemed to not have any Affiliates for purposes of this Agreement, including for purposes of Section 6(b)(ii). o Section 3 of the ISDA Form Master Agreement is hereby amended by adding at the end thereof the following subsection (g): "(g) Relationship Between Parties. Each party represents to the other party on each date when it enters into a Transaction that:-- o Nonreliance. (i) It is not relying on any statement or representation of the other party regarding the Transaction (whether written or oral), other than the representations expressly made in this Agreement or the Confirmation in respect of that Transaction and (ii) it has consulted with its own legal, regulatory, tax, business, investment, financial and accounting advisors to the extent it has deemed necessary, and it has made its own investment, hedging and trading decisions based upon its own judgment and upon any advice from such advisors as it has deemed necessary and not upon any view expressed by the other party. o Evaluation and Understanding. |X| It has the capacity to evaluate (internally or through independent professional advice) the Transaction and has made its own decision to enter into the Transaction and has been directed by the Pooling and Servicing Agreement to enter into this Transaction; and |X| It understands the terms, conditions and risks of the Transaction and is willing and able to accept those terms and conditions and to assume those risks, financially and otherwise. o Purpose. It is entering into the Transaction for the purposes of managing its borrowings or investments, hedging its underlying assets or liabilities or in connection with a line of business. o Status of Parties. The other party is not acting as agent, fiduciary or advisor for it in respect of the Transaction. o Eligible Contract Participant. It is an "eligible swap participant" as such term is defined in Section 35.1(b)(2) of the regulations (17 C.F.R 35) promulgated under, and it constitutes an "eligible contract participant" as such term is defined in Section 1(a)12 of the Commodity Exchange Act, as amended." o Account Details and Settlement Information: PAYMENTS TO PARTY A: Payments to Party A shall be made in the same manner as provided for in the Pooling and Servicing Agreement with respect to the Class A Certificateholders, Class M Certificateholders and Class B Certificateholders. PAYMENTS TO PARTY B: Payments to Party B shall be made in the same manner as provided for in the Pooling and Servicing Agreement with respect to the Class SB Certificateholders. Please sign and return to us a copy of this Agreement. Very truly yours, U.S. BANK NATIONAL ASSOCIATION, not in its individual capacity but solely as trustee for the benefit of RASC Series 2006-KS9 Trust, acting on behalf of the Class SB Certificateholders By: ___________________________________ Name: Title: AGREED AND ACCEPTED AS OF THE TRADE DATE U.S. BANK NATIONAL ASSOCIATION, not in its individual capacity but solely as trustee for the benefit of RASC Series 2006-KS9 Trust, acting on behalf of the Class A Certificateholders and Class M Certificateholders By: ____________________________________ Name: Title: -------------------------------------------------------------------------------- EXHIBIT R ASSIGNMENT AGREEMENT [FILED HEREWITH AS EXHIBIT 10.2] -------------------------------------------------------------------------------- EXHIBIT S SERVICING CRITERIA TO BE ADDRESSED IN ASSESSMENT OF COMPLIANCE The assessment of compliance to be delivered by the Trustee shall address, at a minimum, the criteria identified as below as "Applicable Servicing Criteria": ---------------------------------------------------------------------------------------- APPLICABLE SERVICING CRITERIA SERVICING CRITERIA ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- REFERENCE CRITERIA ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- GENERAL SERVICING CONSIDERATIONS ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- 1122(d)(1)(i) Policies and procedures are instituted to monitor any performance or other triggers and events of default in accordance with the transaction agreements. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- If any material servicing activities are outsourced to third parties, policies and procedures are instituted to monitor the third party's performance and compliance with 1122(d)(1)(ii) such servicing activities. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Any requirements in the transaction agreements to maintain a back-up servicer for 1122(d)(1)(iii) the pool assets are maintained. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- A fidelity bond and errors and omissions policy is in effect on the party participating in the servicing function throughout the reporting period in the amount of coverage required by and otherwise in accordance with the terms of the transaction 1122(d)(1)(iv) agreements. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- CASH COLLECTION AND ADMINISTRATION ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Payments on pool assets are deposited into the appropriate custodial bank accounts and related bank clearing accounts no more than |X| (as to two business days following receipt, or such accounts held by other number of days specified in the Trustee) 1122(d)(2)(i) transaction agreements. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Disbursements made via wire transfer on behalf of an obligor or to an investor are |X| (as to 1122(d)(2)(ii) made only by authorized personnel. investors only) ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Advances of funds or guarantees regarding collections, cash flows or distributions, and any interest or other fees charged for such advances, are made, reviewed and approved as 1122(d)(2)(iii) specified in the transaction agreements. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- The related accounts for the transaction, such as cash reserve accounts or accounts established as a form of |X| (as to overcollateralization, are separately accounts held by maintained (e.g., with respect to commingling Trustee) of cash) as set forth in the transaction 1122(d)(2)(iv) agreements. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Each custodial account is maintained at a federally insured depository institution as set forth in the transaction agreements. For purposes of this criterion, "federally insured depository institution" with respect to a foreign financial institution means a foreign financial institution that meets the requirements of Rule 13k-1(b)(1) of the 1122(d)(2)(v) Securities Exchange Act. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Unissued checks are safeguarded so as to 1122(d)(2)(vi) prevent unauthorized access. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Reconciliations are prepared on a monthly basis for all asset-backed securities related bank accounts, including custodial accounts and related bank clearing accounts. These reconciliations are (A) mathematically accurate; (B) prepared within 30 calendar days after the bank statement cutoff date, or such other number of days specified in the transaction agreements; (C) reviewed and approved by someone other than the person who prepared the reconciliation; and (D) contain explanations for reconciling items. These reconciling items are resolved within 90 calendar days of their original identification, or such other number of days 1122(d)(2)(vii) specified in the transaction agreements. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- INVESTOR REMITTANCES AND REPORTING ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Reports to investors, including those to be filed with the Commission, are maintained in accordance with the transaction agreements and applicable Commission requirements. Specifically, such reports (A) are prepared in accordance with timeframes and other terms set forth in the transaction agreements; (B) provide information calculated in accordance with the terms specified in the transaction agreements; (C) are filed with the Commission as required by its rules and regulations; and (D) agree with investors' or the trustee's records as to the total unpaid principal balance and number of pool assets serviced by 1122(d)(3)(i) the servicer. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Amounts due to investors are allocated and remitted in accordance with timeframes, distribution priority and other terms set 1122(d)(3)(ii) forth in the transaction agreements. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Disbursements made to an investor are posted within two business days to the servicer's investor records, or such other number of 1122(d)(3)(iii) days specified in the transaction agreements. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Amounts remitted to investors per the investor reports agree with cancelled checks, or other form of payment, or custodial bank 1122(d)(3)(iv) statements. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- POOL ASSET ADMINISTRATION ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Collateral or security on pool assets is maintained as required by the transaction 1122(d)(4)(i) agreements or related asset pool documents. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Pool assets and related documents are safeguarded as required by the transaction 1122(d)(4)(ii) agreements. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Any additions, removals or substitutions to the asset pool are made, reviewed and approved in accordance with any conditions or 1122(d)(4)(iii) requirements in the transaction agreements. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Payments on pool assets, including any payoffs, made in accordance with the related pool asset documents are posted to the servicer's obligor records maintained no more than two business days after receipt, or such other number of days specified in the transaction agreements, and allocated to principal, interest or other items (e.g., escrow) in accordance with the related pool 1122(d)(4)(iv) asset documents. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- The servicer's records regarding the pool assets agree with the servicer's records with respect to an obligor's unpaid principal 1122(d)(4)(v) balance. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Changes with respect to the terms or status of an obligor's pool asset (e.g., loan modifications or re-agings) are made, reviewed and approved by authorized personnel in accordance with the transaction agreements 1122(d)(4)(vi) and related pool asset documents. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Loss mitigation or recovery actions (e.g., forbearance plans, modifications and deeds in lieu of foreclosure, foreclosures and repossessions, as applicable) are initiated, conducted and concluded in accordance with the timeframes or other requirements 1122(d)(4)(vii) established by the transaction agreements. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Records documenting collection efforts are maintained during the period a pool asset is delinquent in accordance with the transaction agreements. Such records are maintained on at least a monthly basis, or such other period specified in the transaction agreements, and describe the entity's activities in monitoring delinquent pool assets including, for example, phone calls, letters and payment rescheduling plans in cases where delinquency is deemed temporary (e.g., illness or 1122(d)(4)(viii) unemployment). ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Adjustments to interest rates or rates of return for pool assets with variable rates are computed based on the related pool asset 1122(d)(4)(ix) documents. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Regarding any funds held in trust for an obligor (such as escrow accounts): (A) such funds are analyzed, in accordance with the obligor's pool asset documents, on at least an annual basis, or such other period specified in the transaction agreements; (B) interest on such funds is paid, or credited, to obligors in accordance with applicable pool asset documents and state laws; and (C) such funds are returned to the obligor within 30 calendar days of full repayment of the related pool asset, or such other number of 1122(d)(4)(x) days specified in the transaction agreements. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Payments made on behalf of an obligor (such as tax or insurance payments) are made on or before the related penalty or expiration dates, as indicated on the appropriate bills or notices for such payments, provided that such support has been received by the servicer at least 30 calendar days prior to these dates, or such other number of days 1122(d)(4)(xi) specified in the transaction agreements. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Any late payment penalties in connection with any payment to be made on behalf of an obligor are paid from the servicer's funds and not charged to the obligor, unless the late payment was due to the obligor's error 1122(d)(4)(xii) or omission. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Disbursements made on behalf of an obligor are posted within two business days to the obligor's records maintained by the servicer, or such other number of days specified in the 1122(d)(4)(xiii) transaction agreements. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Delinquencies, charge-offs and uncollectible accounts are recognized and recorded in 1122(d)(4)(xiv) accordance with the transaction agreements. ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Any external enhancement or other support, identified in Item 1114(a)(1) through (3) or Item 1115 of Regulation AB, is maintained as 1122(d)(4)(xv) set forth in the transaction agreements. ---------------------------------------------------------------------------------------- -------------------------------------------------------------------------------- EXHIBIT T-1 FORM OF FORM 10-K CERTIFICATION I, [identify the certifying individual], certify that: 1. I have reviewed the annual report on Form 10-K for the fiscal year [____], and all reports on Form 8-K containing distribution or servicing reports filed in respect of periods included in the year covered by that annual report, of the trust (the "Trust") created pursuant to the Pooling and Servicing Agreement dated as of October 27, 2006 (the "P&S Agreement") among Residential Asset Securities Corporation (the "Depositor"), Residential Funding Company, LLC (the "Master Servicer") and U.S. Bank National Association (the "Trustee"); 2. Based on my knowledge, the information in these reports, taken as a whole, does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading as of the last day of the period covered by this annual report; 3. Based on my knowledge, the servicing information required to be provided to the Trustee by the Master Servicer under the P&S Agreement for inclusion in these reports is included in these reports; 4. I am responsible for reviewing the activities performed by the Master Servicer under the P&S Agreement and based upon my knowledge and the annual compliance review required under the P&S Agreement, and, except as disclosed in the reports, the Master Servicer has fulfilled its obligations under the P&S Agreement; and 5. The reports disclose all significant deficiencies relating to the Master Servicer's compliance with the minimum servicing standards based upon the report provided by an independent public accountant, after conducting a review in compliance with the Uniform Single Attestation Program for Mortgage Bankers as set forth in the P&S Agreement, that is included in these reports. In giving the certifications above, I have reasonably relied on the information provided to me by the following unaffiliated parties: [the Trustee]. IN WITNESS WHEREOF, I have duly executed this certificate as of _________, 20__. ____________________________ Name: Title: * to be signed by the senior officer in charge of the servicing functions of the Master Servicer -------------------------------------------------------------------------------- EXHIBIT T-2 FORM OF BACK-UP CERTIFICATE TO FORM 10-K CERTIFICATION The undersigned, a Responsible Officer of [______________] (the "Trustee") certifies that: 1. The Trustee has performed all of the duties specifically required to be performed by it pursuant to the provisions of the Pooling and Servicing Agreement dated as of October 27, 2006 (the "Agreement") by and among Residential Asset Securities Corporation, as depositor, Residential Funding Company, LLC, as master servicer, and the Trustee in accordance with the standards set forth therein. 2. Based on my knowledge, the list of Certificateholders as shown on the Certificate Register as of the end of each calendar year that is provided by the Trustee pursuant to Section 4.03(e)(I) of the Agreement is accurate as of the last day of the 20[ ] calendar year. Capitalized terms used and not defined herein shall have the meanings given such terms in the Agreement. IN WITNESS WHEREOF, I have duly executed this certificate as of _________, 20__. ____________________________ Name: Title: -------------------------------------------------------------------------------- EXHIBIT U INFORMATION TO BE PROVIDED BY THE MASTER SERVICER TO THE RATING AGENCIES RELATING TO REPORTABLE MODIFIED MORTGAGE LOANS Account number Transaction Identifier Unpaid Principal Balance prior to Modification Next Due Date Monthly Principal and Interest Payment Total Servicing Advances Current Interest Rate Original Maturity Date Original Term to Maturity (Months) Remaining Term to Maturity (Months) Trial Modification Indicator Mortgagor Equity Contribution Total Servicer Advances Trial Modification Term (Months) Trial Modification Start Date Trial Modification End Date Trial Modification Period Principal and Interest Payment Trial Modification Interest Rate Trial Modification Term Rate Reduction Indicator Interest Rate Post Modification Rate Reduction Start Date Rate Reduction End Date Rate Reduction Term Term Modified Indicator Modified Amortization Period Modified Final Maturity Date Total Advances Written Off Unpaid Principal Balance Written Off Other Past Due Amounts Written Off Write Off Date Unpaid Principal Balance Post Write Off Capitalization Indicator Mortgagor Contribution Total Capitalized Amount Modification Close Date Unpaid Principal Balance Post Capitalization Modification Next Payment Due Date per Modification Plan Principal and Interest Payment Post Modification Interest Rate Post Modification Payment Made Post Capitalization Delinquency Status to Modification Plan -------------------------------------------------------------------------------- EXHIBIT V FORM OF CERTIFICATE TO BE GIVEN BY CERTIFICATE OWNER Euroclear Cedel, societe anonyme 151 Boulevard Jacqmain 67 Boulevard Grand-Duchesse Charlotte B-1210 Brussels, Belgium L-1331 Luxembourg Re: Residential Asset Securities Corporation, Home Equity Mortgage Asset-Backed Pass-Through Certificates, Series 2006-KS9, Class SB, issued pursuant to the Pooling and Servicing Agreement dated as of October 27, 2006 among Residential Asset Securities Corporation, Residential Funding Company, LLC, and U.S. Bank National Association, as Trustee (the "Certificates"). This is to certify that as of the date hereof and except as set forth below, the beneficial interest in the Certificates held by you for our account is owned by persons that are not U.S. persons (as defined in Rule 901 under the Securities Act of 1933, as amended). The undersigned undertakes to advise you promptly by tested telex on or prior to the date on which you intend to submit your certification relating to the Certificates held by you in which the undersigned has acquired, or intends to acquire, a beneficial interest in accordance with your operating procedures if any applicable statement herein is not correct on such date. In the absence of any such notification, it may be assumed that this certification applies as of such date. [This certification excepts beneficial interests in and does not relate to U.S. $_________ principal amount of the Certificates appearing in your books as being held for our account but that we have sold or as to which we are not yet able to certify.] We understand that this certification is required in connection with certain securities laws in the United States of America. If administrative or legal proceedings are commenced or threatened in connection with which this certification is or would be relevant, we irrevocably authorize you to produce this certification or a copy thereof to any interested party in such proceedings. Dated: _________________,*/ By:_________________________ , Account Holder -------------------------------------------------------------------------------- EXHIBIT W FORM OF CERTIFICATE TO BE GIVEN BY EUROCLEAR OR CEDEL U.S. Bank National Association Re: Residential Asset Securities Corporation, Home Equity Mortgage Asset-Backed Pass-Through Certificates, Series 2006-KS9, Class SB, issued pursuant to the Pooling and Servicing Agreement dated as of October 27, 2006 among Residential Asset Securities Corporation, Residential Funding Company, LLC, and U.S. Bank National Association, as Trustee (the "Certificates"). This is to certify that, based solely on certifications we have received in writing, by tested telex or by electronic transmission from member organizations appearing in our records as persons being entitled to a portion of the principal amount set forth below (our "Member Organizations") as of the date hereof, $____________ principal amount of the Certificates is owned by persons (a) that are not U.S. persons (as defined in Rule 901 under the Securities Act of 1933. as amended (the "Securities Act")) or (b) who purchased their Certificates (or interests therein) in a transaction or transactions that did not require registration under the Securities Act. We further certify (a) that we are not making available herewith for exchange any portion of the related Temporary Regulation S Global Class SB Certificate excepted in such certifications and (b) that as of the date hereof we have not received any notification from any of our Member Organizations to the effect that the statements made by them with respect to any portion of the part submitted herewith for exchange are no longer true and cannot be relied upon as of the date hereof We understand that this certification is required in connection with certain securities laws of the United States of America. If administrative or legal proceedings are commenced or threatened in connection with which this certification is or would be relevant, we irrevocably authorize you to produce this certification or a copy hereof to any interested party in such proceedings. Date: ___________________* Yours faithfully, * To be dated no earlier By: ________________________________________ than the Effective Date. Morgan Guaranty Trust Company of New York, Brussels Office, as Operator of the Euroclear Clearance System Cedel, Societe anonyme * Certification must be dated on or after the 15th day before the date of the Euroclear or Cedel certificate to which this certification releases.

Exhibit 10.78 SUMMARY OF NAMED EXECUTIVE OFFICER COMPENSATION FOR 2006      The following sets forth a summary of the base salary and other compensation arrangements for 2006 for the Co-Chief Executive Officers (the "Co-CEOs") of Nelnet, Inc. (the "Company") and the four other highest compensated executive officers of the Company during 2005 by reference to total annual salary and bonus for 2005 (collectively, the "Named Executive Officers"). Base Salaries Name and principal position     2006 base salary             Michael S. Dunlap     $500,000     Co-Chief Executive Officer           Stephen F. Butterfield     $500,000     Co-Chief Executive Officer           Jeffrey R. Noordhoek     $275,000     President           Terry J. Heimes     $325,000     Chief Financial Officer           David A. Bottegal     $300,000     Chief Executive Officer –      Nelnet Education Services           Matthew D. Hall     $275,000     Chief Operating Officer –      Nelnet Education Services   Performance Bonus Payments      The Named Executive Officers (other than the Co-CEOs, Michael Dunlap and Stephen Butterfield) are eligible for performance bonus payments under a 2006 incentive plan arrangement under which an incentive compensation pool for employees will be established based upon a formula that increases the available compensation pool amount as the Company's Base Net Income increases. Base Net Income is computed as consolidated net income under generally accepted accounting principles excluding derivative market value adjustments, amortization of intangible assets, and variable-rate floor income items. The total incentive pool for all eligible employees is expected to be approximately 10-12% of Base Net Income. --------------------------------------------------------------------------------      The bonus amounts earned and ultimately distributed will be subject to certain performance goals which are expected to include: a.   Fiscal (financial and operational) performance measures, such as levels of student loan assets and originations, levels of operating expenses, and diversification/growth of other fee income; b.   Customer engagement and satisfaction measures; and c.   Employee engagement and motivation measures. The bonus amounts will also be based on other specific quantitative and qualitative targets, goals and measures established for each employee, and the employee’s performance during 2006. For the Named Executive Officers (other than the Co-CEOs), the incentive amounts will be further based upon a percentage of their salary that ranges up to 100%, with a target incentive level between 75-80%.      The Named Executive Officers (other than the Co-CEOs) can elect to receive all or a portion of their annual incentive bonus in shares of the Company’s Class A common stock issued under the Company’s Restricted Stock Plan. The Named Executive Officers (other than the Co-CEOs) will have 30% of their bonus paid in such shares, unless they elect otherwise.      The Company has an Executive Officers Bonus Plan for the Co-CEOs of the Company. A copy of this plan has been filed as an exhibit to a Company filing with the Securities and Exchange Commission. Under this plan, bonus compensation will be available in 2006 to each of the Co-CEOs in the amount of 0.60% of Base Net Income. Bonus payments under the Executive Officers Bonus Plan for a particular year are made subsequent to year-end after the Company's earnings for the year have been finalized and announced to the public. Other Compensation      The Company owns a controlling interest in an aircraft due to the frequent business travel needs of its executives and the limited availability of commercial flights in Lincoln, Nebraska, where the Company's headquarters are located. The Company allows the Co-CEOs to utilize the aircraft for personal travel when it is not required for business travel. The value of the personal use of the aircraft is based on the Company’s aggregate incremental costs, which include variable operating costs such as fuel costs, mileage costs, trip-related maintenance and hangar costs, on-board catering, landing/ramp fees, and other miscellaneous variable costs.      The Company "matches" certain employee contributions to its 401(k) savings plan. In addition, the Company pays premiums on life insurance for its employees. 2

Exhibit 10.20 DELTIC TIMBER CORPORATION SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN As Amended and Restated Effective as of January 1, 2005 -------------------------------------------------------------------------------- DELTIC TIMBER CORPORATION SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN As Amended and Restated Effective as of January 1, 2005 Table of Contents   Article    Title    Page I    Definitions    I-1 II    Administration    II-1 III    Eligibility    III-1 IV    Restored Thrift Plan Benefit    IV-1 V    Restored Pension Plan Benefit    V-1 VI    Supplemental Plan Benefits    VI-1 VII    Amendment and Termination    VII-1 VIII    Miscellaneous    VIII-1 -------------------------------------------------------------------------------- DELTIC TIMBER CORPORATION SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN As Amended and Restated Effective as of January 1, 2005 PURPOSE Deltic Timber Corporation (the “Company”) hereby amends and restates the Deltic Timber Corporation Supplemental Executive Retirement Plan, effective as of January 1, 2005 (the “Plan”). The purpose of this Plan is to restore Pension Plan and Thrift Plan benefits that cannot be paid under the Pension Plan and the Thrift Plan due to limitations imposed by the Code, and to comply with the terms of any agreements to provide Supplemental Plan Benefits under Article VI. The Plan is being amended and restated to comply with the requirements of Code Section 409A and the regulations issued thereunder, with respect to amounts deferred on and after January 1, 2005. Any changes made to the Plan through this amendment and restatement that relate to such requirements shall be effective as of January 1, 2005. The provisions of the Plan relating to amounts deferred prior to January 1, 2005 shall not be affected in any way by the changes being made through this restatement, it being expressly intended that such amounts shall remain exempt from the requirements of Code Section 409A. To the extent required under Code Section 409A and applicable regulations, any new payment event or form of payment adopted during 2006 in conjunction with this amendment and restatement shall not cause a payment to be made to a Participant during 2006 that was not otherwise scheduled to be paid in 2006, nor cause a payment otherwise payable in 2006 to be paid in a subsequent year; in the event such new payment event would provide for payment during 2006, no payment shall be made in accordance with the event until January 1, 2007. The Plan constitutes an unsecured promise by the Company or an Adopting Employer to pay benefits in the future. Participants in the Plan shall have the status of general unsecured creditors of the Company or the Adopting Employer, as applicable. Each Adopting Employer shall be solely responsible for payment of the benefits of its employees and their beneficiaries. The Plan is unfunded for Federal tax purposes and for purposes of Title I of the Employee Retirement Income Security Act of 1974. Any amounts set aside to defray the liabilities assumed by the Company or an Adopting Employer will remain the general assets of the Company or an Adopting Employer and shall remain subject to the claims of the Company’s or the Adopting Employer’s creditors until such amounts are distributed to the Participants. -------------------------------------------------------------------------------- ARTICLE I Definitions (a) “Account or Accounts” shall mean a Participant’s Deferred Compensation Account, Employer Matching Account, or Grandfathered Account. (b) “Actuarial Equivalent” or “Actuarially Equivalent” shall mean equality in value of the aggregate amounts expected to be received under different manners of payment applying reasonable interest rate and mortality assumptions. (c) “Adopting Employer” shall mean a Related Employer that has elected, with the consent of the Board of Directors of the Company, to adopt the Plan. (d) “Applicable Code Provisions” shall mean any and all limitations imposed under Code Sections 401(a)(4), 401(a)(17), 402(g), 401(k), 401(m), and 415. (e) “Basic Pension Plan Benefit” shall mean the amount of pension payable in the normal form to the Participant under the Pension Plan after reduction to comply with the Applicable Code Provisions. (f) “Beneficiary” shall mean the person or persons designated by a Participant upon such forms as shall be provided by the Committee, to receive any benefits payable under the Plan after the Participant’s death. If the Participant shall fail to designate a Beneficiary, or if for any reason such designation shall be ineffective, or if such Beneficiary shall predecease the Participant or die simultaneously with the Participant, then the Beneficiary shall be, in the following order of preference (i) the Participant’s surviving spouse, or (ii) the Participant’s estate. In the event of any dispute as to the entitlement of any Beneficiary, the Committee’s determination shall be final, and the Committee may withhold any payment until such dispute has been resolved. (g) “Board” or “Board of Directors” shall mean the board of directors of a Participating Employer. (h) “Change in Control” shall mean (i) a change in the ownership of the Corporation occurring as the result of a person, or more than one person acting as a group, acquiring ownership of stock of the Corporation which, when combined with stock held by such person or group, constitutes more than fifty percent (50%) of the total fair market value or total voting power of the Corporation, provided the person or group was not considered as owning more than fifty percent (50%) of the value or voting power prior to the acquisition, (ii) a change in the effective control of the Corporation occurring (A) as the result of a person, or more than one person acting as a group, acquiring ownership of stock of the Corporation possessing thirty-five percent (35%) or more of the total voting power of stock of the Corporation, or (B) as the result of the replacement of a majority of the members of the Board during a twelve (12) month period by directors whose appointment or election is not endorsed by a majority   I-1 -------------------------------------------------------------------------------- of the members of the Board prior to the date of the appointment or election, or (iii) a change in the ownership of a substantial portion of the assets of the Corporation occurring as the result of a person, or more than one person acting as a group, acquiring assets from the Corporation that have a total gross fair market value equal to or more than forty percent (40%) of the total gross fair market value of all the assets of the Corporation immediately prior to such acquisition. Whether a Change in Control has occurred shall be governed by regulations issued under Code Section 409A. (i) “Code” shall mean the Internal Revenue Code of 1986, as amended. (j) “Committee” shall mean the persons designated by the Board of the Company as the Administrative Committee for the Plan pursuant to Article II. (k) “Company” shall mean Deltic Timber Corporation, a Delaware corporation, and its successors. (l) “Compensation” shall mean the Participant’s compensation as that term is defined under the Thrift Plan for purposes of elective deferrals to such plan. (m) “Corporation” shall mean, for purposes of determining whether a Change in Control event has occurred, (i) the corporation for whom the Participant is performing services; (ii) the corporation that is liable for the payment of the deferred compensation to the Participant (or all corporations so liable if more than one corporation is liable); or (iii) a corporation that owns more than fifty percent (50%) of the total fair market value and total voting power of the corporation described in (i) or (ii), or any corporation in a chain of corporations in which each corporation owns more than fifty percent (50%) of such value and voting power of another corporation in the chain, ending in a corporation described in (i) or (ii). (n) “Deferred Compensation Account” shall mean an account established to record any Compensation deferred by a Participant to this Plan on or after January 1, 2005, and any hypothetical earnings on such amounts. (o) “Disability” shall mean a Participant (i) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, or (ii) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of the Participating Employer. The Participant shall be deemed to have incurred a Disability if the Participant is determined to be totally disabled by the Social Security Administration. (p) “Employer” shall mean the Company and any Related Employer.   I-2 -------------------------------------------------------------------------------- (q) “Employer Matching Account” shall mean an account established to record any employer matching contributions credited for a Participant under the Plan with respect to amounts deferred to the Plan on or after January 1, 2005, and any hypothetical earnings on such amounts. (r) “Fixed Date” shall mean the first day of a calendar year specified by a Participant in his deferral election form, upon which a distribution of the Restored Thrift Plan Benefit may be made to the Participant. (s) “Grandfathered Account” shall mean any amounts deferred by a Participant prior to January 1, 2005, or credited for his benefit as employer matching contributions with respect to such deferrals, and any hypothetical earnings on such amounts. The Grandfathered Account shall include any account-balance-type benefits transferred to the Plan from the Murphy Oil Corporation Supplemental Executive Retirement Plan. (t) “Grandfathered Benefit” shall mean the benefit, if any, provided under Article V that was earned and vested as of December 31, 2004, including any benefit transferred to the Plan from the Murphy Oil Corporation Supplemental Executive Retirement Plan. The Grandfathered Benefit shall be equal to the present value as of December 31, 2004, of the Pension Plan Benefit which the Participant would have been entitled to receive under the Plan if the Participant had voluntarily terminated services with the Employer without cause on December 31, 2004 and received payment of the benefits with the maximum value available from the Plan on the earliest possible date allowed under the Plan to receive a payment of benefits following the termination of services. Such Grandfathered Benefit shall be increased for any subsequent calendar year to equal the present value of the benefit the Participant actually becomes entitled to receive, determined under the terms of the Plan as in effect on October 3, 2004, without regard to any further services rendered by the Participant after December 31, 2004. (u) “Identification Date” shall mean December 31 of any calendar year. (v) “Participant” shall mean any employee of a Participating Employer who is covered by this Plan as provided in Article III. (w) “Participating Employer” shall mean the Company and each Adopting Employer. (x) “Pension Plan” shall mean the Retirement Plan of Deltic Timber Corporation, as it may be amended from time to time. (y) “Plan” shall mean the Deltic Timber Corporation Supplemental Executive Retirement Plan, originally effective as of January 1, 1997, as it has been or may be amended from time to time. (z) “Plan Year” shall mean the 12-month period ending on December 31.   I-3 -------------------------------------------------------------------------------- (aa) “Related Employer” shall mean any entity that is part of a controlled group of corporations that includes the Company within the meaning of section 414(b) of the Code or that is part of a group of trades or businesses under common control with the Company within the meaning of section 414(c) of the Code. (bb) “Restored Pension Plan Benefit” shall mean the benefit, if any, provided under Article V, including any applicable Grandfathered Benefit. (cc) “Restored Thrift Plan Benefit” shall mean the benefit, if any, provided under Article IV. (dd) “Separation from Service” shall mean the voluntary or involuntary termination of employment of the Participant from the Employer. A Separation from Service shall not have occurred (i) if the Participant is on military leave, sick leave, or other bona fide leave of absence if the period of such leave does not exceed six months, (ii) if the Participant has a right to reemployment with the Employer pursuant to statute or contract, or (iii) if the Employee and Employer intend that the Employee continue to provide more than insignificant services to the Employer. (ee) “Specified Employee” shall mean a key employee (as defined in Code Section 416(i) without regard to Code Section 416(i)(5)) of the Employer if, as of the date the employee Separates from Service with the Employer, any stock of the Employer is publicly traded on an established securities market or otherwise. An Employee shall be a Specified Employee only if the Employee meets the requirements of Code Section 416(i)(1)(A)(i), (ii) or (iii) (applied in accordance with the regulations thereunder and disregarding Section 416(i)(5)) at any time during the 12-month period ending on the Identification Date, and only for the 12-month period beginning on the first day of the fourth month following the applicable Identification Date. (ff) “Supplemental Plan Benefits” shall mean the benefits, if any, provided under Article VI hereof. (gg) “Thrift Plan” shall mean the Thrift Plan of Deltic Timber Corporation, as it may be amended from time to time. (hh) “Trust” shall mean a trust agreement established by the Company to hold assets for the purpose of defraying its obligations to Participants in accordance with Section VIII(a), if any. (ii) “Trustee” shall mean the persons or entity appointed to serve as the trustee of the Trust. (jj) “Unforeseeable Emergency” shall mean a severe financial hardship of the Participant resulting from an illness or accident of the Participant, the Participant’s spouse, or a dependent (as defined in section 152(a) of the Code) of the Participant, loss of the Participant’s property due to casualty (including the need to rebuild a home following damage to a home not otherwise covered by insurance, for example, as a   I-4 -------------------------------------------------------------------------------- result of a natural disaster), or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. No Unforeseeable Emergency shall be deemed to exist for purposes of the Plan if the emergency can be relieved through reimbursement or compensation from insurance or otherwise, by liquidation of the Participant’s assets (to the extent such liquidation would not cause severe financial hardship), or by cessation of deferrals to the Plan.   I-5 -------------------------------------------------------------------------------- ARTICLE II Administration (a) Administrative Committee. The Board of Directors of the Company shall appoint a committee to administer the Plan. If no such appointment has been made, the Company shall serve as the Committee. The Committee shall have complete control and discretion to manage the operation and administration of the Plan. Not in limitation, but in amplification of the foregoing, the Committee shall have the following powers: (1) To determine all questions relating to the eligibility of employees to participate or continue to participate; (2) To maintain all records and books of account necessary for the administration of the Plan; (3) To interpret the provisions of the Plan and to make and to publish such interpretive or procedural rules as are not inconsistent with the Plan and applicable law; (4) To compute, certify and arrange for the payment of benefits to which any Participant or beneficiary is entitled; (5) To process claims for benefits under the Plan by Participants or beneficiaries; (6) To engage consultants and professionals to assist the Committee in carrying out its duties under this Plan; and (7) To develop and maintain such instruments as may be deemed necessary from time to time by the Committee to facilitate payment of benefits under the Plan. (b) Committee’s Authority. The Committee may consult with Company officers, legal and financial advisers to the Company and others, but nevertheless the Committee shall have the full authority and discretion to act, and the Committee’s actions shall be final and conclusive on all parties. (c) Claims Procedure. A Participant or beneficiary, or his or her duly authorized representative (“Claimant”), may file a claim for a benefit under the Plan, and may appeal the denial of a claim. All claims and appeals should be filed directly with the Committee. All decisions will be made in accordance with the provisions of the Plan and Department of Labor Regulations Section 2560.503-1 (the “Regulation”).   II-1 -------------------------------------------------------------------------------- (1) Claims Other Than for Disability Benefits. If a claim is for a benefit other than for a “disability benefit” (as defined in the Regulation), the following additional rules will apply: (A) Notice of Decision. The Committee will notify the Claimant of its decision with respect to a claim in writing or electronically. The notification will be written in a manner calculated to be understood by the Claimant. If the claim is wholly or partially denied, the notification will contain (i) specific reasons for the denial, (ii) specific reference to the pertinent provisions of the Plan upon which the denial is based, (iii) a description of any additional material or information necessary for the Claimant to perfect the claim and an explanation of why that material or information is necessary, and (iv) an explanation of the steps to be taken if the Claimant wishes to submit a request for review of the claim, as set forth in (B) below. The notification will be given within 90 days after the claim is received by the Committee (or within 180 days, if special circumstances make it impossible to decide the claim within 90 days and the Committee notifies the Claimant in writing of the extension prior to the end of the first 90-day period). If a decision is not provided within the 90 or 180-day period, the claim will be considered denied as of the last day of such period and the Claimant may request a review of the claim, as provided in (B) below. (B) Review Procedure. Within 60 days after the date the Claimant is notified of a denied claim (or, if applicable, within 60 days after the date on which the claim is treated as denied), the Claimant may file a written request with the Committee for a review of the denied claim. The Claimant may also make a written request for access to and copies of pertinent documents in the possession of the Committee, free of charge. The Claimant may submit with the written request for review comments, documents, records and other information, and those materials will be considered by the Committee, regardless of whether they were submitted with or considered in the initial benefit determination. The Committee will notify the Claimant of its decision in writing. The notification will be written in a manner calculated to be understood by the Claimant and will contain (i) specific reasons for the decision and (ii) specific reference to the pertinent provisions of the Plan upon which the decision is based. The notification will be given within 60 days after the request for review is received by the Committee (or within 120 days, if special circumstances require an extension of time for processing the request, such as an election by the Committee to hold a hearing, and if written notice of such extension and circumstances is given to the Claimant within the initial 60-day period). If a decision is not made within the 60 or 120-day period, the claim will be considered denied. Upon a final adverse determination on review, the Claimant will be permitted to bring a civil action under ERISA Section 502(a).   II-2 -------------------------------------------------------------------------------- (2) Special Rules for Disability Benefits. If a claim is for a “disability benefit” (as defined in the Regulation), the claim will be processed as specified in paragraph (1) above, except that the following additional rules will apply: (A) Notice of Decision. The Committee will notify the Claimant of its decision within 45 days of receipt of the claim. The 45-day period may be extended for an additional 30 days if the extension is necessary due to matters beyond the control of the Committee, and the Committee notifies the Claimant prior to the expiration of the initial 45-day period of the circumstances requiring the extension and the date by which the Committee expects to render a decision. The 30-day extension period can be extended for a second period of 30 days due to matters beyond the control of the Committee, provided the Committee again notifies the Claimant prior to the expiration of the first extension period in the same manner as for the first extension. If the Claimant is asked to provide additional information so that the claim can be adjudicated, the Claimant will have 45 days to provide the additional information. In the case of an adverse determination with respect to a claim, if an internal rule, guideline, protocol, or other similar criterion was relied upon in making the decision, the Committee will notify the Claimant that such a rule, guideline, protocol or other similar criterion was relied on, and that a copy of such rule, guideline, protocol, or other criterion will be provided free of charge to the Claimant upon written request. (B) Review Procedure. A Claimant will have 180 days following the receipt of an adverse determination involving a disability benefit to request a review of the determination. If a review of the adverse decision is requested: (i) No deference will be given to the initial decision, and the review will be conducted by an appropriate named fiduciary of the Plan who is neither the individual who made the initial decision nor a subordinate of that individual. (ii) If the initial decision was based in whole or in part on a medical judgment, the appropriate named fiduciary will consult with a health care professional who has appropriate training and experience in the field of medicine involved in the medical judgment. (iii) The Committee will provide to the Claimant the identity of medical or vocational experts whose advice was obtained on behalf of the Plan in connection with the adverse determination, without regard to whether the advice was relied on in making the determination.   II-3 -------------------------------------------------------------------------------- (iv) Any health care professional engaged for purposes of reviewing the initial decision will be an individual who is neither an individual who was consulted in connection with the initial decision, nor a subordinate of that individual. (v) The Committee must notify the Claimant of its decision on review within 45 days after the request for review is received, or within 90 days if special circumstances require an extension of time, the Claimant is given written notice of the extension within the first 45-day period, and the notice describes the special circumstances and indicates the date a decision is expected to be made.   II-4 -------------------------------------------------------------------------------- ARTICLE III Eligibility An employee of a Participating Employer whose Pension Plan Benefit or Thrift Plan Benefit is limited by the Applicable Code Provisions, or who has entered into an agreement with a Participating Employer providing for Supplemental Plan Benefits, shall be a Participant in the Plan. Notwithstanding anything to the contrary in this Article III, (i) only the officers of the Company shall be allowed to participate in the Plan with respect to Restored Thrift Plan Benefits, and (ii) an employee whose Pension Plan or Thrift Plan Benefit is limited by an Applicable Code Provision other than Code Section 415, or who has an agreement providing for Supplemental Plan Benefits, must be part of a select group of management or highly compensated employees to participate in the Plan. An employee who is eligible to participate in the Plan must, as a condition to becoming a Participant, complete such applications and other forms as requested by the Committee, and must submit to such physical examinations as may be required in order for the Participating Employer to purchase, at its discretion, one or more life insurance policies on the life of the Participant, in such amounts as the Committee shall determine.   III-1 -------------------------------------------------------------------------------- ARTICLE IV Restored Thrift Plan Benefit (a) General. A Participant’s Restored Thrift Plan Benefit shall consist of any amounts credited to his Deferred Compensation Account under paragraph (b), his Employer Matching Account under paragraph (c), or his Grandfathered Account. (b) Deferred Compensation. (1) Any Participant may elect to defer, for a calendar year, that amount of his Compensation to be earned during such calendar year that he has elected to defer to the Thrift Plan but which cannot be deferred to the Thrift Plan because of the Applicable Code Provisions, which amounts shall be credited to his Deferred Compensation Account. Any deferral election under this subparagraph (1) shall be in writing, signed by the Participant, and delivered to the Committee within such times prior to the beginning of the calendar year as the Committee shall specify. (2) An employee who first becomes eligible to defer Compensation to the Plan on or after the beginning of a calendar year shall be permitted to file a deferral election form with the Committee within the thirty (30) day period following his or her initial eligibility to participate, provided such election applies only to Compensation payable with respect to services to be performed subsequent to the date the election is filed with the Committee. Any election that relates to Compensation that is earned based upon a specified performance period shall be deemed to apply to Compensation paid for services performed subsequent to the election if the election applies to the portion of the Compensation equal to the total amount of the Compensation for the service period multiplied by a fraction, the numerator of which is the number of days remaining in the performance period and the denominator of which is the total number of days in the performance period. (3) A deferral election made under this Article IV shall be irrevocable during the period to which it relates; provided, however, the Committee shall cancel a deferral election if the Participant experiences an Unforeseeable Emergency under the Plan or a financial hardship under the Thrift Plan. (4) Any election by a Participant under this Article IV shall be made on a form or forms prescribed by the Committee (the terms of which are incorporated herein by reference), and shall specify the amount of Compensation to be deferred. (5) Notwithstanding anything to the contrary in this Article IV, a Participant shall be permitted to elect to defer Compensation relating to services performed on or before December 31, 2005, provided a written deferral election is submitted to the Committee on or before March 15, 2005.   IV-1 -------------------------------------------------------------------------------- (c) Employer Match. If, during any Plan Year, the matching employer contribution under the Thrift Plan is limited by Applicable Code Provisions, the difference between (i) the matching employer contribution that would have been made to the Thrift Plan for the Participant but for the Applicable Code Provisions, and (ii) the matching employer contribution actually made to the Thrift Plan for such Plan Year, shall be credited to the Participant’s Employer Matching Account. In addition, in the event that matching employer contributions under the Thrift Plan are not made because of an Applicable Code Provision limiting the Participant’s salary reduction election under the Thrift Plan, then the Participant’s Compensation deferrals hereunder shall be treated as deferrals under the Thrift Plan that cannot be matched thereunder and this “lost” matching contribution shall be provided for such Participant under this Plan. Each Participant must file an election as to the time and form of payment of any amounts credited to his Employer Matching Account under the Plan. Such election shall be in writing, signed by the Participant, and delivered to the Committee within the times prescribed in paragraph (a) above, treating the calendar year for which an amount is credited to the Employer Matching Account as the calendar year in which Compensation is earned for purposes of the timing rules. (d) Establishment of Bookkeeping Accounts. The Committee shall establish a Deferred Compensation Account, an Employer Matching Account, and a Grandfathered Account in the name of each Participant in order to record the Restored Thrift Plan Benefit of a Participant. The Accounts shall be credited with amounts deferred by or credited on behalf of the Participant, and shall be charged from time to time with all amounts that are distributed to the Participant. Separate sub-accounts shall be maintained to record any amounts deferred or credited during each Plan Year, to which a Participant’s elections as to the timing and form of payment apply. All amounts that are credited to the Participants’ Accounts shall be credited solely for purposes of accounting and computation. A Participant shall not have any interest in or right to such Accounts at any time. (e) Crediting of Interest. At least once each month, each Participant’s Account shall be credited with interest at a rate equal to the interest that would be earned were such Accounts invested in accordance with the Participant’s investment elections under the Thrift Plan. (f) Valuation of Accounts. The value of a Participant’s Accounts shall be determined by the Committee and the Committee may establish such accounting procedures as are necessary to account for the Participant’s interest in the Plan. Each Participant’s Accounts shall be valued as of the last day of each Plan Year or more frequently as determined by the Committee. The Committee shall furnish each Participant with an annual statement of his Accounts.   IV-2 -------------------------------------------------------------------------------- (g) Election of Time and Form of Payment of Deferred Compensation Account and Employer Matching Account. Subject to the provisions of this paragraph (g), a Participant shall elect, at the time he files a deferral election form with the Committee for a Plan Year, the time and manner in which his interest in any amounts credited to his Deferred Compensation Account or Employer Matching Account for such Plan Year, and any earnings on such amounts, shall be paid to him, from among the following options: (1) Options as to Time of Payment. The options available to a Participant as to time of payment shall be as follows: (A) Upon Separation from Service (due to Retirement, Disability or otherwise), or (B) Upon the occurrence of a Fixed Date selected by the Participant, or (C) Upon the earlier of Separation from Service or the occurrence of a Fixed Date. Actual payment shall be made on the elected Fixed Date or on the first day of the month following Separation from Service, as applicable. Notwithstanding anything to the contrary in this Plan, in the event a Participant is a Specified Employee, any payments to which the Participant would otherwise be entitled during the first six (6) months following his Separation from Service for reasons other than death or Disability shall be accumulated and paid on the first day of the seventh (7th) calendar month following the Participant’s Separation from Service (or, if earlier, on the first day of the month following his date of death). (2) Options as to Form of Payment. The options available to a Participant as to forms of payment shall be as follows: (A) a lump sum, (B) five (5) approximately equal annual installments, or (C) ten (10) approximately equal annual installments. In the event a Participant elects installment payments, each such payment shall be equal to the balance in the Participant’s Accounts as of the end of the month immediately preceding the date of payment, divided by a fraction, the numerator of which is one (1), and the denominator of which is the total number of payments in the series minus the number of prior payments made. (3) Failure to Elect Time or Form of Payment; Events Overriding Elections. In the event a Participant fails to properly elect a time or form of payment under this paragraph (g), such amounts shall be paid to him in a single lump sum on the first day of the month following his Separation from Service   IV-3 -------------------------------------------------------------------------------- (subject to subparagraph (1) above); provided, however, that notwithstanding any election made by a Participant as to the time or form of payment, such amounts shall be paid in a single lump sum on the first day of the month following the earliest to occur of the following events: (A) Upon his death; or (B) Upon a Change in Control. (4) Subsequent Changes in the Time or Form of Payment. Notwithstanding anything to the contrary in this Article IV, a Participant shall have the right to defer the receipt of or change the form of payments owed to him under this paragraph (g). Any such change election (i) must be submitted in writing to the Committee, (ii) shall not be given effect until the date which is twelve (12) months after the date the request is submitted, (iii) except with respect to payments made on account of Disability, death or Unforeseeable Emergency, any payments to which the election relates must be deferred for a period of at least five (5) years from the date the election is submitted (or, if the election to be changed is an election of a payment at a Fixed Date, for at least five (5) years from the date such payment or the first amount would otherwise have been paid), and (iv) if the election to be changed is an election of payment at a Fixed Date, the election must be submitted at least twelve (12) months prior to the date the payment or the first amount was scheduled to be paid. For purposes of this subparagraph (4), the Participant’s election to receive payments in the form of installments shall be treated as the right to a series of separate payments, such that each installment payment owed shall be deemed to be a single payment. Notwithstanding anything to the contrary in this subparagraph (4), Participants shall have the right to change the timing and form of payments of such amounts at any time prior to December 31, 2006, without regard to the restrictions in clauses (ii), (iii) and (iv) of this subparagraph, provided that any such election that is submitted after December 31, 2005 shall not apply to amounts otherwise payable in calendar year 2006 and shall not cause an amount not otherwise payable in calendar year 2006 to be paid during 2006. (5) Permitted Acceleration of Payment. Notwithstanding anything to the contrary in this paragraph (g), the Committee shall accelerate the time or schedule of a payment otherwise owed to a Participant under the following circumstances: (A) To the extent necessary to comply with the terms of a domestic relations order (as defined in Code Section 414(p)(1)(B)), provided the payment is made to an individual other than the Participant; or (B) Subject to Section IV(g)(1), to the extent benefits payable to the Participant are required to be included in income under Code section 409A and the regulations thereunder, provided that any payments shall   IV-4 -------------------------------------------------------------------------------- not exceed the amount required to be included in income as a result of the failure to comply with the requirements of Code Section 409A and the regulations thereunder. (h) Time and Form of Payment of Grandfathered Account. Except to the extent a Participant has selected to receive payment of his Grandfathered Account in (i) a single lump sum, or (ii) five (5) approximately equal annual installments, the time and payment of any Grandfathered Accounts shall be determined by the Committee in its sole discretion, which shall be exercised in a uniform manner; provided, however, that payment of such amounts will commence no later than the last day of the calendar year in which occurs the earlier of (i) the date the Participant attains age sixty-five (65) (or the date of retirement, if later), or (ii) the date of the Participant’s death. (i) Death Benefit. In the event of a Participant’s death, his Beneficiary shall be entitled to receive a benefit equal to the Participant’s remaining Restored Thrift Plan Benefit. Any death benefit payable hereunder shall be made in a single lump sum on the first day of the month following the date of death. (j) Payments Due to Unforeseeable Emergency. If the Committee determines, in its sole discretion, that the Participant has incurred an Unforeseeable Emergency, the Committee may distribute all or a portion of the amount of his Deferred Compensation Account and/or Employer Matching Account in a lump sum. The amount of any such distribution shall be limited to the amount reasonably necessary to satisfy the emergency need, as determined under regulations issued by the Secretary of the Treasury, including any amounts necessary to pay any federal, state or local income taxes reasonably anticipated to result from the distribution, after taking into account any additional Compensation that will be available to the Participant upon the cancellation of his deferral election.   IV-5 -------------------------------------------------------------------------------- ARTICLE V Restored Pension Plan Benefit (a) Amount of Benefit. If the normal form of pension payable to the Participant from the Pension Plan is limited by the Applicable Code Provisions, the difference between the normal form of pension that would be payable to the Participant under the Pension Plan but for the Applicable Code Provisions and such Participant’s Basic Pension Plan Benefit shall be provided for such Participant under this Plan. (b) Time and Form of Payment of Restored Pension Plan Benefit. Payment of a Participant’s Restored Pension Plan Benefit (other than the Grandfathered Benefit) shall begin on the first day of the earliest month as of which the Participant is eligible to receive unreduced payments under the Pension Plan, but not earlier than the Participant’s Separation from Service; provided, however, that in the event a Participant is a Specified Employee, any payments to which the Participant would otherwise be entitled during the first six (6) months following his Separation from Service for reasons other than death or Disability shall be accumulated and paid on the first day of the seventh (7th) calendar month following the Participant’s Separation from Service (or, if earlier, on the first day of the month following his date of death). Unless the Qualified Joint and Survivor Pension under subparagraph (1) below or an alternate form under subparagraph (2) below is applicable, the Restored Pension Plan Benefit (other than the Grandfathered Benefit) shall be paid as a Single Life Pension, providing monthly payments to the Participant during the remaining life of the Participant. (1) Qualified Joint and Survivor Pension. Unless the Participant elects an alternate form of payment in accordance with subparagraph (2) below, a Participant who is married on the date his Restored Pension Plan Benefits are scheduled to commence shall receive payment in the form of a Qualified Joint and Fifty Percent (50%) Survivor Pension. Under this form, an adjusted amount shall be paid to the Participant for his lifetime; and the spouse (to whom the Participant was married when payments commenced), if surviving at the Participant’s death, shall receive thereafter for life a monthly Restored Pension Plan Benefit of fifty percent (50%) of the adjusted monthly amount paid to the Participant. The adjusted amount payable to the Participant shall be determined so that the value of the payments expected to be made to the Participant and his spouse is the Actuarial Equivalent of the Restored Pension Plan Benefit payable as a Single Life Pension. The last payment shall be made as of the first day of the month in which occurs the death of the last surviving of the Participant and his spouse. (2) Alternate Forms of Payment. In lieu of payment in the form of a Single Life Pension or a Qualified Joint and Survivor Pension, a Participant may elect prior to the date payment of the Restored Pension Plan Benefit has commenced to receive payment of his Restored Pension Plan Benefit in   V-1 -------------------------------------------------------------------------------- accordance with one of the following options, in an Actuarially Equivalent amount: (A) Qualified Joint and More Than Fifty Percent (50%) Survivor Pension. Under this form, payments are made in the same manner as described in subparagraph (1) above, but with the percentage continued to the spouse being a specified percentage greater than Fifty Percent (50%) but not in excess of One Hundred Percent (100%). (B) Certain and Life Pension. Under this form, the Participant shall receive a Restored Pension Plan Benefit payable for his further lifetime; however, if he dies after his Restored Pension Plan Benefit commenced but before receiving a guaranteed number of monthly payments (specified by the Participant but not to exceed the lesser of 120 or the months of life expectancy of the Participant and his designated Beneficiary), then monthly payments, in the same amount, will continue to his Beneficiary(ies), until the total number of payments made (including those to the Participant and those to the Beneficiary(ies)) equals such guaranteed number. If the Beneficiary(ies) should die before such total guaranteed number of payments have been made, the remaining payments will be made to the estate of such Beneficiary(ies) (or, if designated by the Participant, to a secondary Beneficiary(ies)), either in an Actuarially Equivalent single sum or as monthly payments. (C) Non Spousal Joint and Survivor Pension. Under this form, the Participant shall receive a Restored Pension Plan Benefit payable for life, and payments in the amount of a specified percentage (not to exceed One Hundred Percent (100%)) of such benefit shall, if the Participant’s death occurs after payments commenced, be continued to a designated contingent pensioner during the contingent pensioner’s lifetime. (c) Time and Form of Payment of Grandfathered Benefit. The Committee, in its sole discretion, shall determine the timing and method of payment of the Grandfathered Benefit; provided, however, that payment will commence no later than the last day of the calendar year in which occurs the earlier of (i) the date the Participant attains age sixty-five (65) (or the date of retirement, if later) or (ii) the date of the Participant’s death, provided such discretion shall be exercised in a uniform manner. (d) Death Benefits. In the event any death benefit payable under the Pension Plan prior to commencement of the Basic Pension Plan Benefit thereunder is limited by Applicable Code Provisions, the amount by which such death benefit is so limited shall be payable hereunder. Any such death benefit shall be paid on the first day of the earliest month following the Participant’s death as of which the beneficiary of the death benefit under the Pension Plan is entitled to receive an unreduced benefit, and shall be paid in the form of a monthly pension equal to fifty percent (50%) of the Participant’s benefit.   V-2 -------------------------------------------------------------------------------- ARTICLE VI Supplemental Plan Benefits (a) Amount of Benefit. In addition to any benefits described elsewhere in this Plan, the Plan shall pay to a Participant such benefits as may be described in a separate contract or agreement entered into by and between the Participant and the Employer. (b) Time and Form of Payment of Supplemental Plan Benefits. Except to the extent provided otherwise in the separate contract or agreement, any Supplemental Plan Benefit that is in the nature of an increase in the Restored Pension Plan Benefit shall be paid at the time and in the form applicable to the Restored Pension Plan Benefit, and any Supplemental Plan Benefit that is in the nature of an increase in the Restored Thrift Plan Benefit shall be paid at the time and in the form applicable to the Restored Thrift Plan Benefit. Notwithstanding anything to the contrary in this Plan or in a separate contract or agreement, in the event a Participant is a Specified Employee, any payments to which the Participant would otherwise be entitled during the first six (6) months following his Separation from Service for reasons other than death or Disability shall be accumulated and paid on the first day of the seventh (7th) calendar month following the Participant’s Separation from Service (or, if earlier, on the first day of the month following his date of death). (c) Death Benefits. If a Supplemental Plan Benefit is in the nature of an increase in the Restored Pension Plan Benefit, any death benefit payable in connection with such benefit shall be paid at the time and in the form applicable to the death benefit attributable to the Restored Pension Plan Benefit, and if a Supplemental Plan Benefit is in the nature of an increase in the Restored Thrift Plan Benefit, any death benefit payable in connection with such benefit shall be paid at the time and in the form applicable to the death benefit attributable to the Restored Thrift Plan Benefit. If a Supplemental Plan Benefit is unrelated to the Restored Pension Plan Benefit or the Restored Thrift Plan Benefit, then any death benefit provided for in the terms of the separate contract or agreement shall be payable in accordance with those terms.   VI-1 -------------------------------------------------------------------------------- ARTICLE VII Amendment and Termination (a) In General. The Plan may be amended at any time, or from time to time, by the Company, and the Plan may be terminated at any time by the Company. Any such amendment or termination shall be ratified and approved by the Company’s Board of Directors. (b) Effect of Amendment or Termination. (1) No such amendment or termination shall reduce the amounts to which any Participant is entitled as of the date of such amendment or termination. (2) Upon termination, the Company shall distribute to Participants (or their beneficiaries) their vested interests in their Accounts in a lump sum, under the following circumstances: (A) If the Plan is terminated within twelve (12) months of a corporate dissolution taxed under Code Section 331, or with the approval of a bankruptcy court pursuant to 11 U.S.C. 503(b)(1)(A), provided all amounts deferred under the Plan are included in the gross incomes of Participants in the latest of (i) the calendar year in which the Plan termination occurs, (ii) the calendar year in which the amount is no longer subject to a substantial risk of forfeiture, or (iii) the first calendar year in which the payment is administratively practicable; (B) If the Plan is terminated within thirty (30) days preceding or the twelve (12) months following a Change in Control, provided that the Employer also terminates all substantially similar arrangements and all amounts deferred under the Plan and such arrangements are distributed within twelve (12) months of the termination; or (C) If all arrangements subject to Code Section 409A that are sponsored by the Employer and that are required to be aggregated with the Plan under Treasury Regulation Section 1.409A-1(c) are terminated, only amounts that would be payable to the Participants without regard to the termination of the Plan are paid within twelve (12) months of the termination, all amounts are paid within twenty-four (24) months of the termination, and the Employer does not adopt a new arrangement that would be aggregated with the Plan under Treasury Regulation Section 1.409A-1(c) at any time within five (5) years of the date of termination of the arrangement; or (D) Such other events and conditions as the Commissioner of the Internal Revenue Service may prescribe.   VII-1 -------------------------------------------------------------------------------- ARTICLE VIII Miscellaneous (a) Establishment of Trust. The Company may establish one or more trusts substantially in conformance with the terms of the model trust described in Revenue Procedure 92-64 to assist in meeting the obligations of the Participating Employers to Participants under this Plan. Except as otherwise provided in the Plan or the terms of the trust agreement, any such trust or trusts shall be established in such manner as to permit the use of assets transferred to the trust and the earnings thereon to be used by the Trustee solely to satisfy the liability of a Participating Employer in accordance with the Plan. A Participating Employer, in its sole discretion, and from time to time, may make contributions to the Trust. Unless otherwise paid by the Participating Employer, all benefits under the Plan and expenses chargeable to the Plan shall be paid from the Trust. The powers, duties and responsibilities of the Trustee shall be as set forth in the trust agreement and nothing contained in the Plan, either expressly or by implication, shall impose any additional powers, duties or responsibilities upon the Trustee. (b) Payments to Minors and Incompetents. If the Committee receives satisfactory evidence that a person who is entitled to receive any benefit under the Plan, at the time such benefit becomes available, is a minor or is physically unable or mentally incompetent to receive such benefit and to give a valid release therefor, and that another person or an institution is then maintaining or has custody of such person, and that no guardian, committee, or other representative of the estate of such person shall have been duly appointed, the Committee may authorize payment of such benefit otherwise payable to such person to such other person or institution; and the release of such other person or institution shall be a valid and complete discharge for the payment of such benefit. (c) Plan Not a Contract of Employment. The Plan shall not be deemed to constitute a contract of employment between the Participating Employer and any Participant, nor to be consideration for the employment of any Participant. Nothing in the Plan shall give a Participant the right to be retained in the employ of the Participating Employer; all Participants shall remain subject to discharge or discipline as employees to the same extent as if the Plan had not been adopted. (d) No Interest in Assets. Nothing contained in the Plan shall be deemed to give any Participant any equity or other interest in the assets, business or affairs of the Participating Adopting Employer. No Participant in the Plan shall have a security interest in assets of the Participating Employer used to make contributions or pay benefits. (e) Recordkeeping. Appropriate records shall be maintained for the Plan, subject to the supervision and control of the Committee.   VIII-1 -------------------------------------------------------------------------------- (f) Non-Alienation of Benefits. Except as may be permitted elsewhere in the Plan, no benefit under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to do so shall be void. No benefit under the Plan shall in any manner be liable for or subject to the debts, contracts, liabilities, engagements or torts of any person. If any person entitled to benefits under the Plan shall become bankrupt or shall attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber or charge any benefit under the Plan, or if any attempt shall be made to subject any such benefit to the debts, contracts, liabilities, engagements or torts of the person entitled to any such benefit, except as specifically provided in the Plan, then such benefits shall cease and terminate at the discretion of the Committee. The Committee may then hold or apply the same or any part thereof to or for the benefit of such person or any dependent or beneficiary of such person in such manner and proportions as it shall deem proper. (g) State Law. This Plan shall be construed in accordance with the laws of the State of Arkansas. (h) Liability Limited. In administering the Plan, neither the Committee nor any officer, director or employee thereof, shall be liable for any act or omission performed or omitted, as the case may be, by such person with respect to the Plan; provided, that the foregoing shall not relieve any person of liability for gross negligence, fraud or bad faith. The Committee, its officers, directors and employees shall be entitled to rely conclusively on all tables, valuations, certificates, opinions and reports that shall be furnished by any actuary, accountant, trustee, insurance company, consultant, counsel or other expert who shall be employed or engaged by the Committee in good faith. (i) Protective Provisions. Each Participant shall cooperate with the Committee by furnishing any and all information requested by the Committee in order to facilitate the payment of benefits hereunder, taking such physical examinations as the Committee may deem necessary and taking such other relevant action as may be requested by the Committee. If a Participant refuses so to cooperate or makes any material misstatement of information or nondisclosure of medical history, then no benefits will be payable hereunder to such Participant or his beneficiary, provided that, in the Committee’s sole discretion, benefits may be payable in an amount reduced to compensate the Participating Employer for any loss, cost, damage or expense suffered or incurred by the Participating Employer as a result in any way of such action, misstatement or nondisclosure. (j) Successor Plan. In the event a Participant ceases to be eligible to participate in the Plan, but becomes eligible under any other nonqualified deferred compensation plan maintained by an Employer, then the Participant’s benefits under this Plan shall, in the discretion of the Committee, cease to be governed by this Plan and shall instead be governed by the provisions of the other plan.   VIII-2 -------------------------------------------------------------------------------- (k) Impact on Other Benefits. This Plan shall not be construed to impact or cause the denial of any benefits to which any Participant may be entitled under any other welfare or benefit plan of any Participating Employer. (l) Other Plans. Payments made to Participants under this Plan shall not be includable as salary or compensation for purposes of determining the amount of employee benefits under any other retirement, pension, profit-sharing or welfare benefit plans of the Participating Employers. (m) Taxes and Tax Withholding. The Committee and/or the Trustee shall withhold from any contribution to, amounts accumulated under, or distribution from the Plan or Trust such amounts as the Committee or the Trustee shall determine to be appropriate for Federal, State or local taxes applicable thereto. In the event a payment from the Plan is at the time of distribution subject to the Medicare portion of the Federal FICA tax, the payment shall be adjusted upwards so that the net payment to the Participant equals the amount that would be payable if such tax did not apply to the payment. (n) Severability. If any provision of this Plan is found, held or deemed to be void, unlawful, or unenforceable under any applicable statute or other controlling law, the remainder of the Plan shall continue in full force and effect. (o) Headings and Subheadings. Headings and subheadings in this Plan are for reference only. In the event of a conflict between a heading or subheading and the content of an article or paragraph, the content shall control. (p) Gender. The masculine, as used herein, shall be deemed to include the feminine and the singular to include plural, except where the context requires a different construction. (q) Right of Offset. The Participating Employers shall have the right to offset against any benefits payable to any Participant or Beneficiary any amounts owed by the Participant to the Participating Employer. IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its duly authorized officer this      day of                     , 2006.   DELTIC TIMBER CORPORATION By:     Its:       “COMPANY”   VIII-3

Exhibit 10.1   August 29, 2005   [Address]   Re:     Amendment to April 24, 1998 Offer Letter   Dear Sam:   This amendment (“Amendment”) to your April 24, 1998 offer letter (“Offer Letter”) sets forth the benefits that Chordiant Software, Inc. (the “Company”) is offering to you in connection with your continued employment with the Company. The effective date of this Amendment is January 1, 2005.   1. Employment. Paragraph 1 of the Offer Letter shall be deleted in its entirety and replaced with the following:   As Chairman and Chief Strategy Officer of the Company, you will work in Cupertino, California and perform the duties customarily associated with this position, and such duties as may be assigned to you by the Company’s Board of Directors. Your employment with the Company will continue to be on an at-will basis.   2. Compensation. Paragraph 2 of the Offer Letter shall be deleted and replaced with the following:   Your base salary will be $250,000 per year, less standard deductions and withholdings, paid semi-monthly. You will not participate in the 2005 Executive Bonus Program.   3. Equity Grants. Paragraph 3 of the Offer Letter shall be deleted and replaced with the following:   From time to time, the Board reviews the outstanding restricted stock and/or additional options to purchase the Company’s common stock (the “Equity Awards”) for senior Company executives and may issue additional Equity Awards in the future at its discretion.   4. Termination. Subsection (ii) of Paragraph 6 shall be deleted in its entirety.   5. Post-Employment Consulting Period. Paragraph 8 shall be deleted in its entirety and replaced with the following:   8. If at any time your employment, prior to a Change of Control (as defined in the Change of Control Agreement defined below), with the Company (a) is terminated without Cause (as defined in your Offer Letter), or (b) you resign for any reason, and if -------------------------------------------------------------------------------- you sign a general release of all claims in a form acceptable to the Company and allow that release to become effective, then the Company will provide you with a consulting agreement containing the following terms (in addition to standard terms):   (i) Consulting Period. You will serve as a consultant for the Company beginning on the first day after your termination of employment and continuing until you reach age sixty-five (the “Consulting Period”). During the Consulting Period, the Company will have the right to reasonably request you to perform consulting services for the Company up to a maximum of 40 hours per month.   (b) Consulting Fees. During the Consulting Period, the Company will pay you monthly consulting fees in an amount equal to $5,000. If you are requested by the Board of Directors to serve as an advisor to the Board and to the Strategic Planning Committee, the monthly consulting fee shall be increased to $10,000 for those months you serve in that capacity.   (c) Insurance. During the Consulting Period, the Company will pay your and your wife’s health care insurance premiums (either in the form of reimbursement for COBRA premiums or payment of the premiums on an independent policy obtained by you) up to a maximum of the then current COBRA premium rate per month. Additionally, during the Consulting Period, the Company will, at its sole cost and expense, procure and keep in effect a term life insurance policy for you in the amount of One Million Dollars ($1,000,000).   (d) Equity Compensation. Any equity compensation that you were granted by the Company will continue to vest during the Consulting Period, subject to the terms and conditions of the applicable plan documents, stock option agreement(s), restricted stock purchase agreement(s) and grant notice(s).   (e) Tax Treatment. The Company will issue you a Form 1099 for any payments made to you during the Consulting Period, and thus payments made to you during the Consulting Period will not be subject to payroll deductions or withholdings.   The consulting benefits set forth in this paragraph 8 are intended to be in addition to any severance benefits that you may be eligible to receive under your Offer Letter or your Change of Control Agreement (as defined below), and nothing herein is intended to supersede those agreements.   6. Miscellaneous. A new paragraph 9 shall be added as follows:   This Amendment, including Exhibit A and your Change of Control Agreement dated September 10, 2001, as amended February 27, 2004 (the “Change of Control Agreement”) constitute the complete, final and exclusive embodiment of the entire agreement between you and the Company with regard to this subject matter. It is entered into without reliance on any promise or representation, written or oral, other than those -------------------------------------------------------------------------------- expressly contained herein, and it supersedes any other such promises, warranties or representations (except as expressly provided herein). This Amendment may not be modified or amended except in a writing signed by both you and a duly authorized officer of the Company. This Amendment shall be deemed to have been entered into and shall be construed and enforced in accordance with the laws of the State of California as applied to contracts made and to be performed entirely within California. -------------------------------------------------------------------------------- If this Amendment is acceptable to you, please sign below and return the original to me.   Sincerely,   /s/ Jack Moyer -------------------------------------------------------------------------------- Jack Moyer Vice President, Human Resources ACCEPTED /s/ Samuel T. Spadafora -------------------------------------------------------------------------------- Samuel T. Spadafora August 29, 2005 -------------------------------------------------------------------------------- Date -------------------------------------------------------------------------------- Exhibit A   Original Offer Letter

  EXHIBIT 10.20 FIRST AMENDMENT TO THE TENTH AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT OF FIRST INDUSTRIAL, L.P.      As of January 20, 2006, the undersigned, being the sole general partner of First Industrial, L.P. (the “Partnership”), a limited partnership formed under the Delaware Revised Uniform Limited Partnership Act and pursuant to the terms of that certain Tenth Amended and Restated Limited Partnership Agreement, dated January 13, 2006, (the “Partnership Agreement”), does hereby further amend the Partnership Agreement as follows:      Capitalized terms used but not defined in this First Amendment shall have the same meanings that are respectively ascribed to them in the Partnership Agreement.      1. Additional Limited Partners. The Person identified on Schedule 1 hereto is hereby admitted to the Partnership as an Additional Limited Partner owning the number of Units and having made the Capital Contributions set forth on such Schedule 1. Such Person hereby adopts the Partnership Agreement.      2. Schedule of Partners. Exhibit 1B to the Partnership Agreement is hereby deleted in its entirety and replaced by Exhibit 1B hereto which identifies all of the Partners following consummation of the transactions referred to in Section 1 hereof.      3. Ratification. Except as expressly modified by this First Amendment, all of the provisions of the Partnership Agreement are hereby affirmed and ratified, and remain in full force and effect.      IN WITNESS WHEREOF, the undersigned has executed this First Amendment as of the date first written above.             FIRST INDUSTRIAL REALTY TRUST, INC., as sole general partner of the Partnership       By:   /s/ David Harker           Name:   David Harker           Title:   Executive Director — Investments           --------------------------------------------------------------------------------   Schedule 1                   Additional             Limited Partner   Number of Units     Capital Contribution   Michael D. McDonough     21,650     $ 867,095.00     --------------------------------------------------------------------------------   EXHIBIT 1B Schedule of Partners           General Partner   Number of Units             First Industrial Realty Trust, Inc.     30,892,739             Limited Partners   Number of Units             Kerry Acker     154             Sanders H. Acker     307             Daniel R. Andrew, Trustee of the Daniel R. Andrew Trust U/A 12-29-92     137,489             Charles T. Andrews     754             The Arel Company     307             William J. Atkins     5,691             E. Donald Bafford     3,374             William Baloh     8,731             Thomas K. Barad & Jill E. Barad, Co-Trustees of the Thomas K. Barad & Jill E. Barad Trust DTD 10-18-89     2,283             Enid Barden, Trustee of the Enid Barden Trust dated June 28, 1995     56,082             Enid Barden, Trustee of the Enid Barden Trust dated June 28, 1996     23,088             Stephen McNair Bell     58,020             Barbara Bell     58,019             Emil Billich     77     --------------------------------------------------------------------------------             Limited Partners   Number of Units             Don N. Blurton & Patricia H. Blurton, Trustees U/A DTD 11-96 Blurton 1996 Revocable Family Trust     598             Harriet Bonn, Trustee U/A DTD 3/5/97 FBO the Harriet Bonn Revocable Living Trust     24,804             Michael W. Brennan     3,806             Helen Brown     307             Merrill Lynch, attn Cliff Kelly, account #27G-38295     4,620             Merrill Lynch, attn Cliff Kelly, account #27G-38294     4,620             Edward Burger     9,261             Barbara Lee O’Brien Burke     666             Ernestine Burstyn     5,007             Calamer Inc.     1,233             Perry C. Caplan     1,388             Carew Corporation     13,650             The Carol and James Collins Foundation     100,000             Magdalena G. Castleman     307             Cliffwood Development Company     64,823             Kelly Collins     11,116             Michael Collins     17,369             Charles S. Cook and Shelby H. Cook, tenants in the entirety     634             Cotswold Properties     34,939               --------------------------------------------------------------------------------             Limited Partners   Number of Units             Caroline Atkins Coutret     5,845             David Cleborne Crow     5,159             Gretchen Smith Crow     2,602             Michael G. Damone, Trustee of the Michael G. Damone Trust U/A 11-4-69     144,296             Robert L. Denton     6,286             Henry E. Dietz Trust U/A 01-16-81     36,476             John M. DiSanto     14,844             Mark X. DiSanto     14,844             Steven Dizio & Helen Dizio, joint tenants     12,358             Nancy L. Doane     2,429             W. Allen Doane     1,987             Timothy Donohue     100             Darwin B. Dosch     1,388             Charles F. Downs and Mary Jane Downs, Trustees of the Charles F. Downs Living Trust U/T/A dtd. 12/06/04     754             Mary Jane Downs and Charles F. Downs, Trustees of the Mary Jane Downs Living Trust U/T/A dtd. 12/6/04     754             Draizin Family Partnership L.P.     357,896             Milton H. Dresner, Trustee of the Milton Dresner Revocable Trust U/A 10-22-76     149,531             Joseph Dresner     149,531             James O’Neil Duffy, Jr.     513             Martin Eglow     330     --------------------------------------------------------------------------------             Limited Partners   Number of Units             Rand H. Falbaum     17,022             Patricia O’Brien Ferrell     666             Rowena Finke     154             First & Broadway Limited Partnership     18,203             Fourbur Family Co., L.P., a New York limited partnership     588,273             Frances Shankman Insurance Trust, Frances Shankman Trustee     16,540             Ester Fried     3,177             Jack Friedman, Trustee of the Jack Friedman Revocable Living Trust U/A 03/23/78     26,005             Nancy Gabel     14             J. Peter Gaffney     727             Gerlach Family Trust, dated 6/28/85, Stanley & Linda Gerlach Trustees     874             Martin Goodstein     922             Dennis G. Goodwin and Jeannie L. Goodwin, tenants in the entirety     6,166             Jeffrey L. Greenberg     330             Stanley Greenberg & Florence Greenberg, joint tenants     307             Thelma C. Gretzinger Trust     450             Stanley Gruber     30,032             Melissa C. Gudim     24,028             H. L. Investors LLC     4,000               --------------------------------------------------------------------------------             Limited Partners   Number of Units             H. P. Family Group LLC     103,734             H/Airport GP Inc.     1,433             Clay Hamlin & Lynn Hamlin, joint tenants     15,159             Turner Harshaw     1,132             Edwin Hession & Cathleen Hession, joint tenants     11,116             Highland Associates Limited Partnership     69,039             Andrew Holder     97             Ruth Holder     2,612             Robert W. Holman, Jr. Homan Family Trust     1,048             Robert W. Holman, Jr. Homan Family Trust     149,165             Holman/Shidler Investment Corporation     14,351             Holman/Shidler Investment Corporation     7,728             Robert S. Hood Living Trust, dated 1/9/90 & amended 12/16/96, Robert S. Hood Trustee     3,591             Howard Trust, dated 4/30/79, Howard F. Sklar Trustee     653             Steven B. Hoyt     150,000             Jerry Hymowitz     307             Karen L. Hymowitz     154             IBS Delaware Partners L.P.     2,708             Seymour Israel     15,016               --------------------------------------------------------------------------------             Limited Partners   Number of Units             Frederick K. Ito, Trustee U/A DTD 9/9/98 FBO the Frederick K. Ito Trust     1,940             Frederick K. Ito & June Y. I. Ito, Trustees U/A DTD 9/9/98 FBO the June Y. I. Ito Trust     1,940             J. P. Trusts LLC     35,957             Michael W. Jenkins     460             Jernie Holdings Corp.     180,499             Joan R. Krieger, Trustee of the Joan R. Krieger Revocable Trust DTD 10/21/97     15,184             John E. De B Blockey, Trustee of the John E. De B Blockey Trust     8,653             Jane Terrell Johnson     3,538             Jeffery E. Johnson     809             Johnson Living Trust, dated 2/18/83, H. Stanton & Carol A. Johnson Trustees     1,078             Thomas Johnson, Jr. & Sandra L. Johnson, tenants in the entirety     2,142             Martha O’Brien Jones     665             Charles Mark Jordan     57             Mary Terrell Joseph     837             Nourhan Kailian     2,183             H. L. Kaltenbacher, P. P. Kaltenbacher & J. K. Carr, Trustees of the Joseph C. Kaltenbacher Credit Shelter Trust     1,440             Sarah Katz     307             Carol F. Kaufman     166     --------------------------------------------------------------------------------             Limited Partners   Number of Units             KEP LLC, a Michigan limited liability company     98,626             Peter Kepic     9,261             Jack Kindler     1,440             Kirshner Family Trust #1, dated 4/8/76, Berton & Barbara Kirshner Trustees     29,558             Kirshner Trust #4 FBO Todd Kirshner, dated 12/30/76, Berton Kirshner Trustee     20,258             Arthur Kligman     307             William L. Kreiger, Jr.     3,374             Babette Kulka     330             Jack H. Kulka     330             Paul T. Lambert     32,470             Paul T. Lambert     7,346             Chester A. Latcham & Co.     1,793             Constance Lazarus     417,961             Jerome Lazarus     18,653             Susan Lebow     740             Arron Leifer     4,801             Leslie A. Rubin Ltd     4,048             L. P. Family Group LLC     102,249             Duane Lund     617             Barbara Lusen     307             William J. Mallen Trust, dated 4/29/94, William J. Mallen Trustee     8,016               --------------------------------------------------------------------------------             Limited Partners   Number of Units             Stephen Mann     17             Manor LLC     80,556             R. Craig Martin     754             J. Stanley Mattison     79             Henry E. Mawicke     636             Richard McClintock     623             Michael D. McDonough     21,650             McElroy Management Inc.     5,478             Eileen Millar     3,072             Linda Miller     2,000             Lila Atkins Mulkey     7,327             Peter Murphy     56,184             Anthony Muscatello     81,654             Ignatius Musti     1,508             New Land Associates Limited Partnership     1,664             Kris Nielsen     178             North Star Associates Limited Partnership     19,333             George F. Obrecht     5,289             Paul F. Obrecht     4,455             Richard F. Obrecht     5,289             Thomas F. Obrecht     5,289             Catherine A. O’Brien     832     --------------------------------------------------------------------------------             Limited Partners   Number of Units             Lee O’Brien, Trustee of the Martha J. Harbison Testamentary Trust FBO Christopher C. O’Brien     666             Martha E. O’Brien     832             Patricia A. O’Brien     6,387             Peter O’Connor     56,844             Steve Ohren     33,366             Princeton South at Lawrenceville One, a New Jersey limited partnership     4,265             P & D Partners L.P.     1,440             Peegee L.P.     4,817             Partridge Road Associates Limited Partnership     2,751             Sybil T. Patten     1,816             Lawrence Peters     960             Jeffrey Pion     2,879             Pipkin Family Trust, dated 10/6/89, Chester & Janice Pipkin Trustees     3,140             Peter M. Polow     557             Keith J. Pomeroy, Trustee of Keigh J. Pomeroy Revocable Trust Agreement DTD 12/13/76 as amended & restated 06/28/95     104,954             Princeton South at Lawrenceville LLC     4,692             Abraham Punia, individually and to the admission of Abraham Punia     307             R. E. A. Associates     8,908     --------------------------------------------------------------------------------             Limited Partners   Number of Units             Marilyn Rangel IRA, dated 02/05/86, Custodian Smith Barney Shearson     969             Richard Rapp     23             RBZ LLC, a Michigan limited liability company     155             Jack F. Ream     1,071             Seymour D. Reich     154             James C. Reynolds     2,569             James C. Reynolds     37,715             Andre G. Richard     1,508             RJB Ford City Limited Partnership, an Illinois limited partnership     158,438             RJB II Limited Partnership, an Illinois limited partnership     40,788             Rebecca S. Roberts     8,308             James Sage     2,156             James R. Sage     3,364             Kathleen Sage     50             Wilton Wade Sample     5,449             Debbie B. Schneeman     740             Norma A. Schulze     307             Sciport Discovery Center     30             Sealy Professional Drive LLC     2,906             Sealy Unitholder LLC     31,552             Sealy & Company Inc.     37,119               --------------------------------------------------------------------------------             Limited Partners   Number of Units             Sealy Florida Inc.     675             Mark P. Sealy     8,451             Sealy Real Estate Services Inc.     148,478             Scott P. Sealy     40,902             Shadeland Associates Limited Partnership     42,976             Sam Shamie, Trustee of the Sam Shamie Trust Agreement dated March 16 1978 as restated November 16 1993     375,000             Garrett E. Sheehan     513             Shidler Equities L.P.     37,378             Shidler Equities L.P.     217,163             Jay H. Shidler     63,604             Jay H. Shidler     4,416             Jay H. Shidler & Wallette A. Shidler, tenants in the entirety     1,223             D. W. Sivers Co.     875             D. W. Sivers Co.     11,390             Dennis W. Sivers     26,920             Dennis W. Sivers     716             Sivers Family Real Property Limited Liability Company     11,447             Sivers Family Real Property Limited Liability Company     615             Sivers Investment Partnership     266,361             Sivers Investment Partnership     17,139     --------------------------------------------------------------------------------             Limited Partners   Number of Units             Estate of Albert Sklar, Miriam M. Sklar Executrix     3,912             Michael B. Slade     2,829             Ellen Margaret Smith     1,000             Joseph Edward Smith     1,000             Kevin Smith     10,571             Olivia Jane Smith     1,000             Arnold R. Sollar, Trustee for the Dorothy Sollar Residuary Trust     307             Spencer and Company     154             SPM Industrial LLC     5,262             SRS Partnership     2,142             Robert Stein, Trustee U/A DTD 5-21-96 FBO Robert Stein     63,630             S. Larry Stein, Trustee under Revocable Trust Agreement DTD 9/22/99, S. Larry Stein Grantor     63,630             Sterling Alsip Trust, dated August 1, 1989, Donald W. Schaumberger Trustee     794             Sterling Family Trust, dated 3/27/80, Donald & Valerie A.                   Sterling Trustees     3,559             Jonathan Stott     80,026             Victor Strauss     77             Catherine O’Brien Sturgis     666             Mitchell Sussman     410             Swift Terminal Properties     183,158     --------------------------------------------------------------------------------             Limited Partners   Number of Units             Donald C. Thompson, Trustee U/A DTD 12/31/98 FBO Donald C. Thompson Revocable Family Trust     39,243             Michael T. Tomasz, Trustee of the Michael T. Tomasz Trust U/A DTD 02-05-90     36,033             Barry L. Tracey     2,142             William S. Tyrrell     2,906             Burton S. Ury     9,072             L. Gary Waller and Nancy R. Waller, JTWROS     37,587             James J. Warfield     330             Phyllis M. Warsaw Living Trust, Phyllis M. Warsaw Trustee     16,540             Wendel C. Sivers Marital Trust, U W D 02/20/81 Dennis W. Sivers & G. Burke Mims Co-Trustees     13,385             Wendell C. Sivers Marital Trust, U W D 02/20/81 Dennis W. Sivers & G. Burke Mims Co-Trustees     635             Wilson Management Company LLC     35,787             Elmer H. Wingate, Jr.     1,688             Ralph G. Woodley, Trustee under Revocable Trust Agreement DTD 9/27/89     16,319             Worlds Fair Partners Limited Partnership     1,664             WSW 1998 Exchange Fund L.P.     32,000               --------------------------------------------------------------------------------             Limited Partners   Number of Units             Sam L. Yaker, Trustee of the Sam L. Yaker Revocable Trust Agreement DTD 02/14/1984     37,870             Johannson Yap     1,680             Richard H. Zimmerman, Trustee of the Richard H. Zimmerman Living Trust dated Oct 15 1990 as amended     28,988             Gerald & Sharon Zuckerman, joint tenants     615    

Exhibit 10.44   LOGO [g79217img.jpg]        KPMG LLP 1601 Market Street Philadelphia, PA 19103    Telephone Fax Internet    267 256 7000 609 896 9782 www.us.kpmg.com   March 31, 2006   Auxilium Pharmaceuticals, Inc. 40 Valley Stream Parkway Malvern, PA 19355   Auxilium Pharmaceuticals, Inc. (the “Company”) has requested that we consent to the incorporation by reference of our report on the Company’s consolidated financial statements as of December 31, 2004 and for each of the years in the two-year period then ended in the Registration Statements No. 333-127489 on Form S-3 and No. 333-117595 on Form S-8 of the Company, which report appears in the December 31, 2005 annual report on Form 10-K of the Company.   By agreeing to the terms of this letter, you agree to indemnify KPMG LLP (“KPMG”) from certain risks inherent in incorporating by reference our audit report on the Company’s consolidated financial statements as of December 31, 2004 and for each of the years in the two-year period ended December 31, 2004 in the Registration Statements No. 333-127489 on Form S-3 and No. 333-117595 on Form S-8 of the Company. Specifically, you agree to indemnify and hold KPMG harmless against and from any and all legal costs and expenses (including reasonable fees and expenses of attorneys, experts and consultants) which we may incur in connection with our successful defense of any legal action or proceeding that may arise as a result of our consent to the incorporation by reference of our report on the Company’s consolidated financial statements in the Registration Statements No. 333-127489 on Form S-3 and No. 333-117595 on Form S-8 of the Company, whether brought under the federal securities laws or other statutes, state statute, or common law, or otherwise. In the event KPMG incurs legal costs or expenses indemnified hereunder, you agree to reimburse KPMG for those costs as incurred on a monthly basis. KPMG shall not be indemnified, and shall refund to you, any amounts paid to it pursuant to this indemnification in the event there is court adjudication that we are guilty of professional malpractice, or in the event that KPMG becomes liable for any part of the plaintiff’s damages by virtue of settlement. In the event KPMG is requested pursuant to subpoena or other legal process to produce its documents relating to the Company in judicial or administrative proceedings to which KPMG is not a party, the Company shall reimburse KPMG at standard billing rates for its professional time and expenses, including reasonable attorney’s fees, incurred in responding to such requests.                                                   KPMG LLP, a U.S. limited liability partnership, is the U.S. member firm of KPMG International, a Swiss cooperative. -------------------------------------------------------------------------------- LOGO [g79217img.jpg]   Auxilium Pharmaceuticals, Inc. March 31, 2006 Page 2   Please indicate your acceptance of these terms by signing and returning a copy of this letter to me.   Very truly yours,   KPMG LLP /s/ John T. Capecci John T. Capecci Partner cc:    Jennifer Strong ACCEPTED: Auxilium Pharmaceuticals, Inc. James E. Fickenscher, Chief Financial Officer Name and Title of Authorized Officer /s/ James E. Fickenscher Signature of Authorized Officer March 31, 2006 Date

  Exhibit 10.1 AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT     THIS AMENDMENT NO. 1 (the “Amendment”) to Employment Agreement, is made as of October 5, 2006, by and between Hana Biosciences, Inc., a Delaware corporation (the “Company”), and Gregory I. Berk (“Employee”).   WHEREAS, the parties hereto entered into that certain Employment Agreement dated October 21, 2004 (the “Employment Agreement”); and   WHEREAS, the parties desire to amend the Employment Agreement in order to increase the cash compensation payable to Employee thereunder and to extend the Term (as defined in the Employment Agreement).   NOW, THEREFORE, IN CONSIDERATION of the mutual covenants and agreements hereinafter set forth, the Company and Executive agree as follows:   1.    Effective as of October 1, 2006, Paragraph 4(a) of the Agreement is amended and restated in its entirety, as follows:   “(a)  Base Salary; Incentive Bonus. The Company shall pay Employee an annual salary equal to Three Hundred Forty Thousand Dollars ($340,000) (the “Base Salary”). All increases to the Base Salary shall be considered on an annual basis by the by the CEO and Board of Directors, at the end of each year of the Term, in a manner consistent with the Company's compensation policies then in force. Except as otherwise provided herein, payment of the Base Salary shall be made by Company to Employee bi-monthly, on the 15th and the last day of each calendar month of the Term. Employee shall also be entitled to receive an incentive bonus (an “Incentive Bonus”) in the amount of Forty Thousand Dollars ($40,000), which shall be paid to Employee in twenty-four (24) equal bi-monthly installments commencing October 15, 2006.” 2.    Section 2 of the Agreement is hereby amended and restated in its entirety, as follows: “2. Term. Employee’s employment under this Agreement shall commence as of November 1, 2004 (the “Effective Date”) and shall continue for a period ending on November 1, 2008, unless earlier terminated in accordance with the provisions of Section 8 below (the “Term”). Notwithstanding anything to the contrary contained herein, the provisions of this Agreement governing the protection of Confidential Information shall continue in effect as specified in Section 5 hereof, and shall, for the period specified therein, survive the expiration or termination of this Agreement.” 3.    This further confirms that certain letter agreement between the Company and Employee dated October 21, 2004 shall be amended to strike Paragraph 3 thereof and Employee agrees that the Company shall have no further obligation to Employee under such paragraph. 4.     All capitalized terms used but not defined herein shall have the meanings ascribed to them in the Agreement. Except as amended or modified by this Amendment, the parties hereby confirm all other terms and provisions of the Agreement. This Amendment may be executed in any number of counterparts, each of which shall constitute an original, but all of which together shall constitute one and the same instrument. Signature page follows.     --------------------------------------------------------------------------------     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. COMPANY:   Hana Biosciences, Inc.   EMPLOYEE:       By:/s/ Mark J. Ahn                                                Mark J. Ahn President & Chief Executive Officer /s/ Gregory I. Berk                                                  Gregory I. Berk       --------------------------------------------------------------------------------  

Exhibit 10.01   REVOLVING FINANCING AGREEMENT (SAL w/ ELT)   REVOLVING FINANCING AGREEMENT, dated as of July 1, 2006, among WALDEN UNIVERSITY, INC, whose principal office is located at 1001 Fleet Street, Baltimore, MD 21202 (herein called the “Borrower”), WELLS FARGO BANK, NATIONAL ASSOCIATION, solely in its capacity as eligible lender trustee for the Borrower (herein called the “Trustee”), with a corporate trust office located at 7077 Bonneval Road, Suite 400, Jacksonville, FL 32216, and SALLIE MAE, INC., whose principal office is located at 12061 Bluemont Way, Reston, VA 20190 (together with its successors and assigns, herein called “Sallie Mae”).   RECITALS   WHEREAS, the Borrower has requested advances from Sallie Mae in an aggregate amount of up to $100,000,000, which amount will be used by the Borrower in conducting its student lending activities; and   WHEREAS, Sallie Mae desires to encourage the Borrower’s lending activities by providing advances on the terms and conditions hereinafter set forth;   NOW THEREFORE, in consideration of the premises and the promises hereinafter set forth, the Borrower and Sallie Mae agree as follows:   SECTION 1. DEFINITIONS   For purposes hereof—:   1.1           “Act” means Part B of Title IV of the Higher Education Act of 1965, as amended (20 U.S.C. Section 1071 et seq.), and the regulations promulgated thereunder.   1.2           “Advance” or “Advances” means, respectively, any and all of the loans provided for in Section 3 of this Agreement, and any renewals or extensions thereof.   1.3           “Agreement” means this Revolving Financing Agreement providing for Advances to the Borrower upon the terms and conditions specified herein.   1.4           “Assignment” means an assignment by the Borrower and the Trustee to Sallie Mae in the form of Annex D-2 hereto, covering the Security, duly executed and completed, together with any supplemental assignments from time to time delivered pursuant to this Agreement.   1.5           “Borrower” means Walden University, Inc. and its permitted successors and assigns.   1.6           “Borrowing Date” means any Business Day during the Borrowing Period; provided, however, that unless otherwise agreed by Sallie Mae, there shall be no more than one Borrowing Date in any calendar week.   1 --------------------------------------------------------------------------------   1.7           “Borrowing Period” means the period beginning on the date of this Agreement and ending on the Maturity Date.   1.8           “Business Day” means any day (i) on which commercial banks located in New York, NY are not required or authorized to remain closed, (ii) that is not a Saturday, Sunday, or legal holiday, (iii) that is a day of the year on which the New York Stock Exchange is not closed, and (iv) that is a day of the year on which Sallie Mae is not closed.   1.9           “Commitment” means the obligation of Sallie Mae to make Advances to the Borrower in the amounts provided in Section 3 hereof.   1.10         “Compliance Certificate” means a certificate in the form of Annex C hereto, duly completed in accordance with its terms and the applicable requirements of this Agreement, and signed by an authorized officer of the Borrower.   1.11         “Default” means a default specified in Section 9 hereof.   1.12         “ECFC” means SLM Education Credit Finance Corporation and its successors and assigns.   1.13         “Eligible Insurer” means a State or non-profit private institution or organization with which the Secretary has an agreement under Section 428(b) of the Act, that is deemed acceptable by Sallie Mae.   1.14         “Eligible Loan” means an Insured Loan that bears interest at the highest rate permitted under the Act for that loan at the time the loan was made, and in respect of which no payment of principal or interest is at the time overdue for more than thirty (30) days, and which is serviced by Sallie Mae, in its capacity as Servicer.   1.15         “ExportSS Agreement” means the ExportSS® Agreement dated July 1, 2006, among ECFC, Sallie Mae, the Borrower, and the Trustee, or any replacement, extension, or renewal thereof, as amended from time to time, that provides, among other items, for the sale to ECFC of all of the Insured Loans that are financed, in whole or in part, with the proceeds of any Advance.   1.16         “FFELP Loan” means an education loan made under the Act.   1.17         “Financials” mean, collectively, balance sheets of the Borrower and the related statements of earnings or receipts and of source and application of funds, together with the notes thereto, prepared in accordance with generally accepted accounting principles, consistently applied, with (A) with respect to the annual statements, opinions thereon of independent certified public accountants, and (B) with respect to quarterly statements, certifications from the financial officers of the Borrower responsible for the preparation of the Financials, to the effect that the Financials have been prepared in accordance with generally accepted accounting principles applied on a consistent basis, and fairly present the financial condition of the Borrower as at their date and the results of its operations for the period then ended.   2 --------------------------------------------------------------------------------   1.18         “Insured Loan” means a student loan made after the date of this Agreement under the Act (i) in connection with attendance by a student at a graduate or professional school that is part of Walden University, Inc., (ii) that is insured by an Eligible Insurer to the maximum extent provided for under the Act, and (iii) that is reinsured by the Secretary as to principal and interest to the extent provided in the Act.   1.19         “LARS form” means the “Lender’s Request for Payment of Interest and Special Allowance” that is filed with the Department of Education (previously known as ED Form 799), or any replacement thereof or substitution therefor.   1.20         “Maturity Date” means the later of (i) May 31, 2009, or (ii) the date of the last scheduled sale of Eligible Loans under the ExportSS Agreement.   1.21         “Note” shall mean the promissory note evidencing the Advances to be made under Section 3 hereof.   1.22         “Obligation” or “Obligations” means, collectively, the principal of and interest on the Advances and all other amounts from time to time owed by the Borrower to Sallie Mae or ECFC, whether or not arising under this Agreement or thereafter incurred.   1.23         “Request Register” means a form sent by Sallie Mae, in its capacity as Servicer, to the Borrower that details the pending disbursements of Insured Loans for a specific disbursement date.   1.24         “Sallie Mae” means Sallie Mae, Inc. and its successors and assigns.   1.25         “Secretary” means the United States Secretary of Education, or his successor or representative, acting under the Act.   1.26         “Security” shall have its meaning as defined in Section 8 of this Agreement.   1.27         “Servicer” means a servicing agent designated by the Borrower to originate and service the Insured Loans that is approved by Sallie Mae in accordance with the provisions of Section 8 hereof.   1.28         “Student Note” means, with respect to any Insured Loan that is at the time included in the Security, collectively: (1) each and every promissory note executed and delivered by the student borrower to evidence such loans or any portion thereof, and (2) each and every certificate of insurance or other instrument issued to evidence the insurance of such loan or any portion thereof (A) by the Secretary pursuant to the Act or (B) by an Eligible Insurer or instrumentality or official thereof.   1.29         “Trustee” means Wells Fargo Bank, National Association, solely in its capacity as eligible lender trustee for the Borrower, and any person or entity serving as a replacement or substituted trustee.   3 --------------------------------------------------------------------------------   SECTION 2. REPRESENTATIONS AND COVENANTS OF THE BORROWER   A. The Borrower hereby represents, covenants, and warrants to Sallie Mae that:   (1)           The Financials for the calendar year ending on December 31, 2005 and the quarterly period ending on March 31, 2006, respectively, are complete and correct and fairly present the results of the Borrower’s operations for the periods ending on said dates, and are in conformity with generally accepted accounting principles applied on a consistent basis. The Borrower has no material contingent liabilities, liabilities for taxes, or unusual forward or long-term commitments not disclosed by, or reserved against, in said Financials or the notes thereto, and at the present time there are no material unrealized anticipated losses from any unfavorable commitments of the Borrower.  Since March 31, 2006, there has been no material adverse change in the financial condition of the Borrower from that shown by said Financials as at that date.   (2)           The Borrower is a for profit corporation duly chartered, validly existing and in good standing under the laws of the State of Florida, and is duly qualified to transact operations in all places where such qualification is necessary; and the Borrower has the necessary power to enter into and perform this Agreement and the Assignment and to borrow hereunder.   (3)           There are no suits, proceedings, or other matters pending, or to the knowledge of the Borrower threatened, against or affecting the Borrower or any of its property before any court or by or before any governmental authority, which, if adversely determined, would have a material adverse effect on the financial condition or operations of the Borrower, or its ability to make and perform this Agreement or the Note. The Borrower has advised Sallie Mae of all material pending investigations and examinations of the Borrower by regulatory or other governmental authorities, other than financial audits and other similar examinations conducted by oversight authorities on a regular basis with respect to other institutions similarly situated. Borrower agrees to advise Sallie Mae promptly in the event the Borrower becomes aware that any such suits, proceedings, investigations, or examinations are instituted while the Agreement or any Advances that may be made thereunder are outstanding.   (4)           The Borrower has advised Sallie Mae of all pending negotiations, discussions, agreements, and contracts relating to the consolidation, merger, sale, or conveyance of Borrower or any material part of its assets, or the sale or conveyance of any controlling interest in Borrower, and, so long as the Agreement remains outstanding, agrees to advise Sallie Mae promptly of any such negotiations, discussions, agreements and contracts that may arise from time to time.   (5)           The making and performance of this Agreement have been duly authorized by all necessary action and will not contravene any provision of law or of the Borrower’s governing documents or of any indenture or other agreement or instrument to which the Borrower is a party or by which the Borrower or its property may be bound or affected.  Any approvals, if necessary, of any regulatory authority and/or holders of the Borrower’s income capital certificates have been obtained.   4 --------------------------------------------------------------------------------   (6)           No Default has occurred on the date of this Agreement or will occur by reason of the making of any Advance or the granting of the Security therefor.   (7)           The Borrower does not, and will not, discriminate on the basis of race, sex, color, creed, or national origin.   (8)           The Trustee does not, and will not, require that, as a condition to the receipt of a loan intended to be an Insured Loan, the respective student borrower or his family maintain a business relationship with the Trustee, except that this representation shall not apply with respect to any loan made by a credit union, savings and loan association, mutual savings bank, institution of higher education or by any other borrower with less than $75,000,000 in deposits.   (9)           The Borrower has advised Sallie Mae of any current limitations imposed by the Secretary or an Eligible Insurer as to the amount or number of Insured Loans the Borrower or the Trustee may make from time to time. The Borrower agrees promptly to advise Sallie Mae in the event any such limitations are imposed.   (10)         The Borrower agrees to advise Sallie Mae promptly in writing of any material change in its operations, management, or financial condition.   B.            With respect to each of the items now or hereafter included in the Security, the Borrower hereby represents, covenants and warrants:   (1)           So long as any Obligations remain outstanding, the Borrower at all times will be the sole beneficial owner of the Security and no lien, charge, encumbrance or other security interest will at any time exist upon the Security (other than interests of the Secretary or an Eligible Insurer in connection with the insurance of Insured Loans, or the lien of Sallie Mae or ECFC).   (2)           The Borrower has, and will continue to have, the full right and authority to pledge the Security (or to cause the Trustee to pledge legal title to the Security) pursuant to the Assignment and to consummate the other transactions contemplated herein.   (3)           The Borrower has exercised, and so long as any Advance remains outstanding will exercise, due diligence and reasonable care in the administration, servicing and collecting of Insured Loans from time to time included in the Security; provided, however, that for all of the Insured Loans that are originated and serviced by Sallie Mae, in its capacity as Servicer, Borrower shall be deemed in compliance with this requirement.   (4)           All Insured Loans from time to time delivered to Sallie Mae will be duly insured (i) by the Secretary under the Act or (ii) by an Eligible Insurer and reinsured by the Secretary, and will be entitled to the benefits of such insurance and of any special allowances and/or supplemental payments available to loans of such character under or pursuant to the Act or any applicable state legislation. The Borrower will not take or omit to take any action that would, under the Act, any applicable state legislation, regulations   5 --------------------------------------------------------------------------------   promulgated thereunder, or rules or decisions of the Secretary or of any Eligible Insurer or any instrumentality or official thereof, jeopardize such insurance or other benefits.   (5)           The rights of the Trustee to any and all benefits of insurance and to any special allowances and/or supplemental payments available in respect of Insured Loans included in the Security that are insured by an Eligible Insurer may be transferred to Sallie Mae pursuant to applicable legislation, regulations, rulings, or decisions, and Borrower shall give the necessary notice (or shall cause the Trustee to give the necessary notice) to Eligible Insurers or other authorities and take such other actions as may be necessary to transfer and perfect and otherwise preserve Sallie Mae’s rights under the Agreement to such insurance benefits, special allowances and/or supplemental payments.   SECTION 3. FINANCING COMMITMENT   Sallie Mae agrees, subject to and upon the terms of this Agreement, to make Advances to the Borrower from time to time as requested on the Borrowing Dates, but not later than the Borrowing Period, in an aggregate amount at any one time outstanding of up to ONE HUNDRED MILLION AND 00/100 DOLLARS ($100,000,000).  The total of all such Advances shall not exceed an aggregate principal amount at any one time outstanding equal to the amount for which Security has been pledged pursuant to and in accordance with the minimum collateral levels of Section 8.A hereof. Additionally, following the expiration of the Commitment Period set forth in the ExportSS Agreement, each Advance on any particular Borrowing Date shall be limited to an amount equal to the aggregate amounts that are to be disbursed on such Borrowing Date as subsequent disbursements on Eligible Loans that already had first disbursements made prior to the end of such Commitment Period.   The following provisions shall apply to Advances under this Section 3:   A.   Form of Note. The Advances shall be evidenced by a Note in the form of Annex A hereto having a stated principal amount not to exceed One Hundred Million and 00/100 Dollars ($100,000,000). The Note shall be dated as of July 1, 2006, and shall be payable to Sallie Mae or order on or before the Maturity Date.   B.   Interest. Interest shall be paid on the aggregate principal balance of the Advances outstanding at the end of each day during the period commencing on the date of the Note and ending on the date said principal balance outstanding is paid in full at a rate per annum, to the extent permitted by law, that shall be determined as to each such day by adding a specified percentage (the “Margin”) to the weighted average of the bond equivalent rates of the quotes of the 3-month commercial paper (financial) rates in effect for each of the days in such quarter as reported by the Federal Reserve in Publication H-15 (or its successor) for such 3-month period (computed on the basis of actual days elapsed and a year of 365 or 366 days, as appropriate).  The Margin shall be fifty one-hundredths percent (0.50%) per annum from the date of this Agreement until all Obligations are paid in full   For purposes hereof, the bond equivalent rates of the quotes of the 3-month commercial paper (financial) rates shall be determined by (A) multiplying the 3-month commercial paper (financial) rate by the actual number of days in the year (365 ordinarily, but   6 --------------------------------------------------------------------------------   366 if February 29 falls within the year), and then dividing the result in (A) by (B) the result of the following two calculations: (i) multiplying the 3-month commercial paper (financial) rate by 90, and (ii) subtracting the product determined in clause (i) from 360. The resulting rate shall then be rounded to five (5) decimal places. For any day that is a Saturday, Sunday, or business holiday, the rate shall be determined by using the rate on the immediately preceding Business Day.   Interest on the Advances shall be accrued and shall be due and payable on the first Business Day following the last day of each month, except that the final interest payment on the Advances shall be due and payable on the same day as the principal thereof.   C.   Payment, etc. All payments of principal and interest in respect of the Advance or Advances and other charges made under this Agreement shall be made in lawful money of the United States in immediately available funds to the designated agent of Sallie Mae.  Interest on the Advances and other charges shall be calculated on the basis of actual days elapsed and a year of 365 days or 366 days, as applicable. If any principal of or interest on the Advances falls due on a Saturday, Sunday, or legal holiday at the place of payment, then such due date shall be extended to the next succeeding full Business Day at such place, and interest, in the case of a principal payment, shall be payable in respect of such extension.   Borrower agrees, until all Obligations have been fully repaid, to cause the Trustee to direct the Secretary, and any person or entity acting on behalf of the Secretary, to make all payments that would otherwise be paid to the Trustee or the Borrower pursuant to the LARS form, to an account designated by Sallie Mae in lieu of making such payments to the Trustee or the Borrower. To the extent Sallie Mae receives payment from the Secretary with respect to any particular calendar quarter (or part thereof) reflected on such LARS form before Borrower pays interest that is then owed on the Advances, and provided no affiliate of Sallie Mae has purchased a participation interest in the Insured Loans, Sallie Mae will apply such LARS form payment against the interest payment that is due and payable. If the LARS form payment received from the Secretary exceeds the amount that Sallie Mae applies against the interest payment owed by the Borrower, Sallie Mae will promptly refund the amount of the excess to the Borrower by electronic transfer of funds to Borrower’s designated account. If the LARS form payment received from the Secretary is insufficient to pay the interest payment that is owed by the Borrower, the Borrower will remain obligated to make such interest payment when due.   D.   Prepayments. The Borrower (i) may, at its option, prepay the Advances, in whole or in part and without penalty, at any time, and (ii) shall be required, from time to time, to prepay portions of the Advance as required by Sections 3.F and 3.G below. Except for prepayments with the proceeds of refunds or cancellations of Insured Loans, or the sale of Insured Loans by the Borrower to ECFC, any prepayment made shall be in the minimum amount, of Ten Thousand Dollars ($10,000.00) or in multiples thereof. Any principal amount so prepaid shall be added to the unutilized commitment remaining hereunder and maybe re-borrowed.   In addition to the above-described prepayment provision, the Borrower is also subject to the mandatory prepayment provisions contained herein, including, but not limited to, Sections 3.F, 3.G, 8.A.(2), 11.E, 11.F and 11.G hereof.   7 --------------------------------------------------------------------------------   E.   Additional Payments. Overdue principal in respect of the Advances shall bear interest at a rate per annum two percent (2%) above the rate in effect thereon at the time the same becomes overdue. Overdue interest in respect of the Advances, at the time it becomes overdue, shall be added to the principal amount of the Advances and shall bear interest at the same rate as overdue principal.   F.   Loan Sale Proceeds. All proceeds of sales of Insured Loans under the ExportSS Agreement will be applied as follows:   (i) the portion of the proceeds of such sales that represents the Principal Balance (as defined in the ExportSS Agreement) of the Insured Loans that are sold will be applied to prepay the principal portion of the Advance outstanding under this Agreement, and   (ii) the portion of the proceeds of such sales that represents premiums, accrued interest, or other amounts that are payable in connection with such sales will be applied to repay any amounts outstanding under this Agreement or the ExportSS Agreement that are payable and overdue, and any excess will be paid to the Borrower by electronic funds transfer.   G.   Mandatory Loan Sales. In addition to all other rights of Sallie Mae described herein (including, but not limited to, the rights more fully described in Sections 8 and 9 hereof), in the event of any payment Default by the Borrower under Section 9.B hereof, the Borrower hereby agrees to promptly sell Insured Loans to ECFC in an amount sufficient to cover such payment Default.  Any such loan sale shall be made in accordance with the terms of the ExportSS Agreement.   SECTION 4. CONDITIONS PRECEDENT.   The obligation of Sallie Mae to enter into this Agreement, and to make any Advance hereunder, shall be subject to compliance, in all material respects, with each of the following conditions:   (1) All legal matters incident to the making of this Agreement or the making of such Advance shall be approved by counsel to Sallie Mae.   (2) Sallie Mae shall have received, in form and substance satisfactory to Sallie Mae and its counsel, the following:   (a) A Note, in the form of Annex A hereto.   (b) A certificate of the secretary or other appropriate officer of the Borrower substantially in the form of Annex B hereto.   (c) Assignment of the Security in the form of Annex D-2 hereto.   (d) The Financials referred to in Section 2.A hereof.   8 --------------------------------------------------------------------------------   (e) With respect to any Insured Loans included in the Security, counterparts of one or more financing statements (UCC-1), signed (if required) by the Borrower and the Trustee, in such number as Sallie Mae shall request, in which the Borrower and the Trustee are designated as “Debtor” and Sallie Mae as “Secured Party,” covering the collateral more fully described on Annex E hereto.   (f) An opinion of counsel to the Borrower, substantially in the form of Annex G hereto.   (g) If Sallie Mae is not the sole Servicer of the Insured Loans, a Custodian Agreement among Sallie Mae, the Servicer, and the Borrower, that provides for the Servicer to hold the Insured Loans and all documentation relating to the Insured Loans as custodian and agent for Sallie Mae.   SECTION 5. COMMITMENT FEE   [INTENTIONALLY OMITTED]   SECTION 6. MANNER OF BORROWING   Sallie Mae, in its capacity as Servicer of the Insured Loans, will send a Request Register to the Borrower at least one Business Day prior to the date the funds for the individual Insured Loan disbursements shown on the Request Register are scheduled to be received by the school. The Borrower hereby authorizes Sallie Mae to make an Advance to the Borrower in the amount shown on such Request Register. Sallie Mae agrees, subject to the remaining terms of this Agreement, to make such Advance to the Borrower, in most cases (except where the school’s process requires an alternate schedule) no later than 2:00 p.m. Central time at least one Business Day prior to the date such Insured Loan disbursements are scheduled to be received by the school.   Additionally, if Sallie Mae is not the sole Servicer of the Insured Loans, then the Borrower shall also be required to submit to Sallie Mae, on the same day that the Borrower receives the Request Register, a Compliance Certificate in the form of Annex C hereto, dated as of the date of such Advance, that discloses that the Security is in compliance with Section 8.A.(2) hereof.   SECTION 7. PARTICULAR COVENANTS OF THE BORROWER   From the date hereof and until the Maturity Date and the performance of all other obligations of the Borrower under this Agreement, the Borrower agrees that:   A. Investment of Proceeds. Advances made hereunder shall only be used for the purpose of funding originations of Insured Loans under the ExportSS Agreement.   9 --------------------------------------------------------------------------------   B. Financial Statements and Other Information. The Borrower shall furnish to Sallie Mae:   (1)           As soon as possible and in no event more than ninety (90) days after the end of each fiscal year of the Borrower, Financials as at the end of and for such year.   (2)           As soon as possible and in no event more than forty-five (45) days after the end of each quarterly accounting period of the Borrower, Financials as at the end of and for such period.   (3)           Promptly upon Sallie Mae’s request, such other information regarding the Borrower’s financial condition and affairs, and regarding the Security or Insured Loans owned by the Borrower, as Sallie Mae may reasonably request.   (4)           Promptly after the commencement thereof, notice of any action, suit or proceeding before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, involving the Borrower that might have a material adverse effect upon the financial condition of the Borrower or on the Borrower’s ability to perform its obligations under this Agreement.   (5)           Within five (5) business days following the effective date of any change in name or address of the Borrower, or the name or address of the Trustee, written notice of such change to the addresses provided in Section 10.   C.   Maintenance of Existence; Conduct of Operations. The Borrower will preserve and maintain its corporate existence and all of its rights, privileges, and franchises necessary or desirable in the normal conduct of its operations, and the Borrower will conduct its operations in an efficient and regular manner.   D.   Compliance with Applicable Laws. The Borrower will comply with the requirements of all applicable laws, rules, regulations, and orders of any governmental authority, a breach of which would materially adversely affect the operations or credit of the Borrower, except where contested in good faith and proper proceedings.   E.   Compliance Certificate. If any of the Insured Loans are originated or serviced by a Servicer other than Sallie Mae, then within ten (10) days after the end of each calendar quarter, the Borrower shall furnish to Sallie Mae a Compliance Certificate, completed and executed as of the last day of such quarter by an authorized official of the Borrower; provided, however, that if an Advance has been disbursed within thirty (30) days prior to the end of such quarter, this requirement shall be waived with respect to such period.   F.   Collateral Listing. If any of the Insured Loans are originated or serviced by a Servicer other than Sallie Mae, then on the date this Agreement is executed by the parties hereto and within forty-five (45) days after the end of each calendar year, the Borrower shall provide Sallie Mae with a current listing of the Insured Loans included in the Security showing (i) the outstanding principal balance of and accrued interest on each Insured Loan, and (ii) a current delinquency aging of the Insured Loans included in the Security.   10 --------------------------------------------------------------------------------   G.   Contact With Student Borrowers. So long as any Insured Loan shall be included in the Security, at least once within each twelve month period the Borrower shall be in contact with the respective student borrower.  Any of the following shall be deemed to constitute contact: (i) verification of current address and receipt of an acknowledgement of liability; (ii) receipt of a payment of principal and/or interest, (iii) disbursement of an additional student loan; or (iv) a status verification conducted by an Eligible Insurer.   H.   Servicer Operations Report. If any of the Insured Loans are originated or serviced by a Servicer other than Sallie Mae, then Borrower shall furnish to Sallie Mae, within fifteen (15) days after the end of each calendar quarter, a written report prepared by the Servicer in the form of Annex F hereto showing the claims and delinquency status of Insured Loans included in the Security.   I.   Updated Secretary’s Certificate. Within ten (10) days of the addition of any individual to the authorized signers listed on the Borrower’s secretary’s certificate delivered pursuant to Section 4.A(2)(b) hereof, the Borrower shall furnish to Sallie Mae an updated secretary’s certificate, providing the name, title, and sample signature of the additional person(s) authorized to execute documents on the Borrower’s behalf.   J.   Sale of Insured Loans. Borrower and the Trustee acknowledge that, under and pursuant to the terms of the ExportSS Agreement, all Insured Loans that are financed, in whole or in part, with the proceeds of any Advance, are required to be offered for sale to ECFC, irrespective of where or by whom such loans are originated or serviced.   K.   Sovereign Immunity. The Borrower waives whatever rights it may have to claim against Sallie Mae immunity afforded to a sovereign entity from suit and legal process (whether in aid of jurisdiction, prejudgment attachment, or execution on a judgment) to the fullest extent permitted by law.   L.   Other Requirements. Within ten (10) days following a written request from Sallie Mae, the Borrower will furnish Sallie Mae with:   (1) such opinions of counsel to the Borrower as Sallie Mae may reasonably request as to (a) the status of Sallie Mae’s security interest in the Insured Loans that have been assigned and transferred to Sallie Mae as Security for the Advances hereunder as a prior first lien on such Insured Loans; and (b) such other matters incident to the transactions hereby contemplated as Sallie Mae or its counsel may reasonably request; and   (2) such other documents, agreements, and information as Sallie Mae may reasonably request, including additional Assignments.   SECTION 8. SECURITY   A.            (1) The Security for the Advances and all other Obligations of the Borrower to Sallie Mae shall consist of all FFELP Loans from time to time beneficially owned by the Borrower and legally owned by the Trustee as may from time to time be pledged to Sallie   11 --------------------------------------------------------------------------------   Mae, and all other property as set forth and defined as Security in the Assignment. Unless otherwise agreed by Sallie Mae in writing, every FFELP Loan that is legally or beneficially owned by the Borrower (or legally owned by the Trustee) shall be pledged to Sallie Mae and included in the Security at all times prior to sale to ECFC.   (2)           The aggregate unpaid principal balance of Eligible Loans included in the Security divided by 1.0 shall at all times be equal to or exceed the amount of the unpaid principal balance of the Note. In the event all or any portion of the Security shall mature, shall be paid or retired, or shall otherwise be reduced in amount prior to the Maturity Date, the Borrower shall promptly, and in any event upon the demand of Sallie Mae within two days of a request therefor, pledge to Sallie Mae (or cause the Trustee to pledge to Sallie Mae), and grant to Sallie Mae (or cause the Trustee to grant to Sallie Mae) a security interest in, such additional Security, in such amounts as may be necessary or as may be requested by Sallie Mae, so that the amount of the Security shall be equal to or greater than the amount initially required by this Section 8.A(2), provided, however, that in the event additional Eligible Loans are not available to the Borrower or the Trustee for inclusion in the Security, the Borrower shall pay to Sallie Mae for application to the principal of the Advance an amount sufficient to reduce the principal balance of the Advance such that the percentage of Eligible Loans pledged shall be at least equal to the amount required under this Section 8.A(2). An Insured Loan shall become ineligible for purposes of the computation made above at the time it becomes overdue in respect of the payment of principal or interest for more than thirty (30) days. Such Insured Loans, however, shall continue to be pledged and assigned to Sallie Mae and shall be included within the Security for the Advance.   B. The following provisions shall apply to the Security and the holding, servicing, administration, and disposition thereof:   (1)           If any of the Insured Loans are originated or serviced by a Servicer other than Sallie Mae, then (a) the Insured Loans forming the Security under the Agreement shall be physically segregated from all other property of the Borrower and marked or otherwise designated to disclose the security interest of Sallie Mae therein, and (b) the Insured Loans that are financed, in whole or in part, with the proceeds of any Advance shall be either (i) physically segregated from the Insured Loans of the Borrower that are not so financed, or (ii) marked or otherwise designated to the reasonable satisfaction of Sallie Mae as having been financed with the proceeds of an Advance.  In the event the Student Notes relating to the Insured Loans are in the form of master promissory notes, the Borrower shall provide for the delivery to Sallie Mae of certified copies of such master promissory notes if such copies are needed to prove the existence of (or otherwise to assist in the collection of) such Insured Loans.   (2)           The Borrower shall, at its own expense, (or shall cause the Servicer to) administer, service, and collect all Insured Loans from time to time included in the Security, and maintain appropriate books and records in respect thereof, whether or not Sallie Mae shall exercise any of its rights hereunder (and the foregoing requirement shall be deemed satisfied if Sallie Mae is the sole Servicer for the Loans); provided, however, that Sallie Mae or its designated agent, upon ten (10) days’ prior written notice to the Borrower, may assume, at the expense of the Borrower, the administration, servicing, and collection of the Insured Loans included in the Security if such actions are necessary to preserve the value of the Security and Sallie Mae’s rights therein. With the prior written approval of Sallie Mae, which may be   12 --------------------------------------------------------------------------------   withheld in Sallie Mae’s sole discretion, the Borrower and the Trustee may delegate to another, upon terms satisfactory to Sallie Mae, the functions of administering, servicing, and collecting such Insured Loans, but Borrower acknowledges that in no event will Sallie Mae grant such approval for the Borrower and the Trustee to delegate such servicing functions to any entity (other than an affiliate of Sallie Mae) with respect to the Insured Loans that are part of the Security that were financed with the proceeds of any Advance.   (3)   Without the prior written consent of Sallie Mae, the Borrower shall not maintain any of its books and records with respect to Insured Loans included in the Security away from the Borrower’s premises in Baltimore, MD, or at Sallie Mae’s premises, except in the event of an emergency, which shall include fire and flood. In the event of an emergency, Borrower shall notify Sallie Mae as soon as possible.   (4)   The Borrower shall at all times prior to the Maturity Date maintain Eligible Loans in the Security in an amount equal to or exceeding the amount specified in Section 8.A.(2) hereof. An Insured Loan shall become ineligible for purposes of the above computation at the time it becomes overdue in respect of the payment of principal or interest for more than thirty (30) days. Such Insured Loans, however, shall continue to be pledged and assigned to Sallie Mae and shall be included within the Security.   (5)   Without the prior written consent of Sallie Mae, neither the Borrower nor the Trustee shall file or permit to be filed in any jurisdiction any financing statement or like instrument with respect to the Security or any part thereof in which Sallie Mae is not named as the sole secured party.   (6)   Sallie Mae reserves the right, at any time, to file in appropriate offices the financing statements referred to in Section 4(2)(e) hereof, and the Borrower and the Trustee each hereby appoints Sallie Mae its attomey-in-fact to execute in the Borrower’s and the Trustee’s name all such financing statements, as well as amendments, renewals, and modifications thereof, and to file such documents in the appropriate offices.   (7)   The Borrower and the Trustee shall, upon the demand of Sallie Mae,   (a)   give, execute, deliver, file, and/or record any notice, statement, instrument, document, agreement, or other papers that may be necessary or desirable in the sole judgment of Sallie Mae, in order to create, preserve, perfect, or validate any security interest granted pursuant to this Agreement or to enable Sallie Mae to exercise and enforce its rights hereunder with respect to such security interest; and   (b)   at any reasonable time and from time to time, permit Sallie Mae or any agents or representatives to examine and make copies of the records and books of account related to the Security and the transactions contemplated by this Agreement, to visit the Borrower’s and the Trustee’s properties and to discuss the Borrower’s and the Trustee’s affairs, finances, and accounts with any of the Borrower’s or the Trustee’s officers and independent accountants and to discuss the Borrower’s student loan program and the Insured Loans included in the Security with any Eligible Insurer.   13 --------------------------------------------------------------------------------   (8)   From time to time upon the demand of Sallie Mae, the Borrower and the Trustee shall:   (a)   endorse the Student Notes contained In the Security and deliver the same to Sallie Mae or its Agent for safekeeping and/or prepare and furnish to Sallie Mae such instruments of assignment and transfer in such form and substance as may be specified by Sallie Mae in its demand;   (b)   keep and otherwise maintain the Borrower’s and the Trustee’s books and records relating to the Insured Loans and Student Notes included in the Security in such manner as Sallie Mae may require;   (c)   prepare and furnish to Sallie Mae such records, lists, schedules, and other information relating to the Insured Loans and Student Notes included in the Security, including such information as may be contained in computerized databases maintained by the Borrower or its agents, as may be requested by Sallie Mae from time to time; and   (d)   take such additional actions as may be necessary or useful to facilitate the administration, servicing, and collection of the Insured Loans included in the Security in the event Sallie Mae exercises its rights under Section 8.B(2) hereof.   (9)   Sallie Mae may, in its discretion (but shall not be obliged to) with the consent of the Borrower and the Trustee (which consent may not unreasonably be withheld) in its name or in the name of the Borrower and the Trustee or otherwise, demand, sue for, collect, or receive any money or property at any time receivable on account of or in exchange for any of the Security, and Sallie Mae may make any compromise or settlement deemed desirable with respect to any of the Security and may extend the time of payment, arrange for payment in installments, otherwise modify the terms of, or release any of the Security, without thereby incurring responsibility to, or discharging or otherwise affecting any liability of, the Borrower or the Trustee. The Borrower and the Trustee hereby authorize Sallie Mae, either in its own name or in the name of the Borrower or the Trustee, to file all claims for reimbursement under the certificate of insurance assigned to Sallie Mae hereunder and to receive the proceeds therefrom.   (10)   Upon Default in the payment when due of any principal of or interest on any Advance or other Obligation, including any liability arising under Sections 3.E and 9 hereof,   (a)   Sallie Mae shall have the rights and remedies with respect to the Security of a secured party under the Uniform Commercial Code as in effect at the time of the Default; and   (b)   with respect to the Security, upon ten (10) days’ prior written notice to the Borrower and the Trustee, Sallie Mae may sell or cause to be sold, at such time or places as Sallie Mae in its discretion shall decide, and for cash or on credit or for the future delivery (without thereby assuming any credit risk), all or any of the Security, including the Borrower’s and the Trustee’s rights and interest in the   14 --------------------------------------------------------------------------------   Student Notes forming a part of the Security, at public or private sale (including, without limitation, a sale to ECFC pursuant to the terms of the ExportSS Agreement), without demand of performance or notice of intention to sell or of time or place of sale (except such notice as is required above or by applicable statute that cannot be waived), and Sallie Mae or anyone else may be the purchaser of any or all of the Security so sold and thereafter hold the same absolutely free from any claim or right of whatsoever kind of the Borrower and the Trustee, any such demand and notice of rights being hereby expressly waived and released by the Borrower and the Trustee. The proceeds of each such sale under this Section 8.B(10) shall be applied in accordance with Section 8.B(11) hereof. If the proceeds of the sale, collection, or other realization of or upon the Security are insufficient to cover the expenses of such realization and the payment in full of the Obligations, the Borrower shall remain liable for any deficiency.   (11)   Unless Sallie Mae and the Borrower otherwise agree, Sallie Mae shall apply all amounts received by it in respect of the Security under Section 8.B(9) or Section 8.B(10), as follows: first, to pay the expenses of Sallie Mae in connection with collecting such amounts; second, to the payment of the Obligations, first to interest, second to principal, and third to any remaining Obligations; and third, any balance remaining after the payment in full of the Obligations shall be released to the Borrower, or its successor and assigns.   (12)   If Sallie Mae so requests, whether or not a Default exists, the Borrower and the Trustee shall forthwith pay to Sallie Mae at its offices all amounts received by the Borrower or the Trustee upon or in respect of any Security, appropriately advising Sallie Mae as to the source of such funds.   SECTION 9. DEFAULTS; SUSPENSION OF COMMITMENT   Defaults   If any of the following defaults shall occur, namely:   A.   Any representation or warranty in this Agreement or in any certificate or writing furnished to Sallie Mae pursuant hereto shall prove to have been incorrect in any material respect or shall be breached in any material respect; or   B.   Default in the payment when due of any principal of or interest on any Advance or other Obligation, including any payment that may be required under Section 3.E hereof; or   C.   The Borrower or the Trustee shall fail to perform any of the covenants or undertakings in Section 7 of this Agreement or any other provision of this Agreement; or   D.   The Borrower or the Trustee shall (i) apply for or consent to the appointment of a conservator, receiver, trustee, liquidator, or the like for itself or its property; (ii) be unable, or admit in writing its inability, to pay its debts as they mature, (iii) make a general assignment for the benefit of creditors; (iv) be adjudicated as bankrupt or insolvent; (v) if the Borrower or the   15 --------------------------------------------------------------------------------   Trustee is a financial institution, be seized, taken over, or otherwise subjected to the decision-making control of or by its regulatory authorities; or (vi) file a voluntary petition in bankruptcy or a petition or answer seeking reorganization or an arrangement with creditors or to take advantage of any insolvency law or an answer admitting the material allegations of a petition filed against it in any bankruptcy, reorganization, or insolvency proceedings, or corporate action shall be taken by it for the purpose of effecting any of the foregoing; or   E.   An order, judgment, or decree shall be entered without the application, approval, or consent of the Borrower or the Trustee by any court or governmental agency of competent jurisdiction, approving a petition seeking reorganization of the Borrower or the Trustee or appointing a conservator, receiver, trustee, liquidator, or the like for the Borrower or the Trustee or for all or a substantial part of either of their assets and such order, judgment, or decree shall continue unstayed or in effect for any period of thirty (30) consecutive days, or an involuntary petition shall have been filed against the Borrower or the Trustee in bankruptcy or seeking reorganization under the Bankruptcy Act and the same shall not have been dismissed within sixty (60) days; or   F.   Sallie Mae’s rights and prospects of repayment of any current or future Advances hereunder are, in Sallie Mae’s reasonable judgment, in any way prejudiced or rendered insecure   THEN, in any such case, Sallie Mae may by written notice to the Borrower and the Trustee terminate the Commitment and/or, if any Advance or Advances are then outstanding, declare the principal of and interest on any such Advance or Advances to be forthwith due and payable, whereupon the same shall become forthwith due and payable, without protest, presentment, or demand, all of which are expressly waived by the Borrower and the Trustee.   Suspension of Commitment   If, in the absence of a Default, Sallie Mae in its reasonable judgment determines that there has occurred a material adverse change in the financial condition of the Borrower, the Trustee, or with respect to the management of the Borrower or the Trustee, or in the Borrower’s ability to administer its student loan program, or in the quality of the Security, with the result that Sallie Mae’s rights or prospects of repayment of any current or future Advance are prejudiced, Sallie Mae, by written notice to the Borrower and the Trustee, may suspend the Commitment and Sallie Mae shall not have the obligation to make additional Advances until Sallie Mae in its reasonable judgment is satisfied that the condition(s) that caused the determination has (have) been remedied.   SECTION 10. NOTICES   All notices, requests, demands, and other communications herein shall be in writing, and, except as otherwise specifically provided in this Agreement, shall be deemed to have been duly given if delivered or mailed, first class, postage prepaid, to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):   A.   If to Sallie Mae, at 12061 Bluemont Way, Reston, VA 20190, Attention:   16 --------------------------------------------------------------------------------   Financing Administration and Loan Documentation, with copies to Senior Vice President, Financial Institution Sales, Sallie Mae, Inc., 11100 USA Parkway, Fishers, IN 46037. Copies of notices of name or address changes of the Borrower shall also be sent to Andrew G. Wachtel, Sallie Mae, Inc., 12061 Bluemont Way, Reston, VA 20190; Fax Number: 703-984-5979.   B.  If to the Borrower, at 1001 Fleet Street, Baltimore, MD 21202, Attention: Robert Zentz, General Counsel.   C.  If to the Trustee, at 7077 Bonneval Road, Suite 400, Jacksonville, FL 32216, Attention: Tricia Heintz, Vice President.   SECTION 11. MISCELLANEOUS   A.   Waivers, Etc. No failure on the part of Sallie Mae to exercise, and no delay in exercising, any right hereunder will operate as a waiver thereof; nor will any single or partial exercise or waiver of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law.   B.   Expenses. The Borrower will pay:   (1)  all taxes, if any, upon documents or transactions pursuant to this Agreement; and   (2)  costs of collection (including without limitation all reasonable counsel fees) in the event of any Default hereunder.   C.   Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together will constitute one agreement, and any of the parties hereto may execute this Agreement by signing any such counterpart.   D.   Law Governing. This Agreement and the Note are being delivered in and shall be construed in accordance with and governed by the laws of the Commonwealth of Virginia, without giving effect to any choice of law or conflict of law provisions or principles (whether of the Commonwealth of Virginia or any other jurisdiction) that would cause the application of any laws of any jurisdiction other than the Commonwealth of Virginia. All parties hereby irrevocably and unconditionally submit to the jurisdiction of any state court sitting in Fairfax County, Virginia, and the Federal District Court sitting in the City of Alexandria, Virginia, over any suit, action, or proceeding arising out of or relating to this Agreement and the Note. Each party hereby irrevocably and unconditionally waives any objection to the laying of venue in any such court and any claim that such court is an inconvenient forum.   E.   Mandatory Prepayment and Termination of Commitment. If for any reason the ExportSS Agreement (or ECFC’s obligation to purchase Insured Loans thereunder) is terminated by either party thereto prior to the Maturity Date of this Financing Agreement, then the Borrower shall, within three (3) Business Days of such termination, pay all Obligations outstanding under   17 --------------------------------------------------------------------------------   this Agreement, and, notwithstanding any other provisions contained herein to the contrary, Sallie Mae’s Commitment to make any further Advances hereunder shall be terminated.   F.   Right to Terminate. Anything contained in this Agreement to the contrary notwithstanding, at anytime prior to the Maturity Date, either party hereto may terminate this Agreement upon sixty (60) days’ prior written notice to the other party only in the event that such party is permitted to terminate the ExportSS Agreement at such time. The Borrower shall, on the effective date of such termination, pay all Obligations outstanding under this Agreement, and Sallie Mae’s Commitment to make any further Advances hereunder shall be terminated.   G.   Termination of Agreement. Sallie Mae (or the Borrower with respect to subparagraph (a) of this paragraph) may, but shall not be obligated to, terminate this Agreement upon thirty (30) days’ prior written notice to the other parties if:   (a) for any reason the Secretary alleges in writing (either formally or informally) that: (i) Sallie Mae’s providing financing to the Borrower under the terms of this Agreement, or (ii) all or any part of any other agreement, contract, indenture, or other instrument among the Borrower, the Trustee, and Sallie Mae or among the Borrower, the Trustee, and ECFC, is in violation of the Act (including, without limitation, the “prohibited inducements” guidelines issued by the Secretary), or (iii) Sallie Mae should be re-characterized as the “lender” of the Insured Loans; or   (b) any offset, holder, or other fee is imposed on Sallie Mae with respect to Insured Loans beneficially owned by the Borrower and legally owned by the Trustee that are financed by Sallie Mae, if such fee is imposed for the time period that the Borrower or the Trustee still owned the Insured Loans.   The Borrower shall, on the effective date of such termination, pay all Obligations outstanding under this Agreement, and, notwithstanding any other provisions contained herein to the contrary, Sallie Mae’s Commitment to make any further Advances hereunder shall be terminated.   H.   Assignment. This Agreement shall be assignable by Sallie Mae. Sallie Mae agrees to give the Borrower and the Trustee at least sixty (60) days’ prior written notice of an assignment of the duties, rights, and obligations of Sallie Mae under the Agreement. This Agreement is not assignable by the Borrower or the Trustee, except (i) in the circumstance of the replacement or resignation of the Trustee and the appointment of a substitute trustee for the Borrower, or (ii) in the circumstance where the Borrower assigns or transfers its rights under this Agreement to a non-profit entity in compliance with the provisions and limitations of the Higher Education Act; provided, however, that following any such assignment, the Borrower will remain liable for all obligations of the Borrower that are set forth in this Agreement.   18 --------------------------------------------------------------------------------   IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date and year first above written.     SALLIE MAE, INC. WALDEN UNIVERSITY, INC.     By: /s/ Jerry Maher   By: /s/ Richard Patro           Name: Jerry Maher   Name: Richard Patro           Title: Senior Vice President   Title: CFO, Walden University     WELLS FARGO BANK, NATIONAL ASSOCIATION, solely in its capacity as Eligible Lender Trustee for Walden University, Inc.   By: /s/ Tricia Heintz           Name: Tricia Heintz           Title: Vice President       19 --------------------------------------------------------------------------------   ANNEX A   PROMISSORY NOTE   Reston, Virginia $100,000,000 July 1, 2006   FOR VALUE RECEIVED, the undersigned (the “Borrower”) hereby promises to pay to the order of Sallie Mae, Inc. (“Sallie Mae”), at the offices of its designated agent, on the later of (i) May 31, 2009 or (ii) the date of the last scheduled sale of Eligible Loans under the ExportSS® Agreement (the “Maturity Date”), in lawful money of the United States, the principal sum of One Hundred Million and 00/100 Dollars ($100,000,000.00), or such lesser principal sum as shall equal the balance outstanding of the Advances made by Sallie Mae to the Borrower from time to time under a Revolving Financing Agreement dated July 1, 2006 (the “Financing Agreement”), and to pay interest on the aggregate principal balance of the Advances outstanding at the end of each day during the period commencing on the date hereof and ending on the date said principal balance outstanding is paid in full at a rate per annum, to the extent permitted by law, that shall be determined as to each such day by adding a specified percentage (the “Margin”) to the weighted average of the bond equivalent rates of the quotes of the 3-month commercial paper (financial) rates in effect for each of the days in such quarter as reported by the Federal Reserve in Publication H-15 (or its successor) for such 3-rnonth period (computed on the basis of actual days elapsed and a year of 365 or 366 days, as appropriate). The Margin shall be fifty one-hundredths percent (0.50%) per annum from the date of this Note until all Obligations are paid in full.   For purposes hereof, the bond equivalent rates of the quotes of the 3-month commercial paper (financial) rates shall be determined by (A) multiplying the 3-month commercial paper (financial) rate by the actual number of days in the year (365 ordinarily, but 366 if February 29 falls within the year), and then dividing the result in (A) by (B) the result of the following two calculations: (i) multiplying the 3-month commercial paper (financial) rate by 90, and (ii) subtracting the product determined in clause (i) from 360.  The resulting rate shall then be rounded to five (5) decimal places. For any day that is a Saturday, Sunday, or business holiday, the rate shall be determined by using the rate on the immediately preceding Business Day.   Interest hereunder shall be accrued and shall be due and payable on the first Business Day following the last day of each month, except that the final interest payment hereunder shall be due and payable on the same day as the principal hereunder.   All payments of principal and interest hereunder shall be made in lawful money of the United States in immediately available funds to the designated agent of Sallie Mae. Interest hereunder shall be calculated on the basis of actual days elapsed and a year of 365 days or 366 days, as applicable. If any principal of or interest on the Advances falls due on a Saturday, Sunday, or legal holiday at the place of payment, then such due date shall be extended to the next succeeding full Business Day at such place, and interest, in the case of a principal payment, shall be payable in respect of such extension.   This Note evidences Advances made pursuant to the above-mentioned Financing   1 --------------------------------------------------------------------------------   Agreement between the Borrower and Sallie Mae, providing for the Advances, the acceleration of the maturity of such Advances, and for the prepayment thereof, all on the terms set forth in said Financing Agreement. Unless otherwise defined, capitalized terms used herein shall have the meanings ascribed to them in the Financing Agreement.   IN WITNESS WHEREOF, the Borrower has caused this Note to be executed by its duly authorized representative.       WALDEN UNIVERSITY, INC.       By:         Name:         Title:       [Corporate Seal]     2 --------------------------------------------------------------------------------   ANNEX B   BORROWER’S SECRETARY’S CERTIFICATE   I,                                                                            , Secretary of                                                                       , a                                  corporation organized under the laws of the State of                                      (the “Borrower”), hereby certify to Sallie Mae, Inc. that:   1.   Attached hereto as Exhibits 1 and 2 are true copies of the By-Laws and Articles of Incorporation of the Borrower as in effect on the date hereof.   2.   Attached hereto as Exhibit 3 is a true copy of certain resolutions duly adopted by the        [Committee] of the Board of Directors of the Borrower at a meeting duly called and held on                    , at which a quorum was present and acting throughout.  Said resolutions are still in full force and effect and have not been amended, superseded, or revoked.   3.   The persons named below are at the date hereof the duly elected, qualified, and acting officers of the Borrower holding the offices indicated, and the signature following each name is the genuine signature of the person named:   Name   Title   Signature                                                                         WITNESS my hand and the seal of the Borrower this      day of                         , 20    .                                                                 , Secretary (SEAL)     1 --------------------------------------------------------------------------------   EXHIBIT 3 to SECRETARY’S CERTIFICATE     RESOLVED, that [either] the                            [or/and]                                      of                                        be and each of them, acting singly, hereby is authorized, in the name and on behalf of                                              , this                               day of     , 20   , to execute a Revolving Financing Agreement with Sallie Mae, Inc. (“Sallie Mae”) in the form that has been submitted to this meeting and that shall be marked by the Secretary for identification and filed among the records of this Corporation.   FURTHER RESOLVED, that [either] the                            [or/and]                         of                      be and each of them, acting singly, hereby is authorized in the name and on behalf of                          , from time to. time to borrow from Sallie Mae up to an aggregate amount of $               and to sign and deliver promissory notes of             evidencing such borrowing and assignments and other instruments relative to collateral security therefor, all as provided in said Revolving Financing Agreement.   FURTHER RESOLVED, that all above-named officers of                     be and they hereby are each authorized on behalf of             to execute all such instruments and to perform all such other acts as may be appropriate for the purpose of carrying out the foregoing resolutions and effecting said Revolving Financing Agreement.       Certified as True and Correct.             Secretary     [Corporate Seal]     1 --------------------------------------------------------------------------------   ANNEX B-1   TRUSTEE’S SECRETARY’S CERTIFICATE   I,                                             , Secretary of                                                    (acting solely in its capacity as eligible lender trustee for [INSERT BORROWER]), a corporation organized under the laws of the State of                                          (in such capacity, the “Trustee”), hereby certify to Sallie Mae, Inc. that:   1.   Attached hereto as Exhibits 1 and 2 are true copies of the By-Laws and Articles of Incorporation of the Trustee as in effect on the date hereof.   2.   Attached hereto as Exhibit 3 is a true copy of certain resolutions duly adopted by the                      [Committee] of the Board of Directors of the Trustee at a meeting duly called and held on                                  , at which a quorum was present and acting throughout. Said resolutions are still in full force and effect and have not been amended, superseded, or revoked.   3.   The persons named below are at the date hereof the duly elected, qualified, and acting officers of the Trustee holding the offices indicated, and the signature following each name is the genuine signature of the person named:   Name   Title   Signature                                                               WITNESS my hand and the seal of theTrustee this        day of                          , 20    .                                                                 , Secretary (SEAL)     1 --------------------------------------------------------------------------------   EXHIBIT 3 to SECRETARY’S CERTIFICATE   RESOLVED, that [either] the                                                 [or/and]                                       of                                       be and each of them, acting singly, hereby is authorized, in the name and on behalf of                                            (acting solely in its capacity as eligible lender trustee for [INSERT BORROWER]) (in such capacity, “Trustee”), this day            of                            , 20    , to execute a Revolving Financing Agreement with Sallie Mae, Inc. (“Sallie Mae”) in the form that has been submitted to this meeting and that shall be marked by the Secretary for identification and filed among the records of this Corporation.   FURTHER RESOLVED, that [either] the                                             [or/and]                                                            of                                    be and each of them, acting singly, hereby is authorized in the name and on behalf of the Trustee, from time to time to sign and deliver assignments and other instruments relating to granting a security interest in the student loans referenced in the Revolving Financing Agreement, all as provided in said Revolving Financing Agreement.   FURTHER RESOLVED, that all above-named officers of the Trustee be and they hereby are each authorized on behalf of the Trustee to execute all such instruments and to perform all such other acts as may be appropriate for the purpose of carrying out the foregoing resolutions and effecting said Revolving Financing Agreement.       Certified as True and Correct.             Secretary     [Corporate Seal]     1 --------------------------------------------------------------------------------   ANNEX C   BORROWER COMPLIANCE CERTIFICATE (as of                                      , 20    )   The undersigned,                                                         , hereby certifies to Sallie Mae, Inc. (“Sallie Mae”) that on and as of the date hereof, the information below set out is correct and has been prepared in accordance with the applicable provisions of a certain Revolving Financing Agreement dated                                  (the “Agreement”) among [BORROWER], [TRUSTEE], and Sallie Mae:   COLLATERAL COMPLIANCE:   A. Principal Balance of Advances outstanding: $                                                   .   B. Aggregate unpaid principal balance of Eligible Loans owned by Borrower and pledged to Sallie Mae as of the date hereof: $                                                 .   C. B   = $   .   1.0         Amount of “C” must equal or exceed amount of “A”.   Amount of “B” excludes $                                                       in Insured Loans in respect of which the payment of principal or interest is at the time overdue for more than thirty (30) days.   Unless otherwise defined, all terms herein are used as defined in the Agreement.   IN WITNESS WHEREOF, the undersigned has caused this certificate to be signed by an authorized officer this                    day of                    , 20       .     [BORROWER]   Please forward certificate to:       By:     Sallie Mae, Inc.     1002 Arthur Drive Name:     Lynn Haven, FL 32444     Attention: Compliance Analyst Title:       Financial Reconciliation   --------------------------------------------------------------------------------   ANNEX D-1   [INTENTIONALLY OMITTED]   --------------------------------------------------------------------------------   ANNEX D-2   ASSIGNMENT AND SECURITY AGREEMENT   THIS ASSIGNMENT AND SECURITY AGREEMENT dated as of July 1, 2006, is made pursuant to a Revolving Financing Agreement dated July 1, 2006 (the “Agreement”) among Walden University, Inc. (the “Borrower”), Sallie Mae, Inc. (“Sallie Mae”), and Wells Fargo Bank, National Association, solely in its capacity as Trustee for the Borrower under the terms of that certain Eligible Lender Trust Agreement dated as of June 15, 2006, between the Borrower and the undersigned (the “Trustee”). Terms that are defined in the Agreement shall have their defined meanings when used herein.   As collateral security for the due and punctual payment of the Advances made or to be made under the above Agreement in accordance with the terms thereof, and all other Obligations of the Borrower or the Trustee to Sallie Mae, whether now or in the future existing, the Trustee and the Borrower hereby grant to Sallie Mae, its successors and assigns a security interest in, and pledge to Sallie Mae, all upon the terms more fully set forth in the Agreement, the below-described personal property owned by the Trustee or the Borrower, whether now or hereafter existing or now owned by the Trustee or the Borrower or hereafter acquired, wherever located (all such property being in this instrument called the “Security”), namely:   (i) All education loans from time to time legally owned by the Trustee and beneficially owned by the Borrower that were or are hereafter made pursuant to the Higher Education Act of 1965, as amended (“Loans”), along with all documentation related thereto and all rights of the Trustee and the Borrower with respect to such Loans, including all payments and rights to receive payment with respect thereto, which Loans may be identified in the records maintained by Sallie Mae, Inc. or its successor, or by any other servicer of such Loans, as being legally owned by the Trustee and beneficially owned by the Borrower;   (ii) All guarantee or insurance payments with respect to the Loans and all interest earned on such Loans or on such payments, along with all documentation related thereto and all rights of the Trustee and the Borrower with respect to any such guarantee or insurance payments;   (iii) All grants, contributions, or payments that may be received from any department, agency, or instrumentality of the United States with respect to the Loans, including without limitation any supplemental payments and other benefits payable in respect of such Loans under applicable federal or state law, regulations, or rulings or decisions of the Secretary of Education or of any guarantor, or any instrumentality or official thereof;   (iv) All rights of the Trustee and the Borrower in and to any origination or servicing agreements relating to any Loans;   (v) Any instruments, documents, or chattel paper (as defined in the Uniform Commercial Code) from time to time delivered to Sallie Mae in pledge in accordance with the Agreement;   1 --------------------------------------------------------------------------------   ANNEX E   [Alternate for UCC-1 When Eligible Lender Trustee is Involved]   Description of Collateral to Be Used in Completing Form UCC-1   (i) All education loans from time to time legally or beneficially owned by the Debtor that were or are hereafter made pursuant to the Higher Education Act of 1965, as amended (“Loans”), along with all documentation related thereto and all rights of the Debtor with respect to such Loans, including all payments and rights to receive payment with respect thereto, which Loans may be identified in the records maintained by Sallie Mae, Inc. or its successor, or by any other servicer of such Loans, as being legally or beneficially owned by the Debtor;   (ii) All guarantee or insurance payments with respect to the Loans and all interest earned on such Loans or on such payments, along with all documentation related thereto and all rights of the Debtor with respect to any such guarantee or insurance payments;   (iii) All grants, contributions, or payments that may be received from any department, agency, or instrumentality of the United States with respect to the Loans, including without limitation any supplemental payments and other benefits payable in respect of such Loans under applicable federal or state law, regulations, or rulings or decisions of the Secretary of Education or of any guarantor, or any instrumentality or official thereof;   (iv) All rights of the Debtor in and to any origination or servicing agreements relating to any Loans;   (v) Any instruments, documents, or chattel paper (as defined in the Uniform Commercial Code) from time to time delivered to the secured party in pledge in accordance with the Revolving Financing Agreement dated as of                          20     , among Walden University, Inc., Wells Fargo Bank, National Association, solely in its capacity as eligible lender trustee for Walden University, Inc., and the secured party;   (vi) Any and all depository or other accounts into which the secured party deposits the proceeds of Advances made under the Financing Agreement; and   (vii) Any and all proceeds, and proceeds of proceeds, of all of the foregoing (including any proceeds of insurance or guarantees).   1 --------------------------------------------------------------------------------   ANNEX F   SERVICER OPERATIONS REPORT INSTITUTIONAL FINANCE DEPARTMENT   Borrower:   Period Ending:   Date Completed:   Completed By:   I. Default Claim Activity:   a. Number filed greater than 270 days delinquent:   II. Rejected Claim Activity:   a.   Number of new rejects in month:   b.   Number of rejects cured/resolved in month:   c.   Number of rejects outstanding at end of month:   2 --------------------------------------------------------------------------------   ANNEX G Opinion of Counsel to Borrower   Sallie Mae, Inc. 12061 Bluemont Way Reston, VA 20190   Attention: Legal Department   We have acted as legal counsel to                                                  (the “Borrower”) in connection with that certain Revolving Financing Agreement (together with all documents to be executed in connection therewith, hereafter the “Financing Agreement”) dated as of                                   , among the Borrower, [INSERT TRUSTEE], solely in its capacity as eligible lender trustee for the Borrower, and you (“Sallie Mae”). Terms defined in the Financing Agreement shall have the same meanings when used in this opinion. In giving this opinion we have examined copies of the Financing Agreement signed by the Borrower, originals or copies certified to our satisfaction of all corporate records of the Borrower, and such other documents, records, and other matters in our opinion appropriate or necessary to enable us to render our opinion.   Subject to the qualifications mentioned below, we are of the opinion that;   (1)   The Borrower is a                                    corporation, duly incorporated, validly existing, and in good standing under the laws of the State of                              , and is duly qualified to transact operations in all places where such qualification is necessary. The Borrower has the necessary power and legal authority to enter into and perform its obligations under the Financing Agreement and any instrument or agreement required thereunder, and to borrow under the Financing Agreement.   (2)   All action necessary for the due authorization, execution, delivery and performance of the Financing Agreement by the Borrower and any instrument or agreement required under the Financing Agreement has been duly taken. When executed by Sallie Mae, the Financing Agreement shall be the legal, valid and binding agreements of the Borrower enforceable against it in accordance with their terms, and any instrument or agreement required under the Financing Agreement has been so authorized and, when executed and delivered, shall be similarly valid, binding, and enforceable.   (3)   The execution, delivery and performance by the Borrower of the Financing Agreement and of any instrument or other agreement required thereunder do not and will not:   (i) require any consent or approval of the Borrower’s shareholders; or   (ii) violate any provision of any law, regulation, order, judgment, determination or award presently in effect having applicability to the Borrower or to the Borrower’s charter or by-laws; or   (iii) result in breach of, or constitute a default under, any outstanding deed, agreement, lease, or other instrument to which the Borrower is a party or by which it or any of its assets may be bound or affected.   3 --------------------------------------------------------------------------------   (4)   The Borrower and the Trustee have the full right and legal authority to grant a security interest in the Security to be pledged pursuant to the Financing Agreement.  Upon the making of an Advance, the security interest of Sallie Mae in the Security shall be a perfected, enforceable, prior, and first security interest therein free from all other liens, charges, encumbrances, and security interests of any kind.   (5)   The making and performance of the Financing Agreement and any instrument or other agreement required thereunder and the creation of a security interest in favor of Sallie Mae do not require the authorization, approval, or consent of any governmental authority.   (6)   There are no actions, suits, or proceedings pending or, to our knowledge, threatened against or affecting the Borrower or any of the assets of the Borrower before any court or governmental department, board, agency or instrumentality.   The qualifications to which, this opinion is subject are as follows:   (A)   This opinion is limited to the law of                                    and the law of the United States as in effect on the date of this opinion. No opinion is expressed as to the laws of any other jurisdiction.   (B)   We assume the Financing Agreement has been duly authorized by Sallie Mae and will be duly executed and delivered by Sallie Mae in accordance with such authorization.   (C)   Our opinion as to the binding effect of the obligations of the Borrower under the Financing Agreement and any instrument or other agreement required thereunder is subject to bankruptcy, insolvency, liquidation, and similar laws generally affecting creditors’ rights.   (D)   Our opinion is subject, to the effect of general principles of equity (regardless of whether considered in a proceeding in equity or at law).   Very truly yours,   4 --------------------------------------------------------------------------------

Exhibit No. 10.1   -------------------------------------------------------------------------------- LENNAR CORPORATION as Issuer, the GUARANTORS party hereto and J.P. MORGAN TRUST COMPANY, N.A. as Trustee   -------------------------------------------------------------------------------- INDENTURE Dated as of April 26, 2006   -------------------------------------------------------------------------------- 5.95% Senior Notes due 2011, Series A 5.95% Senior Notes due 2011, Series B   -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- CROSS REFERENCE TABLE   TIA Section    Indenture Section 310(a)(1)        7.10 (a)(2)        7.10 (a)(3)        N.A. (a)(4)        N.A. (a)(5)        7.10 (b)        7.8; 7.10; 11.2 (c)        N.A. 311(a)        7.11 ((b)        7.11 (c)        N.A. 312(a)        2.5 (b)        11.3 (c)        11.3 313(a)        7.6 (b)(1)        N.A. (b)(2)        7.6 (c)        7.6; 11.2 (d)        7.6 314(a)        4.6; 4.8; 11.2 (b)        N.A. (c)(1)        7.2; 11.4 (c)(2)        7.2; 11.4 (c)(3)        N.A. (d)        N.A. (e)        11.5 (f)        N.A. 315(a)        7.1(b) (b)        7.5; 11.2 (c)        7.1(a) (d)        6.5; 7.1(c) (e)        6.11 316(last sentence)        2.9 (a)(1)(A)        6.5 (a)(1)(B)        6.4 (a)(2)        N.A. (b)        6.7 (c)        9.4 317(a)(1)        6.8 (a)(2)        6.9 (b)        2.4 318(a)        11.1 (c)        11.1 -------------------------------------------------------------------------------- N.A. means Not Applicable. Note: This cross-reference table shall not, for any purpose, be deemed to be a part of the Indenture.   (i) -------------------------------------------------------------------------------- TABLE OF CONTENTS   ARTICLE I.    DEFINITIONS AND INCORPORATION BY REFERENCE    1 Section 1.1.    Definitions    1 Section 1.2.    Incorporation by Reference of TIA    9 Section 1.3.    Rules of Construction    9 ARTICLE II.    THE NOTES    10 Section 2.1.    Form and Dating    10 Section 2.2.    Execution and Authentication; Aggregate Principal Amount    11 Section 2.3.    Registrar and Paying Agent    11 Section 2.4.    Paying Agent to Hold Assets in Trust    12 Section 2.5.    Holder Lists    12 Section 2.6.    Transfer and Exchange    12 Section 2.7.    Replacement Notes    13 Section 2.8.    Outstanding Notes    13 Section 2.9.    Treasury Notes    13 Section 2.10.    Temporary Notes    14 Section 2.11.    Cancellation    14 Section 2.12.    Defaulted Interest    14 Section 2.13.    CUSIP Number    15 Section 2.14.    Deposit of Monies    15 Section 2.15.    Restrictive Legends    16 Section 2.16.    Book-Entry Provisions for Global Security    16 Section 2.17.    Special Transfer Provisions    17 Section 2.18.    Additional Interest Under Registration Rights Agreement    20   (ii) -------------------------------------------------------------------------------- ARTICLE III.    REDEMPTION    20 Section 3.1.    Optional Redemption by the Company    20 ARTICLE IV.    COVENANTS    21 Section 4.1.    Payment of Notes    21 Section 4.2.    Reporting    21 Section 4.3.    Corporate Existence    21 Section 4.4.    Compliance Certificate    21 Section 4.5.    Further Instruments and Acts    22 Section 4.6.    Limitations on Liens    22 Section 4.7.    Sale-Leaseback Transactions    24 Section 4.8.    Furnishing Guarantees    25 ARTICLE V.    SUCCESSOR CORPORATION    25 Section 5.1.    Company May Consolidate, etc., Only on Certain Terms    25 Section 5.2.    Successor Corporation Substituted    26 ARTICLE VI.    DEFAULTS AND REMEDIES    26 Section 6.1.    Events of Default    26 Section 6.2.    Acceleration of Maturity; Rescission and Annulment    27 Section 6.3.    Other Remedies    28 Section 6.4.    Waiver of Existing Defaults    28 Section 6.5.    Control by Majority    29 Section 6.6.    Payments of Notes on Default; Suit Therefor    29 Section 6.7.    Limitation on Suits. A Holder may not pursue any remedy with respect to this Indenture unless:    29 Section 6.8.    Collection Suit by Trustee    30 Section 6.9.    Trustee May File Proofs of Claim    30 Section 6.10.    Restoration of Positions    30 Section 6.11.    Priorities    30   (iii) -------------------------------------------------------------------------------- Section 6.12.    Undertaking for Costs    31 Section 6.13.    Stay, Extension or Usury Laws    31 Section 6.14.    Liability of Stockholders, Officers, Directors and Incorporators    31 ARTICLE VII.    TRUSTEE    31 Section 7.1.    Duties of Trustee    31 Section 7.2.    Rights of Trustee    33 Section 7.3.    Individual Rights of Trustee    33 Section 7.4.    Trustee’s Disclaimer    33 Section 7.5.    Notice of Defaults    33 Section 7.6.    Reports by Trustee    33 Section 7.7.    Compensation and Indemnity    34 Section 7.8.    Replacement of Trustee    34 Section 7.9.    Successor Trustee by Merger, etc.    35 Section 7.10.    Eligibility; Disqualification    36 Section 7.11.    Preferential Collection of Claims    36 ARTICLE VIII.    DISCHARGE OF INDENTURE    36 Section 8.1.    Termination of the Company’s Obligations    36 Section 8.2.    Application of Trust Money    37 Section 8.3.    Officers’ Certificate; Opinion of Counsel    37 Section 8.4.    Repayment to the Company    37 Section 8.5.    Reinstatement    37 ARTICLE IX.    MODIFICATION OF THE INDENTURE    37 Section 9.1.    Without Consent of Holders    37 Section 9.2.    With Consent of Holders    38 Section 9.3.    Compliance with Trust Indenture Act    38   (iv) -------------------------------------------------------------------------------- Section 9.4.    Revocation and Effect of Consents    39 Section 9.5.    Notation on or Exchange of Notes    39 Section 9.6.    Trustee to Sign Amendments, etc.    39 ARTICLE X.    GUARANTEE OF NOTES    39 Section 10.1.    Unconditional Guarantee    39 Section 10.2.    Limitations on Guarantees; Release or Suspension of Particular Guarantors’ Obligations    40 Section 10.3.    Execution and Delivery of Guarantee    41 Section 10.4.    Release of a Guarantor due to Extraordinary Events    41 Section 10.5.    Waiver of Subrogation    41 Section 10.6.    No Set-Off    42 Section 10.7.    Obligations Absolute    42 Section 10.8.    Obligations Continuing    42 Section 10.9.    Obligations Not Reduced    43 Section 10.10.    Obligations Reinstated    43 Section 10.11.    Obligations Not Affected    44 Section 10.12.    Waiver    44 Section 10.13.    No Obligation to Take Action Against the Company    44 Section 10.14.    Dealing with the Company and Others    45 Section 10.15.    Default and Enforcement    45 Section 10.16.    Amendment, Etc.    45 Section 10.17.    Acknowledgment    45 Section 10.18.    Costs and Expenses    45 Section 10.19.    No Merger or Waiver; Cumulative Remedies    45 Section 10.20.    Survival of Obligations    45 Section 10.21.    Guarantee in Addition to Other Obligations    45   (v) -------------------------------------------------------------------------------- Section 10.22.    Severability    45 Section 10.23.    Successors and Assigns    46 Section 10.24.    Acknowledgement under TIA    46 ARTICLE XI.    MISCELLANEOUS    46 Section 11.1.    TIA Controls    46 Section 11.2.    Notices    46 Section 11.3.    Communications by Holders with Other Holders    47 Section 11.4.    Certificate and Opinion as to Conditions Precedent    47 Section 11.5.    Statements Required in Certificate or Opinion    48 Section 11.6.    Rules by Trustee, Paying Agent, Registrar    48 Section 11.7.    Legal Holidays    48 Section 11.8.    Governing Law    48 Section 11.9.    No Adverse Interpretation of Other Agreements    48 Section 11.10.    No Personal Liability    49 Section 11.11.    Successors    49 Section 11.12.    Duplicate Originals    49 Section 11.13.    Severability    49   (vi) -------------------------------------------------------------------------------- INDENTURE, dated as of April 26, 2006, among LENNAR CORPORATION, a Delaware corporation (the “Company”), each of the Guarantors party hereto and J.P. MORGAN TRUST COMPANY, as Trustee (the “Trustee”). The Company has duly authorized the creation of an issue of its 5.95% Senior Notes due 2011, Series A, and its 5.95% Senior Notes due 2011, Series B, to be issued in exchange for the 5.95% Senior Notes due 2011, Series A, pursuant to the Registration Rights Agreement (as defined herein) and, to provide therefor, the Company has duly authorized the execution and delivery of this Indenture. All things necessary to make the Notes (as defined), when duly issued and executed by the Company, and authenticated and delivered hereunder, the valid obligations of the Company, and to make this Indenture a valid and binding agreement of the Company, have been done. Each party hereto agrees as follows for the benefit of the other parties and for the equal and ratable benefit of the Holders (as defined) of the Company’s 5.95% Senior Notes due 2011, Series A and Series B. ARTICLE I. DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.1. Definitions. “Additional Interest” shall have the meaning set forth in the Registration Rights Agreement. “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. “Agent” means any Registrar, Paying Agent or co-Registrar. “Agent Members” has the meaning provided in Section 2.16. “Authenticating Agent” has the meaning provided in Section 2.2. “Bankruptcy Law” has the meaning provided in Section 6.1. “Board of Directors” means the Board of Directors of the Company. “Board Resolution” means a resolution by the Board of Directors or Executive Committee of the Company certified by its Secretary or an Assistant Secretary as being duly adopted and in full force and effect.   - 1 - -------------------------------------------------------------------------------- “Business Day” means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a Legal Holiday in New York, New York. “Capital Stock” means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated) of or in such Person’s capital stock or other equity interests, and options, rights or warrants to purchase such capital stock or other equity interests, whether now outstanding or issued after the Issue Date. “Common Stock” means the common stock, par value $.10 per share, of the Company, as that stock may be reconstituted from time to time. “Comparable Treasury Issue” means the United States Treasury security selected by the Reference Treasury Dealer as having a maturity comparable to the remaining term of the Notes to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Notes. “Comparable Treasury Price” means, with respect to any Redemption Date, (i) the average of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) on the third Business Day preceding such Redemption Date, as set forth in the daily statistical release (or any successor release) published by the Federal Reserve Bank of New York and designated “Composite 3:30 p.m. Quotations for U.S. Government Securities,” or (ii) if such release (or any successor release) is not published or does not contain such prices on such Business Day, (A) the average of the Reference Treasury Dealer Quotations for such date, after excluding the highest and lowest such Reference Treasury Dealer Quotations, or (B) if fewer than four such Reference Treasury Dealer Quotations are obtained, the average of all such Reference Treasury Dealer Quotations. “Consolidated Net Tangible Assets” means the total amount of assets which would be included on a consolidated balance sheet of the Company and the Restricted Subsidiaries under GAAP (less applicable reserves and other properly deductible items) after deducting therefrom:     (A) all short-term liabilities, i.e., liabilities payable by their terms less than one year from the date of determination and not renewable or extendable at the option of the obligor for a period ending more than one year after such date, and liabilities in respect of retiree benefits other than pensions for which the Restricted Subsidiaries are required to accrue pursuant to Statement of Financial Accounting Standards No. 106;     (B) investments in Subsidiaries that are not Restricted Subsidiaries; and     (C) all assets reflected on the Company’s balance sheet as the carrying value of goodwill, trade names, trademarks, patents, unamortized debt discount, unamortized expense incurred in the issuance of debt and other intangible assets.   - 2 - -------------------------------------------------------------------------------- “Corporate Trust Office” means the principal office of the Trustee at which at any particular time its corporate trust business is principally administered (which at the date of this Indenture is at 10151 Deerwood Park Blvd., Building 400, 5th Floor, Jacksonville, Florida 32256). “Custodian” has the meaning provided in Section 6.1. “Default” means any event which, upon the giving of notice or passage of time, or both, would be an Event of Default. “Default Interest Payment Date” has the meaning provided in Section 2.11. “Depositary” means The Depository Trust Company, its nominees and successors. “$” means the lawful currency of the United States. “Event of Default” has the meaning provided in Section 6.1. “Exchange Act” means the Securities Exchange Act of 1934, as amended. “Exchange Notes” means the 5.95% Senior Notes due 2011, Series B to be issued in exchange for the Initial Notes pursuant to (i) the Registration Rights Agreement, or (ii) with respect to Initial Notes issued under this Indenture subsequent to the Issue Date pursuant to Section 2.2, a registration rights agreement substantially identical to the Registration Rights Agreement. “Exchange Offer” has the meaning provided in the Registration Rights Agreement. “Fiscal Year” means the period commencing on December 1 of a year and ending on the next November 30 or such other period (not to exceed 12 months or 53 weeks) as the Company may from time to time adopt as its fiscal year. “Funded Debt” of any Person means all Indebtedness for borrowed money created, incurred, assumed or guaranteed in any manner by such person, and all Indebtedness, contingent or otherwise, incurred or assumed by such person in connection with the acquisition of any business, property or asset, which in each case matures more than one year after, or which by its terms is renewable or extendible or payable out of the proceeds of similar Indebtedness incurred pursuant to the terms of any revolving credit agreement or any similar agreement at the option of such person for a period ending more than one year after the date as of which Funded Debt is being determined; provided, however, that Funded Debt shall not include (i) any Indebtedness for the payment, redemption or satisfaction of which money (or evidences of indebtedness, if permitted under the instrument creating or evidencing such indebtedness) in the necessary amount shall have been irrevocably deposited in trust with a trustee or proper depository either on or before the maturity or redemption date thereof or (ii) any Indebtedness of such person to any of its subsidiaries or of any subsidiary to such person or any other subsidiary or (iii) any Indebtedness incurred in connection with the financing of operating, construction or acquisition projects, provided that the recourse for such indebtedness is limited to the assets of such projects.   - 3 - -------------------------------------------------------------------------------- “GAAP” means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, as in effect on the Issue Date. “Global Note” has the meaning provided in Section 2.1. “Guarantee” has the meaning provided in Section 10.1. “Guarantor” means (1) initially, each of the Guarantors named on the signature pages of this Indenture, and (2) each of the Company’s Subsidiaries which becomes a guarantor of the Notes pursuant to the provisions of this Indenture, in each case subject to release or suspension as provided in this Indenture. “Holder” means a Person in whose name a Note is registered on the Registrar’s books. “IAI Global Note” means, a permanent global note in registered form representing the aggregate principal amount of Notes sold to Institutional Accredited Investors. “Indebtedness” means, with respect to the Company or any Subsidiary, and without duplication, (a) the principal of and premium, if any, and interest on, and fees, costs, enforcement expenses, collateral protection expenses and other reimbursement or indemnity obligations in respect to all indebtedness or obligations of the Company or any Subsidiary to any Person, including but not limited to banks and other lending institutions, for money borrowed that is evidenced by a note, bond, debenture, loan agreement, or similar instrument or agreement (including purchase money obligations with original maturities in excess of one year and noncontingent reimbursement obligations in respect of amounts paid under letters of credit); (b) all reimbursement obligations and other liabilities (contingent or otherwise) of the Company or any Subsidiary with respect to letters of credit, bank guarantees or bankers’ acceptances, (c) all obligations and liabilities (contingent or otherwise) in respect of leases of the Company or any Subsidiary required, in conformity with GAAP, to be accounted for as capital lease obligations on the balance sheet of the Company, (d) all obligations of the Company or any Subsidiary (contingent or otherwise) with respect to an interest rate or other swap, cap or collar agreement or other similar instrument or agreement or foreign currency hedge, exchange, purchase or similar instrument or agreement, (e) all direct or indirect guaranties or similar agreements by the Company or any Subsidiary in respect of, and obligations or liabilities (contingent or otherwise) of the Company or such Subsidiary to purchase or otherwise acquire, or otherwise assure a creditor against loss in respect of, indebtedness, obligations or liabilities of another Person of the kind described in clauses (a) through (d), (f) any indebtedness or other obligations, excluding any operating leases the Company or any Subsidiary is currently (or may become) a party to, described in clauses (a) through (d) secured by any Lien existing on property which is owned or held by the Company or Subsidiary, regardless of whether the indebtedness or other obligation   - 4 - -------------------------------------------------------------------------------- secured thereby shall have been assumed by the Company or such Subsidiary and (g) any and all deferrals, renewals, extensions and refinancing of, or amendments, modification or supplements to, any indebtedness, obligation or liability of the kind described in clauses (a) through (f). “Indenture” means this Indenture, as amended or supplemented from time to time in accordance with the terms hereof. “Independent Investment Banker” means one of the Reference Treasury Dealers appointed by the Trustee after consultation with the Company. “Initial Notes” means, collectively, (i) the 5.95% Senior Notes due 2011, Series A, of the Company issued on the Issue Date and (ii) any other 5.95% Senior Notes due 2011, Series A that are issued under this Indenture, subsequent to the Issue Date, pursuant to Section 2.2, for so long as each such securities constitute Restricted Securities. “Initial Purchasers” means Deutsche Bank Securities Inc., UBS Securities LLC, BNP Paribas Securities Corp., Calyon Securities (USA) Inc. and SunTrust Capital Markets, Inc. “Institutional Accredited Investor” means an institution that is an “accredited investor” as that term is defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act. “Interest Payment Date” means the stated maturity of an installment of interest on the Notes. “Issue Date” means April 26, 2006. “Legal Holiday” means a Saturday, a Sunday or a day on which banking institutions are not required to open in the State of New York. “Lien” means any mortgage, pledge, lien, encumbrance, charge or security interest of any kind. “Maturity Date” means October 17, 2011. “Non-Recourse Indebtedness” means any Indebtedness of the Company or any Restricted Subsidiary for which the holder of such Indebtedness has no recourse, directly or indirectly, to the Company or such Restricted Subsidiary for the principal of, premium, if any, and interest on such Indebtedness, and for which the Company or such Restricted Subsidiary is not, directly or indirectly, obligated or otherwise liable for the principal of, premium, if any, and interest on such Indebtedness, except pursuant to mortgages, deeds of trust or other security interests or other recourse, obligations or liabilities, in respect of specific land or other real property interests of the Company or such Restricted Subsidiary securing such Indebtedness; provided, however, that recourse, obligations or liabilities solely for indemnities, breaches of warranties or representations contained in such mortgages, deeds of trust or grants of security interests in respect of Indebtedness will not prevent that Indebtedness from being classified as Non-Recourse Indebtedness.   - 5 - -------------------------------------------------------------------------------- “Non-U.S. Person” means a person who is not a U.S. person, as defined in Regulation S. “Notes” means, collectively, the Initial Notes, the Private Exchange Notes, if any, and the Unrestricted Notes, treated as a single class of securities, as amended or supplemented from time to time in accordance with the terms of this Indenture, that are issued pursuant to this Indenture. “Obligations” means all obligations for principal, premium, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing the Notes. “Officer” means the Chairman of the Board, any Vice Chairman of the Board, the President, any Vice President, the Treasurer, the Secretary, the Controller or any Assistant Secretary of a Person. “Officers’ Certificate” when used with respect to the Company means a certificate signed by two Officers. Each such certificate will comply with Section 314 of the TIA and include the statements described in Section 12.05. “Opinion of Counsel” means a written opinion from legal counsel who is acceptable to the Trustee. That counsel may be an employee of or counsel to the Company or the Trustee. Each such opinion will include the statements described in Section 11.5 if and to the extent required by that Section. “Paying Agent” has the meaning provided in Section 2.3. “Permitted Liens” has the meaning provided in Section 4.6. “Permitted Sale-Leaseback Transactions” has the meaning provided in Section 4.7. “Person” means any individual, corporation, partnership, limited liability company, joint venture, joint-stock company, trust, unincorporated organization or government or any government agency or political subdivision. “Physical Notes” has the meaning provided in Section 2.1. “Primary Treasury Dealer” means a primary U.S. Government securities dealer in the United States. “Private Exchange Notes” shall have the meaning provided in the Registration Rights Agreement(s). “Private Placement Legend” means the legend initially set forth on the Initial Notes in the form set forth in Exhibit A.   - 6 - -------------------------------------------------------------------------------- “Property” of any Person means all types of real, personal, tangible, intangible or mixed property owned by such Person, whether or not included in the most recent consolidated balance sheet of such Person and its Subsidiaries under GAAP. “Qualified Institutional Buyer” or “QIB” shall have the meaning specified in Rule 144A. “Record Date” means the Record Date specified in the Notes. “Redemption Date” when used with respect to any Note to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture. “Redemption Price” when used with respect to any Note to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. For the avoidance of doubt, the Redemption Price excludes accrued interest to the Redemption Date. “Reference Treasury Dealer” means (a) each of Deutsche Bank Securities Inc. and UBS Securities LLC (or their respective affiliates which are Primary Treasury Dealers), and their respective successors; provided, however, that if any of the foregoing shall not be a Primary Treasury Dealer the Company shall substitute therefor another Primary Treasury Dealer; and (b) any other Primary Treasury Dealer(s) selected by the Company. “Reference Treasury Dealer Quotations” means, with respect to each Reference Treasury Dealer and any Redemption Date, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the third Business Day preceding such Redemption Date. “Registrar” has the meaning provided in Section 2.3. “Registration Rights Agreement” means, as applicable, (i) the Registration Rights Agreement dated as of the Issue Date among the Company, the Guarantors and the Initial Purchasers relating to the Notes or (ii) any registration rights agreement, substantially identical to the Registration Rights Agreement, entered into among the Company, the Guarantors and the respective purchasers, on substantially identical terms, relating to any Initial Notes issued pursuant to Section 2.2. “Regulation S” means Regulation S under the Securities Act. “Regulation S Global Note” means a permanent global note in registered form representing the aggregate principal amount of Notes sold in reliance on Regulation S under the Securities Act. “Remaining Scheduled Payments” means, with respect to any Note to be redeemed, the remaining scheduled payments of the principal (or of the portion) thereof and interest thereon that would be due after the related Redemption Date but for such redemption; provided, however, that, if such Redemption Date is not an Interest Payment Date with respect to   - 7 - -------------------------------------------------------------------------------- such Note, the amount of the next succeeding scheduled interest payment thereon will be reduced by the amount of interest accrued thereon to such Redemption Date. “Restricted Security” has the meaning assigned to such term in Rule 144(a)(3) under the Securities Act; provided, however, that the Trustee shall be entitled to request and conclusively rely on an Opinion of Counsel with respect to whether any Note constitutes a Restricted Security. “Restricted Subsidiary” means any Guarantor. “Rule 144A” means Rule 144A under the Securities Act. “Sale-Leaseback Transaction” means a sale or transfer made by the Company or a Restricted Subsidiary of any property which is either (A) a manufacturing facility, office building or warehouse whose book value equals or exceeds 1% of Consolidated Net Tangible Assets as of the date of determination, or (B) another property (not including a model home) which exceeds 5% of Consolidated Net Tangible Assets as of the date of determination, if such sale or transfer is made with the agreement, commitment or intention of the transferee of leasing such property to the Company or a Restricted Subsidiary. “SEC” means the Securities and Exchange Commission. “Securities Act” means the Securities Act of 1933, as amended. “Senior Credit Facility” means the senior credit facility dated as of June 17, 2005 between the Company and JPMorgan Chase Bank, N.A. as administrative agent and the other lenders party thereto, as amended, supplemented, restated or otherwise modified from time to time. “State” means any state of the United States or the District of Columbia. “Subsidiary” means (i) a corporation or other entity of which a majority in voting power of the stock or other interests is owned by the Company, by a Subsidiary of the Company or by the Company and one or more Subsidiaries of the Company or (ii) a partnership, the sole general partner or partners of which are the Company and/or any Subsidiary. “Treasury Rate” means, with respect to any Redemption Date, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such Redemption Date. “Trustee” means the person named as such in this Indenture and, subject to the provisions of Article Seven of this Indenture, any successor to that person. “TIA” means the Trust Indenture Act of 1939, as amended, as in effect on the date of this Indenture, except as otherwise provided in Section 9.3.   - 8 - -------------------------------------------------------------------------------- “Trust Officer” means the Chairman of the Board, the President or any other officer or assistant officer of the Trustee assigned by the Trustee to administer its corporate trust matters. “United States” means the United States of America. “Unrestricted Notes” means one or more Notes that do not and are not required to bear the Private Placement Legend, including, without limitation, the Exchange Notes. “U.S. Government Obligations” means direct obligations of, and obligations guaranteed by, the United States of America for the payment of which the full faith and credit of the United States of America is pledged. “U.S. Legal Tender” means such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts. Section 1.2. Incorporation by Reference of TIA. Whenever this Indenture refers to a provision of the TIA, such provision is incorporated by reference in, and made a part of, this Indenture. The following TIA terms used in this Indenture have the following meanings: “indenture securities” means the Notes. “indenture security holder” means a Holder. “indenture to be qualified” means this Indenture. “indenture trustee” or “institutional trustee” means the Trustee. “obligor” on the indenture securities means the Company or any other obligor on the Notes. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule and not otherwise defined herein have the meanings assigned to them therein. Section 1.3. Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP as of any date of determination; (3) “or” is not exclusive; (4) words in the singular include the plural, and words in the plural include the singular; (5) “herein,” “hereof” and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision; and   - 9 - -------------------------------------------------------------------------------- (6) any reference to a statute, law or regulation means that statute, law or regulation as amended and in effect from time to time and includes any successor statute, law or regulation; provided, however, that any reference to the Bankruptcy Law shall mean the Bankruptcy Law as applicable to the relevant case. ARTICLE II. THE NOTES Section 2.1. Form and Dating. The Initial Notes and the Trustee’s certificate of authentication relating thereto shall be substantially in the form of Exhibit A hereto, provided, that any Initial Notes issued in a public offering shall be substantially in the form of Exhibit B hereto. The Exchange Notes and the Trustee’s certificate of authentication relating thereto shall be substantially in the form of Exhibit B hereto. The Notes may have notations, legends or endorsements required by law, stock exchange rule or depository rule or usage. The Company and the Trustee shall approve the form of the Notes and any notation, legend or endorsement on them. Each Note shall be dated the date of its issuance and shall show the date of its authentication. The terms and provisions contained in the Notes annexed hereto as Exhibits A and B shall constitute, and are hereby expressly made, a part of this Indenture and, to the extent applicable, the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. Notes offered and sold in reliance on Rule 144A and Notes offered and sold in reliance on Regulation S shall be issued initially in the form of one or more permanent global Notes in registered form, substantially in the form set forth in Exhibit A (each, a “Global Note”), deposited with the Trustee, as custodian for the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided and shall bear the legend set forth in Exhibit C. The aggregate principal amount of a Global Note may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depositary, as hereinafter provided. Notes issued in exchange for interests in a Global Note pursuant to Section 2.16 may be issued and Notes offered and sold in reliance on any other exemption from registration under the Securities Act other than as described in the preceding paragraph shall be issued in the form of permanent certificated Notes in registered form in substantially the form set forth in Exhibit A (the “Physical Notes”). All Notes offered and sold in reliance on Regulation S shall remain in the form of a Global Note until the consummation of the Exchange Offer pursuant to the Registration Rights Agreement; provided, however, that all of the time periods specified in the Registration Rights Agreement to be complied with by the Company have been so complied with. Section 2.2. Execution and Authentication; Aggregate Principal Amount. An Officer of the Company (duly authorized by all requisite corporate actions) shall sign and attest to the Notes for the Company by manual or facsimile signature.   - 10 - -------------------------------------------------------------------------------- If an Officer whose signature is on a Note was an Officer at the time of such execution but no longer holds that office or position at the time the Trustee authenticates the Note, the Note shall nevertheless be valid. A Note shall not be valid until an authorized signatory of the Trustee manually signs the certificate of authentication on the Note. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture. The Trustee shall authenticate all (i) Initial Notes; (ii) Private Exchange Notes from time to time for issue only in exchange for a like principal amount of Initial Notes and (iii) Unrestricted Notes from time to time upon a written order of the Company in the form of an Officers’ Certificate of the Company. Each such written order shall specify the amount of Notes to be authenticated and the date on which the Notes are to be authenticated, whether the Notes are to be Initial Notes, Private Exchange Notes or Unrestricted Notes and whether the Notes are to be issued as Physical Notes or Global Notes or such other information as the Trustee may reasonably request. The Trustee may appoint an authenticating agent (the “Authenticating Agent”) reasonably acceptable to the Company to authenticate Notes. Unless otherwise provided in the appointment, an Authenticating Agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such Authenticating Agent. An Authenticating Agent has the same rights as an Agent to deal with the Company or with any Affiliate of the Company. The Notes shall be issuable in fully registered form only, without coupons, in denominations of $1,000 and any integral multiple thereof. Subject to applicable law, the aggregate principal amount of the Notes which may be authenticated and delivered on the Issue Date shall not exceed $250,000,000; provided that, the Company may, without the consent of the Holders, issue additional Notes under this Indenture at any time thereafter. Section 2.3. Registrar and Paying Agent. The Company shall maintain an office or agency (which shall be located in the Borough of Manhattan in the City of New York, State of New York) where (a) Notes may be presented or surrendered for registration of transfer or for exchange (“Registrar”), (b) Notes may be presented or surrendered for payment (“Paying Agent”) and (c) notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Registrar shall keep a register of the Notes and of their transfer and exchange. The Company may have one or more co-Registrars and one or more additional paying agents reasonably acceptable to the Trustee. The term “Paying Agent” includes any additional Paying Agent. The Company may act as its own Paying Agent. If the Company elects to act as its own paying agent, the Company will notify the Trustee of its election and will hold for the benefit of the Holders all assets for the payment of principal of, premium, if any, or interest on, the Notes. The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture, which agreement shall incorporate the provisions of the TIA and implement the provisions of this Indenture that relate to such Agent. The Company shall notify   - 11 - -------------------------------------------------------------------------------- the Trustee of the name and address of any such Agent. If the Company shall fail to maintain a Registrar or Paying Agent, the Trustee shall act as such. The Company initially appoints the Trustee as Registrar, Paying Agent and custodian for service of demands and notices in connection with the Notes. Any of the Registrar, the Paying Agent or any other agent may resign upon 30 days’ notice to the Company. Section 2.4. Paying Agent to Hold Assets in Trust. The Company shall require each Paying Agent other than the Trustee to agree in writing that such Paying Agent shall hold in trust for the benefit of the Holders or the Trustee all assets held by the Paying Agent for the payment of principal of, premium, if any, or interest on, the Notes (whether such assets have been distributed to it by the Company or any other obligor on the Notes), and the Company and the Paying Agent shall notify the Trustee of any Default by the Company (or any other obligor on the Notes) in making any such payment. The Company at any time may require a Paying Agent to distribute all assets held by it to the Trustee and account for any assets disbursed and the Trustee may at any time during the continuance of any payment Default, upon written request to a Paying Agent, require such Paying Agent to distribute all assets held by it to the Trustee and to account for any assets distributed. Upon distribution to the Trustee of all assets that shall have been delivered to the Paying Agent, the Paying Agent shall have no further liability for such assets. Section 2.5. Holder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of the Holders and shall otherwise comply with TIA § 312(a). If the Trustee is not the Registrar, the Company shall furnish or cause the Registrar to furnish to the Trustee five (5) Business Days before each Record Date and at such other times as the Trustee may request in writing a list as of such date and in such form as the Trustee may reasonably require of the names and addresses of the Holders, which list may be conclusively relied upon by the Trustee, and the Company shall otherwise comply with TIA § 312(a). Section 2.6. Transfer and Exchange. Subject to Sections 2.16 and 2.17, when Notes are presented to the Registrar or a co-Registrar with a request to register the transfer of such Notes or to exchange such Notes for an equal principal amount of Notes of other authorized denominations, the Registrar or co-Registrar shall register the transfer or make the exchange as requested if its requirements for such transaction are met; provided, however, that the Notes presented or surrendered for registration of transfer or exchange shall be duly endorsed or accompanied by a written instrument of transfer in form satisfactory to the Company, the Trustee and the Registrar or co-Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. To permit registration of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Notes at the Registrar’s or co-Registrar’s request. No service charge shall be made for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax, fee or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchanges or transfers pursuant to Section 2.10 or 3.1, in which event the Company shall be responsible for the payment of such taxes or charges).   - 12 - -------------------------------------------------------------------------------- The Registrar or co-Registrar shall not be required to register the transfer of or exchange of any Note (i) during a period beginning at the opening of business 15 days before the mailing of a notice of redemption of Notes and ending at the close of business on the day of such mailing and (ii) selected for redemption in whole or in part pursuant to Article III, except the unredeemed portion of any Note being redeemed in part. Any Holder of a beneficial interest in a Global Note shall, by acceptance of such Global Note, agree that transfers of beneficial interests in such Global Notes may be effected only through a book entry system maintained by the Holder of such Global Note (or its agent), and that ownership of a beneficial interest in the Note shall be required to be reflected in a book entry system. Section 2.7. Replacement Notes. If a mutilated Note is surrendered to the Trustee or if the Holder of a Note claims that the Note has been lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate a replacement Note if the Trustee’s requirements are met. If required by the Trustee or the Company, such Holder must provide an indemnity bond or other indemnity of reasonable tenor, sufficient in the reasonable judgment of the Company and the Trustee, to protect the Company, the Trustee or any Agent from any loss which any of them may suffer if a Note is replaced. Every replacement Note shall constitute an additional obligation of the Company. Section 2.8. Outstanding Notes. Notes outstanding at any time are all the Notes that have been authenticated by the Trustee except those canceled by it, those delivered to it for cancellation and those described in this Section as not outstanding. Subject to the provisions of Section 2.9, a Note does not cease to be outstanding because the Company or any of its Affiliates holds the Note. If a Note is replaced pursuant to Section 2.7 (other than a mutilated Note surrendered for replacement), it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a protected purchaser. A mutilated Note ceases to be outstanding upon surrender of such Note and replacement thereof pursuant to Section 2.7. If, on a Redemption Date or the Maturity Date, the Paying Agent holds U.S. Legal Tender or U.S. Government Obligations sufficient to pay all of the principal, premium, if any, and interest due on the Notes payable on that date and is not prohibited from paying such money to the Holders thereof pursuant to the terms of this Indenture, then on and after that date such Notes shall be deemed not to be outstanding and interest on them shall cease to accrue. Section 2.9. Treasury Notes. In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver, consent or notice, Notes owned by the Company or an Affiliate of the Company shall be considered as though they are not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes which a Trust Officer of the Trustee has been informed in writing by the Company to be so owned shall be so considered. The Company shall notify the Trustee, in writing, when either it or, to its knowledge, any of its Affiliates repurchases or otherwise acquires Notes, of the aggregate   - 13 - -------------------------------------------------------------------------------- principal amount of such Notes so repurchased or otherwise acquired and such other information as the Trustee may reasonably request and the Trustee shall be entitled to rely thereon. Section 2.10. Temporary Notes. Until typewritten Notes are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Notes upon receipt of a written order of the Company in the form of an Officers’ Certificate. The Officers’ Certificate shall specify the amount of temporary Notes to be authenticated and the date on which the temporary Notes are to be authenticated. Temporary Notes shall be substantially in the form of typewritten Notes but may have variations that the Company considers appropriate for temporary Notes and so indicates in the Officers’ Certificate. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate, upon receipt of a written order of the Company pursuant to Section 2.2, typewritten Notes in exchange for temporary Notes. Section 2.11. Cancellation. The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Notes surrendered to them for transfer, exchange or payment. The Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent, and no one else, shall cancel and, at the written direction of the Company, shall dispose, in its customary manner, of all Notes surrendered for transfer, exchange, payment or cancellation. Subject to Section 2.7, the Company may not issue new Notes to replace Notes that it has paid or delivered to the Trustee for cancellation. If the Company shall acquire any of the Notes, such acquisition shall not operate as a redemption or satisfaction of the Indebtedness represented by such Notes unless and until the same are surrendered to the Trustee for cancellation pursuant to this Section 2.11. Section 2.12. Defaulted Interest. The Company shall pay interest on overdue principal from time to time on demand at the rate of interest borne by the Notes. The Company shall, to the extent lawful, pay interest on overdue installments of interest (without regard to any applicable grace periods) from time to time on demand at the rate of interest borne by the Notes. All such interest will be computed on the basis of a 360-day year comprised of twelve 30-day months, and, in the case of a partial month, the actual number of days elapsed. If the Company defaults in a payment of interest on the Notes, it shall pay the defaulted interest, plus (to the extent lawful) any interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, which special record date shall be the fifteenth day next preceding the date fixed by the Company for the payment of defaulted interest or the next succeeding Business Day if such date is not a Business Day. The Company shall notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment (a “Default Interest Payment Date”), and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such defaulted interest or shall make arrangements satisfactory to the Trustee for such deposit on or prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such defaulted interest as provided in this Section; provided, however, that in no event shall the Company deposit monies proposed to be paid in respect of defaulted interest later than 11:00 a.m. New York City time on the proposed Default Interest Payment Date. At least 15 days before the subsequent special record date, the Company shall mail (or cause to be mailed) to each Holder, as of a recent date selected by the Company, with a copy to the Trustee at least 20 days prior to   - 14 - -------------------------------------------------------------------------------- such special record date, a notice that states the subsequent special record date, the Default Interest Payment Date and the amount of defaulted interest, and interest payable on such defaulted interest, if any, to be paid. Notwithstanding the foregoing, any interest which is paid prior to the expiration of the 30-day period set forth in Section 6.1(1) shall be paid to Holders as of the regular record date for the Interest Payment Date for which interest has not been paid. Notwithstanding the foregoing, the Company may make payment of any defaulted interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes may be listed, and upon such notice as may be required by such exchange. Section 2.13. CUSIP Number. In issuing the Notes, the Company may use a “CUSIP” number, and, if so, the Trustee shall use the CUSIP number in notices of redemption or exchange as a convenience to Holders; provided, however, that no representation is hereby deemed to be made by the Trustee as to the correctness or accuracy of the CUSIP number printed in the notice or on the Notes, and that reliance may be placed only on the other identification numbers printed on the Notes. The Company shall promptly notify the Trustee of any change in the CUSIP number. In the event that the Company shall issue and the Trustee shall authenticate any Notes issued under this Indenture subsequent to the Issue Date pursuant to Section 2.2, the Company shall use its reasonable efforts to obtain the same “CUSIP” number for such Notes as is printed on the Notes outstanding at such time and provide written notice to the Trustee to such effect; provided, however, that if any series of Notes issued under this Indenture subsequent to the Issue Date is determined, pursuant to an Opinion of Counsel of the Company in a form reasonably satisfactory to the Trustee, to be a different class of security than the Notes outstanding at such time for federal income tax or securities laws purposes, the Company shall use its reasonable efforts to obtain a “CUSIP” number for such Notes that is different than the “CUSIP” number printed on the Notes then outstanding and cause such opinion to be delivered to the Trustee. Notwithstanding the foregoing or any other provision herein to the contrary, all Notes issued under this Indenture shall vote and consent together on all matters as one class and no series of Notes will have the right to vote or consent as a separate class on any matter. Section 2.14. Deposit of Monies. Prior to 11:00 a.m. New York City time on each Interest Payment Date, Maturity Date or Redemption Date, the Company shall have deposited with the Paying Agent in immediately available funds money sufficient to make cash payments, if any, due on such Interest Payment Date, Maturity Date or Redemption Date, as the case may be, in a timely manner which permits the Paying Agent to remit payment to the Holders on such Interest Payment Date, Maturity Date or Redemption Date, as the case may be.   - 15 - -------------------------------------------------------------------------------- Section 2.15. Restrictive Legends. Each Global Note and Physical Note that constitutes a Restricted Security shall bear the Private Placement Legend on the face thereof until after the second anniversary of the later of the Issue Date (or in the case of any Initial Notes issued after the Issue Date, two years after the date of initial issuance thereof) and the last date on which the Company or any Affiliate of the Company was the owner of such Note (or any predecessor security) (or such shorter period of time as permitted by Rule 144(k) under the Securities Act or any successor provision thereunder) (or such longer period of time as may be required under the Securities Act or applicable state securities laws in the opinion of counsel for the Company, unless otherwise agreed by the Company and the Holder thereof). Each Global Note shall also bear the legend as set forth in Exhibit C. Section 2.16. Book-Entry Provisions for Global Security. (a) The Global Notes initially shall (i) be registered in the name of the Depositary or the nominee of such Depositary, (ii) be delivered to the Trustee as custodian for such Depositary and (iii) bear the legend as set forth in Exhibit C. (b) Members of, or participants in, the Depositary (“Agent Members”) shall have no rights under this Indenture with respect to any Global Note held on their behalf by the Depositary, or the Trustee as its custodian, or under the Global Notes, and the Depositary may be treated by the Company, the Trustee and any Agent of the Company or the Trustee as the absolute owner of such Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any Agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its Agent Members, the operation of customary practices governing the exercise of the rights of a Holder of any Note. (c) Transfers of a Global Note shall be limited to transfers in whole, but not in part, to the Depositary, its successors or their respective nominees. Interests of beneficial owners in a Global Note may be transferred or exchanged for Physical Notes in accordance with the rules and procedures of the Depositary and the provisions of Section 2.17. In addition, Physical Notes shall be transferred to all beneficial owners in exchange for their beneficial interests in a Global Note if (i) the Depositary notifies the Company that it is unwilling or unable to continue as Depositary for the Global Notes and a successor depositary is not appointed by the Company within 90 days of such notice or (ii) an Event of Default has occurred and is continuing and the Registrar has received a written request from the Depositary to issue Physical Notes. (d) In connection with any transfer or exchange of a portion of the beneficial interest in a Global Note to beneficial owners pursuant to Section 2.16(c), the Registrar shall (if one or more Physical Notes are to be issued) reflect on its books and records the date and a decrease in the principal amount of such Global Note in an amount equal to the principal amount of the beneficial interest in the Global Note to be transferred, and the Company shall execute and the Trustee shall authenticate and deliver, one or more Physical Notes of like tenor and amount. (e) In connection with the transfer of an entire Global Note to beneficial owners pursuant to Section 2.16(c), such Global Note shall be deemed to be surrendered to the Trustee for   - 16 - -------------------------------------------------------------------------------- cancellation, and the Company shall execute and the Trustee shall authenticate and deliver, to each beneficial owner identified by the Depositary in exchange for its beneficial interest in the Global Note, an equal aggregate principal amount of Physical Notes of authorized denominations. (f) Any Physical Note constituting a Restricted Security delivered in exchange for an interest in a Global Note pursuant to Section 2.16(c) shall, except as otherwise provided by Section 2.17(a)(i)(x) and (c), bear the Private Placement Legend. (g) The Holder of a Global Note may grant proxies and otherwise authorize any Person, including Agent Members and Persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Notes. Section 2.17. Special Transfer Provisions. (a) Transfers to Non-QIB Institutional Accredited Investors and Non-U.S. Persons. The following provisions shall apply with respect to the registration of any proposed transfer of a Note constituting a Restricted Security to any Institutional Accredited Investor which is not a QIB or to any Non-U.S. Person: (i) the Registrar shall register the transfer of any Note constituting a Restricted Security, whether or not such Note bears the Private Placement Legend, if (x) the requested transfer is after the second anniversary of the Issue Date (provided, however, that neither the Company nor any Affiliate of the Company has held any beneficial interest in such Note, or portion thereof, or predecessor security at any time on or prior to the second anniversary of the Issue Date (or in the case of any Initial Notes issued after the Issue Date, two years after the date of initial issuance thereof)) or (y) (1) in the case of a transfer to an Institutional Accredited Investor which is not a QIB (excluding Non-U.S. Persons), the proposed transferee has delivered to the Registrar a certificate substantially in the form of Exhibit D hereto or (2) in the case of a transfer to a Non-U.S. Person, the proposed transferor has delivered to the Registrar a certificate substantially in the form of Exhibit E hereto; and (ii) if the proposed transferee is an Agent Member and the Notes to be transferred consist of Physical Notes which after transfer are to be evidenced by an interest in the IAI Global Note or Regulation S Global Note, as the case may be, upon receipt by the Registrar of (x) written instructions given in accordance with the Depositary’s and the Registrar’s procedures and (y) the appropriate certificate, if any, required by clause (y) of paragraph (i) above, the Registrar shall register the transfer and reflect on its books and records the date and an increase in the principal amount of the IAI Global Note or Regulation S Global Note, as the case may be, in an amount equal to the principal amount of Physical Notes to be transferred, and the Trustee shall cancel the Physical Notes so transferred; and (iii) if the proposed transferor is an Agent Member seeking to transfer an interest in a Global Note, upon receipt by the Registrar of (x) written instructions given in accordance with the Depositary’s and the Registrar’s procedures and (y) the appropriate   - 17 - -------------------------------------------------------------------------------- certificate, if any, required by clause (y) of paragraph (i) above, the Registrar shall register the transfer and reflect on its books and records the date and (A) a decrease in the principal amount of the Global Note from which such interests are to be transferred in an amount equal to the principal amount of the Notes to be transferred and (B) an increase in the principal amount of the IAI Global Note or the Regulation S Global Note, as the case may be, to which the interests are to be transferred in an amount equal to the principal amount of the Notes to be transferred. (b) Transfers to QIBS. The following provisions shall apply with respect to the registration of any proposed transfer of a Note constituting a Restricted Security to a QIB (excluding transfers to Non-U.S. Persons): (i) the Registrar shall register the transfer of any Restricted Security if such transfer is being made by a proposed transferor who has checked the box provided for on the form of Note stating, or has otherwise advised the Company and the Registrar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a transferee who has signed the certification provided for on the form of Note stating, or has otherwise advised the Company and the Registrar in writing, that it is purchasing the Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a QIB within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as it has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A; and (ii) if the proposed transferee is an Agent Member, and the Notes to be transferred consist of Physical Notes which after transfer are to be evidenced by an interest in a Global Note, upon receipt by the Registrar of written instructions given in accordance with the Depositary’s and the Registrar’s procedures, the Registrar shall reflect on its books and records the date and an increase in the principal amount of such Global Note in an amount equal to the principal amount of the Physical Notes to be transferred, and the Trustee shall cancel the Physical Notes so transferred; and (iii) if the proposed transferor is an Agent Member seeking to transfer an interest in the IAI Global Note or the Regulation S Global Note, upon receipt by the Registrar of written instructions given in accordance with the Depositary’s and the Registrar’s procedures, the Registrar shall register the transfer and reflect on its books and records the date and (A) a decrease in the principal amount of the IAI Global Note or the Regulation S Global Note, as the case may be, in an amount equal to the principal amount of the Notes to be transferred and (B) an increase in the principal amount of the Global Note in an amount equal to the principal amount of the Notes to be transferred. (c) Restrictions on Transfer and Exchange of Global Notes. Notwithstanding any other provisions of this Indenture, a Global Note may not be transferred as a whole except by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary.   - 18 - -------------------------------------------------------------------------------- (d) Private Placement Legend. Upon the transfer, exchange or replacement of Notes not bearing the Private Placement Legend, the Registrar shall deliver Notes that do not bear the Private Placement Legend. Upon the transfer, exchange or replacement of Notes bearing the Private Placement Legend, the Registrar shall deliver only Notes that bear the Private Placement Legend unless (i) the requested transfer is after the second anniversary of the Issue Date (provided, however, that neither the Company nor any Affiliate of the Company has held any beneficial interest in such Note, or portion thereof, or any predecessor security at any time prior to or on the second anniversary of the Issue Date (or, in the case of any Initial Notes issued after the Issue Date, two years after the date of initial issuance thereof), or (ii) there is delivered to the Registrar an Opinion of Counsel reasonably satisfactory to the Company and the Trustee to the effect that neither such legend nor the related restrictions on transfer are required in order to maintain compliance with the provisions of the Securities Act. (e) General. By its acceptance of any Note bearing the Private Placement Legend, each Holder of such a Note acknowledges the restrictions on transfer of such Note set forth in this Indenture and in the Private Placement Legend and agrees that it will transfer such Note only as provided in this Indenture. The Registrar shall retain copies of all letters, notices and other written communications received pursuant to Section 2.16 or this Section 2.17. The Company shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time during the Registrar’s normal business hours upon the giving of reasonable written notice to the Registrar. (f) Transfer of Notes Held by Affiliates. Any certificate (i) evidencing a Note that has been transferred to an Affiliate of the Company within two years after the Issue Date (or in the case of any Initial Notes issued after the Issue Date, two years after the date of initial issuance thereof), as evidenced by a notation on the Assignment Form for such transfer or in the representation letter delivered in respect thereof or (ii) evidencing a Note that has been acquired from an Affiliate of the Company (other than by an Affiliate of the Company) in a transaction or a chain of transactions not involving any public offering, shall, until two years after the last date on which the Company or any Affiliate of the Company was an owner of such Note, in each case, bear the Private Placement Legend, unless otherwise agreed by the Company (with written notice thereof to the Trustee). (g) Notice of Affiliate Purchases. In connection with the purchase or sale of any Note or any beneficial interest therein by the Company or any Affiliate thereof (other than a sale to the Initial Purchasers pursuant to the Purchase Agreement, dated as of April 19, 2006, by and among the Company and the Initial Purchasers), the Company shall file with the Trustee and Registrar a written notice identifying the transaction as such for the purposes hereof.   - 19 - -------------------------------------------------------------------------------- Section 2.18. Additional Interest Under Registration Rights Agreement. Under certain circumstances, the Company shall be obligated to pay Additional Interest to the Holders, all as set forth in Section 4 of the Registration Rights Agreement. The terms thereof are hereby incorporated herein by reference. ARTICLE III. REDEMPTION Section 3.1. Optional Redemption by the Company. (a) Right to Redeem; Notice to Trustee. The Company, at its option, may redeem the Notes in accordance with the provisions of paragraphs 5 and 6 of the Notes. If the Company elects to redeem Notes pursuant to paragraph 5 of the Notes, it shall notify the Trustee in writing of the Redemption Date, the principal amount of Notes to be redeemed and the Redemption Price that would be in effect if such Notes were being redeemed on the date of the notice. The Company shall give the notice to the Trustee provided for in this Section 3.1(a) at least 30 days but not more than 60 days before the Redemption Date (unless a shorter notice shall be satisfactory to the Trustee). (b) Notice of Redemption. At least 30 days but not more than 60 days before a Redemption Date, the Company shall mail or cause to be mailed a notice of redemption by first-class mail to the Trustee and to each Holder of Notes to be redeemed at such Holder’s address as it appears on the Note register. The notice shall identify the Notes to be redeemed and shall state: (i) the Redemption Date; (ii) the Redemption Price that would be in effect if such Notes were being redeemed on the date of the notice; (iii) the name and address of the Paying Agent; (iv) that Notes called for redemption must be presented and surrendered to the Paying Agent to collect the Redemption Price and any accrued interest; (v) that interest on Notes called for redemption shall cease to accrue on and after the Redemption Date and, unless the Company defaults in making the redemption payment, the only remaining right of the Holder shall be to receive payment of the Redemption Price upon presentation and surrender to the Paying Agent of the Notes; (vi) if fewer than all the outstanding Notes are to be redeemed, the certificate number (if any) and principal amounts of the particular Notes to be redeemed; and (vii) the CUSIP number or numbers for the Notes called for redemption.   - 20 - -------------------------------------------------------------------------------- At the Company’s request, the Trustee shall give the notice of redemption in the Company’s name and at the Company’s expense. In such event, the Company will provide the Trustee with the information required by clauses (i) through (iii) and (vi). (c) Effect of Notice of Redemption. Once notice of redemption is mailed, Notes called for redemption become due and payable on the Redemption Date and at the Redemption Price stated in the notice. Upon presentation and surrender to the Paying Agent, Notes called for redemption shall be paid at the Redemption Price, together with any accrued interest. (d) Sinking Fund. There shall be no sinking fund provided for the Notes. ARTICLE IV. COVENANTS Section 4.1. Payment of Notes. The Company will promptly pay or cause to be paid the principal of, premium, if any, and interest, if any, on each of the Notes at the places and time and in the manner provided in the Notes and this Indenture. An installment of principal, premium or interest will be considered paid on the date it is due if the Trustee or Paying Agent holds on that date in accordance with this Indenture money designated for and sufficient to pay the installment then due. The Company will pay or cause to be paid interest on overdue principal at the rate specified in the Notes; it will also pay interest on overdue installments of interest at the same rate, to the extent lawful. Section 4.2. Reporting. The Company will file with the Trustee within 15 days after filing with the SEC, copies of its annual reports and of the information, documents, and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) which the Company is required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act. The Company also will comply with the other provisions of TIA Section 314(a). Section 4.3. Corporate Existence. Subject to Article V, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, rights (charter and statutory) and franchises; provided, however, that the Company will not be required to preserve any such right or franchise if the Board of Directors determines that the preservation of the right or franchise is no longer desirable in the conduct of the business of the Company and that its loss will not be disadvantageous in any material respect to the Holders of the Notes. Section 4.4. Compliance Certificate. The Company will deliver to the Trustee within 120 days after the end of each fiscal year of the Company an Officers’ Certificate stating that in the course of the performance by the signers of their duties as Officers of the Company they would normally have knowledge of any Default or Event of Default by the Company and whether or not the signers know of any Default or Event of Default that occurred during the fiscal year. If they do, the certificate will describe the default or Event of Default, its status and   - 21 - -------------------------------------------------------------------------------- what action the Company is taking or proposes to take with respect thereto. The Company also will comply with TIA Section 314(a)(4). For the purposes of this provision of the Indenture, compliance is determined without regard to any grace period or requirement of notice under the Indenture. Section 4.5. Further Instruments and Acts. Upon request of the Trustee, the Company will execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purpose of this Indenture. Section 4.6. Limitations on Liens. The Company shall not, nor shall it permit any Restricted Subsidiary to, create, assume, incur or suffer to exist any Lien, upon any of its properties or assets, whether owned on the Issue Date or thereafter acquired, unless (1) if such Lien secures Indebtedness which is pari passu with the Notes, then the Notes are secured on an equal and ratable basis with the obligation so secured until such time as such obligation is no longer secured by a Lien, (2) if such Lien secures Indebtedness which is subordinated to the Notes, then the Notes are secured and the Lien securing such Indebtedness is subordinated to the Lien granted to the holders of the Notes to the same extent as such Indebtedness is subordinated to the Notes or (3) such Lien is a Permitted Lien (as defined below). The following Liens constitute “Permitted Liens”: (a) Liens on property of a Person existing at the time such Person is merged into or consolidated with or otherwise acquired by the Company or any Restricted Subsidiary, provided that such Liens were in existence prior to, and were not created in contemplation of, such merger, consolidation or acquisitions and do not extend to any assets other than those of the Person merged into or consolidated with the Company or a Restricted Subsidiary; (b) Liens on property existing at the time of acquisition thereof by the Company or any Restricted Subsidiary; provided that such Liens were in existence prior to, and were not created in contemplation of, such acquisition and do not extend to any assets other than the property acquired; (c) Liens imposed by law such as carriers’, warehouseman’s or mechanics’ Liens, and other Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (d) Liens incurred in connection with pollution control, industrial revenue, water, sewage or any similar bonds; (e) Liens securing Indebtedness representing, or incurred to finance, the cost of acquiring, constructing or improving any assets, provided that the principal amount of such Indebtedness does not exceed 100% of such cost, including construction charges; (f) Liens securing Indebtedness (A) between a Restricted Subsidiary and the Company, or (B) between Restricted Subsidiaries;   - 22 - -------------------------------------------------------------------------------- (g) Liens incurred in the ordinary course of business to secure performance of obligations with respect to statutory or regulatory requirements, performance or return-of-money bonds, surety bonds or other obligations of a like nature, in each case which are not incurred in connection with the borrowing of money, the obtaining of advances or credit or the payment of the deferred purchase price of property and which do not in the aggregate impair in any material respect the use of property in the operation of the Company’s business taken as a whole; (h) pledges or deposits under workmen’s compensation laws, unemployment insurance laws or similar legislation, or good faith deposits in connection with bids, tenders, contracts (other than for the payment of indebtedness) or leases to which the Company or any Restricted Subsidiary is a party, or deposits to secure public or statutory obligations of the Company or of any Restricted Subsidiary or deposits for the payment of rent, in each case incurred in the ordinary course of business; (i) Liens granted to any bank or other institution on the payments to be made to such institution by the Company or any Subsidiary pursuant to any interest rate swap or similar agreement or foreign currency hedge, exchange or similar agreement designed to provide protection against fluctuations in interest rates and currency exchange rates, respectively, provided that such agreements are entered into in, or are incidental to, the ordinary course of business; (j) Liens arising solely by virtue of any statutory or common law provision relating to banker’s Liens, rights of set off or similar rights and remedies; (k) Liens arising from the Uniform Commercial Code financing statements regarding leases; (l) Liens securing indebtedness incurred to finance the acquisition, construction, improvement, development or expansion of a property which is given within 180 days of the acquisition, construction, improvement, development or expansion of such property and which is limited to such property; (m) Liens incurred in connection with Non-Recourse Indebtedness; (n) Liens existing on the Issue Date; (o) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded; provided that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (p) Liens securing refinancing Indebtedness; provided that any such Lien does not extend to or cover any property or assets other than the property or assets securing Indebtedness so refunded, refinanced or extended; (q) easements, rights-of-way and other similar encumbrances incurred in the ordinary course of business and encumbrances consisting of zoning restrictions, licenses, restrictions on the use of property or minor imperfections in title thereto which, in the aggregate, are not material in amount, and which do not in any case materially detract from the Company’s properties subject thereto; and   - 23 - -------------------------------------------------------------------------------- (r) any extensions, substitutions, modifications, replacements or renewals of the Permitted Liens described above. Notwithstanding the foregoing, the Company may, and may permit any Restricted Subsidiary to, create, assume, incur or suffer to exist any Lien upon any of its properties or assets without equally and ratably securing the Notes if the aggregate amount of all Indebtedness then outstanding secured by such Lien and all similar Liens, together with the aggregate net sale proceeds from all Sale-Leaseback Transactions which are not Permitted Sale-Leaseback Transactions, does not exceed 20% of the total consolidated stockholders’ equity of the Company as shown on the most recent consolidated balance sheet that is contained or incorporated in the latest annual report on Form 10-K (or equivalent report) or quarterly report on Form 10-Q (or equivalent report) filed with the SEC, and is as of a date not more than 181 days prior to the date of determination, in the case of the consolidated balance sheet contained or incorporated in an annual report on Form 10-K, or 135 days prior to the date of determination, in the case of the consolidated balance sheet contained in the quarterly report on Form 10-Q; provided that Indebtedness secured by Permitted Liens shall not be included in the amount of such secured Indebtedness. Section 4.7. Sale-Leaseback Transactions. The Company shall not, and shall not permit any Restricted Subsidiary to, after the date hereof, enter into any Sale-Leaseback Transaction other than Permitted Sale-Leaseback Transactions (as defined below). The following Sale-Leaseback Transactions constitute “Permitted Sale-Leaseback Transactions”: (a) a Sale-Leaseback Transaction involving the leasing by the Company or any Restricted Subsidiary of model homes in the Company’s (including its Subsidiaries’) communities; (b) a Sale-Leaseback Transaction relating to a property entered into within 180 days after the later of the date of acquisition of such property by the Company or a Restricted Subsidiary or the date of the completion of construction or commencement of full operations on such property, whichever is later; (c) a Sale-Leaseback Transaction where the Company, within 365 days after such Sale-Leaseback Transaction, applies or causes to be applied to the retirement of any Funded Debt of the Company or any Restricted Subsidiary (other than Funded Debt which by its terms or the terms of the instrument by which it was issued is subordinate in right of payment to the Notes) proceeds of the sale of such property, but only to the extent of the amount of proceeds so applied; (d) a Sale-Leaseback Transaction where the Company or any Restricted Subsidiary would, on the effective date of such sale or transfer, be entitled, pursuant to this Indenture, to issue, assume or guarantee Indebtedness secured by a Lien upon the relevant property, at least equal in amount to the then present value (discounted at the actual rate of interest of the   - 24 - -------------------------------------------------------------------------------- Sale-Leaseback Transaction) of the obligation for the net rental payments in respect of such Sale-Leaseback Transaction without equally and ratably securing the Notes; (e) a Sale-Leaseback Transaction between the Company and any Restricted Subsidiary or among Restricted Subsidiaries, provided that the lessor shall be the Company or a wholly-owned Restricted Subsidiary; and (f) a Sale-Leaseback Transaction which has a lease of no more than three years in length. Notwithstanding the foregoing, the Company may, and may permit any Restricted Subsidiary to, effect any Sale-Leaseback Transaction involving any real or tangible personal property which is not a Permitted Sale-Leaseback Transaction, provided that the aggregate net sales proceeds from all Sale-Leaseback Transactions which are not Permitted Sale-Leaseback Transactions, together with all Indebtedness secured by Liens other than Permitted Liens, does not exceed 20% of the total consolidated stockholders’ equity of the Company as shown on the most recent consolidated balance sheet that is contained or incorporated in the latest annual report on Form 10-K (or equivalent report) or quarterly report on Form 10-Q (or equivalent report) filed with the SEC, and is as of a date not more than 181 days prior to the date of determination, in the case of the consolidated balance sheet contained or incorporated in an annual report on Form 10-K, or 135 days prior to the date of determination, in the case of the consolidated balance sheet contained in the quarterly report on Form 10-Q. Section 4.8. Furnishing Guarantees. The Company shall cause any Subsidiary formed or acquired after the Issue Date, other than its finance company Subsidiaries and any foreign Subsidiaries, that guarantees any Indebtedness of the Company or any other Subsidiary, other than guarantees by Subsidiaries of U.S. Home Corporation solely of U.S. Home Corporation’s obligations as a guarantor under the Senior Credit Facility, to become a Guarantor by causing, as promptly as practicable, but in any event not later than the date on which such Subsidiary becomes a guarantor of any other Indebtedness of the Company or any Subsidiary, such Subsidiary to execute and deliver to the Trustee a Guarantee in substantially the form of Exhibit F hereto and the Company shall furnish to the Trustee an Officers’ Certificate stating that all conditions 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 have been complied with. ARTICLE V. SUCCESSOR CORPORATION Section 5.1. Company May Consolidate, etc., Only on Certain Terms. The Company will not consolidate with or merge into any other corporation or convey, transfer or lease its properties and assets substantially as an entirety to any Person, unless: (1) the corporation formed by the consolidation or into which the Company is merged or the person which acquires by conveyance or transfer, or which leases, the properties and assets of the Company substantially as an entirety will be a corporation organized and existing under the laws of the United States of America, a State of the   - 25 - -------------------------------------------------------------------------------- United States of America or the District of Columbia and expressly assumes, by one or more supplemental indentures, executed and delivered to the Trustee, in form satisfactory to the Trustee, the due and punctual payment of the principal of, premium, if any, and interest, if any, on all the Notes and the performance of every covenant of this Indenture to be performed or observed by the Company; (2) immediately after giving effect to the transaction, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, will have occurred and be continuing; and (3) the Company has delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that the consolidation, merger, conveyance, transfer or lease and the supplemental indenture (or the supplemental indentures together) comply with this Article and that all the conditions precedent relating to the transaction set forth in this Section have been fulfilled. Section 5.2. Successor Corporation Substituted. Upon any event described in Section 5.1, the successor corporation will succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture, and, except in connection with a lease transaction, the predecessor corporation will be relieved of all obligations and covenants under this Indenture. ARTICLE VI. DEFAULTS AND REMEDIES Section 6.1. Events of Default. An “Event of Default” occurs if: (1) there is a default by the Company in the payment when due of interest on the Notes, which default continues for a period of 30 days; (2) there is a default by the Company in the payment when due of the principal or Redemption Price due with respect to the Notes; (3) there is a default by the Company or any Restricted Subsidiary with respect to its obligation to pay Indebtedness for borrowed money (other than any Non-Recourse Indebtedness), which default shall have resulted in the acceleration of, or be a failure to pay at final maturity, Indebtedness aggregating more than $50 million; (4) there is a failure to perform any other covenant or warranty of the Company herein, which continues for 30 days after written notice; (5) final judgments or orders are rendered against the Company or any Restricted Subsidiary which require the payment by the Company or any Restricted Subsidiary of an amount (to the extent not covered by insurance) in excess of $50 million   - 26 - -------------------------------------------------------------------------------- and such judgments or orders remain unstayed or unsatisfied for more than 60 days and are not being contested in good faith by appropriate proceedings; (6) the Company or any Restricted Subsidiary, pursuant to any Bankruptcy Law applicable to the Company or such Restricted Subsidiary: (A) commences a voluntary case; (B) consents to the entry of an order for relief against it in an involuntary case against it; (C) consents to the appointment of a Custodian of it or for any substantial part of its property; or (D) makes a general assignment for the benefit of its creditors; or (7) a court of competent jurisdiction enters an order or decree under any applicable Bankruptcy Law: (A) for relief in an involuntary case against the Company or any Restricted Subsidiary; (B) appointing a Custodian of the Company or any Restricted Subsidiary or for any substantial part of its respective property; or (C) ordering the winding up or liquidation of the Company or any Restricted Subsidiary; and the order or decree remains unstayed and in effect for 90 days. Each of the occurrences described in clauses (1) through (7) will constitute an Event of Default whatever the reason for the occurrence and whether it is voluntary or involuntary or is effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body. The term “Bankruptcy Law” means Title 11 of the United States Code or any similar United States Federal or State law for the relief of debtors. The term “Custodian” means any receiver, trustee, assignee, liquidator, custodian or similar official under any Bankruptcy Law. A Default under clause (4) of this Section is not an Event of Default until the Trustee notifies the Company, or the Holders of at least 25% in principal amount of the then outstanding Notes with regard to which the Company has failed to comply with a covenant or agreement notify the Company and the Trustee, of the Default and the Company does not cure the Default within 30 days after the giving of the notice. The notice must specify the Default, demand that it be remedied and state that the notice is a “Notice of Default.” The Company will deliver to the Trustee, within 20 days after it occurs, written notice in the form of an Officers’ Certificate of any event of which the Company is aware which with the giving of notice and the lapse of time would become an Event of Default under clause (4), its status and what action the Company is taking or proposes to take with respect to it. Section 6.2. Acceleration of Maturity; Rescission and Annulment. If an Event of Default occurs and is continuing, unless the principal of the Notes has already become due and payable, the Trustee by notice to the Company, or the Holders of not less than 25 percent in aggregate principal amount of the Notes then outstanding by notice to the Company and the Trustee, may declare the outstanding principal of the Notes and any accrued and unpaid interest through the date of such declaration on all of the Notes to be immediately due and payable. Upon such a declaration, such outstanding principal amount and accrued and unpaid interest, if any, shall be due and payable immediately. If an Event of Default specified in Section 6.1(6) or (7) of this Indenture occurs and is continuing, the outstanding principal amount of the Notes shall   - 27 - -------------------------------------------------------------------------------- automatically become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holders. The Holders of a majority in aggregate principal amount of the Notes then outstanding, on behalf of the Holders of all of the Notes, by notice to the Company and the Trustee (and without notice to any other Holder), may rescind any acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default have been cured or waived except nonpayment of the outstanding principal amount of any of the Notes that has become due solely as a result of acceleration and if all amounts due to the Trustee under Section 7.7 of this Indenture have been paid. No such rescission shall affect any subsequent Default or Event of Default or impair any right consequent thereto. In case the Trustee shall have proceeded to enforce any right under this Indenture and such proceedings shall have been discontinued or abandoned because of such waiver or rescission and annulment or for any other reason or shall have been determined adversely to the Trustee, then and in every such case the Company, the Holders of Notes, and the Trustee shall be restored respectively to their several positions and rights hereunder and all rights, remedies and powers of the Company, the Holders of Notes, and the Trustee shall continue as though no such proceeding had been taken. The Trustee shall within 90 days after a Trust Officer has knowledge of the occurrence of a Default or any Event of Default, mail to all Holders, as the names and addresses of such Holders appear upon the Note register, notice of all Defaults or Events of Default known to a Trust Officer, unless such Default or Event of Default is cured or waived before the giving of such notice and provided that, except in the case of default in the payment of the principal, interest or Redemption Price, as the case may be, on any of the Notes, the Trustee shall be protected in withholding such notice if and so long as a trust committee of directors and/or officers of the Trustee in good faith determines that the withholding of such notice is in the interest of the Holders. The Holders of a majority in principal amount of the Notes then outstanding shall have the right to direct the time, method and place of conducting any proceedings for any remedy available to the Trustee, subject to the limitations specified herein. Section 6.3. Other Remedies. If an Event of Default as to the Notes occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal of, premium, if any, and interest, if any, on the Notes or to enforce the performance of any provision under this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Securityholder in exercising any right or remedy accruing upon an Event of Default will not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative. Section 6.4. Waiver of Existing Defaults. The Holders of a majority in aggregate principal amount of the Notes then outstanding, on behalf of the Holders of all the Notes, by notice to the Trustee may consent to the waiver of any past Default with regard to the Notes and   - 28 - -------------------------------------------------------------------------------- its consequences except (i) a default in the payment of interest or premium, if any, on, or the principal of, Notes, or (ii) a default in respect of a covenant or a provision that under Section 9.2 cannot be modified or amended without the consent of the Holders of all Notes then outstanding. The defaults described in clauses (i) and (ii) in the previous sentence may be waived with the consent of the Holders of all Notes then outstanding. When a Default or Event of Default is waived, it is deemed cured and not continuing, but no waiver will extend to any subsequent or other Default or impair any consequent right. Section 6.5. Control by Majority. The Holders of a majority in principal amount of the Notes then outstanding may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee with regard to the Notes or of exercising any trust or power conferred on the Trustee with regard to the Notes. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture or, subject to Section 7.1, that the Trustee determines is unduly prejudicial to the rights of other Holders or that would involve the Trustee in personal liability provided, however, that the Trustee may take any other action deemed proper by the Trustee that is not inconsistent with such direction. Prior to taking any action as a result of a direction given under this Section, the Trustee will be entitled to indemnification satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking that action. Section 6.6. Payments of Notes on Default; Suit Therefor. The Company covenants that upon the occurrence of an Event of Default described in Section 6.1(1) or (2), then, upon demand of the Trustee, the Company will pay to the Trustee, for the benefit of the Holders of the Notes, the whole amount that will then have become due and payable on all such Notes for principal, premium, if any, and interest, with interest on the overdue principal and premium, if any, and (to the extent that payment of such interest is enforceable under applicable law) on the overdue installments of interest at the rate borne by the Notes; and, in addition, such further amount as will be sufficient to cover the costs and expenses of collection, including reasonable compensation to the Trustee, its agents, attorneys and counsel, and any expenses or liabilities incurred by the Trustee hereunder other than through its negligence or bad faith. Until such demand by the Trustee, the Company may pay the principal of and premium, if any, and interest on the Notes to the registered Holders, whether or not the Notes are overdue. Section 6.7. Limitation on Suits. A Holder may not pursue any remedy with respect to this Indenture unless: (1) the Holder gives to the Trustee written notice stating that an Event of Default is continuing; (2) the Holders of at least 25% in principal amount of the Notes then outstanding make a written request to the Trustee to pursue the remedy; (3) such Holder or Holders offer to the Trustee reasonable security or indemnity satisfactory to the Trustee against any loss, liability or expense;   - 29 - -------------------------------------------------------------------------------- (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of security or indemnity, and the Event of Default has not been waived; and (5) the Trustee has received no contrary direction from the Holders of a majority in principal amount of the Notes then outstanding during such 60-day period. A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over another Holder. Section 6.8. Collection Suit by Trustee. If an Event of Default in payment of principal, premium, if any, or interest, if any, specified in clause (1) or (2) of Section 6.1 occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal, premium, if any, and interest remaining unpaid (together with interest on that unpaid interest to the extent lawful) and the amounts provided for in Section 7.7. Section 6.9. Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and the Holders allowed in any judicial proceedings relative to the Company, its creditors or its property and, unless prohibited by law or applicable regulations, may vote on behalf of the Holders in any election of a trustee in bankruptcy or other person performing similar functions, and any Custodian in any such judicial proceeding is hereby authorized by each Holder to make payments to the Trustee and, if the Trustee consents to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and its counsel, and any other amounts due the Trustee under Section 7.7. Section 6.10. Restoration of Positions. If a judicial proceeding by the Trustee or a Holder to enforce any right or remedy under this Indenture is dismissed or decided favorably to the Company, except as otherwise provided in the judicial proceeding, the Company, the Trustee and the Holders will be restored to the positions they would have been in if the judicial proceeding had not been instituted. Section 6.11. Priorities. If the Trustee collects any money pursuant to this Article VI with respect to the Notes, it will pay out the money or property in the following order: FIRST: to the Trustee for amounts due under Section 7.7; SECOND: to the Holders for amounts due and unpaid on the Notes for principal, premium and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, premium and interest, respectively; and THIRD: to the Company. The Trustee may fix a record date and payment date for any payment to the Holders pursuant to this Section. At least 15 days before the record date, the Company will mail to each Holder and the Trustee a notice that states the record date, the payment date and the amount to be paid.   - 30 - -------------------------------------------------------------------------------- Section 6.12. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys’ fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.12 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.7, or a suit by Holders of in aggregate more than 10% in principal amount of the Notes then outstanding, or to any suit instituted by any Holder for the enforcement of the payment of the principal of, premium, if any, or interest on any Note held by that Holder on or after the due date provided in the Note. Section 6.13. Stay, Extension or Usury Laws. The Company agrees (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, any stay or extension law or any usury or other law, wherever enacted, now or at any subsequent time in force, which would prohibit or forgive the Company from paying all or any portion of the principal of, premium, if any, and/or interest on any of the Notes as contemplated in this Indenture, or which may affect the covenants or performance of this Indenture, and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and agrees that it will not hinder, delay or impede the execution of any power granted to the Trustee in this Indenture, but (to the extent that it may lawfully do so) will suffer and permit the execution of any such power as though no such law had been enacted. Section 6.14. Liability of Stockholders, Officers, Directors and Incorporators. No stockholder, officer, director or incorporator, as such, past, present or future, of the Company, or any of its successor corporations, will have any personal liability in respect of the Company’s obligations under this Indenture or any Notes by reason of his or its status as such stockholder, officer, director or incorporator; provided, however, that nothing in this Indenture or in the Notes will prevent recourse to and enforcement of the liability of any stockholder or subscriber to Capital Stock in respect of shares of Capital Stock which have not been fully paid up. ARTICLE VII. TRUSTEE Section 7.1. Duties of Trustee. (a) If an Event of Default has occurred and is continuing, the Trustee will exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent man would exercise or use under the circumstances in the conduct of his own affairs.   - 31 - -------------------------------------------------------------------------------- (b) Except during the continuance of an Event of Default: (i) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture and no implied covenants or obligations will be read into this Indenture against the Trustee; and (ii) the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed in them, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture in the absence of bad faith on the Trustee’s part; provided, however, that the Trustee will examine the certificates and opinions to determine whether or not they substantially conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) this paragraph does not limit the effect of paragraph (b) of this Section 7.1; (2) the Trustee will not be liable for any error of judgment made in good faith by a Trust Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; (3) the Trustee will not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.5; and (4) the Trustee will not be required to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties under this Indenture or in the exercise of any of its rights or powers, if it has reasonable grounds to believe repayment of the funds or adequate indemnity against the risk or liability is not reasonably assured to it. (d) Every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee is subject to the provisions of this Section 7.1 and to the provisions of the TIA. (e) The Trustee may refuse to perform any duty or exercise any right or power unless it receives indemnity satisfactory to it against any loss, liability or expense. (f) The Trustee will not be liable for interest on any money received by it except as the Trustee may agree with the Company. Money and Government Obligations held in trust by the Trustee need not be segregated from other funds or items except to the extent required by law.   - 32 - -------------------------------------------------------------------------------- Section 7.2. Rights of Trustee. (a) The Trustee may rely on any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers’ Certificate or an Opinion of Counsel which conforms to Section 11.5. The Trustee will not be liable for any action it takes or omits to take in good faith in reliance on such an Officers’ Certificate or Opinion of Counsel. (c) The Trustee may act through agents and will not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee will not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers, except conduct which constitutes willful misconduct, negligence or bad faith. (e) The Trustee may consult with counsel, and the Trustee will not be liable for any action it takes or omits in reliance on, and in accordance with, written advice of counsel. (f) The Trustee will not be required to investigate any facts or matters stated in any document, but if it decides to investigate any matters or facts, the Trustee or its agents or attorneys will be entitled to examine the books, records and premises of the Company. Section 7.3. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company or any of its affiliates with the same rights it would have if it were not Trustee. Any Paying Agent, Registrar, co-registrar or co-paying agent may do the same with like rights. However, the Trustee must comply with Sections 7.10 and 7.11. Section 7.4. Trustee’s Disclaimer. The Trustee (i) is not responsible for and makes no representation as to the validity or adequacy of this Indenture, (ii) will not be accountable for the Company’s use of the proceeds from the Notes, and (iii) will not be responsible for any statement of the Company in this Indenture, other than the Trustee’s certificate of authentication, or in any document used in the sale of the Notes, other than statements, if any, provided in writing by the Trustee for use in such a document. Section 7.5. Notice of Defaults. The Trustee will give to the Holders notice of any Default with regard to the Notes known to the Trustee, within 90 days after it occurs; provided, that, except in the case of a Default in the payment of the principal of, or premium, if any, or interest on any Note, the Trustee will be protected in withholding notice of the Default if and so long as a committee of its Trust Officers in good faith determines that the withholding of the notice is in the interests of the Holders. Section 7.6. Reports by Trustee. Within 60 days after each November 30 beginning with the November 30 following the date of this Indenture, the Trustee will mail to each Holder, at the name and address which appears on the registration books of the Company, and to each Holder who has, within the two years preceding the mailing, filed that person’s name and address with the Trustee for that purpose and each Holder whose name and address have been   - 33 - -------------------------------------------------------------------------------- furnished to the Trustee pursuant to Section 2.5, a brief report dated as of that November 30 which complies with TIA Section 313(a). The Trustee also will comply with TIA Section 313(b). A copy of each report will at the time of its mailing to Holders be filed with each stock exchange on which the Notes are listed and also with the SEC. The Company will promptly notify the Trustee when the Notes are listed on any stock exchange and of any delisting of the Notes. Section 7.7. Compensation and Indemnity. The Company will pay to the Trustee from time to time reasonable compensation for its services. The Trustee’s compensation will not be limited by any law on compensation of a trustee of an express trust. The Company will reimburse the Trustee upon request for all reasonable out-of-pocket expenses incurred or made by it, including costs of collection, in addition to the compensation for its services. Those expenses will include the reasonable compensation and expenses, disbursements and advances of the Trustee’s agents, counsel, accountants and experts. The Company will indemnify the Trustee against any and all loss, liability or expense (including reasonable attorneys’ fees) incurred by it in connection with the administration of the trust created by this Indenture and the performance of its duties under this Indenture. The Trustee will notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company will not relieve the Company of its obligations under this Section. The Company will defend the claim and the Trustee may have separate counsel and the Company will pay the fees and expenses of such counsel. The Company need not pay for any settlement made without its consent. The Company need not reimburse any expense or indemnify against any loss, expense or liability incurred by the Trustee to the extent it is due to the Trustee’s own willful misconduct, negligence or bad faith. To secure the Company’s obligation to make payments to the Trustee under this Section 7.7, the Trustee will have a lien prior to the Notes on all money or property held or collected by the Trustee, other than money or property held in trust to pay principal or interest on the Notes. Those obligations of the Company will survive the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in clause (6) or (7) of Section 6.1 occurs, the expenses and the compensation for the services of the Trustee are intended to constitute expenses of administration under any Bankruptcy Law. For purposes of this Section 7.7, “Trustee” will include any predecessor Trustee, but the willful misconduct, negligence or bad faith of any Trustee will not affect the rights of any other Trustee under this Section 7.7. Section 7.8. Replacement of Trustee. The Trustee may resign at any time by so notifying the Company. The Holders of a majority in aggregate principal amount of the Notes then outstanding may remove the Trustee by so notifying the Trustee and the Company and may appoint a successor Trustee. The Company may remove the Trustee if: (1) the Trustee fails to comply with Section 7.10;   - 34 - -------------------------------------------------------------------------------- (2) the Trustee is adjudged bankrupt or insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (3) a receiver or other public officer takes charge of the Trustee or its property; or (4) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company will promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in aggregate principal amount of the Notes then outstanding may appoint a successor Trustee to replace the successor Trustee appointed by the Company. No removal or appointment of a Trustee will be valid if that removal or appointment would conflict with any law applicable to the Company. A successor Trustee will deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Immediately after that, the retiring Trustee will, subject to the lien provided for in Section 7.7, transfer all property held by it as a Trustee to the successor Trustee, the resignation or removal of the retiring Trustee will become effective, and the successor Trustee will have all the rights, powers and duties of the Trustee under this Indenture. A successor Trustee will mail notice of its succession to each Holder. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of a majority in aggregate principal amount of the Notes then outstanding may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10, any Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Notwithstanding the replacement of the Trustee pursuant to this Section, the Company’s obligations under Section 7.7 will continue for the benefit of the retiring Trustee. Section 7.9. Successor Trustee by Merger, etc. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust assets to, another Person, the resulting, surviving or transferee Person will, without any further act, be the successor Trustee. If at the time a successor by merger, conversion or consolidation to the Trustee succeeds to the trusts created by this Indenture any of the Notes have been authenticated but not delivered, the successor to the Trustee may adopt the certificate of authentication of the predecessor Trustee, and deliver the Notes which were authenticated by the predecessor Trustee; and if at that time any of the Notes have not been authenticated, the successor to the Trustee may authenticate those Notes either in the name of the predecessor or in its own name as the   - 35 - -------------------------------------------------------------------------------- successor to the Trustee; and in either case the certificates of authentication will have the full force provided in this Indenture for certificates of authentication. Section 7.10. Eligibility; Disqualification. The Trustee will at all times satisfy the requirements of TIA Section 310(a). The Trustee will at all times have a combined capital and surplus of at least $50,000,000 as set forth in its most recently published annual report of condition, which will be deemed for this paragraph to be its combined capital and surplus. The Trustee will comply with TIA Section 310(b), including the optional provision permitted by the second sentence of TIA Section 310(b)(9). Section 7.11. Preferential Collection of Claims. The Trustee will comply with TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed will be subject to TIA Section 311(a) to the extent indicated. ARTICLE VIII. DISCHARGE OF INDENTURE Section 8.1. Termination of the Company’s Obligations. When (1) the Company shall deliver to the Trustee for cancellation all Notes theretofore authenticated (other than any Notes which have been destroyed, lost or stolen and in lieu of or in substitution for which other Notes shall have been authenticated and delivered) and not theretofore canceled, or (2) all the Notes not theretofore canceled or delivered to the Trustee for cancellation shall have become due and payable, or are by their terms to become due and payable within one year, whether at stated maturity or upon redemption and the Company shall deposit with the Trustee, in trust, monies and/or U.S. Government Obligations sufficient to pay at the Maturity Date or Redemption Date, as applicable, all sums which will become due with regard to all Notes theretofore authenticated (other than any Notes which shall have been mutilated, destroyed, lost or stolen and in lieu of or in substitution for which other Notes shall have been authenticated and delivered) and not theretofore canceled or delivered to the Trustee for cancellation, including the principal amount and interest accrued to the Maturity Date or Redemption Date, as applicable, and if the Company shall also pay or cause to be paid all other sums payable hereunder by the Company, then this Indenture shall cease to be of further effect with respect to the Notes (except as to (i) remaining rights of registration of transfer, substitution and exchange of Notes, (ii) rights hereunder of Holders to receive payments of the principal amount, including interest due with respect to the Notes and the other rights, duties and obligations of Holders, as beneficiaries hereof with respect to the amounts, if any, so deposited with the Trustee and (iii) the rights, obligations and immunities of the Trustee under this Indenture with respect to the Notes), and the Trustee, on demand of the Company accompanied by an Officers’ Certificate and an Opinion of Counsel as required by Section 8.3 and at the cost and expense of the Company, shall execute proper instruments acknowledging satisfaction of and discharging this Indenture with respect to the Notes; the Company, however, hereby agrees to reimburse the Trustee for any costs or expenses thereafter reasonably and properly incurred by the Trustee, and to compensate the Trustee for any services thereafter reasonably and properly rendered by the Trustee, in connection with this Indenture or the Notes.   - 36 - -------------------------------------------------------------------------------- Section 8.2. Application of Trust Money. Subject to Section 8.4, the Trustee will hold in trust money or U.S. Government Obligations deposited with it pursuant to Section 8.1. It will apply the deposited money and the money from the U.S. Government Obligations through the Paying Agent and in accordance with this Indenture to the payment of principal of, premium, if any, and interest, if any, on the Notes with regard to which the money or U.S. Government Obligations were deposited. Section 8.3. Officers’ Certificate; Opinion of Counsel. Upon any application or demand by the Company to the Trustee to take any action under Section 8.1, the Company shall furnish to the Trustee an Officers’ Certificate stating that all conditions 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 have been complied with. Each such Officers’ Certificate and Opinion of Counsel provided for in this Indenture and delivered to the Trustee with respect to compliance with a condition or covenant pursuant to the previous paragraph shall comply with the provisions of Section 11.5. Section 8.4. Repayment to the Company. The Trustee and the Paying Agent will promptly pay to the Company upon request any excess money or securities held by them at any time. The Trustee and the Paying Agent will pay to the Company upon request any money held by them for the payment of principal, premium or interest that remains unclaimed for two years. After such payment, all liability of the Trustee and the Paying Agent with respect to that money will cease. Section 8.5. Reinstatement. If the Trustee or the Paying Agent is unable to apply any money in accordance with Section 8.2 by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company’s obligations under this Indenture shall be revived and reinstated with respect to the Notes as though no deposit had occurred pursuant to Section 8.1 until such time as the Trustee or the Paying Agent is permitted to apply all such money in accordance with Section 8.2, provided, however, that if the Company makes any payment of principal amount or Redemption Price of or interest on any Note following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent. ARTICLE IX. MODIFICATION OF THE INDENTURE Section 9.1. Without Consent of Holders. The Company and the Trustee may amend or supplement this Indenture or the Notes without notice to or consent of any Holder: (1) to cure any ambiguity, defect or inconsistency; (2) to make any change that does not adversely affect the rights of any Holder;   - 37 - -------------------------------------------------------------------------------- (3) to comply with Article 5; (4) to add to the covenants of the Company further covenants, restrictions or conditions that the Board of Directors and the Trustee shall consider to be for the benefit of the Holders of Notes, and to make the occurrence, or the occurrence and continuance, of a default in any such additional covenants, restrictions or conditions a Default or an Event of Default permitting the enforcement of all or any of the several remedies provided in this Indenture; (5) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Notes; or (6) to modify, eliminate or add to the provisions of this Indenture to such extent as shall be necessary for this Indenture to comply with the TIA, or under any similar federal statute hereafter enacted. After an amendment under this Section becomes effective, the Company will mail to the Holders a notice briefly describing the amendment. The failure to give such notice to all Holders, or any defect in a notice, will not impair or affect the validity of an amendment under this Section. Section 9.2. With Consent of Holders. The Company and the Trustee may amend or supplement this Indenture or the Notes without notice to any Holder but with the written consent of the Holders of a majority in aggregate principal amount of the Notes then outstanding. The Holders of a majority in principal amount of the Notes then outstanding may waive compliance by the Company with any provision of this Indenture or the Notes without notice to any Holder. However, without the consent of the Holder so affected, no amendment, supplement or waiver, including a waiver pursuant to Section 6.4, may: (1) extend the fixed maturity of any Note or any installment of interest thereon, reduce the principal amount, interest rate, Redemption Price, or amount due upon acceleration, impair the right of a Holder to institute suit for the payment thereof, change the currency in which the Notes are payable; (2) reduce the percentage of Notes required to consent to an amendment, supplement or waiver; (3) release any Guarantor except as provided in Article X hereof; or (4) make any change in Section 6.4 or 6.8 or the second sentence of this Section. It will not be necessary for the consent of the Holders under this Section to approve the particular form of any proposed amendment, supplement or waiver, but it will be sufficient if the consent approves the substance of the amendment, supplement or waiver. Section 9.3. Compliance with Trust Indenture Act. Every amendment or supplement to this Indenture or the Notes will comply with the TIA as then in effect.   - 38 - -------------------------------------------------------------------------------- Section 9.4. Revocation and Effect of Consents. A consent to an amendment, supplement or waiver by a Holder will bind the Holder and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder’s Note, even if notation of the consent is not made on any Note. However, any such Holder or subsequent Holder may revoke the consent as to the Holder’s Note or portion of a Note. For a revocation to be effective, the Trustee must receive notice of the revocation before the date the amendment, supplement or waiver becomes effective. After an amendment, supplement or waiver becomes effective in accordance with its terms, it will bind every Holder of every Note. Section 9.5. Notation on or Exchange of Notes. If an amendment, supplement or waiver changes the terms of the Notes, the Trustee may require the Holder of a Note to deliver the Holder’s Note to the Trustee, who will place an appropriate notation about the amendment, supplement or waiver on the Note and will return it to the Holder. Alternatively, the Company may, in exchange for the Note, issue, and the Trustee will authenticate, a new Note that reflects the amendment, supplement or waiver. Section 9.6. Trustee to Sign Amendments, etc. The Trustee will sign any amendment, supplement or waiver authorized pursuant to Article II or this Article IX if the amendment, supplement or waiver does not adversely affect the rights, liabilities or immunities of the Trustee. If it does adversely affect those rights, liabilities or immunities, the Trustee may but need not sign it. The Company may not sign an amendment or supplement until the amendment or supplement is approved by an appropriate Board Resolution. ARTICLE X. GUARANTEE OF NOTES Section 10.1. Unconditional Guarantee. Each Guarantor, if any, hereby jointly and severally, unconditionally and irrevocably guarantees (such guarantee to be referred to herein as a “Guarantee”) to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, that: (a) all amounts due with respect to the Notes shall be duly and punctually paid in full when due, whether at maturity, by acceleration or otherwise, and interest on the overdue principal and (to the extent permitted by law) interest, if any, on the Notes and all other obligations of the Company or the Guarantors to the Holders or the Trustee hereunder or thereunder and all other obligations shall be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (b) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, the same shall be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed, or failing performance of any other obligation of the Company to the Holders under this Indenture or under the Notes, for whatever reason, each Guarantor shall be obligated to pay, or to perform or cause the performance of, the same immediately. An Event of Default under this Indenture or the Notes shall constitute an event of default under each Guarantee, and shall entitle the Holders of Notes to accelerate the obligations of the Guarantors hereunder in the same manner and to the same extent as the obligations of the Company.   - 39 - -------------------------------------------------------------------------------- Each of the Guarantors hereby agrees that its obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, any release of any other Guarantor, the recovery of any judgment against the Company, any action to enforce the same, whether or not a Guarantee is affixed to any particular Note, or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each of the Guarantors hereby waives the benefit of diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenants that its Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes, this Indenture and each Guarantee. Each Guarantee is a guarantee of payment and not of collection. Each Guarantor further agrees that, as between it, on the one hand, and the Holders of Notes and the Trustee, on the other hand, (a) subject to this Article X, the maturity of the obligations guaranteed hereby may be accelerated as provided in Article VI hereof for the purposes of each Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (b) in the event of any acceleration of such obligations as provided in Article VI hereof, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of each Guarantee. No stockholder, officer, director, employee or incorporator, past, present or future, of any Guarantor, as such, shall have any personal liability under any Guarantee by reason of his, her or its status as such stockholder, officer, director, employee or incorporator. Each Guarantor that makes a payment or distribution under its Guarantee shall be entitled to a contribution from each other Guarantor in an amount pro rata, based on the net assets of each Guarantor, determined in accordance with GAAP. Section 10.2. Limitations on Guarantees; Release or Suspension of Particular Guarantors’ Obligations. The obligations of each Guarantor under its Guarantee will be limited to the maximum amount which, after giving effect to all other contingent and fixed liabilities of such Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under its Guarantee or pursuant to its contribution obligations under this Indenture, will result in the obligations of such Guarantor under its Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal or state law. The Guarantors shall include (i) each of the Guarantors named on the signature pages of this Indenture and (ii) each of the Company’s Subsidiaries that in the future executes a Guarantee in substantially the form of Exhibit F hereto in which such Subsidiary agrees to be bound by the terms hereof as a Guarantor. If any Guarantor is released from its guarantee of the outstanding Indebtedness of the Company or any Restricted Subsidiary, such Guarantor shall be automatically released from its obligations as Guarantor, and from and after such date, such Guarantor shall cease to constitute a Guarantor.   - 40 - -------------------------------------------------------------------------------- The obligations of a Guarantor will be automatically suspended, and such Guarantor shall not constitute a Guarantor and shall not have any obligations with regard to the Notes, during any period when the principal amount of the Company’s obligations and any Restricted Subsidiary’s obligations as a guarantor of the Company’s obligations, in each case other than the Notes and other Indebtedness containing provisions similar to this, that the Guarantor is guaranteeing total less than $75 million. Section 10.3. Execution and Delivery of Guarantee. To further evidence the Guarantee set forth in Section 10.1, each Guarantor hereby agrees to execute and deliver to the Trustee a Guarantee in substantially the form of Exhibit F hereto. Such Guarantee shall be executed on behalf of each Guarantor by either manual or facsimile signature of an officer or agent of each Guarantor, each of whom, in each case, shall have been duly authorized to so execute by all requisite corporate action. The validity and enforceability of any Guarantee shall not be affected by the fact that it is not affixed to any Note or Notes. If an officer or agent of a Guarantor whose signature is on this Indenture or a Guarantee no longer holds that office at the time the Trustee authenticates a Note to which such Guarantee relates or at any time thereafter, such Guarantor’s Guarantee of such Note shall be valid nevertheless. The delivery of any Note by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of any Guarantee set forth in this Indenture on behalf of each Guarantor. Section 10.4. Release of a Guarantor due to Extraordinary Events. If no Default exists or would exist under this Indenture, upon the sale or disposition of all of the Capital Stock of a Guarantor by the Company or a Subsidiary of the Company, or upon the consolidation or merger of a Guarantor with or into any Person (in each case, other than to the Company or an Affiliate of the Company or a Subsidiary), or if any Guarantor is dissolved or liquidated, such Guarantor and each Subsidiary of such Guarantor that is also a Guarantor shall be deemed released from all obligations under this Article X without any further action required on the part of the Trustee or any Holder. The Trustee shall execute any documents reasonably requested by the Company or a Guarantor in order to evidence the release of such Guarantor from its obligations under its Guarantee of the Notes under this Article X. Nothing contained in this Indenture or in any of the Notes shall prevent any consolidation or merger of a Guarantor with or into the Company or another Guarantor or shall prevent any sale or conveyance of the property of a Guarantor as an entirety or substantially as an entirety to the Company or another Guarantor. Section 10.5. Waiver of Subrogation. Until this Indenture is discharged and all of the Notes are discharged and paid in full, each Guarantor hereby irrevocably waives and agrees not to exercise any claim or other rights which it may now or hereafter acquire against the Company that arise from the existence, payment, performance or enforcement of the Company’s obligations under the Notes or this Indenture and such Guarantor’s obligations under each   - 41 - -------------------------------------------------------------------------------- Guarantee and this Indenture, in any such instance including, without limitation, any right of subrogation, reimbursement, exoneration, contribution, indemnification, and any right to participate in any claim or remedy of the Holders against the Company, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law, including, without limitation, the right to take or receive from the Company, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim or other rights. If any amount shall be paid to any Guarantor in violation of the preceding sentence and any amounts owing to the Trustee or the Holders of Notes under the Notes, this Indenture, or any other document or instrument delivered under or in connection with such agreements or instruments, shall not have been paid in full, such amount shall have been deemed to have been paid to such Guarantor for the benefit of, and held in trust for the benefit of, the Trustee or the Holders and shall forthwith be paid to the Trustee for the benefit of itself or such Holders to be credited and applied to the obligations in favor of the Trustee or the Holders, as the case may be, whether matured or unmatured, in accordance with the terms of this Indenture. Each Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by this Indenture and that the waiver set forth in this Section 10.5 is knowingly made in contemplation of such benefits. Section 10.6. No Set-Off. Each payment to be made by a Guarantor hereunder in respect of the Obligations shall be payable in the currency or currencies in which such Obligations are denominated, and shall be made without set-off, counterclaim, reduction or diminution of any kind or nature. Section 10.7. Obligations Absolute. The obligations of each Guarantor hereunder are and shall be absolute and unconditional and any monies or amounts expressed to be owing or payable by each Guarantor hereunder which may not be recoverable from such Guarantor on the basis of a Guarantee shall be recoverable from such Guarantor as a primary obligor and principal debtor in respect thereof. Section 10.8. Obligations Continuing. The obligations of each Guarantor hereunder shall be continuing and shall remain in full force and effect until all the obligations have been paid and satisfied in full. Each Guarantor agrees with the Trustee that it will from time to time deliver to the Trustee suitable acknowledgments of its continued liability hereunder and under any other instrument or instruments in such form as counsel to the Trustee may advise and as will prevent any action brought against it in respect of any default hereunder being barred by any statute of limitations now or hereafter in force and, in the event of the failure of a Guarantor so to do, it hereby irrevocably appoints the Trustee the attorney and agent of such Guarantor to make, execute and deliver such written acknowledgment or acknowledgments or other instruments as may from time to time become necessary or advisable, in the judgment of the Trustee on the advice of counsel, to fully maintain and keep in force the liability of such Guarantor hereunder. Section 10.9. Obligations Not Reduced. Except as otherwise provided in Sections 10.2 and 10.4, the obligations of each Guarantor hereunder shall not be satisfied, reduced or discharged except solely by the payment of such principal, premium, if any, interest, fees and other monies or amounts as may at any time prior to discharge of this Indenture pursuant to Article VIII be or become owing or payable under or by virtue of or otherwise in connection with the Notes or this Indenture.   - 42 - -------------------------------------------------------------------------------- Section 10.10. Obligations Reinstated. The obligations of each Guarantor hereunder shall continue to be effective or shall be reinstated, as the case may be, if at any time any payment which would otherwise have reduced the obligations of any Guarantor hereunder (whether such payment shall have been made by or on behalf of the Company or by or on behalf of a Guarantor) is rescinded or reclaimed from the Trustee or any of the Holders upon the insolvency, bankruptcy, liquidation or reorganization of the Company or any Guarantor or otherwise, all as though such payment had not been made. If demand for, or acceleration of the time for, payment by the Company is stayed upon the insolvency, bankruptcy, liquidation or reorganization of the Company, all such Indebtedness otherwise subject to demand for payment or acceleration shall nonetheless be payable by each Guarantor as provided herein. Section 10.11. Obligations Not Affected. Except as otherwise provided in Sections 10.2 and 10.4, the obligations of each Guarantor hereunder shall not be affected, impaired or diminished in any way by any act, omission, matter or thing whatsoever, occurring before, upon or after any demand for payment hereunder (and whether or not known or consented to by any Guarantor or any of the Holders) which, but for this provision, might constitute a whole or partial defense to a claim against any Guarantor hereunder or might operate to release or otherwise exonerate any Guarantor from any of its obligations hereunder or otherwise affect such obligations, whether occasioned by default of any of the Holders or otherwise, including, without limitation: (a) any limitation of status or power, disability, incapacity or other circumstance relating to the Company or any other person, including any insolvency, bankruptcy, liquidation, reorganization, readjustment, composition, dissolution, winding up or other proceeding involving or affecting the Company or any other person; (b) any irregularity, defect, unenforceability or invalidity in respect of any indebtedness or other obligation of the Company or any other person under this Indenture, the Notes or any other document or instrument; (c) any failure of the Company, whether or not without fault on its part, to perform or comply with any of the provisions of this Indenture or the Notes, or to give notice thereof to a Guarantor; (d) the taking or enforcing or exercising or the refusal or neglect to take or enforce or exercise any right or remedy from or against the Company or any other Person or their respective assets or the release or discharge of any such right or remedy; (e) the granting of time, renewals, extensions, compromises, concessions, waivers, releases, discharges and other indulgences to the Company or any other Person; (f) any change in the time, manner or place of payment of, or in any other term of, any of the Notes, or any other amendment, variation, supplement, replacement or waiver of, or any consent to departure from, any of the Notes or this Indenture, including, without limitation, any increase or decrease in any amount due with respect to any of the Notes; (g) any change in the ownership, control, name, objects, businesses, assets, capital structure or constitution of the Company or a Guarantor;   - 43 - -------------------------------------------------------------------------------- (h) any merger or amalgamation of the Company or a Guarantor with any Person or Persons; (i) the occurrence of any change in the laws, rules, regulations or ordinances of any jurisdiction by any present or future action of any governmental authority or court amending, varying, reducing or otherwise affecting, or purporting to amend, vary, reduce or otherwise affect, any of the Obligations or the obligations of a Guarantor under its Guarantee; and (j) any other circumstance (other than by complete, irrevocable payment) that might otherwise constitute a legal or equitable discharge or defense of the Company under this Indenture or the Notes or of a Guarantor in respect of its Guarantee hereunder. Section 10.12. Waiver. Without in any way limiting the provisions of Section 10.1 hereof, each Guarantor hereby waives notice of acceptance hereof, notice of any liability of any Guarantor hereunder, notice or proof of reliance by the Holders upon the obligations of any Guarantor hereunder, and diligence, presentment, demand for payment on the Company, protest, notice of dishonor or non-payment of any of the Obligations, or other notice or formalities to the Company or any Guarantor of any kind whatsoever. Section 10.13. No Obligation to Take Action Against the Company. Neither the Trustee nor any other Person shall have any obligation to enforce or exhaust any rights or remedies or to take any other steps under any security for the Obligations or against the Company or any other Person or any Property of the Company or any other Person before the Trustee is entitled to demand payment and performance by any or all Guarantors of their liabilities and obligations under their Guarantees or under this Indenture. Section 10.14. Dealing with the Company and Others. The Holders, without releasing, discharging, limiting or otherwise affecting in whole or in part the obligations and liabilities of any Guarantor hereunder and without the consent of or notice to any Guarantor, may: (a) grant time, renewals, extensions, compromises, concessions, waivers, releases, discharges and other indulgences to the Company or any other Person; (b) take or abstain from taking security or collateral from the Company or from perfecting security or collateral of the Company; (c) release, discharge, compromise, realize, enforce or otherwise deal with or do any act or thing in respect of (with or without consideration) any and all collateral, mortgages or other security given by the Company or any third party with respect to the obligations or matters contemplated by this Indenture or the Notes; (d) accept compromises or arrangements from the Company; (e) apply all monies at any time received from the Company or from any security upon such part of the Obligations as the Holders may see fit or change any such application in whole or in part from time to time as the Holders may see fit; and   - 44 - -------------------------------------------------------------------------------- (f) otherwise deal with, or waive or modify their right to deal with, the Company and all other Persons and any security as the Holders or the Trustee may see fit. Section 10.15. Default and Enforcement. If any Guarantor fails to pay in accordance with Section 10.1 hereof, the Trustee may proceed in its name as trustee hereunder in the enforcement of the Guarantee of any such Guarantor and such Guarantor’s obligations thereunder and hereunder by any remedy provided by law, whether by legal proceedings or otherwise, and to recover from such Guarantor the obligations. Section 10.16. Amendment, Etc. No amendment, modification or waiver of any provision of this Indenture relating to any Guarantor or consent to any departure by any Guarantor or any other Person from any such provision will in any event be effective or affect the obligation of any other Guarantor unless it is signed by such Guarantor and the Trustee. Section 10.17. Acknowledgment. Each Guarantor hereby acknowledges communication of the terms of this Indenture and the Notes and consents to and approves of the same. Section 10.18. Costs and Expenses. Each Guarantor shall pay on demand by the Trustee any and all costs, fees and expenses (including, without limitation, legal fees) incurred by the Trustee, its agents, advisors and counsel or any of the Holders in enforcing any of their rights under any Guarantee. Section 10.19. No Merger or Waiver; Cumulative Remedies. No Guarantee shall operate by way of merger of any of the obligations of a Guarantor under any other agreement, including, without limitation, this Indenture. No failure to exercise and no delay in exercising, on the part of the Trustee or the Holders, any right, remedy, power or privilege hereunder or under the Notes or the Guarantees, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder or under this Indenture or the Notes or the Guarantees preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges in the Guarantee and under this Indenture, the Notes and any other document or instrument between a Guarantor and/or the Company and the Trustee are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. Section 10.20. Survival of Obligations. Without prejudice to the survival of any of the other obligations of each Guarantor hereunder, the obligations of each Guarantor under Section 10.1 shall survive until the indefeasible payment in full of the Obligations and shall be enforceable against such Guarantor without regard to and without giving effect to any defense, right of offset or counterclaim available to or which may be asserted by the Company or any Guarantor. Section 10.21. Guarantee in Addition to Other Obligations. The obligations of each Guarantor under its Guarantee and this Indenture are in addition to and not in substitution for any other obligations to the Trustee or to any of the Holders in relation to this Indenture or the Notes and any guarantees or security at any time held by or for the benefit of any of them. Section 10.22. Severability. Any provision of this Article X which is prohibited or unenforceable in any jurisdiction shall not invalidate the remaining provisions and any such   - 45 - -------------------------------------------------------------------------------- prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction unless its removal would substantially defeat the basic intent, spirit and purpose of this Indenture and this Article X. Section 10.23. Successors and Assigns. Each Guarantee shall be binding upon and inure to the benefit of each Guarantor and the Trustee and the Holders and their respective successors and permitted assigns, except that no Guarantor may assign any of its obligations hereunder or thereunder. Section 10.24. Acknowledgement under TIA. Each Guarantor acknowledges that, by virtue of its Guarantee, it is becoming an “obligor” on indenture securities under the TIA. ARTICLE XI. MISCELLANEOUS Section 11.1. TIA Controls. If any provision of this Indenture limits, qualifies, or conflicts with another provision which is required to be included in this Indenture by the TIA, the required provision shall control; provided, however, that this Section 11.1 shall not of itself require that this Indenture or the Trustee be qualified under the TIA or constitute any admission or acknowledgment by any party hereto that any such qualification is required prior to the time this Indenture and the Trustee are required by the TIA to be so qualified. Section 11.2. Notices. Any notices or other communications required or permitted hereunder shall be in writing, and shall be sufficiently given if made by hand delivery, by telex, by telecopier or overnight courier guaranteeing next-day delivery or registered or certified mail, postage prepaid, return receipt requested, addressed as follows: if to the Company: Lennar Corporation 700 N.W. 107th Avenue Miami, Florida 33172 Attn: General Counsel if to the Trustee: JPMorgan Chase Bank 4 NY Plaza, 15th Floor New York, NY 10004   - 46 - -------------------------------------------------------------------------------- with a copy to: J.P. Morgan Institutional Trust Services GIS Unit Trust Window 4 New York Plaza, 1st Floor New York, New York 10004 Each of the Company and the Trustee by written notice to the other may designate additional or different addresses for notices to such Person. Any notice or communication to the Company or the Trustee shall be deemed to have been given or made as of the date so delivered if hand delivered; when answered back, if telexed; when receipt is acknowledged, if faxed; and five (5) calendar days after mailing if sent by registered or certified mail, postage prepaid (except that a notice of change of address shall not be deemed to have been given until actually received by the addressee). Any notice or communication mailed to a Holder shall be mailed by first class mail, certified or registered return receipt requested, or by overnight courier guaranteeing next day delivery to its address as it appears on the registration books of the Registrar. Any notice or communication shall be mailed to any Person as described in TIA § 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. Section 11.3. Communications by Holders with Other Holders. Holders may communicate pursuant to TIA § 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Trustee, the Registrar and any other Person shall have the protection of TIA § 312(c). Section 11.4. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee:     (1) an Officers’ Certificate, in form and substance satisfactory to the Trustee, stating that, in the opinion of the signers, all conditions precedent to be performed, if any, provided for in this Indenture relating to the proposed action have been complied with; and     (2) an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent to be performed, if any, provided for in this Indenture relating to the proposed action have been complied with (which counsel, as to factual matters, may rely on an Officers’ Certificate).   - 47 - -------------------------------------------------------------------------------- Section 11.5. Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture, other than the Officers’ Certificate required by Section 4.4, shall include:     (1) a statement that the Person making such certificate or opinion has read such covenant or condition;     (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;     (3) a statement that, in the opinion of such Person, he has made such examination or investigation as is reasonably necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and     (4) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been complied with. Section 11.6. Rules by Trustee, Paying Agent, Registrar. The Trustee may make reasonable rules in accordance with the Trustee’s customary practices for action by or at a meeting of Holders. The Paying Agent or Registrar may make reasonable rules for its functions. Section 11.7. Legal Holidays. If any payment date is due on a day other than a Business Day, such payment may be made on the next succeeding Business Day, and no interest shall accrue for the intervening period. Section 11.8. Governing Law. THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK, BUT OTHERWISE WITHOUT REGARD TO CONFLICT OF LAWS RULES THAT WOULD APPLY THE LAWS OF ANY OTHER JURISDICTION. Each of the parties hereto agrees to submit to the jurisdiction of the courts of the State of New York sitting in the County of New York, or of the United States of America for the Southern District of New York in any action or proceeding arising out of or relating to this Indenture. Section 11.9. No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or any of its Subsidiaries. Any such indenture, loan or debt agreement may not be used to interpret this Indenture.   - 48 - -------------------------------------------------------------------------------- Section 11.10. No Personal Liability. No director, officer, employee or stockholder of the Company, as such, shall have any liability for any obligations of the Company under the Notes or this Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. Section 11.11. Successors. All agreements of the Company in this Indenture and the Notes shall bind their successors and permitted assigns. All agreements of the Trustee in this Indenture shall bind its successors and permitted assigns. Section 11.12. Duplicate Originals. All parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together shall represent the same agreement. Section 11.13. Severability. In case any one or more of the provisions in this Indenture or in the Notes shall be held invalid, illegal or unenforceable, in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions shall not in any way be affected or impaired thereby, it being intended that all of the provisions hereof shall be enforceable to the full extent permitted by law. [Signature page follows]   - 49 - -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties to this Indenture have caused it to be duly executed as of the day and year first above written.   LENNAR CORPORATION By:   /s/ BRUCE E. GROSS   Name:   Bruce E. Gross   Title:   Chief Financial Officer Authorized signatory for each of the Guarantors listed on Schedule I hereto By:   /s/ BRUCE E. GROSS   Name:   Bruce E. Gross   Title:   Chief Financial Officer J.P. MORGAN TRUST COMPANY, N.A. By:   /s/ FRANCINE SPRINGER   Name:   Francine Springer   Title:   Authorized Officer [Signature Page to Indenture] -------------------------------------------------------------------------------- EXHIBIT A [FORM OF SERIES A NOTE] THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND THIS SECURITY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER OF THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) THIS SECURITY MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (I) TO THE ISSUER OR ANY SUBSIDIARY OF THE ISSUER, (II) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (III) TO AN INSTITUTIONAL “ACCREDITED INVESTOR” (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT), (IV) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (V) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (VI) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE U.S., AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY SUBSEQUENT PURCHASER OF THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE. [THE FOREGOING LEGEND MAY BE REMOVED FROM THE SECURITY ON SATISFACTION OF THE CONDITIONS SPECIFIED IN THE INDENTURE.]   A-1 -------------------------------------------------------------------------------- CUSIP No.: 526057AT1 LENNAR CORPORATION 5.95% SENIOR NOTES DUE 2011, SERIES A   No.    $                         Interest Rate: 5.95% per annum. Interest Payment Dates: December 15 and June 15, commencing December 15, 2006 Record Dates: December 1 and June 1 Lennar Corporation, a Delaware corporation (the “Company,” which term includes any successor entities), for value received, promises to pay to              or registered assigns, on October 17, 2011, the principal amount of                      Dollars ($                     ), together with interest thereon as hereinafter provided. Reference is made to the further provisions of this Note contained herein, which will for all purposes have the same effect as if set forth at this place.   A-2 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, Lennar Corporation has caused this instrument to be signed manually or by facsimile by its duly authorized officer.   LENNAR CORPORATION By:        Name:     Title:   Dated:                                        TRUSTEE’S CERTIFICATE OF AUTHENTICATION This is one of the Notes described in the within-mentioned Indenture. J.P. MORGAN TRUST COMPANY, N.A., as Trustee By:        Name:     Title:     A-3 -------------------------------------------------------------------------------- (REVERSE OF SECURITY) 5.95% Senior Note due 2011, Series A Capitalized terms used and not otherwise defined herein shall have the meanings ascribed to them in the Indenture, dated as of April 26, 2006, relating to the Notes (the “Indenture”), and as amended from time to time, by and among Lennar Corporation, a Delaware corporation (the “Company”), the Guarantors named therein and J.P. Morgan Trust Company, N.A. as trustee (the “Trustee”).   1. INTEREST The Company promises to pay interest on the principal amount of this Note at the rate per annum above. Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the Issue Date. The Company shall pay interest semi-annually in arrears on each Interest Payment Date, commencing as of the Interest Payment Date referred to above and upon redemption. Interest will be computed on the basis of a 360-day year of twelve 30-day months and, in the case of a partial month, the actual number of days elapsed. The Company shall pay interest on overdue principal and, to the extent lawful, on overdue installments of interest (without regard to any applicable grace periods) from time to time on demand at the rate borne by the Notes.   2. METHOD OF PAYMENT Subject to the terms and conditions of the Indenture, the Company shall (a) pay interest on the Notes (except defaulted interest) to the Persons who are the registered Holders of Notes at the close of business on the Record Date immediately preceding the Interest Payment Date even if the Notes are canceled, transferred or exchanged after such Record Date, and (b) make all other payments in respect of the Notes to the Persons who are registered Holders of Notes at the close of business on the Business Day preceding the Redemption Date or Maturity, as the case may be. Holders must surrender Notes to a Paying Agent to collect such payments in respect of the Notes referred to in clause (b) of the preceding sentence. The Company shall pay cash amounts in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, the Company may make the cash payments by check payable in such money.   3. PAYING AGENT, AND REGISTRAR Initially, J.P. Morgan Trust Company, N.A., a national banking association (the “Trustee”), shall act as Paying Agent and Registrar. The Company may appoint and change any Paying Agent, Registrar or co-registrar without notice, other than notice to the Trustee. The Company or any of its Subsidiaries or any of their Affiliates may act as Paying Agent, Registrar or co-registrar.   A-4 -------------------------------------------------------------------------------- 4. INDENTURE The Company issued the Notes under the Indenture. This Note is one of a duly authorized issue of Notes of the Company designated as its 5.95% Senior Notes due 2011, Series A (the “Initial Notes”). The Notes include the Initial Notes, the Private Exchange Notes and the Unrestricted Notes, as defined below, issued in exchange for the Initial Notes pursuant to the Registration Rights Agreement. The Initial Notes, the Private Exchange Notes and the Unrestricted Notes are treated as a single class of securities under the Indenture. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (the “TIA”), as in effect on the date of the Indenture. Notwithstanding anything to the contrary herein, the Notes are subject to all such terms, and Holders of Notes are referred to the Indenture and the TIA for a statement of such terms. The Notes are general unsecured obligations of the Company. Each Holder, by accepting a Note, agrees to be bound by all of the terms and provisions of the Indenture, as the same may be amended from time to time in accordance with its terms.   5. REDEMPTION AT THE OPTION OF THE COMPANY No sinking fund is provided for the Notes. The Notes are redeemable as a whole, or from time to time in part, at any time at the option of the Company at a Redemption Price equal to the greater of: (a) 100% of their principal amount; and (b) the present value of the Remaining Scheduled Payments on the Notes being redeemed on the Redemption Date, discounted to the Redemption Date, on a semiannual basis, at the Treasury Rate plus 20 basis points (0.20%), together, in either case, with accrued interest to the Redemption Date on their principal amount.   6. NOTICE OF REDEMPTION AT THE OPTION OF THE COMPANY Notice of redemption at the option of the Company shall be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Notes to be redeemed at the Holder’s registered address. If money sufficient to pay the Redemption Price of all Notes (or portions thereof) to be redeemed on the Redemption Date is deposited with the Paying Agent prior to or on the Redemption Date, interest ceases to accrue on such Notes or portions thereof on and after such date. Notes in denominations larger than $1,000 may be redeemed in part but only in integral multiples of $1,000.   7. REGISTRATION RIGHTS Pursuant to the Registration Rights Agreement, the Company will be obligated to consummate an exchange offer pursuant to which the Holder of this Note shall have the right to exchange this Note for the Company’s 5.95% Senior Notes due 2011, Series B (the “Unrestricted Notes”), which will be registered under the Securities Act, in like principal amount and having terms identical in all material respects as the Initial Notes. The Holders of the Initial Notes shall be entitled to receive certain additional interest payments in the event such exchange offer is not consummated and upon certain other conditions, all pursuant to and in accordance with the terms of the Registration Rights Agreement.   A-5 -------------------------------------------------------------------------------- 8. DENOMINATIONS; TRANSFER; EXCHANGE The Notes are in registered form, without coupons, in denominations of $1,000 and integral multiplies of $1,000. A Holder may transfer Notes in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any governmental taxes and fees required by law or permitted by the Indenture. The Registrar need not transfer or exchange any Notes selected for redemption (except, in the case of a Note to be redeemed in part, the portion of the Note not to be redeemed) or any Notes for a period of 15 days before any selection of Notes to be redeemed.   9. PERSONS DEEMED OWNERS The registered Holder of this Note may be treated as the owner of this Note for all purposes.   10. UNCLAIMED MONEY OR PROPERTY The Trustee and the Paying Agent shall return to the Company upon written request any money or property held by them for the payment of any amount with respect to the Notes that remains unclaimed for two years, provided, however, that the Trustee or such Paying Agent, before being required to make any such return, shall at the expense of the Company cause to be published once in a newspaper of general circulation in The City of New York or mail to each such Holder notice that such money or property remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication or mailing, any unclaimed money or property then remaining shall be returned to the Company. After return to the Company, Holders entitled to the money or property must look to the Company for payment as general creditors unless an applicable abandoned property law designates another Person.   11. AMENDMENT; WAIVER Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Notes may be amended with the written consent of the Holders of at least a majority in aggregate principal amount of the Notes at the time outstanding and (ii) certain defaults or noncompliance with certain provisions may be waived with the written consent of the Holders of a majority in aggregate principal amount of the Notes at the time outstanding. Subject to certain exceptions set forth in the Indenture, without the consent of any Holder, the Company and the Trustee may amend the Indenture or the Notes to cure any ambiguity, defect or inconsistency, to make any change that does not adversely affect the right of any Holder, to convey, transfer, assign, mortgage or pledge to the Trustee as security for the Notes any property or assets, to evidence the succession of another corporation to the Company (or successive successions) and the assumption by the successor corporation of the covenants, agreements and obligations of the Company, to add to the covenants of the Company such further covenants, restrictions or conditions as the Board of Directors and the Trustee shall consider to be for the benefit of the Holders of Notes, and to make the occurrence, or the occurrence and continuance, of a default in any such additional covenants, restrictions or conditions a Default or an Event of Default   A-6 -------------------------------------------------------------------------------- permitting the enforcement of all or any of the several remedies provided in the Indenture, to evidence and provide for the acceptance of appointment hereunder of a successor Trustee with respect to the Notes, or to modify, eliminate or add to the provisions of the Indenture to such extent as shall be necessary for the Indenture to comply with the TIA, or under any similar federal statute hereafter enacted.   12. DEFAULTS AND REMEDIES Under the Indenture, Events of Default include (i) a default by the Company in the payment of any interest which continues for more than 30 days after the due date, (ii) a default by the Company in the payment of any principal or Redemption Price due with respect to the Notes; (iii) a default by the Company or any Restricted Subsidiary with respect to its obligation to pay Indebtedness for borrowed money (other than Non-Recourse Indebtedness), which default shall have resulted in the acceleration of, or be a failure to pay at final maturity, Indebtedness aggregating more than $50 million; (iv) a failure to perform any other covenant or warranty of the Company herein and in the Indenture, which continues for 30 days after written notice; (v) final judgments or orders are rendered against the Company or any Restricted Subsidiary which require the payment by the Company or any Restricted Subsidiary of an amount (to the extent not covered by insurance) in excess of $50 million and such judgments or orders remain unstayed or unsatisfied for more than 60 days and are not being contested in good faith by appropriate proceedings; (vi) the Company or any Restricted Subsidiary, pursuant to any Bankruptcy Law applicable to the Company or such Restricted Subsidiary: (A) commences a voluntary case; (B) consents to the entry of an order for relief against it in an involuntary case; (C) consents to the appointment of a Custodian of it or for any substantial part of its property; or (D) makes a general assignment for the benefit of its creditors; or (vii) a court of competent jurisdiction enters an order or decree under any applicable Bankruptcy Law: (A) for relief in an involuntary case against the Company or any Restricted Subsidiary; (B) appointing a Custodian of the Company or any Restricted Subsidiary or for any substantial part of its respective property; or (C) ordering the winding up or liquidation of the Company or any Restricted Security; and the order or decree remains unstayed and in effect for 90 days. If an Event of Default occurs and is continuing, the Trustee, or the Holders of at least 25% in aggregate principal amount of the Notes at the time outstanding, may declare the outstanding principal of the Notes and any accrued and unpaid interest through the date of such declaration on all of the Notes to be immediately due and payable. Certain events of bankruptcy or insolvency are Events of Default which shall result in the outstanding principal amount of all Notes being declared due and payable immediately upon the occurrence of such Events of Default. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee may refuse to enforce the Indenture and the Notes unless it receives reasonable indemnity or security. Subject to certain limitations, conditions and exceptions, Holders of a majority in aggregate principal amount of the Notes at the time outstanding may direct the Trustee in its exercise of any trust or power, including the annulment of a declaration of acceleration. The Trustee may withhold from Holders notice of any continuing default (except a default in payment of amounts specified in clauses (i) and (ii) above) if it determines that withholding notice is in their interests.   A-7 -------------------------------------------------------------------------------- 13. TRUSTEE DEALINGS WITH THE COMPANY The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Notes and may otherwise deal with and collect obligations owed to it by the Company or its Affiliates and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee.   14. NO RECOURSE AGAINST OTHERS A director, officer, or employee, as such, of the Company or any Subsidiary, the Indenture or any stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Note, each Holder waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Notes.   15. GUARANTEES This Note will be entitled to the benefits of certain Guarantees, if any, made for the benefit of the Holders. Reference is hereby made to the Indenture for a statement of the respective rights, limitations of rights, duties and obligations thereunder of the Guarantors, the Trustee and the Holders.   16. RANKING The Notes shall be direct, unsecured obligations of the Company and shall rank pari passu in right of payment with all other unsecured and unsubordinated indebtedness of the Company. The Guarantees shall be direct, unsecured obligations of the Guarantors and shall rank pari passu in right of payment with all other unsecured and unsubordinated indebtedness of the Guarantors.   17. AUTHENTICATION This Note shall not be valid until an authorized officer of the Trustee manually signs the Trustee’s Certificate of Authentication on the other side of this Note.   18. ABBREVIATIONS Customary abbreviations may be used in the name of a Holder or an assignee, such as TEN COM (=tenants in common), TENANT (=tenants by the entireties), JT TEN (=joint tenants with right of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors Act).   19. GOVERNING LAW THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN THE INDENTURE AND THIS NOTE.   A-8 -------------------------------------------------------------------------------- The Company shall furnish to any Holder upon written request and without charge a copy of the Indenture which has in it the text of this Note in larger type. Requests may be made to: Lennar Corporation 700 N.W. 107th Avenue Miami, Florida 33172 Attn: General Counsel   A-9 -------------------------------------------------------------------------------- ASSIGNMENT FORM If you, the Holder, want to assign this Note, fill in the form below and have your signature guaranteed: I or we assign and transfer this Note to: __________________________________________ __________________________________________ __________________________________________ (Print or type name, address and zip code and social security or tax ID number of assignee) and irrevocably appoint                                         , agent to transfer this Note on the books of the Company. The agent may substitute another to act for him. Dated:                                    Signed:      (Sign exactly as your name appears on the other side of this Note) Signature Guarantee:                                                               Signature must be guaranteed by an “eligible guarantor institution,” that is, a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Registrar, which requirements include membership or participation in the Securities Transfer Agents Medallion Program (“STAMP”) or such other “signature guarantee program” as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934. In connection with any transfer of this Note occurring prior to the date which is the earlier of (i) the date of the declaration by the SEC of the effectiveness of a registration statement under the Securities Act of 1933, as amended (the “Securities Act”), covering resales of this Note (which effectiveness shall not have been suspended or terminated at the date of the transfer) and (ii) the second anniversary of the Issue Date (provided, however, that neither the Company nor any affiliate of the Company has held any beneficial interest in such Note, or portion thereof, or any predecessor security at any time on or prior to the second anniversary of the Issue Date), the undersigned confirms that it has not utilized any general solicitation or general advertising in connection with the transfer: [Check One]   (1) ¨ to the Company or a Subsidiary thereof; or   (2) ¨ pursuant to and in compliance with Rule 144A under the Securities Act; or   A-10 -------------------------------------------------------------------------------- (3) ¨ to an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) that has furnished to the Trustee a signed letter containing certain representations and agreements (the form of which letter can be obtained from the Trustee); or   (4) ¨ outside the United States to a “foreign person” in compliance with Rule 904 of Regulation S under the Securities Act; or   (5) ¨ pursuant to the exemption from registration provided by Rule 144 under the Securities Act; or   (6) ¨ pursuant to an effective registration statement under the Securities Act; or   (7) ¨ pursuant to another available exemption from the registration requirements of the Securities Act. and unless the box below is checked, the undersigned confirms that such Note is not being transferred to an “affiliate” of the Company as defined in Rule 144 under the Securities Act (an “Affiliate”): ¨ The transferee is an Affiliate of the Company. Unless one of the items is checked, the Trustee will refuse to register any of the Notes evidenced by this certificate in the name of any person other than the registered Holder thereof; provided, however, that if item (3), (4), (5) or (7) is checked, the Company or the Trustee may require, prior to registering any such transfer of the Notes, in their sole discretion, such written legal opinions, certifications (including an investment letter in the case of box (3) or (4) and other information as the Trustee or the Company have reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. If none of the foregoing items are checked, the Trustee or Registrar shall not be obligated to register this Note in the name of any person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in Section 2.17 of the Indenture shall have been satisfied.   Dated:          Signed:            (Sign exactly as your name appears on the other side of this Note) Signature Guarantee:                                                                   TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a “qualified institutional buyer” within the meaning of Rule 144A under the   A-11 -------------------------------------------------------------------------------- Securities Act and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned’s foregoing representations in order to claim the exemption from registration provided by Rule 144A.   Dated:                   NOTICE:   To be executed by an executive officer   A-12 -------------------------------------------------------------------------------- EXHIBIT B [FORM OF SERIES B NOTE] CUSIP No.: 526057AU8 LENNAR CORPORATION 5.95% SENIOR NOTES DUE 2011 SERIES B   No.    $                             Interest Rate: 5.95% per annum. Interest Payment Dates: December 15 and June 15, commencing December 15, 2006 Record Dates: December 1 and June 1 Lennar Corporation, a Delaware corporation (the “Company,” which term includes any successor entities), for value received, promises to pay to              or registered assigns, on October 17, 2011, the principal amount of                      Dollars ($             ), together with interest thereon as hereinafter provided. Reference is made to the further provisions of this Note contained herein, which will for all purposes have the same effect as if set forth at this place.   B-1 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, Lennar Corporation has caused this instrument to be signed manually or by facsimile by its duly authorized officers.   LENNAR CORPORATION By:        Name:     Title:   Dated:                                                 TRUSTEE’S CERTIFICATE OF AUTHENTICATION This is one of the Notes described in the within-mentioned Indenture. J.P. MORGAN TRUST COMPANY, N.A., as Trustee By:        Name:     Title:     B-2 -------------------------------------------------------------------------------- (REVERSE OF SECURITY) 5.95% Senior Note due 2011, Series B Capitalized terms used and not otherwise defined herein shall have the meanings ascribed to them in the Indenture, dated as of April 26, 2006, relating to the Notes, (the “Indenture”), and as amended from time to time, by and among Lennar Corporation, a Delaware corporation (the “Company”), the Guarantors named therein and J.P. Morgan Trust Company, N.A. as trustee (the “Trustee”).   1. INTEREST The Company promises to pay interest on the principal amount of this Note at the rate per annum above. Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the Issue Date. The Company shall pay interest semi-annually in arrears on each Interest Payment Date, commencing as of the Interest Payment Date referred to above and upon redemption. Interest will be computed on the basis of a 360-day year of twelve 30-day months and, in the case of a partial month, the actual number of days elapsed. The Company shall pay interest on overdue principal and, to the extent lawful, on overdue installments of interest (without regard to any applicable grace periods) from time to time on demand at the rate borne by the Notes.   2. METHOD OF PAYMENT Subject to the terms and conditions of the Indenture, the Company shall (a) pay interest on the Notes (except defaulted interest) to the Persons who are the registered Holders of Notes at the close of business on the Record Date immediately preceding the Interest Payment Date even if the Notes are canceled transferred or exchanged after such Record Date, and (b) make all other payments in respect of the Notes to the Persons who are registered Holders of Notes at the close of business on the Business Day preceding the Redemption Date or Maturity, as the case may be. Holders must surrender Notes to a Paying Agent to collect such payments in respect of the Notes referred to in clause (b) of the preceding sentence. The Company shall pay cash amounts in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, the Company may make the cash payments by check payable in such money.   3. PAYING AGENT, AND REGISTRAR Initially, J.P. Morgan Trust Company, N.A., a national banking association (the “Trustee”), shall act as Paying Agent and Registrar. The Company may appoint and change any Paying Agent, Registrar or co-registrar without notice, other than notice to the Trustee. The Company or any of its Subsidiaries or any of their Affiliates may act as Paying Agent, Registrar or co-registrar.   B-3 -------------------------------------------------------------------------------- 4. INDENTURE The Company issued the Notes under the Indenture. This Note is one of a duly authorized issue of Notes of the Company designated as its 5.95% Senior Notes due 2011, Series B (the “Unrestricted Notes”). The Notes include the Initial Notes, the Private Exchange Notes and the Unrestricted Notes, issued in exchange for the Initial Notes pursuant to the Registration Rights Agreement. The Initial Notes, the Private Exchange Notes and the Unrestricted Notes are treated as a single class of securities under the Indenture. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (the “TIA”), as in effect on the date of the Indenture. Notwithstanding anything to the contrary herein, the Notes are subject to all such terms, and Holders of Notes are referred to the Indenture and the TIA for a statement of such terms. The Notes are general unsecured obligations of the Company. Each Holder, by accepting a Note, agrees to be bound by all of the terms and provisions of the Indenture, as the same may be amended from time to time in accordance with its terms.   5. REDEMPTION AT THE OPTION OF THE COMPANY No sinking fund is provided for the Notes. The Notes are redeemable as a whole, or from time to time in part, at any time at the option of the Company at a Redemption Price equal to the greater of: (a) 100% of their principal amount; and (b) the present value of the Remaining Scheduled Payments on the Notes being redeemed on the Redemption Date, discounted to the Redemption Date, on a semiannual basis, at the Treasury Rate plus 20 basis points (0.20%), together, in either case, with accrued interest to the Redemption Date on their principal amount.   6. NOTICE OF REDEMPTION AT THE OPTION OF THE COMPANY Notice of redemption at the option of the Company shall be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Notes to be redeemed at the Holder’s registered address. If money sufficient to pay the Redemption Price of all Notes (or portions thereof) to be redeemed on the Redemption Date is deposited with the Paying Agent prior to or on the Redemption Date, interest ceases to accrue on such Notes or portions thereof on and after such date. Notes in denominations larger than $1,000 may be redeemed in part but only in integral multiples of $1,000.   7. DENOMINATIONS; TRANSFER; EXCHANGE The Notes are in registered form, without coupons, in denominations of $1,000 and integral multiplies of $1,000. A Holder may transfer Notes in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any governmental taxes and fees required by law or permitted by the Indenture. The Registrar need not transfer or exchange any Notes selected for redemption (except, in the case of a Note to be redeemed in part, the portion of the Note not to be redeemed) or any Notes for a period of 15 days before any selection of Notes to be redeemed.   B-4 -------------------------------------------------------------------------------- 8. PERSONS DEEMED OWNERS The registered Holder of this Note may be treated as the owner of this Note for all purposes.   9. UNCLAIMED MONEY OR PROPERTY The Trustee and the Paying Agent shall return to the Company upon written request any money or property held by them for the payment of any amount with respect to the Notes that remains unclaimed for two years, provided, however, that the Trustee or such Paying Agent, before being required to make any such return, shall at the expense of the Company cause to be published once in a newspaper of general circulation in The City of New York or mail to each such Holder notice that such money or property remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication or mailing, any unclaimed money or property then remaining shall be returned to the Company. After return to the Company, Holders entitled to the money or property must look to the Company for payment as general creditors unless an applicable abandoned property law designates another Person.   10. AMENDMENT; WAIVER Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Notes may be amended with the written consent of the Holders of at least a majority in aggregate principal amount of the Notes at the time outstanding and (ii) certain defaults or noncompliance with certain provisions may be waived with the written consent of the Holders of a majority in aggregate principal amount of the Notes at the time outstanding. Subject to certain exceptions set forth in the Indenture, without the consent of any Holder, the Company and the Trustee may amend the Indenture or the Notes to cure any ambiguity, defect or inconsistency, to make any change that does not adversely affect the right of any Holder, to convey, transfer, assign, mortgage or pledge to the Trustee as security for the Notes any property or assets, to evidence the succession of another corporation to the Company (or successive successions) and the assumption by the successor corporation of the covenants, agreements and obligations of the Company, to add to the covenants of the Company such further covenants, restrictions or conditions as the Board of Directors and the Trustee shall consider to be for the benefit of the Holders of Notes, and to make the occurrence, or the occurrence and continuance, of a default in any such additional covenants, restrictions or conditions a Default or an Event of Default permitting the enforcement of all or any of the several remedies provided in the Indenture, to evidence and provide for the acceptance of appointment hereunder of a successor Trustee with respect to the Notes, or to modify, eliminate or add to the provisions of the Indenture to such extent as shall be necessary for the Indenture to comply with the TIA, or under any similar federal statute hereafter enacted.   11. DEFAULTS AND REMEDIES Under the Indenture, Events of Default include (i) a default by the Company in the payment of any interest which continues for more than 30 days after the due date, (ii) a default by the Company in the payment of any principal or Redemption Price due with respect to the Notes; (iii) a default by the Company or any Restricted Subsidiary with respect to its obligation to pay Indebtedness for borrowed money (other than Non-Recourse Indebtedness),   B-5 -------------------------------------------------------------------------------- which default shall have resulted in the acceleration of, or be a failure to pay at final maturity, Indebtedness aggregating more than $50 million; (iv) a failure to perform any other covenant or warranty of the Company herein and in the Indenture, which continues for 30 days after written notice; (v) final judgments or orders are rendered against the Company or any Restricted Subsidiary which require the payment by the Company or any Restricted Subsidiary of an amount (to the extent not covered by insurance) in excess of $50 million and such judgments or orders remain unstayed or unsatisfied for more than 60 days and are not being contested in good faith by appropriate proceedings; (vi) the Company or any Restricted Subsidiary, pursuant to any Bankruptcy Law applicable to the Company or such Restricted Subsidiary: (A) commences a voluntary case; (B) consents to the entry of an order for relief against it in an involuntary case; (C) consents to the appointment of a Custodian of it or for any substantial part of its property; or (D) makes a general assignment for the benefit of its creditors; or (vii) a court of competent jurisdiction enters an order or decree under any applicable Bankruptcy Law: (A) for relief in an involuntary case against the Company or any Restricted Subsidiary; (B) appointing a Custodian of the Company or any Restricted Subsidiary or for any substantial part of its respective property; or (C) ordering the winding up or liquidation of the Company or any Restricted Security; and the order or decree remains unstayed and in effect for 90 days. If an Event of Default occurs and is continuing, the Trustee, or the Holders of at least 25% in aggregate principal amount of the Notes at the time outstanding, may declare the outstanding principal of the Notes and any accrued and unpaid interest through the date of such declaration on all of the Notes to be immediately due and payable. Certain events of bankruptcy or insolvency are Events of Default which shall result in the outstanding principal amount of all Notes being declared due and payable immediately upon the occurrence of such Events of Default. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee may refuse to enforce the Indenture and the Notes unless it receives reasonable indemnity or security. Subject to certain limitations, conditions and exceptions, Holders of a majority in aggregate principal amount of the Notes at the time outstanding may direct the Trustee in its exercise of any trust or power, including the annulment of a declaration of acceleration. The Trustee may withhold from Holders notice of any continuing default (except a default in payment of amounts specified in clauses (i) and (ii) above) if it determines that withholding notice is in their interests.   12. TRUSTEE DEALINGS WITH THE COMPANY The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Notes and may otherwise deal with and collect obligations owed to it by the Company or its Affiliates and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee.   13. NO RECOURSE AGAINST OTHERS A director, officer, or employee, as such, of the Company or any Subsidiary, the Indenture or any stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Note, each Holder   B-6 -------------------------------------------------------------------------------- waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Notes.   14. GUARANTEES This Note will be entitled to the benefits of certain Guarantees, if any, made for the benefit of the Holders. Reference is hereby made to the Indenture for a statement of the respective rights, limitations of rights, duties and obligations thereunder of the Guarantors, the Trustee and the Holders.   15. RANKING The Notes shall be direct, unsecured obligations of the Company and shall rank pari passu in right of payment with all other unsecured and unsubordinated indebtedness of the Company. The Guarantees shall be direct, unsecured obligations of the Guarantors and shall rank pari passu in right of payment with all other unsecured and unsubordinated indebtedness of the Guarantors.   16. AUTHENTICATION This Note shall not be valid until an authorized officer of the Trustee manually signs the Trustee’s Certificate of Authentication on the other side of this Note.   17. ABBREVIATIONS Customary abbreviations may be used in the name of a Holder or an assignee, such as TEN COM (=tenants in common), TENANT (=tenants by the entireties), JT TEN (=joint tenants with right of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors Act).   18. GOVERNING LAW THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN THE INDENTURE AND THIS NOTE. The Company shall furnish to any Holder upon written request and without charge a copy of the Indenture which has in it the text of this Note in larger type. Requests may be made to: Lennar Corporation 700 N.W. 107th Avenue Miami, Florida 33172 Attn: General Counsel   B-7 -------------------------------------------------------------------------------- ASSIGNMENT FORM If you, the Holder, want to assign this Note, fill in the form below and have your signature guaranteed: I or we assign and transfer this Note to: ______________________________________ ______________________________________ ______________________________________ (Print or type name, address and zip code and social security or tax ID number of assignee) and irrevocably appoint                                         , agent to transfer this Note on the books of the Company. The agent may substitute another to act for him.   Dated:          Signed:            (Sign exactly as your name appears on the other side of this Note) Signature Guarantee:                                                           Signature must be guaranteed by an “eligible guarantor institution,” that is, a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Registrar, which requirements include membership or participation in the Securities Transfer Agents Medallion Program (“STAMP”) or such other “signature guarantee program” as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934.   B-8

Exhibit 10.3   PATENT SECURITY AGREEMENT   This PATENT SECURITY AGREEMENT (“Agreement”) is made this 17th day of February, 2006, by and between Biosource America, Inc., a Texas corporation, having its principal office at 2777 Allen Parkway, Suite 800, Houston, Texas 77019  (“Grantor”), and BIOsource Fuels, LLC, a Wisconsin limited liability company, having its principal office at 3111 152nd Avenue, Kenosha, Wisconsin 53144 (“Grantee”).   WHEREAS, Grantor is the owner of the U.S. patent applications listed on the attached Schedule A (the “Patent Applications”);   WHEREAS, Grantee has extended a loan to Grantor pursuant to the terms and conditions of that certain Promissory Note dated the date hereof (“Note”) made by Grantor in favor of Grantee;   WHEREAS, under a Security Agreement dated the date hereof (“Security Agreement”) between Grantor and Grantee, Grantor has granted to Grantee a security interest in certain of its assets (including the Patent Applications) to secure the performance of the obligations of Grantor under the Note; and   WHEREAS, Grantor and Grantee by this instrument seek to confirm and make a record of the grant of a security interest in the Patent Application.   NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Grantor does hereby acknowledge that it has granted to Grantee a security interest in all of Grantor’s right, title and interest in, to, and under the Patent Application. Grantor also acknowledges and confirms that the rights and remedies of Grantee with respect to the security interests in the Patent Application granted hereby are more fully set forth in the Note and the Security Agreement, the terms and provisions of which are incorporated herein by reference.     Biosource America, Inc. BIOsource Fuels, LLC   By: Kenosha Beef International, Ltd., Manager       By: /s/ J.D. McGraw     By:     Its: President     Its:             STATE OF TEXAS ) STATE OF WISCONSIN )   ) SS:   )  SS: COUNTY OF HARRIS ) COUNTY OF KENOSHA )         Subscribed and sworn to before me Subscribed and sworn to before me this 17th day of February, 2006. this        day of February, 2006.     Cecilia D. Sanchez               Notary Public, State of Texas Notary Public, State of                             My Commission Expires: Oct 26, 2009   My Commission Expires:                   --------------------------------------------------------------------------------   SCHEDULE A   U.S. Patent Applications   Patent Application No.   Title   Filing Date 10/766,740   Production of Biodiesel and Glycerin from High Free Fatty Acid Feedstocks   January 26, 2004 60/537,251   Production of Biodiesel and Glycerin from High Free Fatty Acid Feedstocks   January 15, 2004 60/443,049   Industrial Process for the Production of Biodiesel and Glycerin from High Free Fatty Acid Feedstocks   January 27, 2003   (but excluding any right, title and interest Mr. Kirk Cobb may have in U.S. Provisional App. Serial No. 60/443,049 as a named inventor thereon)   --------------------------------------------------------------------------------   NOTE:  COMPLETE AND ATTACH FORM PTO 1595   --------------------------------------------------------------------------------

Exhibit 10.1 AMENDMENT NUMBER 1 TO DESIGN AND DEVELOPMENT AGREEMENT         This Amendment Number 1 (this “Amendment”) is made as of the 6th day of December, 2006, to the original Agreement made as of the 14th day of April, 2005 (the “Original Agreement”), by and among ROBERTS PROPERTIES RESIDENTIAL, L.P., a Georgia limited partnership (the “Partnership”), GEORGIANNA JEAN K. VALENTINO, an individual resident of the State of Georgia (“Valentino”) and ROBERTS PROPERTIES, INC., a Georgia corporation (the “Developer”). RECITALS: A.     Previously, the Partnership owned an 82% undivided interest and Valentino owned an 18% undivided interest in approximately 23.547 acres located in Land Lot 301 of the 6th District, Gwinnett County, Georgia, fronting on Peachtree Parkway (the “Property”), and the Partnership and Valentino intended as Tenants-in-Common to develop, construct, own and operate on the Property a 292 unit apartment community (“Peachtree Parkway”). B.     The Partnership, Valentino and the Developer entered into the Original Agreement under which the Partnership and Valentino retained the Developer to perform certain advisory, administrative and supervisory services relating to the design, development and construction of Peachtree Parkway. C.     On the date of this Amendment, the Partnership has acquired Valentino’s 18% undivided interest in the Property, and the Partnership now owns 100% of the Property. In light of this acquisition, the Partnership and the Developer desire to reflect that Valentino is no longer a party to the Original Agreement, as amended by this Amendment. D.     In addition, the parties to this Amendment desire to modify the payment provisions of the Original Agreement.         NOW, THEREFORE, the parties hereto hereby agree as follows: 1.  SERVICES         The Developer will create and develop Peachtree Parkway and manage the team of professionals involved, including engineers, land planners, architects and designers, and manage the design team involved in developing the interior design and models, as well as selecting the materials, finishes, features and colors for the interior and exterior of Peachtree Parkway. The Developer shall also provide supervisory services to ensure that Peachtree Parkway is built in accordance with the approved Plans and Specifications provided. 2.  COMPENSATION         For the above services, the Developer shall be paid a total of One Million Four Hundred and Sixty Thousand Dollars ($1,460,000), payable as the services are rendered and billed by the Developer. The date of commencement of the development period was April 2005. -------------------------------------------------------------------------------- 3.  RELEASE OF VALENTINO         In consideration of the acquisition by the Partnership of Valentino’s entire interest in the Property, the Partnership and the Developer hereby release Valentino from and against any and all liability under the Original Agreement, as amended by this Amendment. 4.  AMENDMENT AND RESTATEMENT OF ORIGINAL AGREEMENT         This Amendment amends and restates the Original Agreement in its entirety. The Recitals and introductory language above are an integral part of this Amendment.         IN WITNESS WHEREOF, the parties hereto have executed this agreement as of the date first above written. ROBERTS PROPERTIES RESIDENTIAL,     ROBERTS PROPERTIES, INC., a     L.P., a Georgia limited partnership   Georgia corporation       By:   Roberts Realty Investors, Inc.,   By:  /s/ Anthony W. Shurtz             its sole General Partner         Anthony W. Shurtz                Chief Financial Officer       By:    /s/ Charles R. Elliott               Charles R. Elliott          Chief Financial Officer     

Exhibit 10.2 INDEPENDENT CONTRACTOR AGREEMENT This INDEPENDENT CONTRACTOR AGREEMENT (the “Agreement”) is made and entered into as of the 20th day of March, 2006, by and between Brian Hrudka, a North Carolina resident (“Contractor”) and Embrex, Inc. (“Embrex” or the “Company”). Company is engaged in developing patented biological and mechanical products that improve bird health, reduce bird and production costs and provide other economic benefits to the poultry industry. Contractor is skilled in the field of strategic marketing relative to the animal health industry. Company desires to contract with Contractor for Contractor’s provision of certain strategic marketing services, in accordance with the terms and conditions set forth herein. In consideration of the above and the mutual promises set forth below, Contractor and Company agree as follows: 1. Provision of Consulting Services. Contractor agrees to provide the consulting services described in Schedule 1 attached hereto. In performing these services, Contractor will comply with all applicable professional standards and laws, regulations and rules and will use his best efforts, skills and knowledge, and exercise the degree of skill and care required by the highest levels of accepted professional and business standards. 2. Term. Beginning on March 20, 2006 and ending on March 19, 2008, unless terminated earlier by either party pursuant to paragraph 5 below. This Agreement may be renewed only by written agreement between the parties. 3. Fees, Expenses and Payment. (a) Fees. The Company shall pay Contractor a consulting fee for services rendered as described in Schedule 1 attached hereto. (b) Reimbursement of Expenses. Company shall reimburse Contractor for out-of-pocket expenses necessarily and reasonably incurred by Contractor in furtherance of his performance hereunder provided that such expenses are approved in advance by the Company in writing, such payments to be made within thirty (30) days of receipt of Contractor’s invoice for such expenses, as accompanied by a full explanation of expenses and the original receipts. To the extent air travel is required, the Company shall be responsible for the direct purchase of such related tickets. Airline travel in connection with this Agreement shall be based on “coach class.” 4. Independent Contractor Status. The parties hereby acknowledge and agree that Contractor’s consulting services for the Company shall be provided strictly as an independent contractor. Nothing in this Agreement shall be construed to render him an employee, co-venturer, agent, or other representative of the Company. Neither party shall have the authority to negotiate or enter into any contract or other undertaking or make any representation on behalf of or binding on the other. Contractor understands that he must comply with -------------------------------------------------------------------------------- all tax laws applicable to a self-employed individual, including the filing of any necessary tax returns and the payment of all income and self-employment taxes. The Company shall not be required to withhold from the consulting fee any state or federal income taxes or to make payments for Social Security (“FICA”) tax, unemployment insurance, or any other payroll taxes. The Company shall not be responsible for, and shall not obtain, worker’s compensation, disability benefits insurance, or unemployment security insurance coverage for Contractor. Contractor is not eligible for, nor entitled to, and shall not participate in, any of the Company’s pension, health, or other benefit plans, if any such plans exist. Consistent with his duties and obligations under this Agreement, Contractor shall, at all times, maintain sole and exclusive control over the manner and method by which he performs his consulting services. 5. Termination. The Company may terminate this Agreement at any time without notice should Contractor materially breach this Agreement or any other written agreement between the parties, or revoke or purport to revoke any release of claims against the Company which he previously executed or assert any claims against the Company, which were covered by any such release. A material breach of this Agreement would include, but not be limited to, refusing or otherwise failing to accept or complete consulting assignments, or engaging in dishonesty, fraud, criminal conduct or other conduct which is materially injurious to the Company. In the event of termination of this Agreement, Contractor shall be entitled to consulting fees for services actually performed through the date of termination and approved expenses through such date, and no other compensation. Either party may terminate this Agreement for any reason as of ninety (90) days following a written notice to such other party. 6. No Assignment; Benefit. This Agreement may not be assigned by Contractor in whole or in part without the prior written consent of the Company. The Company may assign this Agreement. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and permitted assigns. 7. Notice. All notices required hereunder shall be in writing and shall be deemed to have been given on the day of delivery if delivered personally or via email; on the third business day after mailing by United States certified or registered mail, postage prepaid, return receipt requested; or on the day following delivery to a recognized overnight delivery service in each instance addressed to the parties at the addresses set forth below: If to Company:                                                                                  If to Contractor: Attn: Randall L. Marcuson                                                                  Attn: Brian Hrudka Embrex, Inc. 1040 Swabia Court RTP, NC 27709-3989 Email : [email protected] Phone: (919) 941-5185 Fax: (919) 941-5186 8. Ownership of Work Product; Inventions. All avian-related work product, inventions, discoveries, data, technology, designs, innovations and improvements (whether or not patentable and whether or not copyrightable) that the Contractor makes, conceives, writes, designs, or develops utilizing the Company’s facilities, materials, employees and/or proprietary or confidential information or in the course of the performance of services hereunder, solely or jointly with others, and whether during normal business hours or otherwise (the “Inventions”), shall be the sole property of the Company. Contractor agrees to assign and hereby assigns to the Company all Inventions and any and all related industrial and intellectual property rights and applications therefore, in the United States and elsewhere, and appoints any officer of the Company as his duly authorized attorney to execute, file, prosecute and protect the same before any government, agency, court, or authority. Upon the request of the Company and at the Company’s expense, Contractor shall execute such   2 -------------------------------------------------------------------------------- further assignments, documents, and other instruments as may be necessary or desirable to fully and completely assign all Inventions to the Company and to assist the Company in applying for, obtaining, and enforcing patents or copyrights or other rights in the United States and in any foreign country with respect to any Invention. Contractor shall promptly disclose in writing to the Company all Inventions and will maintain adequate and current written records (in the form of notes, sketches, drawings or in such form as may be specified by the Company) to document the conception and/or first actual reduction to practice of any Invention. Such written records shall be available to and remain the sole property of the Company at all times. 9. Company Information and Property. Except as necessary to perform consulting services under this Agreement, Contractor shall not, without the prior written consent of the Company, at any time during or after the term of this Agreement, use for his own benefit or for the benefit of any other person or directly or indirectly reveal, furnish, or make known to any person any proprietary, confidential or secret processes, plans, formulae, materials, or information, whether of a technical nature or otherwise, relating to the business, products or activities of the Company. Confidential or proprietary information is information relating to the Company or any aspect of its business which is not generally available to the public, the Company’s competitors or other third parties, or ascertainable through common sense or general business or technical knowledge. If such information is sought from Contractor by court order or other mandatory government process, then Contractor shall notify the Company and, at its expense, take all reasonably necessary steps to defend against such court order or other mandatory process. Additionally, Contractor shall permit the Company to participate with counsel of its choice in any related enforcement proceedings. The provisions of this paragraph 9 shall survive any termination of this Agreement. Contractor shall return all Company property and confidential or proprietary Company information in his possession, custody or control (including but not limited to computer software and hardware, records, files and other documents in whatever form they exist, whether electronic, hard copy or otherwise, and all copies, notes, or summaries thereof) to the Company no later than the date of termination of this Agreement or, if requested by the Company, an earlier date. Contractor further agrees that he will not disclose to the Company or improperly use or induce the Company to use any trade secrets or confidential or proprietary information of any other party. Contractor’s failure to comply with the provisions of this paragraph is a material breach of this Independent Contractor Agreement. 10. Non-Exclusivity of Services. During the term of this Agreement, Contractor shall not be limited to performing services solely for the Company, provided that he complies with all non-competition and non-solicitation agreements with the Company. 11. Governing Law. The validity of and the rights and duties of the parties under this Agreement shall be governed and construed in all respects in accordance with the laws of North Carolina, where this Agreement is deemed to have been entered into, exclusive of its choice of law provision. 12. Entire Agreement. This Agreement does not release Contractor from any obligations under any previously or contemporaneously executed non-competition, non-solicitation, confidentiality or intellectual property agreement between the parties. Except as expressly provided in this Agreement, this Agreement: (i) supersedes all other understandings and agreements, oral or written, between the parties with respect to its subject matter; and (ii) constitutes the sole agreement between the parties with respect to its subject matter. Each party acknowledges that: (i) no representations, inducements, promises or agreements, oral or written, have been made by any party or by anyone acting on behalf of any party, which are not embodied in this Agreement; and (ii) no agreement, statement or promise not contained in this Agreement shall be valid. No change or modification of this Agreement shall be valid or binding upon the parties unless such change or modification is in writing and is signed by the parties. [The remainder of this page is left blank intentionally.]   3 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, WE HAVE SIGNED THIS AGREEMENT ON THE DAY AND YEAR WRITTEN BELOW.   /s/ Brian Hrudka Brian Hrudka March 20, 2006 Date EMBREX, INC. By:   /s/ Randall L. Marcuson Its:   President & Chief Executive Officer March 20, 2006   4 -------------------------------------------------------------------------------- SCHEDULE 1 SCOPE OF WORK   SERVICES:    Contractor shall provide various consulting services to the Company in support of its strategic marketing initiatives, as requested by the Company. Contractor shall also continue to provide the Company assistance, as needed, in connection with pending litigations. FISCAL MONTH:    For purposes of this Schedule 1, “Fiscal Month” shall mean the period beginning on the 20th calendar day of a given month and ending on the 19th calendar day of the following month. AVAILABILITY:    It is expected that Contractor will perform a portion of the services under this Agreement remotely. Whenever Contractor is not working on-site at the Company’s headquarters during normal business hours, he shall otherwise be reasonably available to be contacted via telephone or email by any Embrex employee working in connection with the Company’s strategic marketing initiatives. FEE:    $200 per hour INVOICING & BILLING ARANGEMENT:    Contractor shall invoice the Company for the applicable fee as of the end of each Fiscal Month, with each such invoice showing the number of hours by day worked by Contractor during the Fiscal Month. Such invoice shall also describe the work performed during such hours of service.    To the extent non-personal, out-of-town travel is required of the Contractor under this Agreement, the number of actual hours worked on each such day shall be deemed to be eight (8) hours, excluding travel time. Travel time each way shall be scheduled flight duration, plus 3 hours.   5

Exhibit 10.1 LOAN AND SECURITY AGREEMENT dated as of March 14, 2006 among NCI, INC. And Its Subsidiaries, as Borrowers THE LENDERS FROM TIME TO TIME PARTY HERETO, SUNTRUST BANK, as Administrative Agent, and SUNTRUST ROBINSON HUMPHREY, a division of SUNTRUST CAPITAL MARKETS, INC., as Lead Arranger and Book Manager   -------------------------------------------------------------------------------- TABLE OF CONTENTS   SECTION 1.   Definitions    1 SECTION 2.   Loans.    23 2.1   Loans and Letters of Credit    23 2.2   Revolving Loans    24 2.3   Procedure for Revolving Loan Borrowings    24 2.4   Swingline Commitment    24 2.5   Procedure for Swingline Borrowing.    25 2.6   Letters of Credit.    26 2.7   Additional Revolving Loans.    31 2.8   Funding of Borrowings.    33 2.9   Interest Elections.    33 2.10   Repayment of Loans.    34 2.11   Interest on Loans    35 2.12   Fees.    36 2.13   Computation of Interest and Fees    37 2.14   Evidence of Indebtedness.    37 2.15   Inability to Determine Interest Rates    37 2.16   Illegality    38 2.17   Increased Costs.    39 2.18   Funding Indemnity    40 2.19   Taxes.    40 2.20   Optional Reduction and Termination of Commitments.    42 2.21   Optional Prepayments    42 2.22   Mandatory Prepayments and Commitment Reductions.    43 2.23   Payments Generally; Pro Rata Treatment; Sharing of Set-offs.    44 2.24   Mitigation of Obligations; Replacement of Lenders.    46 SECTION 3.   Security.    47 3.1   Security Interest    47 3.2   Representations and Warranties Concerning the Collateral.    48 3.3   Covenants Concerning the Collateral.    49 3.4   Perfection of Security Interest.    51 3.5   Power of Attorney    54 3.6   Limitations on Obligations    54 SECTION 4.   Representations and Warranties    55 4.1   Incorporation, Good Standing and Due Qualification    55 4.2   Power and Authority    55 4.3   Legally Enforceable Agreement    55 4.4   Financial Statements    56 4.5   Litigation; Environmental Matters.    56 4.6   Ownership and Liens    56 4.7   ERISA    56 -------------------------------------------------------------------------------- 4.8   Taxes    56 4.9   Use of Proceeds and Letters of Credit    57 4.10   Debt    57 4.11   Debarment and Suspension    57 4.12   Material Contracts    57 4.13   Intellectual Property    57 4.14   True and Complete Information    57 4.15   Integrated Business    58 4.16   Employee Relations    58 4.17   Burdensome Provisions    58 4.18   Absence of Defaults    58 4.19   Disclosure    58 4.20   Survival of Representations and Warranties, Etc    59 SECTION 5.   Affirmative Covenants    59 5.1   Maintenance of Existence    59 5.2   Maintenance of Records    59 5.3   Maintenance of Properties    59 5.4   Conduct of Business    59 5.5   Maintenance of Insurance    59 5.6   Compliance with Laws    60 5.7   Right of Inspection    60 5.8   Reporting Requirements    60 5.9   Primary Operating Account    63 5.10   Additional Collateral, etc.    63 5.11   Further Assurances    64 SECTION 6.   Negative Covenants    65 6.1   Liens    65 6.2   Debt    65 6.3   Mergers, etc    66 6.4   Leases    66 6.5   Sale and Leaseback; Synthetic Leases    66 6.6   Restricted Payments    66 6.7   Sale of Assets    66 6.8   Investments, Loans, Etc    66 6.9   Guaranties, etc    67 6.10   Acquisitions    67 6.11   Transactions with Affiliates    67 6.12   Fiscal Year; Accounting Policies; Organizational Documents; Material Contracts    67 6.13   Limitation on Restricted Actions    68 6.14   Amendment of Subordinated Indebtedness    68 SECTION 7.   Financial Covenants    68 7.1   Net Worth    68   ii -------------------------------------------------------------------------------- 7.2   Senior Funded Debt Ratio    68 7.3   Fixed Charge Coverage Ratio    68 7.4   Capital Expenditures    69 SECTION 8.   Conditions of Lending    69 8.1   Conditions Precedent to Closing    69 8.2   Conditions Precedent to Each Disbursement    70 8.3   Conditions to Subsidiaries Becoming Borrowers    71 SECTION 9.   Default.    72 9.1   Events of Default    72 9.2   Remedies upon Default    74 SECTION 10.   The Administrative Agent.    77 10.1   Appointment of Administrative Agent.    77 10.2   Nature of Duties of Administrative Agent    78 10.3   Lack of Reliance on the Administrative Agent    79 10.4   Certain Rights of the Administrative Agent    79 10.5   Reliance by Administrative Agent    79 10.6   The Administrative Agent in its Individual Capacity    79 10.7   Successor Administrative Agent.    80 10.8   Authorization to Execute other Loan Documents; Collateral.    80 10.9   Benefits of Article 10    81 SECTION 11.   Miscellaneous.    81 11.1   Notices.    81 11.2   Waiver; Amendments.    83 11.3   Expenses; Indemnification.    84 11.4   Successors and Assigns.    86 11.5   Governing Law; Jurisdiction; Consent to Service of Process.    88 11.6   WAIVER OF JURY TRIAL    89 11.7   Right of Setoff    90 11.8   Counterparts; Integration    90 11.9   Survival    90 11.10   Severability    90 11.11   Confidentiality    91 11.12   Interest Rate Limitation    91 11.13   Captions    91 11.14   Use of Defined Terms    92 11.15   Accounting Terms    92 11.16   Patriot Act    92   iii -------------------------------------------------------------------------------- LOAN AND SECURITY AGREEMENT THIS LOAN AND SECURITY AGREEMENT, dated as of the 14th day of March, 2006, is made by and among NCI, INC., a Delaware corporation (the “Company”), NCI INFORMATION SYSTEMS, INCORPORATED, a Virginia corporation (“NCI Virginia”), and SCIENTIFIC AND ENGINEERING SOLUTIONS, INC., a Maryland corporation (“SES”), and each other Subsidiary (as defined below) that becomes a party to this Agreement from time to time in accordance with the provisions set forth below (together with the Company and SES, collectively, the “Borrowers,” and individually, a “Borrower”), the several banks and other financial institutions from time to time party hereto (the “Lenders”), SUNTRUST ROBINSON HUMPHREY, a division of SUNTRUST CAPITAL MARKETS, INC., in its capacity as Lead Arranger and Book Manager (in such capacity, the “Arranger”), and SUNTRUST BANK, in its capacity as Administrative Agent for the Lenders (in such capacity, the “Administrative Agent”). RECITALS The Borrowers have requested that the Lenders (a) establish a $60,000,000 revolving credit facility for; (b) establish a $5,000,000 swingline facility for; and (c) issue letters of credit for the account of, the Borrowers. The Lenders severally, to the extent of their respective Commitments, as defined herein, have agreed to provide severally such financing to the Borrowers, subject to the terms and conditions of this Agreement. Accordingly, for good and valuable consideration, the receipt and sufficiency of which are acknowledged, the Lenders, the Administrative Agent and the Borrowers agree as follows: SECTION 1. Definitions. As used in this Agreement, the following terms shall have the meanings assigned to them below, which meanings shall be equally applicable to the singular and plural forms of the terms defined. “AAA Distribution” means any distribution made by either NCI Virginia or the Company out of NCI Virginia’s accumulated adjustments account with respect to the cumulative total of undistributed Net Income items generated by NCI Virginia during the period of the effectiveness of its election to be treated as an S corporation under the Internal Revenue Code. “Administrative Agent” shall have the meaning assigned to such term in the preamble to this Agreement. “Affiliate” means, with respect to any specified Person, any other Person that, directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, such specified Person. The term “control” means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of common stock, by contract or otherwise. -------------------------------------------------------------------------------- “Aggregate Exposure” means, with respect to any Lender at any time, an amount equal to (a) until the Closing Date, the aggregate amount of such Lender’s Commitments at such time and (b) thereafter, the amount of such Lender’s Revolving Commitment then in effect or, if the Revolving Commitments have been terminated, the amount of such Lender’s Revolving Credit Exposure then outstanding. “Aggregate Exposure Percentage” means, with respect to any Lender at any time, the ratio (expressed as a percentage) of such Lender’s Aggregate Exposure at such time to the Aggregate Exposure of all Lenders at such time. “Aggregate Revolving Commitment Amount” shall mean the aggregate principal amount of the Aggregate Revolving Commitments from time to time. On the Closing Date, the Aggregate Revolving Commitment Amount equals $60,000,000. “Aggregate Revolving Commitments” shall mean, collectively, all Revolving Commitments of all Revolving Credit Lenders at any time outstanding. “Agreement” means this Loan and Security Agreement, as the same may be amended, modified or supplemented from time to time. “Applicable Lending Office” shall mean, for each Lender and for each Type of Loan, the “Lending Office” of such Lender (or an Affiliate of such Lender) designated on the signature page hereto, or such other office of such Lender (or Affiliate of such Lender) as such Lender may from time to time specify to the Administrative Agent and the Borrowers as the office by which its Loans are to be made and maintained. “Applicable Margin” shall mean the applicable percentage corresponding to the Senior Funded Debt Ratio set forth below, as calculated by the Administrative Agent. The Applicable Margin on the Closing Date for (a) Revolving Loans that are LIBOR Loans or Index Rate Loans, and Swingline Loans that are Index Rate Loans shall be 1.00%, and (b) Revolving Loans and Swingline Loans that are Base Rate Loans shall be 0.00%. The Applicable Margin will be adjusted on a quarterly basis in accordance with the table set forth below:   Senior Funded Debt Ratio    Applicable Margin for Revolving LIBOR Loans and Index Rate Loans and for Swingline Index Rate Loans   Applicable Margin for Revolving and Swingline Base Rate Loans Less than 2.00 to 1.    1.00%   0.00% Equal to or greater than 2.00 to 1, and less than to 2.50 to 1.    1.25%   0.25% Equal to or greater than 2.50 to 1, and less than to 3.00 to 1.    1.50%   0.50% Equal to or greater than 3.00 to 1    1.75%   0.75%   2 -------------------------------------------------------------------------------- The Applicable Margin will be adjusted to the percentage corresponding to the applicable Senior Funded Debt Ratio in effect as of the last day of each fiscal quarter of the Company. The adjustment will become effective as of the first day of the calendar month next succeeding delivery to the Administrative Agent of the Company’s financial statements for the last month of each fiscal quarter pursuant to Section 5.8. No decrease in the Applicable Margin shall become effective if, at such time, any Default or Event of Default has occurred and is continuing until such time as such Default or Event of Default is cured or waived in accordance with the terms of this Agreement and no other Defaults or Events of Default have occurred and are continuing. If the Company’s financial statements are not delivered to the Administrative Agent within the specified time periods, the Applicable Margin may be increased, at the option of the Administrative Agent, or upon written notice from the Required Lenders to the Administrative Agent and the Company, to the highest applicable percentage above, to be effective from the date on which the statements were due through the date which is three Business Days after the date on which such financial statements are delivered to the Administrative Agent, whereupon the Applicable Margin shall again be adjusted to the applicable percentage corresponding to the Senior Funded Debt Ratio in effect as of the last day of such fiscal quarter of the Company, with such adjustment becoming effective on such third Business Day. “Asset Sale” means any Disposition of assets or series of related Dispositions of assets which yields Net Cash Proceeds to the Company or any of its Subsidiaries (valued at the initial principal amount thereof in the case of non-cash proceeds consisting of notes or other debt securities and valued at fair market value in the case of other non-cash proceeds) in excess of $1,000,000. “Assignment of Claims Act” means, collectively, the Assignment of Claims Act of 1940, as amended, 31 U.S.C. § 3727, 41 U.S.C. § 15, any applicable rules, regulations and interpretations issued pursuant thereto, and any amendments to any of the foregoing. “Assumption Agreement” means an assumption agreement, in form and substance acceptable to the Administrative Agent, executed by a Subsidiary that becomes a party to this Agreement in accordance with the provisions of Section 8.3 below, pursuant to which such Subsidiary agrees to be bound by all of the terms and conditions of the Loan Documents as though it were an original signatory thereto. “Base Rate” shall mean the higher of (i) the per annum rate which the Administrative Agent publicly announces from time to time to be its prime lending rate, as in effect from time to time, and (ii) the Federal Funds Rate, as in effect from time to time, plus one-half of one percent (0.50%). The Administrative Agent’s prime lending rate is a reference rate and does not necessarily represent the lowest or best rate charged to customers. The Administrative Agent may make commercial loans or other loans at rates of interest at, above or below the Administrative Agent’s prime lending rate. Each change in the Administrative Agent’s prime lending rate shall be effective from and including the date such change is publicly announced as being effective.   3 -------------------------------------------------------------------------------- “Base Rate Loan” means any Loan or portion thereof with respect to which the interest rate is calculated by reference to the Base Rate. “Borrower” and “Borrowers” shall have the meanings assigned to such terms in the preamble to this Agreement. “Borrowing” shall mean a borrowing consisting of (i) Loans of the same Class and Type, made, converted or continued on the same date and in the case of LIBOR Loans, as to which a single Interest Period is in effect, or (ii) a Swingline Loan. “Borrowing Availability” means, at any time, the amount by which the Aggregate Revolving Commitment Amount exceeds the sum of the outstanding the Revolving Loans, Swingline Loans and LC Exposure. “Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks are authorized or required to close under the laws of the State, and, with respect to the determination of LIBOR and the Index Rate, or if such day relates to a Borrowing of, a payment or prepayment of principal or interest on, a conversion of or into, or an Interest Period for, a LIBOR Loan or a notice with respect to any of the foregoing, any day on which dealings in Dollars are carried on in the London interbank market. “Capital Expenditures” means, for any period, with respect to any Person, the aggregate of all expenditures by such Person and its Subsidiaries for the acquisition of fixed or capital assets or additions to equipment (including replacements, capitalized repairs and improvements during such period) which should be capitalized under GAAP on a consolidated balance sheet of such Person and its Subsidiaries. “Capital Lease” means any lease that has been or should be capitalized on the books of the lessee in accordance with GAAP. “Capital Stock” means any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants, rights or options to purchase any of the foregoing. “Cash Equivalents” means (a) marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition; (b) certificates of deposit, time deposits, eurodollar time deposits or overnight bank deposits having maturities of six months or less from the date of acquisition issued by any Lender or by any commercial bank organized under the laws of the United States of America or any state thereof having combined capital and surplus of not less than $500,000,000; (c) commercial paper of an issuer rated at least A-1 by Standard & Poor’s Ratings Services (“S&P”) or P-1 by Moody’s Investors Service, Inc. (“Moody’s”), or carrying an equivalent rating by a nationally recognized rating agency, if both of the two named rating agencies cease publishing ratings of commercial paper issuers generally, and maturing within six months from the date of   4 -------------------------------------------------------------------------------- acquisition; (d) repurchase obligations of any Lender or of any commercial bank satisfying the requirements of clause (b) of this definition, having a term of not more than 30 days with respect to securities issued or fully guaranteed or insured by the United States government; (e) securities with maturities of one year or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States, by any political subdivision or taxing authority of any such state, commonwealth or territory or by any foreign government, the securities of which state, commonwealth, territory, political subdivision, taxing authority or foreign government (as the case may be) are rated at least A by S&P or A by Moody’s; (f) securities with maturities of six months or less from the date of acquisition backed by standby letters of credit issued by any Lender or any commercial bank satisfying the requirements of clause (b) of this definition; or (g) shares of money market mutual or similar funds which invest exclusively in assets satisfying the requirements of clauses (a) through (f) of this definition. “Cash Flow Available for Fixed Charges” means, means, for any period, EBITDA for such period, plus Permitted Acquisition EBITDA for such period, minus income taxes paid in cash during such period, minus Non-Financed Capital Expenditures for such period, plus non-cash stock compensation expense for such period, except to the extent that such charges are reserves for future cash charges, all as determined on a consolidated basis for the Company and its Subsidiaries in accordance with GAAP. “Cash Management Swingline Loans” shall have the meaning assigned to such term in Section 2.5(a). “Change in Control” shall mean the occurrence of one or more of the following events: (a) any sale, lease, exchange or other transfer (in a single transaction or a series of related transactions) of all or substantially all of the assets of the Company to any Person or “group” (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder in effect on the date hereof), (b) the ownership, directly or indirectly, beneficially or of record (in a single transaction or a series of transactions) by any Person or “group” (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof), other than Charles K. Narang, of shares of stock representing the right to vote 20% or more of the total votes on all matters submitted to a vote of the stockholders of the Company; or (c) occupation of a majority of the seats (other than vacant seats) on the board of directors of the Company by Persons who were neither (i) nominated by the current board of directors or (ii) appointed by directors so nominated. “Change in Law” shall mean (i) the adoption of any applicable law, rule or regulation after the date of this Agreement, (ii) any change in any applicable law, rule or regulation, or any change in the interpretation or application thereof, by any governmental authority after the date of this Agreement, or (iii) compliance by any Lender (or its Applicable Lending Office) or the Issuing Bank (or for purposes of Section 2.17(b), by such Lender’s or the Issuing Bank’s holding company, if applicable) with any request, guideline or directive (whether or not having the force of law) of any governmental authority made or issued after the date of this Agreement.   5 -------------------------------------------------------------------------------- “Class,” when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans or Swingline Loans and when used in reference to any Commitment, refers to whether such Commitment is a Revolving Commitment or a Swingline Commitment. “Closing” means the initial disbursement of the Loans. “Closing Date” means the date of the Closing. “Code” means the Internal Revenue Code of 1986, as amended from time to time, and all regulations issued pursuant thereto. “Collateral” means the following properties, assets and rights (if any) of each Borrower, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof: all personal and fixture property of every kind and nature including without limitation all goods (including inventory, equipment and all accessions thereto), instruments (including promissory notes), documents, accounts (including health-care-insurance receivables), chattel paper (whether tangible or electronic), deposit accounts, letter-of-credit rights (whether or not the letter of credit is evidenced by a writing), commercial tort claims, securities and all other investment property, supporting obligations, any other contract rights or rights to the payment of money, insurance claims and proceeds, tort claims, and all general intangibles (including all payment intangibles and Intellectual Property). “Commitment” shall mean a Revolving Commitment or a Swingline Commitment, or any combination thereof (as the context shall permit or require). “Commitment Termination Date” shall mean the earliest of (i) five years after the date of this Agreement, (ii) the date on which the Revolving Commitments are terminated pursuant to Section 2.20 and (iii) the date on which all amounts outstanding under this Agreement have been declared or have automatically become due and payable (whether by acceleration or otherwise), and any extension or extensions thereof granted by all of the Lenders. “Company” shall have the meaning assigned to such term in the preamble to this Agreement. “Condo Unit” means the condominium unit owned by NCI Virginia and located at 11776 Stratford House Place, #407, Reston, Virginia, 20190. “Covenant Compliance Certificate” means a certificate executed by a Principal Officer of the Company, containing a calculation of the financial covenants contained in Section 7 below and certifying that no Default or Event of Default has occurred, substantially in the form of Exhibit A attached hereto. “Customer” means any Person obligated to make payments with respect to a Receivable or any other Collateral.   6 -------------------------------------------------------------------------------- “Debt” means, collectively, and includes, without duplication, with respect to any specified Person, (a) indebtedness or liability for borrowed money (whether by loan, the issuance and sale of debt securities or the sale of assets to another Person subject to an understanding or agreement, contingent or otherwise, to repurchase such assets from such Person) or for the deferred purchase price of property or services; (b) obligations as a lessee under a Capital Lease or a Synthetic Lease; (c) obligations, contingent or otherwise, to reimburse the issuer of letters of credit or acceptances; (d) all guaranties, endorsements (other than for collection or deposit in the ordinary course of business) and other contingent obligations to purchase, to provide funds for payment, to supply funds to invest in any other Person or otherwise to assure a creditor against loss; (e) obligations under Hedging Agreements; (f) obligations under any foreign exchange contract, currency swap or other similar agreements or arrangements designed to protect that Person against fluctuations in currency values; (g) all preferred stock or similar equity interests issued by such Person which by the terms thereof could be (at the request of the holders thereof or otherwise) subject to mandatory sinking fund payments, redemption or acceleration at any time during the term of this Agreement; (h) the amount of contingent obligations of such Person incurred in connection with acquisitions (including, without limitation, obligations to make earnout payments or other contingent payments) required to be shown on a balance sheet in accordance with GAAP, in each case as determined in accordance with GAAP, (i) obligations secured by any Lien on property owned by the specified Person, whether or not the obligations have been assumed, and (j) Off-Balance Sheet Liabilities. The Debt of any Person shall include the Debt of any partnership or joint venture in which such Person is a general partner or a joint venturer, except to the extent that the terms of such Debt provide that such Person is not liable therefor. “Default” means any condition or event that, with the giving of notice, the lapse of time, or both, would constitute an Event of Default. “Default Interest” shall have the meaning assigned to such term in Section 2.11(d). “Disposition” means with respect to any assets, any sale, lease, sale and leaseback, assignment, conveyance, transfer or other disposition thereof; and the terms “Dispose” and “Disposed of” shall have correlative meanings. “Dollars” and “$” means the lawful currency of the United States of America. “Domestic Subsidiary” means any Subsidiary of the Company organized under the laws of any jurisdiction within the United States of America. “EBITDA” means, for any Person for any period, (a) consolidated Net Income of such Person and its Subsidiaries for such period plus, (b) to the extent deducted to determine such consolidated Net Income, the sum of (1) depreciation expense, (2) Interest Expense, (3) amortization expense and (4) tax expense, less (c) to the extent added to determine such consolidated Net Income, extraordinary or unusual gains or other gains not incurred in the ordinary course of business, unrealized gains on Hedging Agreements and revenues from discontinued operations, plus, (d) to the extent deducted to determine such consolidated Net   7 -------------------------------------------------------------------------------- Income, extraordinary or unusual losses or other losses not incurred in the ordinary course of business, unrealized losses on Hedging Agreements and expenses from discontinued operations. “Environmental Laws” shall mean all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by or with any governmental authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, Release or threatened Release of any Hazardous Material or to human health and safety matters. “Environmental Liability” shall mean any liability, contingent or otherwise (including any liability for damages, costs of environmental investigation and remediation, costs of administrative oversight, fines, natural resource damages, penalties or indemnities), of any Borrower or any Subsidiary directly or indirectly resulting from or based upon (a) any actual or alleged violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) any actual or alleged exposure to any Hazardous Materials, (d) the Release or threatened Release of any Hazardous Materials or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing. “Equity Issuance” means any issuance or sale by a Person of its Capital Stock or other similar equity security, or any warrants, options or similar rights to acquire, or securities convertible into or exchangeable for, such Capital Stock or other similar equity security, for cash, excluding the issuance of Capital Stock by any Subsidiary to another Subsidiary or to the Company, and excluding (a) any Capital Stock used as payment for a Permitted Acquisition and (b) any such securities or rights or options issued by the Company as incentive or bonus compensation pursuant to incentive or bonus plans for directors, officers and employees of the Company and its Subsidiaries approved by the Board of Directors of the Company or upon the exercise of any such options or rights. “ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and all regulations issued pursuant thereto. “ERISA Affiliate” means with respect to a specified Person, an entity, whether or not incorporated, which is under common control with the specified Person within the meaning of §4001 of ERISA or is part of a group which includes the specified Person and with which the specified Person is treated as a single employer under §§414(b) or (c) of the Code. “Event of Default” means any of the events specified as an “Event of Default” under this Agreement, provided that any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. “Excluded Foreign Subsidiary” means any Foreign Subsidiary in respect of which either the pledge of all of the Capital Stock of such Subsidiary, or the business assets of such Subsidiary, are not required by the Administrative Agent or the Required Lenders as Collateral.   8 -------------------------------------------------------------------------------- “Excluded Taxes” shall mean with respect to the Administrative Agent, any Lender, the Issuing Bank or any other recipient of any payment to be made by or on account of any obligation of a Borrower hereunder, (a) income or franchise taxes imposed on (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its Applicable Lending Office is located, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which any Lender is located and (c) in the case of a Foreign Lender, any withholding tax that (i) is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement, (ii) is imposed on amounts payable to such Foreign Lender at any time that such Foreign Lender designates a new lending office, other than taxes that have accrued prior to the designation of such lending office that are otherwise not Excluded Taxes, or (iii) is attributable to such Foreign Lender’s failure or inability to comply with Section 2.19(a). “Existing Loan Agreement” means the Loan and Security Agreement, dated as of December 23, 2003, as amended by the Amendment to Loan and Security Agreement, dated as of May 6, 2004, but effective as of December 31, 2003, as amended by the Second Amendment to Loan and Security Agreement, dated as of March 15, 2005, but effective as of September 30, 2004, and as amended by the Consent and Third Amendment to Loan and Security Agreement, dated as of July 25, 2005, by and among the Borrowers, SunTrust Bank, in its respective capacities as lender, administrative agent and arranger. “Federal Funds Rate” shall mean, for any day, the rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with member banks of the Federal Reserve System arranged by Federal funds brokers, as published by the Federal Reserve Bank of New York on the next succeeding Business Day or if such rate is not so published for any Business Day, the Federal Funds Rate for such day shall be the average of the quotations for such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by the Administrative Agent. “Fixed Charge Coverage Ratio” means, for each period of four consecutive fiscal quarters ending on the last day of each fiscal quarter of the Company, the ratio of (a) Cash Flow Available for Fixed Charges for such period to (b) Fixed Charges for such period. The foregoing shall be determined on a consolidated basis for the Company and its Subsidiaries in accordance with GAAP. “Fixed Charges” shall mean, for the Company and its Subsidiaries for any period, the sum (without duplication) of (a) Interest Expense for such period, (b) current maturities of long-term Debt, including Capital Leases, as of the end of such period and payable over the next succeeding period of four fiscal quarters, and (c) Restricted Payments made during such period, other than any AAA Distributions made during such period. “Foreign Lender” shall mean any Lender that is a Foreign Person. “Foreign Person” shall mean any Person that is not a United States person under Section 7701(a)(3) of the Code.   9 -------------------------------------------------------------------------------- “Foreign Subsidiary” means any Subsidiary of the Company that is not a Domestic Subsidiary. “Funded Debt” means, for any Person, the sum of the consolidated Debt of such Person and its Subsidiaries, without duplication, for (a) borrowed money, (b) the deferred purchase price of property or services, (c) obligations under repurchase agreements, (d) Capital Lease obligations, (e) the aggregate implied principal amount of Synthetic Lease obligations of such Person calculated in accordance with applicable federal income tax laws and regulations, (f) the amount of any outstanding Debt Guaranteed, (g) contingent or matured reimbursement obligations for letters of credit issued for the account of such Person or any Subsidiary of such Person, (h) all preferred stock or similar equity interests issued by such Person which by the terms thereof could be (at the request of the holders thereof or otherwise) subject to mandatory sinking fund payments, redemption or acceleration at any time during the term of this Agreement, (i) the maximum amount of contingent obligations of such Person incurred in connection with acquisitions (including, without limitation, obligations to make earnout payments) that are required to be reflected on a balance sheet as liabilities in accordance with GAAP, and (j) any Debt incurred in the context of a partnership or a joint venture in which such Person or any Subsidiary of such Person is a general partner or a joint venturer except to the extent that the terms of such Debt provide that such Person is not liable therefor, in each case determined in accordance with GAAP. “GAAP” means United States generally accepted accounting principles consistently applied. “Government” means the United States of America or any agency or instrumentality thereof. “Government Contract” means any contract with the Government under which a Borrower is a prime contractor or a subcontractor. “Guarantee” of or by any Person (the “guarantor”) shall mean any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Debt or other obligation of any other Person (the “primary obligor”) in any manner, whether directly or indirectly and including any obligation, direct or indirect, of the guarantor (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Debt or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Debt or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued in support of such Debt or obligation; provided, that the term “Guarantee” shall not include endorsements for collection or deposits in the ordinary course of business. The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which Guarantee is made or, if not so stated or determinable, the maximum reasonably   10 -------------------------------------------------------------------------------- anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith. The term “Guarantee” used as a verb has a corresponding meaning. “Hazardous Materials” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature the use, storage or disposal of which is regulated pursuant to any Environmental Law. “Hedging Agreement” means interest rate swap, cap or collar agreements, interest rate future or option contracts, currency swap agreements, currency future or option contracts, commodity agreements and other similar agreements or arrangements designed to protect against fluctuations in interest rates, currency values or commodity values. “Indemnified Taxes” shall mean Taxes other than Excluded Taxes. “Index Rate” shall mean that rate per annum effective on any Index Rate Determination Date which is equal to the quotient of: (i) the rate per annum equal to the offered rate for deposits in U.S. dollars for a one (1) month period, which rate appears on that page of Bloomberg reporting service, or such similar service as determined by the Lender, that displays British Bankers’ Association interest settlement rates for deposits in U.S. Dollars, as of 11:00 A.M. (London, England time) two (2) Business Days prior to the Index Rate Determination Date; provided, that if no such offered rate appears on such page, the rate used for such period will be the per annum rate of interest determined by the Administrative Agent to be the rate at which U.S. dollar deposits for such period, are offered to the Administrative Agent in the London Inter-Bank Market as of 11:00 A.M. (London, England time), on the day which is two (2) Business Days prior to the Index Rate Determination Date, divided by (ii) a percentage equal to 1.00 minus the maximum reserve percentages (including any emergency, supplemental, special or other marginal reserves) expressed as a decimal in effect on any day to which the Administrative Agent is subject with respect to any Index Rate Loan pursuant to regulations issued by the Board of Governors of the Federal Reserve System with respect to eurocurrency funding (currently referred to as “eurocurrency liabilities” under Regulation D). This percentage will be adjusted automatically on and as of the effective date of any change in any reserve percentage. “Index Rate Determination Date” shall mean the Closing Date and the first Business Day of each calendar month thereafter. “Index Rate Borrowing” and “Index Rate Loan” when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, bears interest at a rate determined by reference to the Index Rate.   11 -------------------------------------------------------------------------------- “Intellectual Property” means all copyrights (whether registered or unregistered), copyright registrations, trademarks, servicemarks, patents, patent applications and licenses to use any of the foregoing. “Intellectual Property Assignment” means a Collateral Assignment, Patent Mortgage and Security Agreement, in substantially the form of Exhibit B attached hereto, as the same may be amended, modified or supplemented from time to time. “Interest Expense” means, for Person for any period, the sum of the following, determined on a consolidated basis for such Person and its Subsidiaries in accordance with GAAP: (a) all interest in respect of Debt (including the interest component of any payments in respect of Capital Leases and Synthetic Leases) accrued or capitalized during such period, plus (b) the net amount payable (or minus the net amount receivable) under any Hedging Agreement during such period. For purposes hereof other than the determination of consolidated EBITDA of the Company and its Subsidiaries, Interest Expense for the first three fiscal quarters to occur after the consummation of a Permitted Acquisition shall be determined by annualizing Interest Expense such that for the first fiscal quarter to occur after such consummation, such Interest Expense would be multiplied by four (4), the first two fiscal quarters would be multiplied by two (2) and the first three fiscal quarters would be multiplied by one and one-third (1 1/3). “Interest Period” shall mean with respect to any LIBOR Borrowing, a period of one, two, three or six months as selected by the Company in accordance with the terms of this Agreement; provided, that: (i) the initial Interest Period for such Borrowing shall commence on the date of such Borrowing (including the date of any conversion from a Borrowing of another Type) and each Interest Period occurring thereafter in respect of such Borrowing shall commence on the day on which the next preceding Interest Period expires; (ii) if any Interest Period would otherwise end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day, unless, in the case of a LIBOR Borrowing, such Business Day falls in another calendar month, in which case such Interest Period would end on the next preceding Business Day; (iii) any Interest Period in respect of a LIBOR Borrowing which begins on the last Business Day of a calendar month or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period shall end on the last Business Day of such calendar month; and (v) no Interest Period may extend beyond the Commitment Termination Date. “Issuing Bank” shall mean SunTrust Bank or any other Lender, each in its capacity as an issuer of Letters of Credit pursuant to Section 2.6.   12 -------------------------------------------------------------------------------- “LC Commitment” shall mean that portion of the Aggregate Revolving Commitments that may be used by the Borrowers for the issuance of Letters of Credit in an aggregate face amount not to exceed $750,000. “LC Disbursement” shall mean a payment made by the Issuing Bank pursuant to the terms of a Letter of Credit. “LC Documents” shall mean each Letter of Credit Agreement, the Letters of Credit and all other applications, agreements and instruments executed and delivered by any Borrower relating to the Letters of Credit. “LC Exposure” shall mean, at any time, the sum of (i) the aggregate undrawn amount of all outstanding Letters of Credit at such time, plus (ii) the aggregate amount of all LC Disbursements that have not been reimbursed by or on behalf of the Borrowers at such time. The LC Exposure of any Lender shall be its Revolving Credit Percentage of the total LC Exposure at such time. “Lenders” shall have the meaning assigned to such term in the preamble to this Agreement, and shall include, where appropriate, the Swingline Lender; it being expressly understood and agreed that the Swingline Lender shall not be included with respect to any determination of Required Lenders. “Letters of Credit” means any letter of credit issued pursuant to Section 2.6 by the Issuing Bank for the account of any Borrower, pursuant to the LC Commitment, whether now outstanding or issued after the date of this Agreement. “Letter of Credit Agreement” means, collectively and individually, each standard form of Application and Agreement for Irrevocable Standby Letter of Credit, to be executed and delivered by the Borrowers to the Issuing Bank in connection with each Letter of Credit, as any of the same may be amended, modified or supplemented from time to time. “LIBOR” means, with respect to any LIBOR Loan for any Interest Period, the rate per annum obtained by dividing (i) Fixed LIBOR for such Interest Period by (ii) a percentage equal to 1.00 minus the Eurodollar Reserve Percentage. For purposes hereof, the term “Fixed LIBOR” shall mean, for any applicable Interest Period with respect to any LIBOR Loan, the rate per annum for deposits in Dollars for a period equal to such Interest Period appearing on the display designated as Page 3750 on the Dow Jones Markets Service (or such other page on that service or such other service designated by the British Banker’s Association for the display of such Association’s Interest Settlement Rates for Dollar deposits) as of 11:00 a.m. (London, England time) on the day that is two Business Days prior to the first day of the Interest Period or if such Page 3750 is unavailable for any reason at such time, the rate which appears on the Reuters Screen ISDA Page as of such date and such time; provided, that if the Administrative Agent determines that the relevant foregoing sources are unavailable for the relevant Interest Period, LIBOR shall mean the rate of interest determined by the Administrative Agent to be the average of the rates per annum at which deposits in Dollars are offered to the Administrative Agent two (2) Business Days preceding the first day of such Interest Period by leading banks in the London   13 -------------------------------------------------------------------------------- interbank market as of 10:00 a.m. for delivery on the first day of such Interest Period, for the number of days comprised therein and in an amount comparable to the amount of the LIBOR Loan of the Administrative Agent. “Eurodollar Reserve Percentage” shall mean the aggregate of the maximum reserve percentages (including, without limitation, any emergency, supplemental, special or other marginal reserves) expressed as a decimal in effect on any day to which the Administrative Agent is subject with respect to LIBOR pursuant to regulations issued by the Board of Governors of the Federal Reserve System (or any Governmental Authority succeeding to any of its principal functions) with respect to eurocurrency funding (currently referred to as “eurocurrency liabilities” under Regulation D). LIBOR Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under Regulation D. The Eurodollar Reserve Percentage shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. The Administrative Agent’s determination of Fixed LIBOR and the Eurodollar Reserve Percentage shall be conclusive and binding on the Company, its Subsidiaries and the Lenders absent manifest error. “LIBOR Borrowing” and “LIBOR Loan” when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, bears interest at a rate determined by reference to LIBOR (other than an Index Rate Loan or an Index Rate Borrowing). “Lien” means any mortgage, deed of trust, pledge, security interest, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), or preference, priority or other security agreement, or preferential arrangement, charge or encumbrance of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any Capital Lease, any Synthetic Lease, any assignment of any Receivable of a Borrower to an escrow agent for the benefit of a third party) and the filing of any financing statement under the UCC or comparable law of any jurisdiction to evidence any of the foregoing). “Loan Documents” means this Agreement, each Notice of Borrowing, each Revolving Note, each Assumption Agreement, each Intellectual Property Assignment, each Mortgage, each Letter of Credit Agreement, each LC Document, each Hedging Agreement between any Borrower and the Administrative Agent or any Lender or the Issuing Bank or any Affiliate of the Administrative Agent or any Lender or the Issuing Bank, any Mortgage and any other document now or hereafter executed or delivered in connection with the Obligations, in evidence thereof or as security therefor, including, without limitation, any life insurance assignment, pledge agreement, security agreement, interest rate swap agreement or similar agreement, deed of trust, mortgage, guaranty, promissory note or subordination agreement. “Loans” means all Revolving Loans and Swingline Loans in the aggregate or any of them, as the context may require, made by the Lenders to the Borrowers pursuant to Section 2.1 of this Agreement.   14 -------------------------------------------------------------------------------- “Material Adverse Effect” means a material adverse effect on (a) the business, assets, operations or financial condition of the Company and its Subsidiaries taken as a whole, (b) the ability of the Company or any Subsidiary to perform its obligations under any Loan Document, (c) the rights of or benefits available to the Administrative Agent, the Issuing Bank and the Lenders under any Loan Document, or (d) the legality, validity or enforceability of any of the Loan Documents. “Material Contract” means any contract or other arrangement (other than the Loan Documents), whether written or oral, to which a Borrower or any Subsidiary is a party (a) requiring payments by any party thereto of more than 5% per annum of the annual consolidated gross revenues of the Company and its Subsidiaries, or (b) as to which the breach, nonperformance, cancellation or failure to renew by any party thereto could reasonably be expected to have a Material Adverse Effect. “Minimum Net Worth Compliance Level” means, at any time, (i) 85% of Net Worth as at the fiscal quarter of the Company ended on September 30, 2005, plus (ii) 50% of consolidated Net Income of the Company and its Subsidiaries on a cumulative basis for all succeeding fiscal quarters; provided, that if Net Income is negative in any fiscal quarter the amount added for such fiscal quarter shall be zero and such negative Net Income shall not reduce the amount of Net Income added from any previous fiscal quarter; plus (iii) 100% of the amount by which the Company’s “total stockholders’ equity” is increased as a result of any public or private offering of common stock of the Company after September 30, 2005, less (iv) AAA Distributions made subsequent to September 30, 2005. “Mortgage” means a mortgage or deed of trust made by any Borrower in favor of, or for the benefit of, the Administrative Agent for the ratable benefit of the Lenders, in form and substance acceptable to the Administrative Agent, as the same may be amended, supplemented or otherwise modified from time to time. “Net Income” means, for any Person for any period, the consolidated gross revenues of such Person and its Subsidiaries for such period less all consolidated operating and non-operating expenses (including taxes) of such Person and its Subsidiaries for such period, all as determined in accordance with GAAP. “Net Cash Proceeds” means (a) in connection with any Asset Sale or any Recovery Event, the proceeds thereof in the form of cash and Cash Equivalents (including any such proceeds received by way of deferred payment of principal pursuant to a note or installment receivable or purchase price adjustment receivable or otherwise, but only as and when received) of such Asset Sale or Recovery Event, net of attorneys’ fees, accountants’ fees, investment banking fees, professional advisors’ fees, other transaction costs, amounts required to be applied to the repayment of Debt secured by a Lien on any asset which is the subject of such Asset Sale or Recovery Event (other than any Lien pursuant to a Loan Document) and other customary fees and expenses actually incurred in connection therewith and net of taxes paid or reasonably estimated to be payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements) and (b) in connection with any issuance or sale of   15 -------------------------------------------------------------------------------- equity securities or debt securities or instruments or the incurrence of loans, the cash proceeds received from such issuance or incurrence, net of attorneys’ fees, investment banking fees, professional advisors’ fees, accountants’ fees, underwriting discounts and commissions and other customary fees and expenses actually incurred in connection therewith. “Net Worth” means, as of any date, (i) the total assets of the Company and its Subsidiaries that would be reflected on the Company’s consolidated balance sheet as of such date prepared in accordance with GAAP, after eliminating all amounts properly attributable to minority interests, if any, in the stock and surplus of Subsidiaries, minus the (ii) sum of (x) the total liabilities of the Company and its Subsidiaries that would be reflected on the Company’s consolidated balance sheet as of such date prepared in accordance with GAAP and (y) the amount of any write-up in the book value of any assets resulting from a revaluation thereof or any write-up in excess of the cost of such assets acquired reflected on the consolidated balance sheet of the Company and its Subsidiaries as of such date prepared in accordance with GAAP “Non-Financed Capital Expenditures” means, for any Person, Capital Expenditures other than those financed within 30 days after incurrence with long-term Debt (other than Revolving Loans or Swingline Loans) incurred by such Person, or pursuant to a sale and leaseback transaction. “Notes” shall mean, collectively, the Revolving Notes and the Swingline Note. “Notice of Borrowing” shall mean a written notice (or telephonic notice promptly confirmed in writing) constituting a request for a Revolving Loan Borrowing or a Swingline Loan, containing the specific requirements of Sections 2.3 or 2.5, as the case may be. “Notice of Conversion/Continuation” shall mean the notice given by the Company to the Administrative Agent in respect of the conversion or continuation of an outstanding Borrowing as provided in Section 2.9(b) hereof. “Obligations” means (a) the Loans, the LC Disbursements, the Revolving Notes, the Swingline Note, the Letter of Credit Agreements, all indebtedness and obligations of a Borrower under this Agreement and the other Loan Documents, and all other Debt and obligations of a Borrower to the Administrative Agent, the Issuing Bank or any Lender (including the Swingline Lender) arising out of or relating to any Loan Document, now existing or hereafter arising, of every kind and description, direct or indirect, fixed or contingent, liquidated or unliquidated, due or to become due, secured or unsecured, joint, several or joint and several, as amended, modified, renewed, extended or increased from time to time, including without limitation, all principal, interest (including any interest accruing after the filing of any petition in bankruptcy or the commencement of any insolvency, reorganization or like proceeding relating to the Borrowers, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), (b) any overdrafts in any deposit account maintained by a Borrower with the Administrative Agent or any Lender (including the Swingline Lender), (c) any obligations arising under any Hedging Agreements between a Borrower and the Administrative Agent or any Affiliate of the Administrative Agent, (d) any obligations under any corporate purchasing card or credit card account established for a Borrower by the Administrative Agent or any Affiliate of   16 -------------------------------------------------------------------------------- the Administrative Agent, (e) all reimbursement obligations, fees, expenses, indemnification and reimbursement payments, costs and expenses (including all fees and expenses of counsel to the Administrative Agent) incurred pursuant to this Agreement or any other Loan Document, and (f) all obligations and liabilities incurred in connection with collecting and enforcing the foregoing, together with all renewals, extensions, or modifications thereof. “Off-Balance Sheet Liabilities” of any Person shall mean (i) any mandatory repurchase obligation or liability of such Person with respect to accounts or notes receivable sold by such Person, (ii) any liability of such Person under any sale and leaseback transactions which do not create a liability on the balance sheet of such Person, (iii) any liability of such Person under any Synthetic Lease transaction, or (iv) any obligation arising with respect to any other transaction which is the functional equivalent of or takes the place of borrowing but which does not constitute a liability on the balance sheet of such Person. “Other Taxes” shall mean any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document. “Payment Office” means the office of the Administrative Agent located at 303 Peachtree Street, N.E., 25th Floor, Atlanta, Georgia 30308, or such other location as to which the Administrative Agent shall have given written notice to the Company and the other Lenders. “Permitted Acquisition” means any transaction consummated in which a Borrower or a Subsidiary acquires all or substantially all of the assets or outstanding Capital Stock or equity interests of any Person or any division or business line of any Person, or merges or consolidates with any Person (with any such acquisition being referred to a an “Acquired Business” and any such Person, division or line of business being the “Target”), provided that, unless otherwise approved by the Required Lenders, (a) at the closing of such transaction, after giving effect thereto, no Event of Default shall have occurred and be continuing, (b) the Target has EBITDA for the twelve month period ending as of the most recent fiscal quarter end prior to the acquisition date in an amount greater than $0, (c) such acquisition is not a “hostile” acquisition and has been approved by the Board of Directors and/or shareholders of the Company and the Target, (d) after giving effect to such acquisition, there shall be at least $5,000,000 of Borrowing Availability, (e) at least 10 Business Days prior to the consummation of such transaction, the Borrower shall give written notice of such transaction to the Administrative Agent (the “Acquisition Notice”), which shall include a reasonably detailed description of the material terms of such Permitted Acquisition (including, without limitation, the purchase price and method and structure of payment), (f) a Borrower shall be the surviving entity of any merger, (g) the Acquired Business shall be in substantially the same line of business as the Borrowers as provided in Section 5.4, and shall not be a Foreign Person, (h) the aggregate value of the sum of current and deferred cash to be paid and issued, plus Debt paid or assumed, in connection with all transactions (the “Aggregate Acquisition Consideration”) shall not exceed $40,000,000 in any fiscal year of the Company, unless otherwise approved by the Administrative Agent and the Required Lenders; (i) at the time it gives the Acquisition Notice, the Borrower shall deliver to   17 -------------------------------------------------------------------------------- the Administrative Agent pro forma financial statements for the next succeeding three-year period giving effect to the acquisition, which shall included assumptions used and any pro forma adjustments that have been made, which shall be reasonably acceptable to the Administrative Agent, and shall reflect to the Administrative Agent’s satisfaction that, without regard to any expense reductions or other projected synergies attributable to the acquisition, the Company and its Subsidiaries will continue to be in compliance with all of the financial covenants set forth in this Agreement and the pro forma Senior Funded Debt Ratio will not exceed 3.25 to 1, and (j) at the time it gives the Acquisition Notice, the Borrower shall deliver to the Administrative Agent (which shall promptly deliver a copy to the Lenders) a certificate, executed by a Principal Officer of the Company demonstrating in sufficient detail compliance with the financial covenants contained in Section 7 of the Agreement on a pro forma basis after giving effect to such acquisition and, further, certifying that, after giving effect to the consummation of such acquisition, the representations and warranties of the Borrowers contained in this Agreement will be true and correct and that the Borrowers, as of the date of such consummation, will be in compliance with all other terms and conditions contained in this Agreement, and that the Borrowers believe, in good faith, that there will be sufficient Borrowing Availability for the Borrowers to meet their ongoing working capital requirements. “Permitted Acquisition EBITDA” shall mean, for any period prior to a Permitted Acquisition, EBITDA of the Target or Targets acquired in such acquisition for such period, as approved by the Administrative Agent in its reasonable discretion. “Permitted Teaming Arrangement” means joint ventures and teaming arrangements entered into by a Borrower in the ordinary course of business, provided that such Borrower does not assume or become liable for any Debt or obligations of any other party to the joint venture or teaming arrangement in connection therewith. “Person” means an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, governmental authority, limited liability company or other entity of whatever nature. “Primary Operating Account” means any deposit account or controlled disbursement account on which the Company draws to pay all or substantially all of its operating expenses. “Principal Officer” means each of the Chief Executive Officer, President, the Vice President of Finance and the Chief Financial Officer of the Company or any Subsidiary. “Property” means any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible, including, without limitation, Capital Stock. “Purchase Price Refund” means any amount in excess of $50,000 received by the Company or any Subsidiary as a result of a purchase price adjustment or similar event in connection with any acquisition or Disposition by the Company or any Subsidiary.   18 -------------------------------------------------------------------------------- “Receivables” means all rights to payments for property sold or licensed or for services rendered, whether now owned or hereafter acquired by the Company or any Subsidiary. “Recovery Event” means any settlement of or payment in respect of any property or casualty insurance claim or any condemnation proceeding relating to any asset of the Company or any of its Subsidiaries in excess of $150,000 in the aggregate during any fiscal year of the Company. “Related Parties” shall mean, with respect to any specified Person, such Person’s Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person’s Affiliates. “Reinvestment Deferred Amount” means with respect to any Reinvestment Event, the aggregate Net Cash Proceeds received by the Company or any of its Subsidiaries in connection therewith that are not applied to reduce the Revolving Commitments pursuant to Section 2.22(c) as a result of the delivery of a Reinvestment Notice. “Reinvestment Event” means any Asset Sale, Purchase Price Refund or Recovery Event in respect of which a Borrower has delivered a Reinvestment Notice. “Reinvestment Notice” means a written notice executed by a Principal Officer at a time when any Obligations are outstanding stating that no Default or Event of Default has occurred and is continuing and that the Company (directly or indirectly through a Subsidiary) intends and expects to use all or a specified portion of the Net Cash Proceeds of an Asset Sale, Purchase Price Refund or Recovery Event to acquire equipment or other fixed assets useful in its business and of the same or similar type as the assets subject to such Asset Sale, Purchase Price Refund or Recovery Event. “Reinvestment Prepayment Amount” means with respect to any Reinvestment Event, the Reinvestment Deferred Amount relating thereto less any amount expended prior to the relevant Reinvestment Prepayment Date to acquire equipment or other fixed assets useful in the business of the Company (directly or indirectly through a Subsidiary) and of the same or similar type as the assets subject to such Reinvestment Event. “Reinvestment Prepayment Date” means with respect to any Reinvestment Event, the earlier of (a) the date occurring six months after such Reinvestment Event and (b) the date on which a Borrower shall have determined not to, or shall have otherwise ceased to, acquire assets useful in the Borrower’s business with all or any portion of the relevant Reinvestment Deferred Amount. “Release” means any release, spill, emission, leaking, dumping, injection, pouring, deposit, disposal, discharge, dispersal, leaching or migration into the environment (including ambient air, surface water, groundwater, land surface or subsurface strata) or within any building, structure, facility or fixture.   19 -------------------------------------------------------------------------------- “Required Lenders” shall mean, (a) at any time when there are three or fewer Lenders, not less than two Lenders holding more than 50% of the Aggregate Exposure of all Lenders, and (b) at any other time, Lenders holding more than 50% of the Aggregate Exposure of all Lenders. “Restricted Payment” shall mean (a) any dividend or other distribution, direct or indirect, on account of any shares of any class of Capital Stock of the Borrowers or any of their Subsidiaries, now or hereafter outstanding, (b) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of Capital Stock of the Borrowers or any of their Subsidiaries, now or hereafter outstanding, (c) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of Capital Stock of the Borrowers or any of their Subsidiaries, now or hereafter outstanding, (d) any payment or prepayment of principal or premium, if any, or interest upon the redemption, purchase, retirement, defeasance, sinking fund or similar payment with respect to any Subordinated Debt (other than Subordinated Debt between or among Borrowers or payments on Subordinated Debt permitted by the Required Lenders), or (e) the payment by the Borrowers or any of their Subsidiaries of any management or consulting fee to any Person or of any salary, bonus or other form of compensation to any Person who is directly or indirectly a significant partner, shareholder, owner or executive officer of any such Person, to the extent such salary, bonus or other form of compensation has not been deducted as an expense to determine consolidated Net Income of the Company and its Subsidiaries. “Revolving Commitment” shall mean, with respect to each Lender, the obligation of such Lender to make Revolving Loans to the Borrowers and to participate in Letters of Credit and Swingline Loans in an aggregate principal amount not exceeding the amount set forth with respect to such Lender on the signature pages to this Agreement, or in the case of a Person becoming a Lender after the Closing Date, the amount of the assigned “Revolving Commitment” as provided in an assignment and acceptance agreement, acceptable in form and substance to the Administrative Agent, executed by such Person as an assignee. “Revolving Credit Exposure” shall mean, with respect to any Lender at any time and without duplication, the sum of the outstanding principal amount of such Lender’s Revolving Loans, such Lender’s LC Exposure and such Lender’s Swingline Exposure. “Revolving Credit Lender” means each Lender that has a Revolving Commitment or is the holder of Revolving Credit Exposure. “Revolving Credit Percentage” means as to any Revolving Credit Lender at any time, the percentage which such Lender’s Revolving Commitment then constitutes of the aggregate Revolving Commitments (or, at any time after the Closing Date, the percentage which the aggregate principal amount of such Lender’s Revolving Credit Exposure then outstanding constitutes of the aggregate principal amount of the Revolving Credit Exposures of all Lenders then outstanding).   20 -------------------------------------------------------------------------------- “Revolving Loan” shall mean a loan made by a Lender (other than the Swingline Lender) to the Borrowers under its Revolving Commitment, which may either be a Base Rate Loan, an Index Rate Loan or a LIBOR Loan. “Revolving Note” means a promissory note payable to the order of a requesting Revolving Credit Lender, in form and substance acceptable to the Administrative Agent and the requesting Revolving Credit Lender, in the principal amount of such Revolving Credit Lender’s Revolving Commitment, and evidencing the joint and several obligations of the Borrowers to repay the Revolving Loans made by such Revolving Credit Lender, together with interest thereon, and all extensions, renewals, modifications and amendments of such note, made in accordance with the terms hereof. “Senior Funded Debt Ratio” means, at any time, the ratio of (a) consolidated Funded Debt of the Company and its Subsidiaries then outstanding, excluding Subordinated Debt, to (b) the sum of (1) consolidated EBITDA of the Company and its Subsidiaries for the period of four fiscal quarters most recently ended, or, if such determination is being made at the end of a fiscal quarter of the Company, for the period of four fiscal quarters then ended, plus, (2) Permitted Acquisition EBITDA, plus (3) charges for non-cash stock compensation expense for such period, except to the extent that such charges are reserves for future cash charges. “State” means the Commonwealth of Virginia. “Subordinated Debt” shall mean any Debt of the Company or any Subsidiary (i) that is expressly subordinated to the Obligations on terms satisfactory to the Administrative Agent and the Required Lenders, (ii) that matures by its terms no earlier than six months after the later of the Commitment Termination Date then in effect with no scheduled principal payments permitted prior to such maturity, and (iii) that is evidenced by an indenture or other similar agreement that is in a form satisfactory to the Administrative Agent and the Required Lenders. “Subsidiary” as to any Person, means a corporation, partnership, limited partnership, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise qualified, all references to a “Subsidiary” or to “Subsidiaries” in this Agreement shall refer to a Subsidiary or Subsidiaries of the Company. “Swingline Commitment” shall mean the commitment of the Swingline Lender to make Swingline Loans in an aggregate principal amount at any time outstanding not to exceed $5,000,000. “Swingline Exposure” shall mean, with respect to each Lender, the principal amount of the Swingline Loans with respect to which such Lender is legally obligated either to make a Base Rate Loan or to purchase a participation in accordance with Section 2.5, which shall equal such Lender’s Revolving Credit Percentage of all outstanding Swingline Loans.   21 -------------------------------------------------------------------------------- “Swingline Lender” shall mean SunTrust Bank, or any other Lender that may agree to make Swingline Loans hereunder. “Swingline Loan” shall mean a loan made to the Borrowers by the Swingline Lender under the Swingline Commitment. “Swingline Note” shall mean the promissory note of the Borrowers payable to the order of the Swingline Lender in the principal amount of the Swingline Commitment. “Swingline Termination Date” shall mean the earliest of (i) five years after the date of this Agreement, (ii) the date on which the Revolving Commitments are terminated pursuant to Section 2.20 and (iii) the date on which all amounts outstanding under this Agreement have been declared or have automatically become due and payable (whether by acceleration or otherwise) and any extension or extensions thereof granted by the Required Lenders. “Synthetic Lease” means any synthetic lease, tax retention operating lease, off-balance sheet loan or similar off-balance sheet financing product where the transaction is considered Debt for borrowed money for federal income tax purposes but is classified as an operating lease in accordance with GAAP for financial reporting purposes. “Taxes” shall mean any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any governmental authority. “Total Assets” means, for any fiscal year of the Company, the total assets of the Company and its Subsidiaries that would be reflected on the Company’s consolidated balance sheet as of the last day of the immediately preceding fiscal year, prepared in accordance with GAAP, after eliminating all amounts properly attributable to minority interests, if any, in the stock and surplus of Subsidiaries. “Total Revenues” means, for any fiscal year of the Company, the consolidated gross revenues of the Company and its Subsidiaries for fiscal year, prepared in accordance with GAAP, after eliminating all amounts properly attributable to minority interests, if any, in the stock and surplus of Subsidiaries. “Type,” when used in reference to a Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to LIBOR, the Index Rate or the Base Rate. “UCC” means the Uniform Commercial Code as adopted in the State, and all amendments thereto. “Unused Fee” shall mean the applicable quarterly fee corresponding to the Senior Funded Debt Ratio set forth below, as calculated by the Administrative Agent, as applied in accordance with Section 2.12(b). The applicable Unused Fee on the Closing Date shall be 0.15%. The Unused Fee will be adjusted on a quarterly basis in accordance with the table set forth below:   Senior Funded Debt Ratio    Unused Fee Less than 2.00 to 1.    0.15% Equal to or greater than 2.00 to 1, and less than to 2.50 to 1.    0.15% Equal to or greater than 2.50 to 1, and less than to 3.00 to 1.    0.20% Equal to or greater than 3.00 to 1    0.25%   22 -------------------------------------------------------------------------------- The Unused Fee will be adjusted to the percentage corresponding to the applicable Senior Funded Debt Ratio in effect as of the last day of each fiscal quarter of the Company. The adjustment will become effective as of the first day of the calendar month next succeeding delivery to the Administrative Agent of the Company’s financial statements for the last month of each fiscal quarter pursuant to Section 5.8. No decrease in the Unused Fee shall become effective if, at such time, any Default or Event of Default has occurred and is continuing until such time as such Default or Event of Default is cured or waived in accordance with the terms of this Agreement and no other Defaults or Events of Default have occurred and are continuing. If the Company’s financial statements are not delivered to the Administrative Agent within the specified time periods, the Unused Fee may be increased, at the option of the Administrative Agent, or upon written notice from the Required Lenders to the Administrative Agent and the Company, to the highest applicable percentage above, to be effective from the date on which the statements were due through the date which is three Business Days after the date on which such financial statements are delivered to the Administrative Agent, whereupon the Unused Fee shall again be adjusted to the applicable percentage corresponding to the Senior Funded Debt Ratio in effect as of the last day of such fiscal quarter of the Company, with such adjustment becoming effective on such third Business Day. For purposes of this Agreement, Loans may be classified and referred to by Class (e.g., a “Revolving Loan” or “Swingline Loan”) or by Type (e.g., a “LIBOR Loan”, “Index Rate Loan” or “Base Rate Loan”) or by Class and Type (e.g., “Revolving LIBOR Loan”). Borrowings also may be classified and referred to by Class (e.g., “Revolving Loan Borrowing”) or by Type (e.g., “LIBOR Borrowing”) or by Class and Type (e.g., “Revolving LIBOR Borrowing”). SECTION 2. Loans. 2.1 Loans and Letters of Credit. Subject to the terms and conditions of this Agreement, (a) the Revolving Credit Lenders hereby establish in favor of the Borrowers a revolving credit facility pursuant to which the Revolving Credit Lenders severally agree (to the extent of each Revolving Credit Lender’s Revolving Credit Percentage up to such Revolving Credit Lender’s Revolving Commitment) to make Revolving Loans to the Borrowers in accordance with Section 2.2; (b) the Issuing Bank agrees to issue Letters of Credit for the account of the Borrowers in accordance with Section 2.6; (c) the Swingline Lender agrees to make Swingline Loans in accordance with Section 2.4; and (d) each Revolving Credit Lender severally agrees to purchase a participation interest in the Letters of Credit and the Swingline Loans pursuant to the terms and conditions hereof; provided, that in no event shall the aggregate amount of Revolving Credit Exposure exceed at any time the Aggregate Revolving Commitments from time to time in effect.   23 -------------------------------------------------------------------------------- 2.2 Revolving Loans. Subject to the terms and conditions set forth herein, each Revolving Credit Lender severally agrees to make Revolving Loans to the Borrowers, from time to time until the Commitment Termination Date in an aggregate principal amount at any one time outstanding that will not result in (a) such Revolving Credit Lender’s Revolving Credit Exposure exceeding such Revolving Credit Lender’s Revolving Commitment or (b) the aggregate amount of the Revolving Credit Exposure outstanding exceeding the Aggregate Revolving Credit Commitments. 2.3 Procedure for Revolving Loan Borrowings. The Company, on behalf of the Borrowers, shall give the Administrative Agent a Notice of Borrowing with respect to each Revolving Loan Borrowing (x) prior to 11:00 a.m. on the requested date of each Base Rate Borrowing or Index Rate Borrowing (which shall be a Business Day) and (y) prior to 12:00 noon three (3) Business Days prior to the requested date of each LIBOR Borrowing. Each Notice of Borrowing under this Section shall be irrevocable and shall specify: (i) the aggregate principal amount of such Revolving Loan Borrowing, (ii) the date of such Revolving Loan Borrowing (which shall be a Business Day), (iii) the Type of the Revolving Loans comprising such Borrowing, and (iv) in the case of a LIBOR Borrowing, the duration of the initial Interest Period applicable thereto (subject to the provisions of the definition of Interest Period). Each Revolving Loan Borrowing shall consist entirely of Base Rate Loans, Index Rate Loans or LIBOR Loans, as the Company may request, provided, that on the Closing Date all Revolving Loans shall be Index Rate Loans. Promptly following the receipt of a Notice of Borrowing in accordance with this Section, the Administrative Agent shall advise each Revolving Credit Lender of the details thereof and the amount of such Revolving Credit Lender’s Revolving Loan to be made as part of the requested Revolving Loan Borrowing. Each Borrower appoints the Company as its agent to request and receive the proceeds of the Revolving Loans on behalf of all Borrowers. The Company agrees to distribute the proceeds of the Revolving Loans among the Borrowers when and as needed by the Borrowers for working capital. Revolving Loans may be requested by those individuals designated by the Company from time to time in written instruments delivered to the Administrative Agent; provided, however, that the Borrowers shall remain liable with respect to any Revolving Loan disbursed by any Lender in good faith hereunder, even if such Revolving Loan is requested by an individual who has not been so designated. The proceeds of each Revolving Loan will be credited to a deposit account maintained with the Administrative Agent by the Company by 3:00 p.m. on the date of the requested Borrowing. 2.4 Swingline Commitment. Subject to the terms and conditions set forth herein, the Swingline Lender agrees to make Swingline Loans to the Borrowers, from time to time from the Closing Date to the Swingline Termination Date, in an aggregate principal amount outstanding at any time not to exceed the lesser of (i) the Swingline Commitment then in effect and (ii) the difference between the Aggregate Revolving Commitments and the aggregate Revolving Credit Exposures of all Revolving Credit Lenders; provided, that the Swingline Lender shall not be required to make a Swingline Loan to refinance an outstanding Swingline Loan. The Borrowers shall be entitled to borrow, repay and reborrow Swingline Loans in accordance with the terms and conditions of this Agreement.   24 -------------------------------------------------------------------------------- 2.5 Procedure for Swingline Borrowing. (a) The Swingline Lender agrees to make Swingline Loans to the Company from time to time in accordance with the treasury and cash management services and products provided to the Company by the Swingline Lender (the “Cash Management Swingline Loans”). For other Swingline Loans, the Company, on behalf of the Borrowers, shall give the Administrative Agent a Notice of Borrowing with respect to each Swingline Loan prior to 12:00 noon on the requested date of each Swingline Borrowing. Each Notice of Borrowing under this Section shall be irrevocable and shall specify: (i) the principal amount of such Swingline Loan, (ii) the date of such Swingline Loan (which shall be a Business Day), (iii) the Type of such Swingline Loan and (iv) the account of the Company to which the proceeds of such Swingline Loan should be credited. The Administrative Agent will promptly advise the Swingline Lender of each such request and the details thereof. Each Cash Management Swingline Loan shall be made initially as an Index Rate Loan, and each other Swingline Loan shall be made as a Base Rate Loan or an Index Rate Loan. The Swingline Lender will make the proceeds of each Swingline Loan available to the Borrowers in Dollars in immediately available funds at the account specified by the Company in the applicable request not later than 2:00 p.m. on the requested date of such Swingline Loan. (b) The Swingline Lender, at any time and from time to time in its sole discretion, may, on behalf of the Borrowers (each of which hereby irrevocably authorizes and directs the Swingline Lender to act on its behalf), give a Notice of Borrowing with respect to Revolving Loans to the Administrative Agent and the Company requesting the Revolving Credit Lenders (including the Swingline Lender) to make Index Rate Loans in an amount equal to the unpaid principal amount of any Swingline Loan. Each Revolving Credit Lender will make the proceeds of its Index Rate Loan included in such Borrowing available to the Administrative Agent for the account of the Swingline Lender in accordance with Section 2.8, which will be used solely for the repayment of such Swingline Loan. (c) If for any reason an Index Rate Borrowing may not be (as determined in the sole discretion of the Administrative Agent), or is not, made in accordance with the foregoing provisions, then such Swingline Loan shall automatically be converted to a Index Rate Loan, upon notice from the Swingline Lender to the Administrative Agent and the Company, and each Revolving Credit Lender (other than the Swingline Lender) shall purchase an undivided participating interest in such Swingline Loan in an amount equal to its Revolving Credit Percentage thereof on the date that such Index Rate Borrowing should have occurred. On the date of such required purchase, each Revolving Credit Lender shall promptly transfer, in immediately available funds, the amount of its participating interest to the Administrative Agent for the account of the Swingline Lender. (d) Each Revolving Credit Lender’s obligation to make an Index Rate Loan pursuant to Section 2.5(b) or to purchase the participating interests pursuant to Section 2.5(c)   25 -------------------------------------------------------------------------------- shall be absolute and unconditional and shall not be affected by any circumstance, including without limitation (i) any setoff, counterclaim, recoupment, defense or other right that such Revolving Credit Lender or any other Person may have or claim against the Swingline Lender, any Borrower or any other Person for any reason whatsoever, (ii) the existence of a Default or an Event of Default or the termination of any Revolving Credit Lender’s Revolving Commitment, (iii) the existence (or alleged existence) of any event or condition which has had or could reasonably be expected to have a Material Adverse Effect, (iv) any breach of this Agreement or any other Loan Document by any Borrower, the Administrative Agent or any Revolving Credit Lender or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing: provided, however, that the obligation of each Revolving Credit Lender to make any such Index Rate Loan or purchase any such participating interest is subject to the condition that the Swing Line Lender believed in good faith that all conditions under Section 8.2 were satisfied at the time the Swing Line Loan was made. If such amount is not in fact made available to the Swingline Lender by any Revolving Credit Lender, the Swingline Lender shall be entitled to recover such amount on demand from such Revolving Credit Lender, together with accrued interest thereon for each day from the date of demand thereof at the Federal Funds Rate. Until such time as such Revolving Credit Lender makes its required payment, the Swingline Lender shall be deemed to continue to have outstanding Swingline Loans in the amount of the unpaid participation for all purposes of the Loan Documents. In addition, such Revolving Credit Lender shall be deemed to have assigned any and all payments made of principal and interest on its Loans and any other amounts due to it hereunder, to the Swingline Lender to fund the amount of such Revolving Credit Lender’s participation interest in such Swingline Loans that such Revolving Credit Lender failed to fund pursuant to this Section, until such amount has been purchased in full. 2.6 Letters of Credit. (a) Until the Commitment Termination Date, the Issuing Bank, in reliance upon the agreements of the other Revolving Credit Lenders pursuant to Section 2.6(d), agrees to issue, at the request of the Company, Letters of Credit for the account of the Borrowers on the terms and conditions hereinafter set forth; provided, that (i) each Letter of Credit shall expire on the earlier of (A) the date one year after the date of issuance of such Letter of Credit (or in the case of any renewal or extension thereof, one year after such renewal or extension) and (B) the date that is five (5) Business Days prior to the Commitment Termination Date (except pursuant to a clause whereby the Issuing Bank is entitled to terminate the Letter of Credit on an annual basis by giving prior written notice to the beneficiary thereof in accordance with the written terms of such Letter of Credit); (ii) each Letter of Credit shall be in a stated amount of at least $25,000; and (iii) the Borrowers may not request any Letter of Credit, if, after giving effect to such issuance (A) the aggregate LC Exposure would exceed the LC Commitment, or (B) the aggregate Revolving Credit Exposure of all Lenders would exceed the Aggregate Revolving Commitment Amount. Upon the issuance of each Letter of Credit each Revolving Credit Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the Issuing Bank without recourse a participation in such Letter of Credit equal to such Revolving Credit Lender’s Revolving Credit Percentage of the aggregate amount available to be drawn under such Letter of Credit. Each issuance of a Letter of Credit shall be deemed to utilize the Revolving Commitment of each Revolving Credit Lender by an amount equal to the amount of such participation.   26 -------------------------------------------------------------------------------- (b) To request the issuance of a Letter of Credit (or any amendment, renewal or extension of an outstanding Letter of Credit), the Company shall give the Issuing Bank and the Administrative Agent irrevocable written notice at least three (3) Business Days prior to the requested date of such issuance specifying the date (which shall be a Business Day) such Letter of Credit is to be issued (or amended, extended or renewed, as the case may be), the expiration date of such Letter of Credit, the amount of such Letter of Credit, the name and address of the beneficiary thereof and such other information as shall be necessary to prepare, amend, renew or extend such Letter of Credit. In addition to the satisfaction of the conditions precedent to the effectiveness of this Agreement, the issuance of such Letter of Credit (or any amendment which increases the amount of such Letter of Credit) will be subject to the further conditions that such Letter of Credit shall be in such form and contain such terms as the Issuing Bank shall approve and that the Borrowers shall have executed and delivered any Letter of Credit Agreement relating to such Letter of Credit as the Issuing Bank shall reasonably require; provided, that in the event of any conflict between such Letter of Credit Agreement and this Agreement, the terms of this Agreement shall control. (c) At least two Business Days prior to the issuance of any Letter of Credit, the Issuing Bank will confirm with the Administrative Agent (by telephone or in writing) that the Administrative Agent has received such notice and if not, the Issuing Bank will provide the Administrative Agent with a copy thereof. Unless the Issuing Bank has received notice from the Administrative Agent on or before the Business Day immediately preceding the date the Issuing Bank is to issue the requested Letter of Credit (1) directing the Issuing Bank not to issue the Letter of Credit because such issuance is not then permitted hereunder because of the limitations set forth in Section 2.6(a) or (2) that one or more of the conditions precedent set forth in Section 8 of this Agreement are not then satisfied, then, subject to the terms and conditions hereof, the Issuing Bank shall, on the requested date, issue such Letter of Credit in accordance with the Issuing Bank’s usual and customary business practices. (d) The Issuing Bank shall examine all documents purporting to represent a demand for payment under a Letter of Credit promptly following its receipt thereof. The Issuing Bank shall notify the Company and the Administrative Agent of such demand for payment and whether the Issuing Bank has made or will make a LC Disbursement thereunder; provided, that any failure to give or delay in giving such notice shall not relieve the Borrowers of their obligations to reimburse the Issuing Bank and the Revolving Credit Lenders with respect to such LC Disbursement. The Borrowers shall be irrevocably and unconditionally obligated to reimburse the Issuing Bank for any LC Disbursements paid by the Issuing Bank in respect of such drawing upon the Issuing Bank’s written demand therefor, but otherwise without presentment, demand or other formalities of any kind. Unless the Company shall have notified the Issuing Bank and the Administrative Agent prior to 11:00 a.m. on the Business Day immediately prior to the date on which drawing is honored that the Borrowers intend to reimburse the Issuing Bank for the amount of such drawing in funds other than from the proceeds of Revolving Loans, the Borrowers shall be deemed to have timely given a Notice of   27 -------------------------------------------------------------------------------- Borrowing to the Administrative Agent requesting the Revolving Credit Lenders to make a Base Rate Borrowing on the date on which such drawing is honored in an exact amount due to the Issuing Bank. The Administrative Agent shall notify the Revolving Credit Lenders of such Borrowing in accordance with Section 2.3, and each Revolving Credit Lender shall make the proceeds of its Base Rate Loan included in such Borrowing available to the Administrative Agent for the account of the Issuing Bank in accordance with Section 2.8. The proceeds of such Borrowing shall be applied directly by the Administrative Agent to reimburse the Issuing Bank for such LC Disbursement. (e) If for any reason a Base Rate Borrowing may not be (as determined in the sole discretion of the Administrative Agent), or is not, made in accordance with the foregoing provisions, then each Revolving Credit Lender (other than the Issuing Bank) shall be obligated to fund the participation that such Revolving Credit Lender purchased pursuant to subsection (a) in an amount equal to its Revolving Credit Percentage of such LC Disbursement on and as of the date which such Base Rate Borrowing should have occurred. Each Revolving Credit Lender’s obligation to fund its participation shall be absolute and unconditional and shall not be affected by any circumstance, including without limitation (i) any setoff, counterclaim, recoupment, defense or other right that such Revolving Credit Lender or any other Person may have against the Issuing Bank or any other Person for any reason whatsoever, (ii) the existence of a Default or an Event of Default or the termination of the Aggregate Revolving Commitments, (iii) any adverse change in the condition (financial or otherwise) of the Borrowers or any of their Subsidiaries, (iv) any breach of this Agreement by any Borrower or any other Revolving Credit Lender, (v) any amendment, renewal or extension of any Letter of Credit or (vi) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing provided, however, that the obligation of each Revolving Credit Lender to fund any such participation is subject to the condition that the Issuing Bank believed in good faith that all conditions under Section 8.2 were satisfied at the time the Letter of Credit was issued. On the date that such participation is required to be funded, each Revolving Credit Lender shall promptly transfer, in immediately available funds, the amount of its participation to the Administrative Agent for the account of the Issuing Bank. Whenever, at any time after the Issuing Bank has received from any such Revolving Credit Lender the funds for its participation in a LC Disbursement, the Issuing Bank (or the Administrative Agent on its behalf) receives any payment on account thereof, the Administrative Agent or the Issuing Bank, as the case may be, will distribute to such Revolving Credit Lender its Revolving Credit Percentage of such payment; provided, that if such payment is required to be returned for any reason to a Borrower or to a trustee, receiver, liquidator, custodian or similar official in any bankruptcy proceeding, such Revolving Credit Lender will return to the Administrative Agent or the Issuing Bank any portion thereof previously distributed by the Administrative Agent or the Issuing Bank to it. (f) To the extent that any Revolving Credit Lender shall fail to pay any amount required to be paid pursuant to paragraph (d) of this Section 2.6 on the due date therefor, such Revolving Credit Lender shall pay interest to the Issuing Bank (through the Administrative Agent) on such amount from such due date to the date such payment is made at a rate per annum equal to the Federal Funds Rate; provided, that if such Revolving Credit Lender shall fail to make such payment to the Issuing Bank within three (3) Business Days of such due date, then, retroactively to the due date, such Revolving Credit Lender shall be obligated to pay interest on such amount at the rate for Default Interest.   28 -------------------------------------------------------------------------------- (g) If any Event of Default shall occur and be continuing, on the Business Day that the Company receives notice from the Administrative Agent or the Required Lenders demanding the deposit of cash collateral pursuant to this paragraph, the Borrowers shall deposit in an account with the Administrative Agent, in the name of the Administrative Agent and for the ratable benefit of the Lenders, an amount in cash equal to the LC Exposure as of such date plus any accrued and unpaid interest thereon; provided, that the obligation to deposit such cash collateral shall become effective immediately, and such deposit shall become immediately due and payable, without demand or notice of any kind, upon the occurrence of any Event of Default with respect to the Borrowers described in Sections 9.1(g) or 9.1(h). Such deposit shall be held by the Administrative Agent as collateral for the payment and performance of the obligations of the Borrowers under this Agreement. The Administrative Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Other than any interest earned on the investment of such deposits, which investments shall be made at the option and sole discretion of the Administrative Agent and at the Borrowers’ risk and expense, such deposits shall not bear interest. Interest and profits, if any, on such investments shall accumulate in such account. Moneys in such account shall applied by the Administrative Agent to reimburse the Issuing Bank for LC Disbursements for which it had not been reimbursed and to the extent so applied, shall be held for the satisfaction of the reimbursement obligations of the Borrowers for the LC Exposure at such time or, if the maturity of the Loans has been accelerated, with the consent of the Required Lenders, be applied to satisfy other obligations of the Borrowers under this Agreement. If the Borrowers are required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not so applied as aforesaid) shall be returned to the Borrowers one Business Day after all Events of Default have been cured or waived. (h) Promptly following the end of each fiscal quarter, the Issuing Bank shall deliver (through the Administrative Agent) to each Lender and the Company a report describing the aggregate Letters of Credit outstanding at the end of such fiscal quarter. Upon the request of any Lender from time to time, the Issuing Bank shall deliver to such Lender any other information reasonably requested by such Lender with respect to each Letter of Credit then outstanding. (i) The Borrowers’ obligations to reimburse LC Disbursements hereunder shall be absolute, unconditional and irrevocable and shall be performed strictly in accordance with the terms of this Agreement under all circumstances whatsoever and irrespective of any of the following circumstances: (1) Any lack of validity or enforceability of any Letter of Credit or this Agreement; (2) The existence of any claim, set-off, defense or other right which a Borrower or any Subsidiary or Affiliate of a Borrower may have at any time against a   29 -------------------------------------------------------------------------------- beneficiary or any transferee of any Letter of Credit (or any Persons or entities for whom any such beneficiary or transferee may be acting), any Lender (including the Issuing Bank) or any other Person, whether in connection with this Agreement or the Letter of Credit or any document related hereto or thereto or any unrelated transaction; (3) Any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect; (4) Payment by the Issuing Bank under a Letter of Credit against presentation of a draft or other document to the Issuing Bank that does not comply with the terms of such Letter of Credit; (5) Any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of, or provide a right of setoff against, the Borrowers’ obligations hereunder; or (6) The existence of a Default or an Event of Default. (j) Neither the Administrative Agent, the Issuing Bank, the Lenders nor any Related Party of any of the foregoing shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to above), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of the Issuing Bank; provided, that neither the foregoing nor the provisions of 2.6(i) shall be construed to excuse the Issuing Bank from liability to the Borrowers to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrowers to the extent permitted by applicable law) suffered by the Borrowers that are caused by the Issuing Bank’s failure to exercise care when determining whether drafts or other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree, that in the absence of gross negligence or willful misconduct on the part of the Issuing Bank (as finally determined by a court of competent jurisdiction), the Issuing Bank shall be deemed to have exercised care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, with respect to documents presented that appear on their face to be in substantial compliance with the terms of a Letter of Credit, the Issuing Bank may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit. (k) Each Letter of Credit shall be subject to the International Standby Practices, International Chamber of Commerce Publication No. 590 (1998), as the same may be amended from time to time, and, to the extent not inconsistent therewith, the governing law of this Agreement set forth in Section 11.5.   30 -------------------------------------------------------------------------------- (l) Each Existing Letter of Credit shall be deemed to be a Letter of Credit issued by SunTrust Bank as the Issuing Bank on the Closing Date. 2.7 Additional Revolving Loans. (a) From time to time after the Closing Date, the Borrowers may, upon written notice to the Administrative Agent (who shall promptly provide a copy of such notice to each Lender), request an increase (the “Increase Request”) in the Aggregate Revolving Commitment Amount (the amount of any such increase, the “Additional Revolving Commitment Amount”). The Increase Request shall specify the amount of the Additional Revolving Commitment Amount and the date on which the Additional Revolving Commitment Amount is to become effective (the “Increase Date”) (which shall be a Business Day at least ten Business Days after the delivery of the Increase Request and at least 30 days prior to the Commitment Termination Date). (b) The increase in the Aggregate Revolving Commitment Amount shall be conditioned upon satisfaction of the following conditions: (1) after giving effect to such increase, the Aggregate Revolving Commitment Amount shall not exceed $90,000,000 (less any voluntary reductions pursuant to Section 2.20); (2) no Default or Event of Default shall have occurred and be continuing on the relevant Increase Date or shall result from any Additional Revolving Commitment Amount; (3) the representations and warranties of the Borrowers set forth in this Agreement shall be true and correct on and as of the relevant Increase Date as if made on and as of such date (or, if any such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date); and (4) One or more existing or new Revolving Credit Lenders shall have agreed to acquire the Additional Revolving Commitment Amount. (c) Upon the receipt of the Increase Request, the Administrative Agent shall direct the Arranger to solicit the acquisition of the Additional Revolving Commitment Amount by having existing Revolving Credit Lenders increase their respective Revolving Commitments then in effect, or by adding as new Revolving Credit Lenders with new Revolving Commitments hereunder Persons who are not then Revolving Credit Lenders (each a “New Revolving Credit Lender”), with the approval of the Administrative Agent, which shall not be unreasonably withheld or delayed, and the Company. Each existing Revolving Credit Lender shall have the right for a period of ten (10) Business Days following its receipt of the Increase Request to elect, by written notice to the Borrowers and the Administrative Agent, to acquire all or any part of the   31 -------------------------------------------------------------------------------- Additional Revolving Commitment Amount, which notice shall specify the amount such existing Revolving Credit Lender wishes to acquire (with each existing Revolving Credit Lender giving such notice being referred to herein as an “Increasing Revolving Credit Lender” and with such amount specified by such Increasing Revolving Credit Lender being referred to herein as a “Proposed Increase Amount”). If the total of the Proposed Increase Amounts exceeds the Additional Revolving Commitment Amount requested by the Borrowers, then the Additional Revolving Commitment Amount shall be allocated ratably among the Increasing Revolving Credit Lenders, with each Increasing Revolving Credit Lender’s allocation being a fraction, the numerator of which shall be the Proposed Increase Amount of such Increasing Revolving Credit Lender and the denominator of which shall be the sum of all of the Proposed Increase Amounts. No existing Revolving Credit Lender (or any successor thereto) shall have any obligation to increase its Revolving Commitment or its other obligations under this Agreement and the other Loan Documents, and any decision by an existing Revolving Credit Lender to increase its Revolving Commitment shall be made in its sole discretion independently from any other Revolving Credit Lender. New Revolving Credit Lenders will be solicited only if the total Proposed Increase Amounts are less than the Additional Revolving Commitment Amount requested by the Borrowers. The Borrowers shall cooperate and actively assist the Administrative Agent and the Arranger in connection with any such solicitation and shall reimburse the Administrative Agent and the Arranger for any reasonable out-of-pocket fees or expenses incurred in connection with such solicitation. (d) An increase in the aggregate amount of the Aggregate Revolving Commitment Amount pursuant to this Section 2.7 shall become effective upon the receipt by the Administrative Agent of an agreement in form and substance satisfactory to the Administrative Agent signed by the Borrowers, the other Loan Parties and each Increasing Revolving Credit Lender and each New Revolving Credit Lender, setting forth the new or increased Revolving Commitments of such Revolving Credit Lenders, together with a replacement or additional Revolving Note, as applicable, evidencing the new or increased Revolving Commitment of each affected Revolving Credit Lender, duly executed and delivered by the Borrowers and such evidence of appropriate corporate authorization on the part of the Borrowers and the other Loan Parties with respect to the increase in the Revolving Commitments and such opinions of counsel for the Borrowers and the other Loan Parties with respect to the increase in the Aggregate Revolving Commitment Amount as the Administrative Agent may reasonably request. (e) Upon the acceptance of any such agreement by the Administrative Agent, the Aggregate Revolving Commitment Amount shall automatically be increased by the amount of the Revolving Commitments added through such agreement, and this Agreement shall automatically be deemed amended to reflect the Revolving Commitments of all Lenders after giving effect to the addition of such Revolving Commitments. (f) Upon any increase in the aggregate amount of the Revolving Commitments pursuant to this Section 2.7 that is not pro rata among all Revolving Credit Lenders, within five (5) Business Days, the Borrowers shall concurrently prepay such Revolving Loans in their entirety and, to the extent the Borrowers elect to do so and subject to the conditions specified in Section 8, the Borrowers shall reborrow Revolving Loans from the   32 -------------------------------------------------------------------------------- Revolving Credit Lenders in proportion to their respective Revolving Commitments after giving effect to such increase, until such time as all outstanding Revolving Loans are held by the Revolving Credit Lenders in such proportion. 2.8 Funding of Borrowings. (a) Each Lender will make available each Loan to be made by it hereunder on the proposed date thereof by wire transfer in immediately available funds by 1:00 p.m. to the Administrative Agent at the Payment Office; provided that the Swingline Loans will be made as set forth in Section 2.5. The Administrative Agent will make such Loans available to the Borrowers by promptly crediting the amounts that it receives, in like funds by 3:00 p.m. on such proposed date, to an account maintained by the Company with the Administrative Agent or at the Company’s option, by effecting a wire transfer of such amounts to an account designated by the Company to the Administrative Agent. (b) Unless the Administrative Agent shall have been notified by any Lender prior to the date of a Borrowing in which such Lender is participating that such Lender will not make available to the Administrative Agent such Lender’s share of such Borrowing, the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent on such date, and the Administrative Agent, in reliance on such assumption, may make available to the Borrowers on such date a corresponding amount. If such corresponding amount is not in fact made available to the Administrative Agent by such Lender on the date of such Borrowing, the Administrative Agent shall be entitled to recover such corresponding amount on demand from such Lender together with interest at the Federal Funds Rate for up to two (2) days and thereafter at the rate specified for such Borrowing. If such Lender does not pay such corresponding amount forthwith upon the Administrative Agent’s demand therefor, the Administrative Agent shall promptly notify the Company, and the Borrowers shall immediately pay such corresponding amount to the Administrative Agent together with interest at the rate specified for such Borrowing. Nothing in this subsection shall be deemed to relieve any Lender from its obligation to fund its pro rata share of any Borrowing hereunder or to prejudice any rights which the Borrowers may have against any Lender as a result of any default by such Lender hereunder. (c) No Lender shall be responsible for any default by any other Lender in its obligations hereunder, and each Lender shall be obligated to make its Loans provided to be made by it hereunder, regardless of the failure of any other Lender to make its Loans hereunder. 2.9 Interest Elections. (a) On the Closing Date, each Borrowing shall be an Index Rate Loan. After the Closing Date, each Borrowing initially shall be of the Type specified in the applicable Notice of Borrowing, and in the case of a LIBOR Borrowing, shall have an initial Interest Period as specified in such Notice of Borrowing. Thereafter, the Borrowers may elect to convert such Borrowing into a different Type or to continue such Borrowing, and in the case of a LIBOR Borrowing, may elect Interest Periods therefor, all as provided in this Section. The Borrowers may elect different options with respect to different portions of the affected Borrowing, in which   33 -------------------------------------------------------------------------------- case each such portion shall be allocated ratably among the Lenders holding Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing. Notwithstanding the foregoing, at no time shall the total number of LIBOR Borrowings outstanding exceed six and the aggregate principal amount of each LIBOR Borrowing shall be not less than $500,000 or a larger multiple of $100,000, and the aggregate principal amount of each Base Rate Borrowing and each Index Rate Borrowing shall not be less than $500,000 or a larger multiple of $100,000; provided, that Base Rate Loans and Index Rate Loans made pursuant to Section 2.5 or Section 2.6(d) may be made in lesser amounts as provided therein. If a Notice of Borrowing does not specify a Type, the Borrowers shall be deemed to have requested an Index Rate Borrowing. (b) To make an election pursuant to this Section, the Company shall give the Administrative Agent prior written notice (or telephonic notice promptly confirmed in writing) of each Borrowing (a “Notice of Conversion/Continuation”) that is to be converted or continued, as the case may be, (x) prior to 12:00 noon one (1) Business Day prior to the requested date of a conversion into a Base Rate Borrowing or an Index Rate Borrowing and (y) prior to 12:00 noon three (3) Business Days prior to a continuation of or conversion into a LIBOR Borrowing. Each such Notice of Conversion/Continuation shall be irrevocable and shall specify (i) the Borrowing to which such Notice of Continuation/Conversion applies and if different options are being elected with respect to different portions thereof, the portions thereof that are to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) shall be specified for each resulting Borrowing); (ii) the effective date of the election made pursuant to such Notice of Continuation/Conversion, which shall be a Business Day, (iii) whether the resulting Borrowing is to be a Base Rate Borrowing, an Index Rate Borrowing or a LIBOR Borrowing; and (iv) if the resulting Borrowing is to be a LIBOR Borrowing, the Interest Period applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of “Interest Period.” If any such Notice of Continuation/Conversion requests a LIBOR Borrowing but does not specify an Interest Period, the Borrowers shall be deemed to have selected an Interest Period of one month. (c) If, on the expiration of any Interest Period in respect of any LIBOR Borrowing, the Company shall have failed to deliver a Notice of Conversion/Continuation when required by Section 2.9(b), then, unless such Borrowing is repaid as provided herein, the Borrowers shall be deemed to have elected to convert such Borrowing to an Index Rate Borrowing. No Borrowing may be converted into, or continued as, a LIBOR Borrowing if a Default or an Event of Default exists, unless the Administrative Agent and the Required Lenders shall have otherwise consented in writing. No conversion of any LIBOR Loans shall be permitted except on the last day of the Interest Period in respect thereof, except as required by Section 2.16(ii). (d) Upon receipt of any Notice of Conversion/Continuation, the Administrative Agent shall promptly notify each Lender of the details thereof and of such Lender’s portion of each resulting Borrowing. 2.10 Repayment of Loans. (a) The outstanding principal amount of all Revolving Loans shall be due and payable (together with accrued and unpaid interest thereon) on the Commitment Termination Date.   34 -------------------------------------------------------------------------------- (b) The principal amount of each Swingline Borrowing shall be due and payable on the Swingline Termination Date. 2.11 Interest on Loans. The Borrowers shall pay interest on the unpaid principal amount of each Loan from the date of such Loan until such principal amount shall be paid in full, at the following rates per annum: (a) During such periods as such Loan is an Index Rate Loan, at a rate per annum equal to the Index Rate plus the relevant Applicable Margin in effect from time to time. The interest rate on Index Rate Loans shall be established based on the Index Rate in effect on the first Index Rate Determination Date, and shall be adjusted on each Index Rate Determination Date thereafter to reflect the Index Rate then in effect. (b) During such periods as such Loan is a Base Rate Loan, a rate per annum equal at all times to the Base Rate plus the relevant Applicable Margin in effect from time to time. The rate at which interest accrues on the unpaid principal balance of the Base Rate Loans shall be changed effective as of the date of any change in the Base Rate. (c) During such periods as such Loan is a LIBOR Loan, at a rate per annum equal to the LIBOR for the applicable Interest Period plus the relevant Applicable Margin in effect from time to time. The applicable LIBOR shall remain in effect until the end of the applicable Interest Period. (d) While an Event of Default exists or after acceleration, the Borrowers shall pay interest (“Default Interest”) with respect to (i) all LIBOR Loans at the rate otherwise applicable for the then-current Interest Period plus an additional 2% per annum until the earlier of (x) the date such Event of Default is cured or waived in accordance with the terms of this Agreement and (y) the last day of such Interest Period, and thereafter so long as such Event of Default is continuing or after acceleration, at the rate then in effect for Base Rate Loans, plus an additional 2% per annum, and (ii) with respect to all other Obligations hereunder, at the rate then in effect for Base Rate Loans, plus an additional 2% per annum. (e) Interest on the principal amount of all Loans shall accrue from and including the date such Loans are made to but excluding the date of any repayment thereof. Interest on all outstanding Base Rate Loans and Index Rate Loans shall be payable monthly in arrears on the last day of each calendar month and on the Commitment Termination Date or the Swingline Termination Date, as the case may be. Interest on all outstanding LIBOR Loans shall be payable on the last day of each Interest Period applicable thereto, and, in the case of any LIBOR Loans having an Interest Period in excess of three months, on each day which occurs every three months, after the initial date of such Interest Period, and on the Commitment Termination Date. Interest on any Loan which is converted into a Loan of another Type or which is repaid or prepaid shall be payable on the date of such conversion or on the date of any such repayment or prepayment (on the amount repaid or prepaid) thereof. All Default Interest shall be payable on demand.   35 -------------------------------------------------------------------------------- (f) The Administrative Agent shall determine each interest rate applicable to the Loans hereunder and shall promptly notify the Company and the Lenders of such rate in writing (or by telephone, promptly confirmed in writing). Any such determination shall be conclusive and binding for all purposes, absent manifest error. 2.12 Fees. (a) The Borrowers shall pay to the Administrative Agent and the Arranger, for their own respective accounts, fees in the amounts and at the times previously agreed upon in writing by the Borrowers and the Administrative Agent and the Arranger. (b) The Borrowers agree to pay to the Administrative Agent for the account of each Revolving Credit Lender the applicable Unused Fee, which shall accrue from the date of this Agreement at the percentage applicable from time to time based on the Senior Funded Debt Ratio of the Company and its Subsidiaries on the daily amount of the unused Revolving Commitment of such Lender until the Commitment Termination Date. Accrued Unused Fees shall be payable in arrears on the last day of each March, June, September and December of each year and on the Commitment Termination Date, commencing on the first such date after the date of this Agreement. For purposes of computing unused fees with respect to the Revolving Commitments, the Revolving Commitment of each Lender shall be deemed used to the extent of the outstanding Revolving Loans and LC Exposure of such Lender. (c) The Borrowers agree to pay (i) to the Administrative Agent, for the account of each Revolving Credit Lender, a letter of credit fee with respect to its participation in each Letter of Credit, which shall accrue at the Applicable Margin then applicable to Revolving LIBOR Loans, on the average daily amount of such Revolving Credit Lender’s LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) attributable to such Letter of Credit during the period from and including the date of issuance of such Letter of Credit to but excluding the date on which such Letter of Credit expires or is drawn in full (including without limitation any LC Exposure that remains outstanding after the Commitment Termination Date) and (ii) to the Issuing Bank for its own account a fronting fee, which shall accrue at the rate of 0.25% per annum on the average daily amount of the LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) attributable to such Letter of Credit during the period from and including the date of issuance of such Letter of Credit to but excluding the date on which such Letter of Credit expires or is drawn in full (including without limitation any LC Exposure that remains outstanding after the Commitment Termination Date), as well as the Issuing Bank’s standard fees with respect to issuance, amendment, renewal or extension of any Letter of Credit or processing of drawings thereunder. Accrued letter of credit and fronting fees shall be payable quarterly in arrears on the last day of each March, June, September and December, commencing on March 31, 2006, and on the Commitment Termination Date (and if later, the date the LC Exposure shall be repaid in its entirety).   36 -------------------------------------------------------------------------------- 2.13 Computation of Interest and Fees. Interest with respect to Base Rate Loans shall be calculated on basis of a year of 365 or 366 days, as applicable, for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest is payable. All other computations of interest and fees hereunder shall be made on the basis of a year of 360 days for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or fees are payable (to the extent computed on the basis of days elapsed). Each determination by the Administrative Agent of an interest amount or fee hereunder shall be made in good faith and, except for manifest error, shall be final, conclusive and binding for all purposes. 2.14 Evidence of Indebtedness. (a) Each Lender shall maintain in accordance with its usual practice appropriate records evidencing the indebtedness of the Borrowers to such Lender resulting from each Loan made by such Lender from time to time, including the amounts of principal and interest payable thereon and paid to such Lender from time to time under this Agreement. The Administrative Agent shall maintain appropriate records in which shall be recorded (i) the Revolving Commitment of each Lender, (ii) the amount of each Loan made hereunder by each Lender, the Class and Type thereof and the Interest Period applicable thereto, (iii) the date of each continuation thereof pursuant to Section 2.9, (iv) the date of each conversion of all or a portion thereof to another Type pursuant to Section 2.9, (v) the date and amount of any principal or interest due and payable or to become due and payable from the Borrowers to each Lender hereunder in respect of such Loans and (vi) both the date and amount of any sum received by the Administrative Agent hereunder from the Borrowers in respect of the Loans and each Lender’s pro rata share thereof. The entries made in such records shall be prima facie evidence of the existence and amounts of the obligations of the Borrowers therein recorded; provided, that the failure or delay of any Lender or the Administrative Agent in maintaining or making entries into any such record or any error therein shall not in any manner affect the obligations of the Borrowers to repay the Loans (both principal and unpaid accrued interest) of such Lender in accordance with the terms of this Agreement. (b) At the request of any Lender (including the Swingline Lender) at any time, each Borrower agrees that it shall execute and deliver to such Lender a Revolving Note and, in the case of the Swingline Lender only, a Swingline Note, payable to the order of such Lender, in the applicable amount of such Lender’s Commitment. 2.15 Inability to Determine Interest Rates. If prior to the commencement of any Interest Period for any LIBOR Borrowing or on the Index Rate Determination Date for any Index Rate Borrowing, (1) the Administrative Agent shall have determined (which determination shall be conclusive and binding upon the Borrowers) that, by reason of circumstances affecting the relevant interbank market, adequate means do not exist for ascertaining LIBOR for such Interest Period or the Index Rate on such Index Rate Determination Date, or   37 -------------------------------------------------------------------------------- (2) the Administrative Agent shall have received notice from any Lender that the applicable LIBOR or the Index Rate, as applicable, does not adequately and fairly reflect the cost to such Lender of making, funding or maintaining its, as the LIBOR Loans for such Interest Period or its Index Rate Loans, as applicable, the Administrative Agent shall give written notice (or telephonic notice, promptly confirmed in writing) to the Company and to the Lenders as soon as practicable thereafter. In the case of LIBOR Loans, until the Administrative Agent shall notify the Company and the Lenders that the circumstances giving rise to such notice no longer exist, (i) the obligations of the Lenders to make LIBOR Loans or Index Rate Loans or to continue or convert outstanding Loans as or into LIBOR Loans or Index Rate Loans shall be suspended and (ii) all such affected LIBOR Rate Loans shall be converted into Base Rate Loans on the last day of the then current Interest Period applicable thereto, and all Index Rate Loans shall automatically be converted to Base Rate Loans, unless, in either case, the Borrowers prepay such Loans in accordance with this Agreement. Unless the Company notifies the Administrative Agent at least one Business Day before the date of any LIBOR Revolving Loan Borrowing for which a Notice of Borrowing as to such Revolving Loan Borrowing has previously been given that the Borrowers elect not to borrow on such date, then such Revolving Loan Borrowing shall be made as a Base Rate Borrowing. 2.16 Illegality. If any Change in Law shall make it unlawful or impossible for any Lender to make, maintain or fund any LIBOR Loan or Index Rate Loan and such Lender shall so notify the Administrative Agent, the Administrative Agent shall promptly give notice thereof to the Company and the other Lenders, whereupon until such Lender notifies the Administrative Agent and the Company that the circumstances giving rise to such suspension no longer exist, the obligation of such Lender to make LIBOR Loans and Index Rate Loans, or to continue or convert outstanding Loans as or into LIBOR Loans or Index Rate Loans, shall be suspended. In the case of the making of a LIBOR Revolving Loan Borrowing or Index Rate Revolving Loan Borrowing, such Lender’s Revolving Loan shall be made as a Base Rate Loan as part of the same Revolving Loan Borrowing and if the affected LIBOR Loan or Index Rate Loan is then outstanding, such Loan shall be converted to a Base Rate Loan either (i) on the last day of the then current Interest Period applicable to such LIBOR Loan if such Lender may lawfully continue to maintain such Loan to such date or (ii) immediately if such Lender shall determine that it may not lawfully continue to maintain such LIBOR Loan to such date, and immediately in the case of an Index Rate Loan. Notwithstanding the foregoing, the affected Lender shall, prior to giving such notice to the Administrative Agent, designate a different Applicable Lending Office if such designation would avoid the need for giving such notice and if such designation would not otherwise be disadvantageous to such Lender in the good faith exercise of its discretion.   38 -------------------------------------------------------------------------------- 2.17 Increased Costs. (a) If any Change in Law shall: (1) impose, modify or deem applicable any reserve, special deposit or similar requirement that is not otherwise included in the determination of LIBOR or the Index Rate hereunder against assets of, deposits with or for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Index Rate or LIBOR) or the Issuing Bank; or (2) impose on any Lender or on the Issuing Bank or the eurodollar interbank market any other condition affecting this Agreement or any Index Rate Loans or LIBOR Loans made by such Lender or any Letter of Credit or any participation therein; and the result of the foregoing is to increase the cost to such Lender of making, converting into, continuing or maintaining an Index Rate Loan or a LIBOR Loan or to increase the cost to such Lender or the Issuing Bank of participating in or issuing any Letter of Credit or to reduce the amount received or receivable by such Lender or the Issuing Bank hereunder (whether of principal, interest or any other amount), then the Borrowers shall promptly pay, upon written notice from and demand by such Lender on the Company (with a copy of such notice and demand to the Administrative Agent), to the Administrative Agent for the account of such Lender, within five Business Days after the date of such notice and demand, the additional amount or amounts sufficient to compensate such Lender or the Issuing Bank, as the case may be, for such additional costs incurred or reduction suffered. (b) If any Lender or the Issuing Bank shall have determined that on or after the date of this Agreement any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Lender’s or the Issuing Bank’s capital (or on the capital of such Lender’s or the Issuing Bank’s parent company) as a consequence of its obligations hereunder or under or in respect of any Letter of Credit to a level below that which such Lender or the Issuing Bank or such Lender’s or the Issuing Bank’s parent company could have achieved but for such Change in Law (taking into consideration such Lender’s or the Issuing Bank’s policies or the policies of such Lender’s or the Issuing Bank’s parent company with respect to capital adequacy) then, from time to time, within five (5) Business Days after receipt by the Company of written demand by such Lender (with a copy thereof to the Administrative Agent), the Borrowers shall pay to such Lender such additional amounts as will compensate such Lender or the Issuing Bank or such Lender’s or the Issuing Bank’s parent company for any such reduction suffered. Notwithstanding the foregoing, the affected Lender shall, prior to giving such notice to the Administrative Agent, designate a different Applicable Lending Office if such designation would avoid the need for giving demand hereunder and if such designation would not otherwise be disadvantageous to such Lender in the good faith exercise of its discretion. (c) A certificate of a Lender or the Issuing Bank setting forth the amount or amounts necessary to compensate such Lender or the Issuing Bank or such Lender’s or the Issuing Bank’s parent company, as the case may be, specified in paragraph (a) or (b) of this Section, and the calculation thereof, shall be delivered to the Company (with a copy to the Administrative Agent) and shall be conclusive, absent manifest error. The Borrowers shall pay any such Lender or the Issuing Bank, as the case may be, such amount or amounts within 10 days after receipt thereof.   39 -------------------------------------------------------------------------------- 2.18 Funding Indemnity. In the event of (a) the payment of any principal of a LIBOR Loan other than on the last day of the Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion or continuation of a LIBOR Loan other than on the last day of the Interest Period applicable thereto, or (c) the failure by the Borrowers to borrow, prepay, convert or continue any LIBOR Loan on the date specified in any applicable notice (regardless of whether such notice is withdrawn or revoked), then, in any such event, the Borrowers shall compensate each Lender, within five (5) Business Days after written demand from such Lender, for any loss, cost or expense attributable to such event. In the case of a LIBOR Loan, such loss, cost or expense shall be deemed to include an amount determined by such Lender to be the excess, if any, of (A) the amount of interest that would have accrued on the principal amount of such LIBOR Loan if such event had not occurred at LIBOR applicable to such LIBOR Loan for the period from the date of such event to the last day of the then current Interest Period therefor (or in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such LIBOR Loan) over (B) the amount of interest that would accrue on the principal amount of such LIBOR Loan for the same period if LIBOR were set on the date such LIBOR Loan was prepaid or converted or the date on which the Borrowers failed to borrow, convert or continue such LIBOR Loan. A certificate as to any additional amount payable under this Section submitted to a Borrower by any Lender (with a copy to the Administrative Agent) shall be conclusive, absent manifest error. 2.19 Taxes. (a) Any and all payments by or on account of any obligation of the Borrowers hereunder shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided, that if the Borrowers shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent, any Lender or the Issuing Bank (as the case may be) shall receive an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrowers shall make such deductions and (iii) the Borrowers shall pay the full amount deducted to the relevant governmental authority in accordance with applicable law. (b) In addition, the Borrowers shall pay any Other Taxes to the relevant governmental authority in accordance with applicable law. (c) The Borrowers shall indemnify the Administrative Agent, each Lender and the Issuing Bank, within five (5) Business Days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Administrative Agent, such Lender or the Issuing Bank, as the case may be, on or with respect to any payment by or on account of any obligation of the Borrowers hereunder (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) and any penalties,   40 -------------------------------------------------------------------------------- interest and reasonable expenses arising therefrom or with respect thereto (other than penalties, interest and expenses arising from gross negligence, willful misconduct or a material breach of the material obligations of the Administrative Agent, such Lender or the Issuing Bank, as the case may be, which breach continues after notice thereof has been given to such party in breach by the Borrowers), whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant governmental authority. A certificate as to the amount of such payment or liability delivered to the Borrowers by a Lender or the Issuing Bank, or by the Administrative Agent on its own behalf or on behalf of a Lender or the Issuing Bank, shall be conclusive absent manifest error. (d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrowers to a governmental authority, the Borrowers shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such governmental authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent. (e) Any Foreign Lender that becomes a party to this Agreement and that is entitled to an exemption from or reduction of withholding tax under the Code or any treaty to which the United States is a party with respect to payments under this Agreement shall deliver to the Borrowers (with a copy to the Administrative Agent), at the time or times prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law or reasonably requested by the Borrowers as will permit such payments to be made without withholding or at a reduced rate. Without limiting the generality of the foregoing, each Foreign Lender agrees that it will deliver to the Administrative Agent and the Borrowers (or in the case of a Participant, to the Lender from which the related participation shall have been purchased), as appropriate, two (2) duly completed copies of (i) Internal Revenue Service Form W-8 ECI, or any successor form thereto, certifying that the payments received from the Borrowers hereunder are effectively connected with such Foreign Lender’s conduct of a trade or business in the United States; or (ii) Internal Revenue Service Form W-8 BEN, or any successor form thereto, certifying that such Foreign Lender is entitled to benefits under an income tax treaty to which the United States is a party which reduces the rate of withholding tax on payments of interest; or (iii) Internal Revenue Service Form W-8 BEN, or any successor form prescribed by the Internal Revenue Service, together with a certificate (A) establishing that the payment to the Foreign Lender qualifies as “portfolio interest” exempt from U.S. withholding tax under Code section 871(h) or 881(c), and (B) stating that (1) the Foreign Lender is not a bank for purposes of Code section 881(c)(3)(A), or the obligation of a Borrower hereunder is not, with respect to such Foreign Lender, a loan agreement entered into in the ordinary course of its trade or business, within the meaning of that section; (2) the Foreign Lender is not a 10% shareholder of a Borrower within the meaning of Code section 871(h)(3) or 881(c)(3)(B); and (3) the Foreign Lender is not a controlled foreign corporation that is related to a Borrower within the meaning of Code section 881(c)(3)(C); or (iv) such other Internal Revenue Service forms as may be applicable to the Foreign Lender, including Forms W-8 IMY or W-8 EXP. Each such Foreign Lender shall deliver to the Borrowers and the Administrative Agent such forms on or before the date that it becomes a party to this Agreement (or in the case of a Participant, on or before the date such Participant purchases the related participation). In addition, each such Foreign Lender   41 -------------------------------------------------------------------------------- shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered by such Foreign Lender. Each such Foreign Lender shall promptly notify the Borrowers and the Administrative Agent at any time that it determines that it is no longer in a position to provide any previously delivered certificate to the Borrowers (or any other form of certification adopted by the Internal Revenue Service for such purpose). Each Foreign Lender agrees to indemnify and hold the Borrowers harmless from any United States taxes, penalties, interest and other expenses, losses or costs incurred or payable as a result of the Borrowers’ reliance on the forms and certificates delivered by such Foreign Lender pursuant to this Section 2.19(e). For any period for which a Foreign Lender has failed to provide the forms and certifications contemplated by this Section 2.19(e), such Foreign Lender shall not be entitled to indemnification under Section 2.19 for any Indemnified Taxes imposed by the United States which would not have been imposed but for the failure of such Foreign Lender to provide such forms. 2.20 Optional Reduction and Termination of Commitments. (a) Unless previously terminated, all Revolving Commitments shall terminate on the Commitment Termination Date, except that the Swingline Commitment shall terminate on the Swingline Termination Date. (b) Upon at least three (3) Business Days’ prior written notice (or telephonic notice promptly confirmed in writing) from the Company to the Administrative Agent (which notice shall be irrevocable), the Borrowers may reduce the Aggregate Revolving Commitments in part or terminate the Aggregate Revolving Commitments in whole, provided, that (i) any partial reduction shall apply to reduce proportionately and permanently the Revolving Commitment of each Revolving Credit Lender, (ii) any partial reduction pursuant to this Section 2.20 shall be in an amount of at least $5,000,000 and any larger multiple of $1,000,000, and (iii) no such reduction shall be permitted which would reduce the Aggregate Revolving Commitments to an amount less than the outstanding Revolving Credit Exposures of all Revolving Credit Lenders. Any such reduction in the Aggregate Revolving Commitments shall result in a proportionate reduction (rounded to the next lowest integral multiple of $100,000) in the Swingline Commitment and the LC Commitment. 2.21 Optional Prepayments. The Borrowers shall have the right at any time and from time to time to prepay any Borrowing, in whole or in part, by giving irrevocable written notice (or telephonic notice promptly confirmed in writing) to the Administrative Agent no later than (i) in the case of prepayment of any LIBOR Borrowing, 12:00 noon not less than three (3) Business Days prior to any such prepayment, (ii) in the case of any prepayment of any Base Rate Borrowing or Index Rate Borrowing, not less than one Business Day prior to the date of such prepayment, and (iii) in the case of Swingline Borrowings, prior to 12:00 noon on the date of such prepayment, provided that no notice shall be required for the prepayment of any Cash Management Swingline Loans. Each such notice shall be irrevocable and shall specify the proposed date of such prepayment and the principal amount of each Borrowing or portion thereof to be prepaid. Upon receipt of any such notice, the Administrative Agent shall promptly notify each affected Lender of the contents thereof and of such Lender’s pro rata share of any such   42 -------------------------------------------------------------------------------- prepayment. If such notice is given, the aggregate amount specified in such notice shall be due and payable on the date designated in such notice, together with accrued interest to such date on the amount so prepaid in accordance with Section 2.11; provided, that if a LIBOR Borrowing is prepaid on a date other than the last day of an Interest Period applicable thereto, the Borrowers shall also pay all amounts required pursuant to Section 2.18. Each partial prepayment of any Loan (other than a Swingline Loan) shall be in an amount that would be permitted in the case of an advance of a Revolving Loan Borrowing of the same Type pursuant to Section 2.2 or in the case of a Swingline Loan pursuant to Section 2.4. Each prepayment of a Borrowing shall be applied ratably to the Loans comprising such Borrowing. 2.22 Mandatory Prepayments and Commitment Reductions. (a) Upon the occurrence of any Equity Issuance by the Company or any of its Subsidiaries, the Borrowers shall prepay the Revolving Loans in an amount equal to the lesser of (x) the then outstanding principal amount of the Revolving Loans and accrued and unpaid interest thereon and (y) 100% of the Net Cash Proceeds of such Equity Issuance. Such prepayment shall be made within ten (10) Business Days after the date of such Equity Issuance and shall be applied toward the prepayment of the Revolving Loans as set forth in Section 2.22(d). (b) Upon the incurrence of any Debt (as specified in clauses (a) and (j) of the definition thereof) by the Company or any of its Subsidiaries (excluding any Obligations), the Borrowers shall prepay the Revolving Loans in an amount equal to the lesser of (x) the then outstanding principal amount of the Revolving Loans and accrued and unpaid interest thereon and (y) 100% of the Net Cash Proceeds of such Debt. Such prepayment shall be applied within ten (10) Business Days after the date of such incurrence of Debt toward the prepayment of the Revolving Loans as set forth in Section 2.22(d). (c) If on any date the Company or any of its Subsidiaries shall receive Net Cash Proceeds from any Asset Sale, Purchase Price Refund or Recovery Event then, unless a Reinvestment Notice shall be delivered in respect thereof (within ten (10) Business Days after such Asset Sale, Purchase Price Refund or Recovery Event), the Borrowers shall prepay the Revolving Loans in an amount equal to the lesser of (x) the then outstanding principal amount of the Revolving Loans and accrued and unpaid interest thereon and (y) such Net Cash Proceeds. Such prepayment shall be applied on the 11th Business Day following such Asset Sale, Purchase Price Refund or Recovery Event toward the prepayment of the Revolving Loans as set forth in Section 2.22(d). (d) Amounts to be applied in connection with prepayments made pursuant to this Section 2.22 shall be applied to the prepayment of the Revolving Loans, but not the reduction of the Revolving Commitments. The application of any prepayment pursuant to this Section 2.22 shall be made, first, to Base Rate Loans, second, to Index Rate Loans and, third, to LIBOR Loans; provided that if such prepayment of LIBOR Loans would result in a breakage cost pursuant to Section 2.18(a), the Company shall have the option to direct the Administrative Agent to invest the prepayment otherwise required to be made on such LIBOR Loans in   43 -------------------------------------------------------------------------------- certificates of deposit or money market accounts issued by the bank serving as the Administrative Agent (but otherwise at the Company’s sole risk) until the end of the currently effective interest periods for such LIBOR Loans or such time as such LIBOR Loans may otherwise be prepaid without a breakage cost pursuant to Section 2.18(a); such investments shall be deemed to be additional collateral for the Obligations and held on the terms of Section 3 hereof. Each prepayment of the Loans under this Section shall be accompanied by accrued interest to the date of such prepayment on the amount prepaid. (e) If at any time the Revolving Credit Exposure of all Lenders exceeds the Aggregate Revolving Commitment Amount, as reduced pursuant to Section 2.21 or otherwise, the Borrowers shall immediately repay Swingline Loans and Revolving Loans in an amount equal to such excess, together with all accrued and unpaid interest on such excess amount and any amounts due under Section 2.18. Each prepayment shall be applied first to the Swingline Loans to the full extent thereof, second to the Base Rate Loans to the full extent thereof, third to the Index Rate Loans to the fullest extent thereof, and finally to the LIBOR Loans to the full extent thereof. If after giving effect to prepayment of all Loans, the Revolving Credit Exposure of all Lenders exceeds the Aggregate Revolving Commitment Amount, the Borrowers shall be required to provide cash collateral for the Letters of Credit pursuant to the foregoing sentence, the Borrowers shall effect the same by paying to the Administrative Agent, for the benefit of the Issuing Bank, immediately available funds in an amount equal to the required amount, which funds shall be retained by the Administrative Agent, for the benefit of the Issuing Bank, in a cash collateral account until the earlier to occur of (1) the date the affected Letters of Credit shall have been terminated or cancelled, and (2) the date the Revolving Credit Exposure of all Lenders no longer exceeds the Aggregate Revolving Commitment Amount, at which time the cash collateral shall be paid to the Company. 2.23 Payments Generally; Pro Rata Treatment; Sharing of Set-offs. (a) Each borrowing by the Borrowers from the Lenders hereunder, each payment by the Borrowers on account of any Unused Fee or Letter of Credit Fee (other than the fronting fee payable solely to the Issuing Bank) and any reduction of the Revolving Commitments of the Lenders shall be made pro rata according to the respective Revolving Credit Percentages of the relevant Lenders. Each payment (other than prepayments) in respect of principal or interest in respect of the Loans and each payment in respect of fees payable hereunder shall be applied to the amounts of such obligations owing to the Lenders pro rata according to the respective amounts then due and owing to the Lenders. (b) Each payment (including each prepayment) by the Borrowers on account of principal of and interest on the Revolving Credit Loans shall be made pro rata according to the respective outstanding principal amounts of the Revolving Credit Loans then held by the Revolving Credit Lenders. Each payment in respect of LC Disbursements in respect of any Letter of Credit shall be made to the Issuing Bank that issued such Letters of Credit. (c) The Borrowers shall make each payment required to be made by it hereunder (whether of principal, interest, fees or reimbursement of LC Disbursements, or of   44 -------------------------------------------------------------------------------- amounts payable under Sections 2.17, 2.18 or 2.19, or otherwise) prior to 12:00 noon, on the date when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at the Payment Office, except payments to be made directly to the Issuing Bank or Swingline Lender as expressly provided herein and except that payments pursuant to Sections 2.17, 2.18 and 2.19 and 11.3 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be made payable for the period of such extension. All payments hereunder shall be made in Dollars. (d) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, unreimbursed LC Disbursements, interest and fees then due hereunder, such funds shall be applied (i) first, towards payment of interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, towards payment of principal and unreimbursed LC Disbursements then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal and unreimbursed LC Disbursements then due to such parties. (e) If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Loans or participations in LC Disbursements or Swingline Loans that would result in such Lender receiving payment of a greater proportion of the aggregate amount of its Loans and participations in LC Disbursements and Swingline Loans and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Loans and participations in LC Disbursements and Swingline Loans of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Loans and participations in LC Disbursements and Swingline Loans; provided, that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by the Borrowers pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans or participations in LC Disbursements or Swingline Loans to any assignee or participant, other than to the Borrowers or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). Each Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrowers rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of a Borrower in the amount of such participation.   45 -------------------------------------------------------------------------------- (f) Unless the Administrative Agent shall have received notice from the Company prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders or the Issuing Bank hereunder that the Borrowers will not make such payment, the Administrative Agent may assume that the Borrowers have made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders or the Issuing Bank, as the case may be, the amount or amounts due. In such event, if the Borrowers have not in fact made such payment, then each of the Lenders or the Issuing Bank, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or Issuing Bank with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with generally accepted banking industry rules on interbank compensation then in effect. (g) If any Lender shall fail to make any payment required to be made by it pursuant to Sections 2.5(b), 2.6(c) or 2.6(d), 2.6(e), 2.23(d) or 11.3(c), then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for the account of such Lender to satisfy such Lender’s obligations under such Sections until all such unsatisfied obligations are fully paid. 2.24 Mitigation of Obligations; Replacement of Lenders. (a) Determination of amounts payable under Sections 2.16, 2.17, 2.18 or 2.19 in connection with a LIBOR Borrowing shall be calculated as though each Lender funded its LIBOR Borrowing through the purchase of a deposit of the type and maturity corresponding to the deposit used as a reference in determining the LIBOR applicable to such LIBOR Borrowing, whether in fact that is the case or not. If any Lender is unable to make or maintain LIBOR Loans when other Lenders are able to make or maintain LIBOR Loans, requests compensation under Section 2.17, or if the Borrowers are required to pay any additional amount to any Lender or any governmental authority for the account of any Lender pursuant to Section 2.19, then, upon the Company’s written request to such Lender, such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the sole judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable under Section 2.17 or Section 2.19, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrowers hereby agree to pay all reasonable costs and expenses incurred by any Lender in connection with such designation or assignment requested by the Company. (b) If any Lender is unable to make or maintain LIBOR Loans when other Lenders are able to make or maintain LIBOR Loans, requests compensation under Section 2.17, or if a Borrower is required to pay any additional amount to any Lender or any governmental   46 -------------------------------------------------------------------------------- authority for the account of any Lender pursuant to Section 2.19, or if any Lender defaults in its obligation to fund Loans hereunder, then the Borrowers may, at their sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions set forth in Section 11.4(b), and the Borrowers shall be obligated to pay the recordation and processing fee referred to therein) all its interests, rights and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Lender); provided, that (i) the Borrowers shall have received the prior written consent of the Administrative Agent, which consent shall not be unreasonably withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal amount of all Loans owed to it, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (in the case of such outstanding principal and accrued interest) and from the Borrowers (in the case of all other amounts), (iii) the Borrowers shall be liable to such replaced Lender under Section 2.18 (as though Section 2.18 were applicable) if any LIBOR Loan owing to such replaced Lender shall be purchased other than on the last day of the Interest Period relating thereto, and (iv) no Event of Default shall have occurred and be continuing. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrowers to require such assignment and delegation cease to apply. (c) Failure or delay on the part of any Lender or the Issuing Bank to demand compensation pursuant to Sections 2.17, 2.18 or 2.19 shall not constitute a waiver of such Lender’s or the Issuing Bank’s right to demand such compensation, provided that the Borrowers shall not be required to compensate a Lender or the Issuing Bank pursuant to Sections 2.17, 2.18 or 2.19 for any increased costs incurred or reductions suffered more than 180 days prior to the date that such Lender or the Issuing Bank, as the case may be, notifies the Company of the Change in Law or other event giving rise to such tax, increased costs or reductions and of such Lender’s or the Issuing Bank’s intention to claim compensation therefor (except that, if the Change in Law or other event giving rise to such tax, increased costs or reductions is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof). SECTION 3. Security. 3.1 Security Interest. Each Borrower hereby assigns and pledges to the Administrative Agent, for the ratable benefit of the Lenders, and hereby grants to the Administrative Agent, for the ratable benefit of the Lenders, a first priority security interest in all of such Borrower’s right, title and interest in and to the Collateral (subject to Liens permitted by this Agreement), whether now owned or hereafter acquired by such Borrower, including all proceeds of any and all of the foregoing or hereinafter-described Collateral (including, without limitation, proceeds that constitute property of the types described herein) and, to the extent not otherwise included, all policies of insurance on any property of such Borrower and all payments and proceeds under any such insurance (whether or not the Administrative Agent is the loss payee thereof, for the ratable benefit of the Lenders), or any indemnity warranty or guaranty payable by reason of loss or damage to or otherwise with respect to any of the foregoing   47 -------------------------------------------------------------------------------- Collateral; all cash proceeds of the Collateral; and all books of account and records, including all computer software relating thereto. This Agreement secures the payment of all Obligations of the Borrowers now or hereafter existing or arising. Without limiting the generality of the foregoing, this Agreement secures the payment of all amounts that constitute part of the Obligations and would be owed by each Borrower to the Administrative Agent and any of the Lenders but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving such Borrower. 3.2 Representations and Warranties Concerning the Collateral. (a) All items of equipment and inventory of each Borrower with an aggregate book value in excess of $100,000 are located at the places specified in Schedule 3.2 hereto. During the five years immediately preceding the date of this Agreement, no Borrower nor any predecessor of any Borrower has used any corporate or fictitious name other than its current corporate name. No Borrower has any trade names. The chief executive office and mailing address of each Borrower is located at 11730 Plaza America Drive, Reston, Virginia 20190. The exact legal name of each Borrower is that indicated on the signature pages hereof. The Borrowers are organizations of the types, and are organized in the jurisdictions, set forth herein. The signature page hereof accurately sets forth each Borrower’s organizational identification number. (b) The Borrowers are the legal and beneficial owners of the Collateral free and clear of any lien, security interest, option or other charge or encumbrance except for the security interest created by this Agreement or permitted by this Agreement. No effective financing statement or other document similar in effect covering all or any part of the Collateral is on file in any recording office, except those filed in connection with the Existing Agreement as permitted by this Agreement such as may have been filed in favor of the Administrative Agent, for the ratable benefit of the Lenders, relating to this Agreement or otherwise permitted by this Agreement. (c) The Borrowers have exclusive possession and control of the Collateral. (d) This Agreement creates a valid security interest in the Collateral, securing the payment of the Obligations and, when properly perfected, shall constitute a valid perfected security interest in such Collateral, free and clear of all Liens except as created or permitted by this Agreement. (e) Any inventory produced by a Borrower has been produced by such Borrower in compliance with all requirements of the Fair Labor Standards Act. (f) Each Borrower represents and warrants as to each and every Receivable included in assets on the consolidated balance sheet of the Company and its Subsidiaries that: (1) it is a bona fide existing obligation, valid and enforceable to the knowledge of the Company against the Customer, for software installed or licensed, goods sold or leased or services rendered in the ordinary course of business; (2) it is subject to no dispute, defense or offset in an amount of greater than $500,000 except as disclosed in writing to the Administrative Agent or as   48 -------------------------------------------------------------------------------- reflected or reserved for in the financial statements delivered from time to time by the Borrowers to the Administrative Agent hereunder; (3) all instruments, chattel paper and other evidence of indebtedness issued to a Borrower with respect to any Receivable have been made available to the Administrative Agent, and, together with all supporting documents delivered to the Administrative Agent, are genuine, complete, valid and enforceable in accordance with their terms; (4) it is not subject to any material discount, allowance or special terms of payment except in the ordinary course of business or as disclosed in writing to the Administrative Agent; and (5) except as required by the Assignment of Claims Act, it is not and shall not be subject to any prohibition or limitation upon assignment. (g) As of the Closing Date, no Borrower owns in fee any real property, other than the Condo Unit, or any leasehold estate in any real property with a term (including all renewal options) of more than 20 years. 3.3 Covenants Concerning the Collateral. (a) Each Borrower shall promptly inform the Administrative Agent of (1) any dispute in excess of $500,000 with a Customer and (2) the bankruptcy, insolvency, receivership, assignment for the benefit of creditors or suspension of business of any material Customer of which such Borrower has knowledge. No Borrower shall compromise or discount any Receivable without the prior written consent of the Administrative Agent except for ordinary trade discounts or allowances for prompt payment or as otherwise deemed by such Borrower to be in its best commercial interests. (b) Upon the occurrence and during the continuation of an Event of Default, upon demand by the Administrative Agent, each Borrower shall establish and maintain a lockbox with the Administrative Agent and shall direct all Customers to make payments on Collateral to such lockbox by printing such direction on all invoices given to Customers. Each Borrower also shall remit to such lockbox or deliver to the Administrative Agent all payments on Collateral received by such Borrower. Such payments shall be remitted or delivered in their original form on the day of receipt. All notes, checks and other instruments so received by each Borrower shall be duly endorsed to the order of the Administrative Agent. The payments remitted to the lockbox and all payments delivered to the Administrative Agent shall be credited to a cash collateral account maintained by the Administrative Agent in the name of the Company over which the Administrative Agent shall have the exclusive power of withdrawal. All collected funds in such cash collateral account shall be applied to the Obligations by the Administrative Agent on each Business Day, whether or not the Obligations are then due. (c) Upon the occurrence and during the continuation of an Event of Default, to facilitate direct collection of the Collateral, the Administrative Agent shall have the right to take over the post office boxes of the Borrowers or make other arrangements, with which the Borrowers shall cooperate, to receive the mail of each Borrower. (d) The Borrowers shall execute all other agreements, instruments and documents and shall perform all further acts that the Administrative Agent may require with respect to Receivables owing by the Government to ensure compliance with the Assignment of   49 -------------------------------------------------------------------------------- Claims Act, provided that, as long as no Event of Default has occurred and is continuing, the Administrative Agent has no present intent to require, but reserves the right to so require, Assignment of Claims Act filings for any Government Contract. (e) All of the inventory and equipment of each Borrower will be kept only at the locations set forth on Schedule 3.2, as amended from time to time upon written notice from the Company to the Administrative Agent The Borrowers shall give the Administrative Agent prior written notice before any material inventory or equipment is moved or delivered to a location other than such designated places of business, and the lien and security interest of the Administrative Agent for the ratable benefit of the Lenders will be maintained despite the location of the inventory or equipment. Without the prior written consent of the Administrative Agent, no Borrower shall move or deliver inventory or equipment with a book value in any instance or in the aggregate of $200,000 or more to a location outside of the United States of America. The foregoing provisions shall not apply to inventory sold in the ordinary course of business of the Borrowers. (f) Each Borrower shall have its equipment and inventory insured against loss or damage by fire, theft, burglary, pilferage, loss in transportation and such other hazards as the Administrative Agent shall reasonably specify, by insurers reasonably satisfactory to the Administrative Agent, in amounts reasonably satisfactory to the Administrative Agent and under policies containing loss payable clauses satisfactory to the Administrative Agent. Any such insurance policies, or certificates or other evidence thereof satisfactory to the Administrative Agent, shall be deposited with the Administrative Agent. Each Borrower agrees that the Administrative Agent, for the ratable benefit of the Lenders, shall have a security interest in such policies and the proceeds of such policies thereof, and if any loss shall occur during the continuation of an Event of Default, the proceeds relating to the loss or damage of the equipment or inventory may be applied to the payment of the Obligations or to the replacement or restoration of the inventory or equipment damaged or destroyed, as the Administrative Agent may elect or direct. After the occurrence and during the continuance of an Event of Default, the Administrative Agent shall have the right to file claims under any insurance policies, to receive, receipt and given acquittance for any payments that may be made thereunder, and to execute any and all endorsements, receipts, releases, assignments, reassignments or other documents that may be necessary to effect to the collection, compromise, or settlement of any claims under any of the insurance policies. (g) Each Borrower, at its expense, will defend the Collateral against any claims or demands adverse to the Administrative Agent’s security interest and will promptly pay when due all taxes or assessments levied against such Borrower on the Collateral, except for Liens created or permitted by this Agreement, or as contested by such Borrower in good faith and in appropriate proceedings, provided that the enforcement of any such claim or demand is stayed during the term of such contest and proceedings. (h) Each Borrower shall provide the Administrative Agent such information as the Administrative Agent from time to time reasonably may request with respect to the Collateral, including, without limitation, statements describing, designating, identifying and evaluating all Collateral.   50 -------------------------------------------------------------------------------- 3.4 Perfection of Security Interest. (a) Each Borrower hereby irrevocably authorizes the Administrative Agent, for the ratable benefit of the Lenders, at any time and from time to time to file in any Uniform Commercial Code jurisdiction any initial financing statements and amendments thereto that (1) indicate the Collateral (i) as all assets of such Borrower or words of similar effect, regardless of whether any particular asset comprised in the Collateral falls within the scope of Article 9A of the Uniform Commercial Code of the State or such jurisdiction, or (ii) as being of an equal or lesser scope or with greater detail, and (2) contain any other information required by part 5 of Article 9A of the Uniform Commercial Code of the State or such jurisdiction for the sufficiency or filing office acceptance of any financing statement or amendment, including (i) whether such Borrower is an organization, the type of organization and any organization identification number issued to such Borrower and, (ii) in the case of a financing statement filed as a fixture filing or indicating Collateral as as-extracted collateral or timber to be cut, a sufficient description of real property to which the Collateral relates. Each Borrower agrees to furnish any such information to the Administrative Agent promptly upon request. Each Borrower also ratifies its authorization for the Administrative Agent to have filed in any Uniform Commercial Code jurisdiction any like initial financing statements or amendments thereto if filed prior to the date hereof. (b) Without providing at least 10 days’ prior written notice to the Administrative Agent, no Borrower shall change its name, its type of organization, jurisdiction of organization or other legal structure, its place of business or, if more than one, chief executive office, or its mailing address or organizational identification number if it has one. If a Borrower does not have an organizational identification number and later obtains one, such Borrower shall forthwith notify the Administrative Agent of such organizational identification number. (c) If a Borrower shall at any time hold or acquire any promissory notes or tangible chattel paper as part of the Collateral, such Borrower shall forthwith endorse, assign and deliver the same to the Administrative Agent, for the ratable benefit of the Lenders, accompanied by such instruments of transfer or assignment duly executed in blank as the Administrative Agent may from time to time specify. (d) For each deposit account that a Borrower at any time opens or maintains, such Borrower shall, at the Administrative Agent’s request, pursuant to a control agreement in form and substance satisfactory to the Administrative Agent, cause the depositary bank to agree to comply at any time during the continuation of an Event of Default with instructions from the Administrative Agent to such depositary bank directing the disposition of funds from time to time credited to such deposit account, without further consent of such Borrower. The Administrative Agent agrees with each Borrower that the Administrative Agent shall not give any such instructions or withhold any withdrawal rights from such Borrower, unless an Event of Default has occurred and is continuing or would occur as a result thereof. The provisions of this paragraph shall not apply to (i) any deposit account for which a Borrower, the depositary bank   51 -------------------------------------------------------------------------------- and the Administrative Agent have entered into a cash collateral agreement specially negotiated among such Borrower, the depositary bank and the Administrative Agent for the specific purpose set forth therein, (ii) deposit accounts for which the Administrative Agent is the depositary, (iii) deposit accounts specially and exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of such Borrower’s salaried employees, and (iv) deposit accounts for which such Borrower is acting as an agent to distribute funds other than funds of the Borrower to a third party. (e) If a Borrower shall at any time hold or acquire any certificated securities, such Borrower shall, upon the Administrative Agent’s written request therefor, forthwith endorse, assign and deliver the same to the Administrative Agent to be held as Collateral for the ratable benefit of the Lenders, accompanied by such instruments of transfer or assignment duly executed in blank as the Administrative Agent may from time to time specify. If any securities now or hereafter acquired by a Borrower are uncertificated and are issued to such Borrower or its nominee directly by the issuer thereof, that Borrower shall immediately notify the Administrative Agent thereof and, at the Administrative Agent’s request and option, pursuant to an agreement in form and substance satisfactory to the Administrative Agent, cause the issuer to agree to comply during the continuation of an Event of Default with instructions from the Administrative Agent as to such securities, without further consent of such Borrower or such nominee. If any securities, whether certificated or uncertificated, or other investment property now or hereafter acquired by a Borrower are held by such Borrower or its nominee through a securities intermediary or commodity intermediary, such Borrower shall immediately notify the Administrative Agent thereof and, at the Administrative Agent’s request, pursuant to a securities control agreement in form and substance satisfactory to the Administrative Agent, cause such securities intermediary or (as the case may be) commodity intermediary to agree to comply during the continuation of an Event of Default with entitlement orders or other instructions from the Administrative Agent to such securities intermediary as to such securities or other investment property, or (as the case may be) to apply any value distributed on account of any commodity contract as directed by the Administrative Agent to such commodity intermediary, in each case without further consent of such Borrower or such nominee. The Administrative Agent agrees with each Borrower that the Administrative Agent shall not give any such entitlement orders or instructions or directions to any such issuer, securities intermediary or commodity intermediary, and shall not withhold its consent to the exercise of any withdrawal or dealing rights by such Borrower, unless an Event of Default has occurred and is continuing, or, after giving effect to any such investment and withdrawal rights not otherwise permitted by the Loan Documents, would occur. The provisions of this paragraph shall not apply to any financial assets credited to a securities account for which the Administrative Agent is the securities intermediary. (f) If any goods with an aggregate book value in excess of $250,000 are at any time in the possession of a bailee, each Borrower shall promptly notify the Administrative Agent thereof and, if requested by the Administrative Agent, shall promptly obtain an acknowledgement from the bailee, in form and substance satisfactory to the Administrative Agent, that the bailee holds such Collateral for the benefit of the Administrative Agent and shall act upon the instructions of the Administrative Agent, without the further consent of such Borrower. The Administrative Agent agrees with each Borrower that the Administrative Agent   52 -------------------------------------------------------------------------------- shall not give any such instructions unless an Event of Default has occurred and is continuing or would occur after taking into account any action by such Borrower with respect to the bailee. (g) If a Borrower at any time holds or acquires an interest in any electronic chattel paper or any “transferable record,” as that term is defined in Section 201 of the federal Electronic Signatures in Global and National Commerce Act, or in §16 of the Uniform Electronic Transactions Act as in effect in any relevant jurisdiction, such Borrower shall promptly notify the Administrative Agent thereof and, at the request of the Administrative Agent, shall take such action as the Administrative Agent may reasonably request to vest in the Administrative Agent, for the ratable benefit of the Lenders, control, under §9-105 of the Uniform Commercial Code, of such electronic chattel paper or control under Section 201 of the Federal Electronic Signatures in Global and National Commerce Act or, as the case may be, §16 of the Uniform Electronic Transactions Act, as so in effect in such jurisdiction, of such transferable record. The Administrative Agent agrees with each Borrower that the Administrative Agent will arrange, pursuant to procedures satisfactory to the Administrative Agent and so long as such procedures will not result in the Administrative Agent’s loss of control, for such Borrower to make alterations to the electronic chattel paper or transferable record permitted under UCC §9-105 or, as the case may be, Section 201 of the federal Electronic Signatures in Global and National Commerce Act or §16 of the Uniform Electronic Transactions Act for a party in control to make without loss of control, unless an Event of Default has occurred and is continuing or would occur after taking into account any action by such Borrower with respect to such electronic chattel paper or transferable record. (h) If a Borrower is at any time a beneficiary under a letter of credit now or hereafter issued in favor of such Borrower, that Borrower shall promptly notify the Administrative Agent thereof and, at the request of the Administrative Agent, such Borrower shall, pursuant to an agreement in form and substance satisfactory to the Administrative Agent, arrange for the issuer and any confirmer of such letter of credit to consent to an assignment to the Administrative Agent, for the ratable benefit of the Lenders, during the continuation of an Event of Default of the proceeds of any drawing under the letter of credit, with the Administrative Agent agreeing that the proceeds of any drawing under the letter to credit are to be applied to the payment of the Obligations, for the ratable benefit of the Lenders. (i) If a Borrower shall at any time hold or acquire a commercial tort claim in excess of $100,000, that Borrower shall promptly notify the Administrative Agent in a writing signed by such Borrower of the brief details thereof and grant to the Administrative Agent, for the ratable benefit of the Lenders, in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance satisfactory to the Administrative Agent. (j) If required by the Administrative Agent, each Borrower that owns any Intellectual Property that is registered with the United States Patent and Trademark Office or the United States Copyright Office, shall execute and deliver an Intellectual Property Assignment and shall record such Intellectual Property Assignment with the United States Patent and Trademark Office and the United States Copyright Office, as applicable.   53 -------------------------------------------------------------------------------- (k) Each Borrower further agrees to take any other action reasonably requested by the Administrative Agent to insure the attachment, perfection and first priority of, and the ability of the Administrative Agent to enforce, the Administrative Agent’s security interest in any and all of the Collateral, for the ratable benefit of the Lenders, including, without limitation, (1) executing, delivering and, where appropriate, filing financing statements and amendments relating thereto under the Uniform Commercial Code, to the extent, if any, that such Borrower’s signature thereon is required therefor, (2) causing the Administrative Agent’s name to be noted as the Lender on any certificate of title for a titled good if such notation is a condition to attachment, perfection or priority of, or ability of the Administrative Agent to enforce, the Administrative Agent’s security interest in such Collateral, held for the ratable benefit of the Lenders, (3) complying with any provision of any statute, regulation or treaty of the United States as to any Collateral if compliance with such provision is a condition to attachment, perfection or priority of, or ability of the Administrative Agent to enforce, the Administrative Agent’s security interest in such Collateral, held for the ratable benefit of the Lenders, (4) obtaining governmental and other third party consents and approvals, including without limitation any consent of any licensor, lessor or other person obligated on Collateral, (5) obtaining waivers from mortgagees and landlords in form and substance satisfactory to the Administrative Agent and (6) taking all actions required by any earlier versions of the Uniform Commercial Code or by other law, as applicable in any relevant Uniform Commercial Code jurisdiction, or by other law as applicable in any foreign jurisdiction. 3.5 Power of Attorney. Each Borrower appoints the Administrative Agent and any officer, employee or agent of the Administrative Agent, as the Administrative Agent from time to time may designate, as attorneys-in-fact for a Borrower to perform all actions necessary or desirable in the discretion of the Administrative Agent to enforce its security interest in the Collateral, for the ratable benefit of the Lenders, and to exercise such rights and powers as each Borrower might exercise with respect to the Collateral, all at the reasonable cost and expense of the Borrowers. Each Borrower agrees that neither the Administrative Agent nor any other such attorney-in-fact will be liable for any acts of omission or commission, nor for any error of judgment or mistake of law or fact, unless such acts constitute willful misconduct, gross negligence or a material breach of the material obligations of the Administrative Agent under this Agreement which breach continues after notice thereof has been given by the Borrowers. This power is coupled with an interest and is irrevocable so long as any Obligations are outstanding. The Administrative Agent agrees that it shall be entitled to exercise its rights under this Section 3.5 only upon the occurrence and during the continuation of an Event of Default. 3.6 Limitations on Obligations. It is expressly agreed by each Borrower that, notwithstanding any other provision of this Agreement, each Borrower shall remain liable under each Receivable and contract giving rise to each Receivable to observe and perform all the conditions and obligations to be observed and performed by each Borrower in accordance with and pursuant to the terms and provisions of each such Receivable and contract. Neither the Administrative Agent nor any Lender shall have any obligation or liability under any Receivable or contract by reason of or arising out of this Agreement or the assignment of such Receivable or contract to the Administrative Agent, for the ratable benefit of the Lenders, or the receipt by the Administrative Agent, for the ratable benefit of the Lenders, of any payment relating to the   54 -------------------------------------------------------------------------------- Receivable pursuant to this Agreement, nor shall the Administrative Agent or any Lender be required or obligated in any manner to perform or fulfill any of the obligations of a Borrower under or pursuant to any Receivable or contract, or to make any payment, or to make any inquiry as to the nature or the sufficiency of any payment received by it or the sufficiency of any performance by any party under any Receivable, or to present or file any claim, or to take any action to collect or enforce any performance or the payment of any amounts that may have been assigned to it or to which it may be entitled at any time or times. SECTION 4. Representations and Warranties. Each Borrower represents and warrants to the Administrative Agent and each Lender that: 4.1 Incorporation, Good Standing and Due Qualification. Each Borrower (a) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation; (b) has the power and authority to own its assets and to transact the business in which it is now engaged or in which it is proposed to be engaged; and (c) is duly qualified as a foreign corporation or limited liability corporation and in good standing under the laws of each other jurisdiction in which such qualification is required, except when the failure to be so qualified would not have a Material Adverse Effect. As of the date of this Agreement, the Company has no Subsidiaries other than NCI Virginia and SES, and neither NCI Virginia nor SES has any Subsidiaries. 4.2 Power and Authority. The execution, delivery and performance by the Borrowers of the Loan Documents have been duly authorized by all necessary corporate actions and do not and will not (a) require any consent or approval of, or filing or registration with, any governmental agency or authority or the stockholders of a Borrower, other than the filing of financing statements as required by the UCC, filings required by the Assignment of Claims Act and other filings contemplated by any of the Loan Documents relating to the creation or perfection of a Lien on any of the Collateral; (b) contravene a Borrower’s articles or certificate of incorporation, articles or certificate of organization, or bylaws or operating agreement, as applicable; (c) result in a breach of or constitute a default under any material agreement or instrument to which a Borrower is a party or by which it or its material properties may be bound or affected; (d) result in or require the creation or imposition of any Lien upon or with respect to any of the properties now owned or hereafter acquired by a Borrower, except in favor of the Administrative Agent, for the ratable benefit of the Lenders; or (e) cause a Borrower to be in default under any material law, rule, regulation, order, writ, judgment, injunction, decree, determination or award applicable to the Borrower, except, in the cases of clauses (a), (c) and (e), compliance with, and filings and notices under, the Assignment of Claims Act and other filings contemplated by any of the Loan Documents relating to the creation or perfection of a Lien on any of the Collateral. 4.3 Legally Enforceable Agreement. This Agreement is, and each of the other Loan Documents when delivered under this Agreement will be, legal, valid and binding obligations of each Borrower, enforceable against each Borrower in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization or similar laws relating to creditors’ rights generally and general principles of equity.   55 -------------------------------------------------------------------------------- 4.4 Financial Statements. The Company has furnished to the Administrative Agent and each Lender (a) the audited balance sheet of the Company as of December 31, 2004, and the related statements of income, stockholders’ equity and cash flows for the fiscal year then ended prepared by Ernst & Young and (b) the unaudited balance sheet of the Company as of December 31, 2005, and the related unaudited statement of income for the fiscal quarter and year-to-date period then ending, certified by a Principal Officer. Such financial statements are complete and fairly present in all material respects the financial condition of the Company as of the dates of such statements. Since the dates of such statements, there has been no material adverse change in the business, assets, liabilities (actual or contingent), operations or financial condition of the Borrowers. 4.5 Litigation; Environmental Matters. (a) There is no pending or threatened action, investigation or proceeding against or affecting a Borrower before any court, governmental agency or arbitrator, that, in any one case or in the aggregate, could reasonably be expected to have a Material Adverse Effect. (b) No Borrower (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) has, to its knowledge, become subject to any Environmental Liability, (iii) has received written notice of any claim with respect to any Environmental Liability or (iv) knows of any basis for any Environmental Liability that, in any one case or in the aggregate, could reasonably be expected to have a Material Adverse Effect. 4.6 Ownership and Liens. Each Borrower has title to all of its assets, including the Collateral, and none of the Collateral or such assets is subject to any Lien, except Liens created or permitted by this Agreement or the other Loan Documents. 4.7 ERISA. No Borrower has incurred any material “accumulated funding deficiency” within the meaning of § 302 of ERISA or § 412 of the Code, nor has any Borrower incurred any material liability to the PBGC in connection with any “employee pension benefit plan” (as defined in § 3(2) of ERISA) established or maintained by a Borrower. None of the employee pension benefit plans (as defined above) or “welfare plans” (as defined in § 3(l) of ERISA) of a Borrower, nor any trusts created thereunder, nor any trustee or administrator thereof, has engaged in a “prohibited transaction,” as such term is defined in § 406 of ERISA or § 4975 of the Code, that could subject a Borrower to any material liability or tax or penalty on prohibited transactions imposed by such §§ 406 or 4975. None of the Borrowers nor any ERISA Affiliate of any Borrower is now, or at any time in the past three (3) years has been, obligated to make contributions to a “multiemployer plan,” as such term is defined in § 4001(a)(3) of ERISA, with respect to which the withdrawal of any Borrower or any such ERISA Affiliate at any time could reasonably be expected to have a Material Adverse Effect. The only such multiemployer plans to which any Borrower is obligated to make contributions are those described on Schedule 4.7. 4.8 Taxes. Each Borrower has filed all tax returns (federal, state and local) required to be filed and has paid all taxes, assessments and governmental charges and levies shown   56 -------------------------------------------------------------------------------- thereon to be due, including interest and penalties, except for such taxes being contested in good faith and as for which reserves are being maintained in accordance with GAAP. 4.9 Use of Proceeds and Letters of Credit. The Borrowers will use the proceeds of the Revolving Loans to finance working capital needs, Capital Expenditures, Permitted Acquisitions and for other general corporate purposes. No part of the proceeds of any Loan nor any Letter of Credit will be used, whether directly or indirectly, for any purpose that would violate any rule or regulation of the Board of Governors of the Federal Reserve System, including Regulations T, U or X. All Letters of Credit will be used for general corporate purposes. 4.10 Debt. No Borrower is in any manner directly or contingently obligated with respect to any Debt that is not permitted by this Agreement. No Borrower is in default with respect to any Debt. 4.11 Debarment and Suspension. No event has occurred and, to the knowledge of the Borrowers, no condition exists that may result in the debarment or suspension of a Borrower from any contracting with the Government, and no Borrower nor any Affiliate of a Borrower has been subject to any such debarment or suspension prior to the date of this Agreement. No Government investigation or inquiry involving fraud, deception or willful misconduct has been commenced in connection with any Government Contract of a Borrower or a Subsidiary or any activities of any Borrower or any Subsidiary. 4.12 Material Contracts. No Borrower, Subsidiary or, to the knowledge of the Borrowers, any other party thereto is in material default under any Material Contract that would have a Material Adverse Effect. 4.13 Intellectual Property. As of the date hereof, the Borrowers and the Subsidiaries do not own or hold any registered copyrights, patents or trademarks, other than as listed on Schedule 4.13 attached hereto and other than such Intellectual Property that has not been used by the Borrowers in the past 12 months or from which no revenue in excess of $100,000 has been derived in the past 12 months. Each Borrower and each Subsidiary owns or has the right to use under valid license agreements or otherwise all Intellectual Property that is required or necessary for the conduct of the business of each Borrower and its Subsidiaries as now conducted to the knowledge of the Borrowers without any conflict with any rights of any other Person that would have a Material Adverse Effect. 4.14 True and Complete Information. All factual information (taken as a whole) previously furnished to the Administrative Agent or any Lender in connection with this Agreement by the Borrowers and each Subsidiary is, and all factual (taken as a whole) furnished to the Administrative Agent or any Lender by the Borrowers and the Subsidiaries after the date of this Agreement will be, true and accurate in all material respects on the date on which such information is dated, certified or furnished, and is not, and will not be, incomplete by omitting to state any material fact necessary to make such information (taken as a whole) not misleading in any material respect at such time in light of the circumstances under which such information was provided.   57 -------------------------------------------------------------------------------- 4.15 Integrated Business. The Borrowers and the Subsidiaries at all times will be, engaged as an integrated group in providing services and goods to their respective Customers. The integrated operation will require financing on such a basis that credit supplied to the Borrowers be made available from time to time to all Borrowers and Subsidiaries of the Borrowers, as required for the successful operation of the Borrowers and the Subsidiaries separately, and the integrated operation as a whole. In that connection, the Borrowers and the Subsidiaries will request that the Lenders provide the Loans to, and that the Issuing Bank issue the Letters of Credit for, the Borrowers to finance such operation. Each Borrower will derive benefit, directly and indirectly, from the credit so extended to the Borrowers, both in its separate capacity and as a member of the integrated group. 4.16 Employee Relations. Except for the agreement(s) set forth on Schedule 4.16, no Borrower is a party to any collective bargaining agreement nor has any labor union been recognized as the representative of its employees. No Borrower knows of any pending, threatened or contemplated strikes, work stoppage or other collective labor disputes involving its employees. 4.17 Burdensome Provisions. No Borrower is a party to any indenture, agreement, lease or other instrument, or subject to any corporate or partnership restriction, governmental approval or applicable law which is so unusual or burdensome as in the foreseeable future could be reasonably expected to have a Material Adverse Effect. No Borrower presently anticipates that future expenditures needed to meet the provisions of any statutes, orders, rules or regulations of a governmental authority will be so burdensome as to have a Material Adverse Effect. 4.18 Absence of Defaults. No event has occurred and is continuing which constitutes a Default or an Event of Default. No event has occurred and is continuing which constitutes, or which with the passage of time or giving of notice or both would constitute, a material default or event of default by any Borrower under contract or judgment, decree or order to which any Borrower is a party or by which any Borrower or any of its material properties may be bound or which would require any Borrower to make any payment thereunder prior to the scheduled maturity date therefor, which could reasonably be expected to have a Material Adverse Effect. 4.19 Disclosure. The Borrowers have disclosed to the Administrative Agent and each Lender all agreements, instruments, and corporate or other restrictions to which the Borrowers or any of their respective Subsidiaries is subject, and all other matters known to any of them, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. None of the reports (including without limitation all reports that the Company may be required to file with the Securities and Exchange Commission), certificates or other factual information furnished by or on behalf of the Borrowers to the Administrative Agent or any Lender in connection with the negotiation or syndication of this Agreement or any other Loan Document or delivered hereunder or thereunder (as modified or supplemented by any other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, taken as a whole, in light of the circumstances under which they were made, not misleading.   58 -------------------------------------------------------------------------------- 4.20 Survival of Representations and Warranties, Etc. All statements contained in any certificate, or other instrument delivered by or on behalf of any Borrower to the Administrative Agent or any Lender pursuant to or in connection with this Agreement or any of the other Loan Documents (including, but not limited to, any such statement made in or in connection with any amendment thereto or any statement contained in any certificate or other instrument delivered by or on behalf of any Borrower prior to the date hereof and delivered to the Administrative Agent or any Lender in connection with closing the transactions contemplated hereby) shall constitute representations and warranties made by the Borrowers under this Agreement. All representations and warranties made under this Agreement and the other Loan Documents shall be deemed to be made at and as of the date hereof, the Closing Date and at and as of the date of the disbursement of any Loan or issuance of any Letter of Credit, except to the extent that such representations and warranties expressly relate solely to an earlier date (in which case such representations and warranties shall have been true and accurate on and as of such earlier date). All such representations and warranties shall survive the effectiveness of this Agreement, the execution and delivery of the Loan Documents, the making of the Loans and the issuance of the Letters of Credit. SECTION 5. Affirmative Covenants. The Borrowers covenant and agree that so long as any Lender has a Commitment hereunder or the principal of or interest on any Loan remains unpaid or any fee or any LC Disbursement remains unreimbursed or any Letter of Credit remains outstanding: 5.1 Maintenance of Existence. Each Borrower will preserve and maintain its corporate existence and good standing in the jurisdiction of its formation, and qualify and remain qualified, as a foreign corporation in each jurisdiction in which such qualification is required. 5.2 Maintenance of Records. Each Borrower will keep adequate records and books of account, in which complete entries will be made in accordance with GAAP, reflecting all financial transactions of such Borrower. The principal records and books of account, including those concerning the Collateral, shall be kept at the chief executive office of the Borrowers described above. No Borrower will move such records and books of account or change its chief executive office or the name under which it does business without (a) giving the Administrative Agent at least 30 days’ prior written notice, and (b) filing, or authorizing the filing by the Administrative Agent of, financing statements reasonably satisfactory to the Administrative Agent prior to such move or change. 5.3 Maintenance of Properties. Each Borrower will maintain, keep and preserve all of its properties (tangible and intangible) necessary or useful in the proper conduct of its business in good working order and condition, ordinary wear and tear and casualty excepted, in all material respects. 5.4 Conduct of Business. Each Borrower will continue to engage in a business of substantially the same general type as conducted by it on the date of this Agreement. 5.5 Maintenance of Insurance. Each Borrower will maintain insurance with financially sound and reputable insurance companies or associations in such amounts and   59 -------------------------------------------------------------------------------- covering such risks as are usually carried by companies engaged in the same or a similar business and similarly situated, including, without limitation, insurance covering the inventory and equipment as required hereby. 5.6 Compliance with Laws. Each Borrower will comply in all respects with all applicable laws, rules, regulations and orders (including, without limitation, ERISA and all Environmental Laws) with respect to which non-compliance, in any one case or in the aggregate, could reasonably be expected to have a Material Adverse Effect, such compliance to include, without limitation, paying, before the same become delinquent, all taxes, assessments and governmental charges imposed upon it or upon its property; provided that the Borrowers shall have the right to contest the applicability or enforcement of any taxes, assessments and governmental charges imposed upon it or upon its property subject to the maintenance of reserves required by GAAP in respect of any such contest. 5.7 Right of Inspection. At any reasonable time and from time to time, with reasonable notice, each Borrower will permit, except as prohibited by applicable law, the Administrative Agent or any agent or representative of the Administrative Agent to audit, examine and verify the Collateral, examine and make copies of and abstracts from the records and books of account of, and visit the properties of, each Borrower, and to discuss the affairs, finances and accounts of each Borrower with any of its officers and directors and each Borrower’s independent accountants (the Borrowers having the right to notice of any meeting with their independent accountants and to have a representative of the Borrowers present at any such meeting), and to discuss the status of Government Contracts of each Borrower with the applicable contracting officers of the Borrower. The Administrative Agent agrees to give the Borrowers not fewer than two days’ prior written notice of taking any action described in the preceding sentence, and to obtain the Borrowers’ permission prior to contacting the contracting officer under any Government Contract, provided that if an Event of Default has occurred and is continuing, the Administrative Agent shall not be required to give such prior notice or obtain such permission. The Borrowers agree to reimburse the Administrative Agent for all reasonable audit and Collateral verification and examination expenses incurred by it with respect to each audit and Collateral verification of each Borrower conducted by the Administrative Agent, provided that such reimbursements shall not be required more frequently than once per calendar year unless an Event of Default has occurred and is continuing or is uncovered by such audit and Collateral verification, in which case all of the reasonable expenses of each audit and verification shall be paid by the Borrowers. If the Administrative Agent uses employees or Affiliates to perform the audits, the Borrowers’ reimbursement obligations shall be limited to the reasonable out-of-pocket expenses of the Administrative Agent that would have been paid to an independent auditing firm for such audits. 5.8 Reporting Requirements. The Borrowers will furnish to the Administrative Agent, at each address for the Administrative Agent specified in Section 11.1(a) (and the Administrative Agent will promptly after receipt provide copies thereof to each Lender): (a) Monthly Financial Statements of the Company. As soon as available and in any event within 30 days after the end of each fiscal month of each fiscal year, unaudited   60 -------------------------------------------------------------------------------- financial statements consisting of consolidated and (upon the request of the Administrative Agent) consolidating balance sheets of the Company and its Subsidiaries as of the end of such month and consolidated and (upon the request of the Administrative Agent) consolidating statements of income and changes in stockholders equity of the Company and its Subsidiaries for the period commencing at the end of the previous fiscal year and ending with the end of such month, all in reasonable detail and for the report covering the last month of each quarter, stating in comparative form the respective variances between such consolidated figures and the Company’s operating plan or budget for such fiscal year, and all prepared in accordance with GAAP. Such financial statements shall be certified by a Principal Officer of the Company to fairly present in all material respects the financial condition of the Company as of the dates of such statements (subject to year-end adjustments) and shall be accompanied for the last fiscal month of each fiscal quarter by a Covenant Compliance Certificate for such period and a list of any outstanding Off-Balance Sheet Liabilities of the Borrowers; (b) Annual Financial Statements of the Company. As soon as available and, in any event, within 120 days after the end of each fiscal year of the Company, audited financial statements consisting of the consolidated and (upon the request of the Administrative Agent) consolidating balance sheets of the Company and its Subsidiaries as of the end of such fiscal year, and consolidated and (upon the request of the Administrative Agent) consolidating statements of income, changes in stockholders’ equity and cash flows of the Company and its Subsidiaries for such fiscal year, all in reasonable detail and all prepared in accordance with GAAP, accompanied by an unqualified opinion thereon of an independent certified public accounting firm selected by the Company and acceptable to the Administrative Agent; (c) Management Letters. Promptly upon receipt thereof, copies of any reports submitted to the Company by independent certified public accountants in connection with examination of the financial statements of the Company made by such accountants; (d) Notice of Litigation; Proceedings. Without limiting the obligation of the Borrowers to give notices of commercial tort claims required by Section 3.4(i), promptly after the commencement thereof, notice of all actions, suits, investigations and proceedings before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, affecting a Borrower and of which such Borrower has notice, that could reasonably be expected to have a Material Adverse Effect; (e) Notice of Defaults and Events of Default. As soon as possible and, in any event, within five days after any Principal Officer of the Borrowers has knowledge of the occurrence of any Default and Event of Default, a written notice setting forth the details of such Default or Event of Default and the action that is proposed to be taken by the Borrowers with respect thereto; (f) SEC Reports. Promptly after the same are sent or upon their becoming available, copies of (i) all Securities and Exchange Commission reports of the Borrowers, (ii) all financial statements, reports, notices and proxy statements sent or made available by the Parent Borrower to its public equityholders, (iii) all regular and periodic reports and all registration   61 -------------------------------------------------------------------------------- statements and prospectuses, if any, filed by any of the Borrowers with any securities exchange or with the Securities and Exchange Commission or any governmental or private regulatory authority, and (iv) all press releases and other written statements made available by any of the Borrowers to the public concerning material developments in the business of any of the Borrowers; provided that any such information shall be deemed delivered to the Administrative Agent upon the filing of such information with the Securities and Exchange Commission; (g) Receivables Detail. Within 30 days after the end of each fiscal quarter, a contract backlog report for such fiscal quarter, reflecting all contracts of the Borrowers, the work completed and billed under such contracts, the work remaining to be completed and billed and the type and term of each contract, and an accounts receivable listing and aging for such fiscal quarter; (h) Management Changes. Written notice of any new appointments to the offices of the president, chief executive officer, chairman, chief financial officer or vice president of finance of any Borrower within 10 days after such appointment; (i) Annual Operating Budget and Cash Flow. As soon as available, but in any event within sixty (60) days after the end of each fiscal year, a copy of the detailed annual operating budget or plan including cash flow projections of the Company and its Subsidiaries for the next four fiscal quarter period prepared on a quarterly basis, in form and detail reasonably acceptable to the Administrative Agent and the Lenders, together with a summary of the material assumptions made in the preparation of such annual budget or plan; (j) Notice of Material Adverse Effect. Prompt notice of any change in the business, assets, liabilities, financial condition or results of operations of a Borrower or any Subsidiary which has had or could reasonably be expected to have a Material Adverse Effect; (k) Material Contracts. Promptly after entering into any Material Contract or amendment thereof, a notice containing a description of such Material Contract or amendment (with copies thereof if requested by the Administrative Agent), and prompt written notice of the termination or breach by any Person of a Material Contract (to the extent any Borrower has actual knowledge of each termination or breach if such termination or breach is by a Person other than such Borrower); (l) Government Contract Audits. Promptly after any Borrower’s receipt thereof, notice of any final decision of a contracting officer disallowing costs aggregating more than $250,000, which disallowed costs arise out of any audit of Government Contracts of any Borrower or could otherwise reasonably be expected to have a Material Adverse Effect; (m) Environmental Matters. Notice of the occurrence of any event or any other development, of which any Borrower or any of its Subsidiaries has notices, by which any Borrower or any of its Subsidiaries (i) fails to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) becomes subject to any Environmental Liability, (iii) receives notice of any claim with respect to any Environmental Liability, or (iv) becomes aware of any basis for any Environmental Liability and in each of the preceding clauses, which individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect;   62 -------------------------------------------------------------------------------- (n) Acquisition Documentation. At the time it provides an Acquisition Notice to the Administrative Agent, the Company shall deliver to the Administrative Agent all material documents relating to the acquisition, unaudited fiscal year-to-date statements of the Target for the two most recent interim periods, and such additional documentation regarding the acquisition as the Administrative Agent shall require, to the extent available, including, without limitation, audited financial statements or a financial review of such Target, as applicable, for its two most recent fiscal years prepared by independent certified public accountants, and any due diligence reports (including, but not limited to, reports prepared by a firm of independent certified public accountant of nationally recognized standing and customer surveys) prepared by, or on behalf of, any Borrower with respect to the Target; and (o) General Information. Such other information respecting the condition or operations, financial or otherwise, of the Borrowers as the Administrative Agent and/or any Lender (acting through the Administrative Agent) from time to time reasonably may request. 5.9 Primary Operating Account. The Company agrees to maintain its Primary Operating Account with the Administrative Agent. 5.10 Additional Collateral, etc. (a) With respect to any Property acquired after the Closing Date by the Company or any of its Subsidiaries (other than (x) any Property described in paragraph (b) or paragraph (c) of this Section, (y) any Property subject to a Lien expressly permitted by Section 6.1(c)) and (z) Property acquired by an Excluded Foreign Subsidiary) as to which the Administrative Agent, for the ratable benefit of the Lenders, does not have a perfected Lien, the Company or the applicable Subsidiary shall promptly (i) execute and deliver to the Administrative Agent such amendments to the Loan Documents as the Administrative Agent deems necessary or advisable to grant to the Administrative Agent, for the ratable benefit of the Lenders, a security interest in such Property and (ii) take all actions necessary or advisable to grant to the Administrative Agent, for the ratable benefit of the Lenders, a perfected first priority security interest in such Property, including without limitation, the filing of Uniform Commercial Code financing statements in such jurisdictions as may be required by this Agreement or by law or as may be requested by the Administrative Agent. (b) With respect to any fee interest in any real property, or any leasehold estate in any real property with a term (including all renewal options) of more than 20 years, in each case having a value (together with improvements thereof) of at least $1,000,000, acquired after the Closing Date by the Company or any of its Subsidiaries (other than any such real property owned by an Excluded Foreign Subsidiary subject to a Lien expressly permitted by Section 6.1(c)), the Company or the applicable Subsidiary shall promptly (i) execute and deliver a first priority Mortgage in favor of the Administrative Agent, for the ratable benefit of the Lenders, covering such real property, (ii) if requested by the Administrative Agent, provide the Lenders with (x) title and extended coverage insurance covering such real property in an amount   63 -------------------------------------------------------------------------------- at least equal to the purchase price of such real estate (or such other amount as shall be reasonably specified by the Administrative Agent) as well as a current ALTA survey thereof, together with a surveyor’s certificate and (y) any consents or estoppels reasonably deemed necessary or advisable by the Administrative Agent in connection with such mortgage or deed of trust, each of the foregoing in form and substance reasonably satisfactory to the Administrative Agent and (iii) if requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent. (c) With respect to any new Subsidiary (other than an Excluded Foreign Subsidiary) created or acquired after the Closing Date (which, for the purposes of this paragraph, shall include any existing Subsidiary that ceases to be an Excluded Foreign Subsidiary), by the Company or any of its Subsidiaries, the Company or the applicable Subsidiary shall promptly (i) execute and deliver to the Administrative Agent such amendments to the Loan Documents as the Administrative Agent deems necessary or advisable to grant to the Administrative Agent, for the ratable benefit of the Lenders, a perfected first priority security interest in the Capital Stock of such new Subsidiary that is owned by the Company or any of its Subsidiaries, (ii) deliver to the Administrative Agent the certificates representing such Capital Stock, together with undated stock powers, in blank, executed and delivered by a duly authorized officer of the Company or such Subsidiary, as the case may be, and (iii) if requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent. (d) With respect to any new Excluded Foreign Subsidiary created or acquired after the Closing Date by the Company or any of its Subsidiaries, the Company or the applicable Subsidiary shall promptly (i) execute and deliver to the Administrative Agent such amendments to the Loan Documents as the Administrative Agent deems necessary or advisable in order to grant to the Administrative Agent, for the ratable benefit of the Lenders, a perfected first priority security interest in the Capital Stock of such new Subsidiary that is owned by the Company or any of its Subsidiaries (provided that in no event shall more than 65% of the total outstanding Capital Stock of any such new Subsidiary be required to be so pledged), (ii) deliver to the Administrative Agent the certificates representing such Capital Stock, together with undated stock powers, in blank, executed and delivered by a duly authorized officer of the Company or such Subsidiary, as the case may be, and take such other action as may be necessary or, in the opinion of the Administrative Agent, desirable to perfect the Lien of the Administrative Agent thereon, and (iii) if requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent. 5.11 Further Assurances. The Company and each of its Subsidiaries shall from time to time execute and deliver, or cause to be executed and delivered, such additional instruments, certificates or documents, and take all such actions, as the Administrative Agent may reasonably request, for the purposes of implementing or effectuating the provisions of this Agreement and the other Loan Documents, or of more fully perfecting or renewing the rights of the   64 -------------------------------------------------------------------------------- Administrative Agent and the Lenders with respect to the Collateral (or with respect to any additions thereto or replacements or proceeds thereof or with respect to any other property or assets hereafter acquired by the Company or any Subsidiary which may be deemed to be part of the Collateral) pursuant hereto or thereto. Upon the exercise by the Administrative Agent or any Lender of any power, right, privilege or remedy pursuant to this Agreement or the other Loan Documents which requires any consent, approval, recording, qualification or authorization of any governmental authority, the Company and each of its Subsidiaries will execute and deliver, or will cause the execution and delivery of, all applications, certifications, instruments and other documents and papers that the Administrative Agent or such Lender may be required to obtain from the Company or any of its Subsidiaries for such governmental consent, approval, recording, qualification or authorization. Without limiting the generality of the foregoing, the Borrowers will use their commercially reasonable best efforts to deliver to the Administrative Agent, within 60 days after the date of this Agreement, an access agreement from the landlord for the Company’s headquarters location in Reston, Virginia, in form and substance reasonably satisfactory to the Administrative Agent. 5.12 SECTION 6. Negative Covenants. The Borrowers covenant and agree that so long as any Lender has a Commitment hereunder or the principal of or interest on any Loan remains unpaid or any fee or any LC Disbursement remains unreimbursed or any Letter of Credit remains outstanding: 6.1 Liens. No Borrower will create, incur, assume or permit to exist, any Lien upon or with respect to any of its properties, now owned or hereafter acquired, except: (a) Liens in favor of the Administrative Agent for the ratable benefit of the Lenders pursuant to this Agreement and the other Loan Documents; (b) Liens that are incidental to the conduct of the business of a Borrower, are not incurred in connection with the obtaining of credit and do not materially impair the value or use of assets of such Borrower, including Liens securing operating leases for equipment and software entered into by such Borrower in the ordinary course of its business and on commercially reasonable terms; and (c) purchase-money Liens, whether now existing or hereafter arising (including those arising out of a Capital Lease or a Synthetic Lease) on any fixed assets provided that (1) any property subject to a purchase-money Lien is acquired by such Borrower in the ordinary course of its respective business and the Lien on any such property is created contemporaneously with such acquisition, (2) each such Lien shall attach only to the property so acquired, and (3) the Debt secured by all such purchase money Liens shall not exceed at any time outstanding in the aggregate for all of the Borrowers the greater of $1,500,000 or 2.5% of Total Assets. 6.2 Debt. No Borrower will create, incur, assume or permit to exist, any Debt, except: (a) the Obligations; (b) Subordinated Debt; (c) ordinary trade accounts payable,   65 -------------------------------------------------------------------------------- including operating leases for equipment and software entered into by a Borrower in the ordinary course of its business and on commercially reasonable terms; (d) Debt of a Borrower or any Subsidiary (including Debt arising out of a Capital Lease or a Synthetic Lease) secured by purchase-money Liens permitted by Section 6.1(c) of this Agreement, (e) unsecured Debt issued by a Borrower to a seller in connection with a Permitted Acquisition or arising out of any obligations to make earnout payments or other contingent payments in connection with a Permitted Acquisition, provided that in each case, such Debt shall be Subordinated Debt. 6.3 Mergers, etc. No Borrower will merge or consolidate with any Person, other than another Borrower, except in connection with a Permitted Acquisition. 6.4 Leases. No Borrower will create, incur, assume or permit to exist, or permit any Subsidiary to create, incur, assume or permit to exist, any obligation as lessee for the rental or hire of any real or personal property, except: (a) leases in existence on the date of this Agreement, (b) Capital Leases giving rise to purchase-money Liens permitted by this Agreement; and (c) leases (other than Capital Leases) that do not in the aggregate require any Borrower or any Subsidiary to make payments (including taxes, insurance, maintenance and similar expenses that such Borrower or such Subsidiary is required to pay under the terms of any lease) in any fiscal year of the Company in excess of $1,500,000 or 2.5% of Total Assets. 6.5 Sale and Leaseback; Synthetic Leases. No Borrower will sell, transfer or otherwise dispose of, any real or personal property to any Person and thereafter, directly or indirectly, lease back the same or similar property. 6.6 Restricted Payments. No Borrower or Subsidiary will, directly or indirectly, declare, order, make or set apart any sum for or pay any Restricted Payment, except (a) to make dividends payable solely in the form of common stock or equivalent equity interests of such Person, (b) to make dividends or other distributions payable to any Borrower (directly or indirectly through Subsidiaries), (c) to make AAA Distributions, provided that the aggregate amount of AAA Distributions made subsequent to September 30, 2005, shall not exceed $10,000,000, and (d) if no Default or Event of Default has occurred and is continuing, or would occur after giving effect thereto, redemptions or repurchases of Capital Stock and options therefor held by employees who are terminating their employment with the Company and its Subsidiaries. 6.7 Sale of Assets. No Borrower will sell, lease, assign, transfer, license or otherwise dispose of, any of its now owned or hereafter acquired assets, except for (a) any inventory and Intellectual Property sold, licensed or leased in the ordinary course of business; (b) the Disposition of the Condo Unit; and (c) the Disposition of assets (other than such inventory and Intellectual Property) no longer used or useful in the conduct of its business and not exceeding in the aggregate for all Borrowers during any fiscal year the greater of $300,000 or 0.50% of Total Assets. 6.8 Investments, Loans, Etc. No Borrower will purchase, hold or acquire (including pursuant to any merger with any Person that was not a wholly-owned Subsidiary prior to such merger), any common stock, evidence of indebtedness, Capital Stock or other equity interests or   66 -------------------------------------------------------------------------------- other securities (including any option, warrant, or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, Guarantee any obligations of, or make or permit to exist any investment or any other interest in, any other Person (all of the foregoing being collectively called “Investments”), or purchase or otherwise acquire (in one transaction or a series of transactions) any assets of any other Person that constitute a business unit, except: (a) Cash and Cash Equivalents; (b) Travel advances or other advances in an aggregate amount not to exceed in aggregate amount for all Borrowers at any one time outstanding the greater of $250,000 or 0.40% of Total Assets, and which are made to any employee of a Borrower in the ordinary course of such Borrower’s business and in furtherance of such employee’s performance under a contract with a Customer; (c) Hedging Agreements entered into in the ordinary course of business to hedge or mitigate risks to which a Borrower is exposed in the conduct of its business or the management of its liabilities; and (d) Permitted Acquisitions. 6.9 Guaranties, etc. No Borrower will Guarantee the obligations of any Person, or permit any such Guarantees to exist. 6.10 Acquisitions. Except for Permitted Acquisitions and Permitted Teaming Arrangements, no Borrower will form a Subsidiary, become a partner or joint venturer with any Person, or purchase or acquire all or substantially all of the assets of any Person, or any Capital Stock of or ownership interest in any other Person. Upon the acquisition or formation of a Subsidiary by a Borrower, such Borrower will cause such Subsidiary to execute and deliver to the Administrative Agent an Assumption Agreement. 6.11 Transactions with Affiliates. No Borrower will enter into any transaction, including, without limitation, the purchase, sale or exchange of property or the rendering of any service, with any Affiliate, except in the ordinary course of and pursuant to the reasonable requirements of such Borrower’s business and upon fair and reasonable terms no less favorable to such Borrower than would be applicable in a comparable arm’s-length transaction with a Person not an Affiliate. 6.12 Fiscal Year; Accounting Policies; Organizational Documents; Material Contracts. No Borrower or Subsidiary will change its fiscal year or, except in accordance with GAAP or as required to improve internal controls over financial reporting or otherwise comply with the Sarbanes-Oxley Act of 2002, make any material change its accounting policies used in preparing the financial statements and other information described in Section 5.8(a). No Borrower or Subsidiary will amend, modify or change it articles of incorporation (or corporate charter or other similar organizational document), operating agreement, bylaws (or other similar document) or other agreements or documents with respect to its Capital Stock in any material respect adverse to the interests of the Lenders without the prior written consent of the Required   67 -------------------------------------------------------------------------------- Lenders. No Borrower or Subsidiary will, without the prior written consent of the Administrative Agent, amend, modify, cancel or terminate or fail to renew or extend or permit the amendment, modification, cancellation or termination of any of the Material Contracts (other than in the ordinary course of business), except in the event that such amendments, modifications, cancellations or terminations could not, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 6.13 Limitation on Restricted Actions. No Borrower or Subsidiary will, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any such Person to (a) pay dividends or make any other distributions to any Borrower on its Capital Stock or with respect to any other interest or participation in, or measured by, its profits, (b) pay any Debt or other obligation owed to any Borrower, (c) make loans or advances to any Borrower, (d) sell, lease or transfer any of its properties or assets to any Borrower, or (e) act as a Borrower and pledge its assets pursuant to the Loan Documents or any renewals, refinancings, exchanges, refundings or extension thereof, except (in respect of any of the matters referred to in clauses (a)-(e) above) for such encumbrances or restrictions existing under or by reason of (i) this Agreement and the other Loan Documents, (ii) applicable law or regulations, (iii) any document or instrument governing Indebtedness incurred pursuant to Section 6.1(c); provided that any such restriction contained therein relates only to the asset or assets constructed or acquired in connection therewith, or (iv) any such encumbrance or restriction consisting of customary non-assignment provisions in leases or licenses restricting leasehold interests or licenses, as applicable, entered into in the ordinary course of business. 6.14 Amendment of Subordinated Indebtedness. No Borrower or Subsidiary will, after the issuance thereof, amend or modify (or permit the amendment or modification of) any of the terms of any Subordinated Debt of such Borrower or Subsidiary if such amendment or modification would add or change any terms in a manner adverse to the Lenders, or shorten the final maturity or average life to maturity or require any payment to be made sooner than originally scheduled or increase the interest rate applicable thereto or change any subordination provision thereof. SECTION 7. Financial Covenants. The Borrowers agree that so long as any Lender has a Commitment hereunder or the principal of or interest on any Loan remains unpaid or any fee or any LC Disbursement remains unreimbursed or any Letter of Credit remains outstanding: 7.1 Net Worth. The Company shall maintain as of the last day of each of its fiscal quarters Net Worth of not less than the Minimum Net Worth Compliance Level. 7.2 Senior Funded Debt Ratio. The Company shall maintain as of the last day of each of its fiscal quarters a Senior Funded Debt Ratio of not greater than 3.50 to 1. 7.3 Fixed Charge Coverage Ratio. The Company shall maintain a Fixed Charge Coverage Ratio for each period of four consecutive fiscal quarters ending on the last day of each fiscal quarter of the Company, of not less than 1.50 to 1.   68 -------------------------------------------------------------------------------- 7.4 Capital Expenditures. The consolidated Capital Expenditures made in cash by the Company and its Subsidiaries during any fiscal year shall not exceed the greater of $2,000,000 or 2.00% of Total Revenues for such fiscal year (the “Annual Limit”); provided, that if the amount expended in any fiscal year is less than the Annual Limit for such fiscal year, the shortfall, not to exceed $1,000,000, may be carried over for expenditure in the next succeeding fiscal year. For purposes of computing the financial covenants set forth in Sections 7.2 and 7.3 for any applicable test period, any Permitted Acquisition or permitted Disposition shall have been deemed to have taken place as of the first day of such applicable test period (giving effect on such day to the incurrence or satisfaction of any Funded Debt in connection with such Permitted Acquisition or Disposition). SECTION 8. Conditions of Lending. The Closing and the initial disbursement of the Loans shall be subject to satisfaction of the following conditions precedent as of the date of execution and delivery of this Agreement: 8.1 Conditions Precedent to Closing. The Closing and the initial disbursement of the Loans shall be subject to the following conditions precedent: (a) The Loan Documents shall have been appropriately completed, duly executed by the parties thereto, recorded where necessary and delivered to the Administrative Agent. (b) All legal matters incident to the Loans shall be satisfactory to counsel for the Administrative Agent, and the Borrowers agree to execute and deliver to the Administrative Agent such additional documents and certificates relating to the Loans as the Administrative Agent reasonably may request. (c) Financing statements in form and substance satisfactory to the Administrative Agent shall have been properly filed in each office where necessary to perfect the security interest of the Administrative Agent, for the ratable benefit of the Lenders, in the Collateral, termination statements shall have been filed with respect to any other financing statements covering all or any portion of the Collateral and all taxes and fees with respect to such recording and filing shall have been paid by the Borrowers. (d) The Borrowers shall have delivered to the Administrative Agent (1) certified copies of evidence of all corporate and company actions taken by the Borrowers to authorize the execution and delivery of the Loan Documents, (2) certified copies of the articles or certificate of incorporation, bylaws, articles or certificate of organization and operating agreement of the Borrowers, (3) a certificate of incumbency for the officers of the Borrowers executing the Loan Documents, (4) a good standing certificate, dated not more than 30 days prior to the Closing Date, from the appropriate state official of any state in which the Borrowers are incorporated or qualified to do business, and (5) such additional supporting documents as the Administrative Agent or counsel for the Administrative Agent reasonably may request.   69 -------------------------------------------------------------------------------- (e) The Administrative Agent shall have received (1) an accounts receivable aging and a contract status and backlog report for the most recent fiscal month, in form and substance satisfactory to the Administrative Agent, (2) the financial statements of the Company for the period ended on January 31, 2006, and (3) a pro forma Covenant Compliance Certificate as of December 31, 2005, giving effect to the initial disbursement of the Loans, and certifying that no Default or Event of Default exists as of the Closing Date, nor would any Default or Event of Default occur after giving effect thereto. (f) The Administrative Agent shall have received financing statement, judgment and tax lien searches reflecting that there are no Liens outstanding against the Collateral other than those created or permitted by this Agreement or the other Loan Documents. (g) The Administrative Agent shall have received evidence that the insurance on the Collateral required by this Agreement has been obtained and is in full force and effect. (h) The Administrative Agent shall have received a written opinion of Pillsbury Winthrop Shaw Pittman LLP, counsel to the Borrowers, in form and substance satisfactory to the Administrative Agent. (i) There shall not have occurred a material adverse change since December 31, 2004, in the business, assets, liabilities (actual or contingent), operations or financial condition of the Borrowers and their respective Subsidiaries taken as a whole or in the facts and information regarding such entities as represented to date. (j) The absence of any action, suit, investigation or proceeding pending or threatened in any court or before any arbitrator or governmental authority that purports (a) to materially and adversely affect the Borrowers or their respective Subsidiaries, or (b) to affect any transaction contemplated hereby or the ability of the Borrowers and their respective Subsidiaries or any other obligor under the guarantees or security documents to perform their respective obligations under the Loan Documents. (k) All Debt of the Borrowers under the Existing Loan Agreement shall be paid in full and the Existing Loan Agreement shall be terminated. 8.2 Conditions Precedent to Each Disbursement. The disbursement and issuance of each Loan and Letters of Credit shall be subject to the following conditions precedent: (a) No Default or Event of Default shall have occurred and be continuing. (b) No event or condition shall have occurred which has a Material Adverse Effect. (c) All representations and warranties of the Borrowers contained in the Loan Documents shall be true and correct in all material respects at the date of such disbursement, except for representations and warranties that relate to an earlier date (in which case such representations and warranties shall have been true and accurate on and as of such earlier date).   70 -------------------------------------------------------------------------------- (d) No change shall have occurred in any law or regulations thereunder or interpretations thereof that, in the opinion of counsel for the Administrative Agent, would make it illegal for the Administrative Agent or any Lender to make Loans, or for the Issuing Bank to issue Letters of Credit, hereunder. 8.3 Conditions to Subsidiaries Becoming Borrowers. Each Subsidiary of the Company acquired or formed after the Closing Date shall become a Borrower under this Agreement and shall satisfy the following conditions upon the acquisition or formation of such Subsidiary: (a) The Subsidiary shall execute and deliver to the Administrative Agent an Assumption Agreement. (b) The Administrative Agent shall have received an opinion of counsel to the Subsidiary, addressed to the Administrative Agent, covering such matters as the Administrative Agent may reasonably request, in form and substance satisfactory to the Administrative Agent. (c) Financing statements in form and substance satisfactory to the Administrative Agent shall have been properly filed in each office where necessary to perfect the security interest of the Administrative Agent (held for the ratable benefit of the Lenders) in the Collateral of the Subsidiary, termination statements shall have been filed with respect to any other financing statements covering all or any portion of such Collateral (except with respect to Liens or security interests created or permitted by this Agreement or the other Loan Documents), all taxes and fees with respect to such recording and filing shall have been paid by such Subsidiary and the Administrative Agent shall have received such lien searches or reports as it shall require confirming that the foregoing filings and recordings have been completed. (d) The Subsidiary shall have delivered the following documents to the Administrative Agent, each of which shall be certified as of the date on which it is to become a Borrower, by its secretary or representative performing similar functions: (1) copies of evidence of all actions taken by the Subsidiary to authorize the execution and delivery of the Assumption Agreement and the other Loan Documents; (2) copies of the articles or certificate of incorporation and bylaws (or comparable organizational documents) of the Subsidiary; and (3) a certificate as to the incumbency and signatures of the officers executing the Loan Documents. (e) The Administrative Agent shall have received a certificate of good standing and qualification (or similar instrument) issued by the appropriate state official of the state of incorporation of the Subsidiary, dated not more than 30 days prior to the date of the applicable Loan Documents.   71 -------------------------------------------------------------------------------- SECTION 9. Default. 9.1 Events of Default. Each of the following shall constitute an Event of Default under this Agreement: (a) Failure of a Borrower to pay any Obligation, including, without limitation, the principal of or interest on any Note or the Loans, or any reimbursement obligation in respect of any LC Disbursement or other amounts due under a Letter of Credit Agreement, when the same shall become due and payable, whether at maturity, or otherwise, and such failure shall continue for a period of ten days after written notice from the Administrative Agent or any Lender (which may be a computer generated late payment notice); or (b) If a Borrower refuses to permit the Administrative Agent to inspect, examine, verify or audit the Collateral in accordance with the provisions of this Agreement; or (c) Failure of a Borrower to perform or observe any covenant contained in Section 5.1, Section 6 or Section 7 of this Agreement; or (d) Failure of a Borrower to perform or observe any other term, condition, covenant, warranty, agreement or other provision contained in this Agreement (except any such failure resulting in the occurrence of another Event of Default described in this Section), within 30 days after the first to occur of (1) the date on which a Principal Officer obtains actual knowledge of such failure or (2) receipt of notice from the Administrative Agent or any Lender to the Company specifying such failure; or (e) If any representation or warranty made or deemed made by a Borrower in this Agreement, any Loan Document or any statement or representation made in any certificate, report or opinion delivered pursuant to this Agreement (including any Covenant Compliance Certificate or financial statements) or in connection with any borrowing under this Agreement was materially untrue or is breached in any material respect; or (f) Any Borrower shall (i) default in any payment of principal of or interest on any Debt (other than the Debt hereunder) in a principal amount outstanding of at least $1,000,000 in the aggregate for the Borrowers beyond the period of grace, if any, provided in the instrument or agreement under which such Debt was created; or (ii) default in the observance or performance of any other agreement or condition relating to any Debt (other than the Debt hereunder) in a principal amount outstanding of at least $1,000,000 in the aggregate for the Borrowers or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Debt or beneficiary or beneficiaries of such Debt (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Debt to become due prior to its stated maturity; or (iii) any Borrower shall breach or default any Hedging Agreement with a Lender and shall have failed to cure such breach or default within any applicable grace or cure period set forth therein such that the Lender is entitled to terminate such Hedging Agreement; or (g) Any Borrower makes an assignment for the benefit of creditors, files a petition in bankruptcy, petitions or applies to any tribunal for any receiver or any trustee of such Borrower or any substantial part of its property, or commences any proceeding relating to such Borrower under any reorganization, arrangement, readjustments of debt, dissolution or liquidation law or statute of any jurisdiction, whether now or hereafter in effect; or   72 -------------------------------------------------------------------------------- (h) If, within 60 days after the filing of a bankruptcy petition or the commencement of any proceeding against any Borrower seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, the proceeding shall not have been dismissed, or, if, within 60 days after the appointment, without the consent or acquiescence of such Borrower, of any trustee, receiver or liquidator of such Borrower or of all or any substantial part of the properties of such Borrower, the appointment shall not have been vacated; or (i) Any judgment against a Borrower in excess of $1,000,000 or any attachment in excess of $1,000,000 against any property of a Borrower that remains unpaid, undischarged, unbonded or undismissed for a period of 30 days, unless and to the extent that the judgment or attachment is appealed in good faith in a court of higher jurisdiction and the appeal remains pending or unless such judgment is insured and the applicable carrier has acknowledged liability therefor; or (j) If any of the following events shall occur or exist with respect to any Borrower or any employee benefit plan, pension plan, welfare plan or other plan established, maintained or to which contributions have been made by any Borrower, any Affiliate of any Borrower or any other Person that, together with a Borrower, would be treated as a single employer under § 4001 of ERISA, and that the same would have a Material Adverse Effect: (1) any prohibited transaction (as defined in § 406 of ERISA or § 4975 of the Code), (2) any reportable event (as defined in § 4043 of ERISA and the regulations issued thereunder), (3) the filing under § 4041 of ERISA of a notice of intent to terminate any such plan or the termination of such plan, or (4) the institution of proceedings by the PBGC under § 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any such plan; or (k) If a Borrower fails to give the Administrative Agent or any Lender any notice required by this Agreement within ten days after a Principal Officer of such Borrower has knowledge of the occurrence of the event giving rise to the obligation to give such notice, provided that such failure to give notice shall not constitute an Event of Default if the applicable Event of Default or breach is cured within any grace period that otherwise would have been applicable had the notice been timely given; or (l) If a Change in Control shall occur; or (m) If any Borrower or any Subsidiary shall be debarred or suspended from any contracting with the Government; or if a notice of debarment or notice of suspension shall have been issued to any Borrower or any Subsidiary; or if a notice of termination for default or the actual termination for default of any Material Contract, shall have been issued to or received by any Borrower or any Subsidiary; or (n) The Loan Documents shall for any reason (other than any act or omission of the Administrative Agent or a Lender, including ceasing to maintain possession of any   73 -------------------------------------------------------------------------------- Collateral for which continued possession is necessary for perfection) cease to create a valid and perfected first priority security interest in any of the Collateral purported to be covered thereby, subject to Liens created or permitted by this Agreement or any Loan Document, or if any Loan Document ceases to be in full force and effect; or (o) The occurrence of a specified event of default under any other Loan Document and the expiration of all applicable cure periods. 9.2 Remedies upon Default. After the occurrence and during the continuance of an Event of Default, the following provisions shall be applicable: (a) The Administrative Agent, at its option, may, and upon the written request of the Required Lenders, shall, terminate the Commitments (whereupon the Commitment of each Lender shall terminate immediately), terminate the obligations of the Lenders to make Loans, and the obligations of the Issuing Bank to issue Letters of Credit, under this Agreement, and to declare all Obligations, whether incurred prior to, contemporaneous with or subsequent to the date of this Agreement, and whether represented in writing or otherwise, immediately due and payable and may exercise all rights and remedies of the Lenders against the Borrowers and any Collateral. The Administrative Agent also, at its option, may, and upon the written request of the Required Lenders, shall, require the Borrowers to pay (for the benefit of the Issuing Bank), and the Borrowers agree to pay, to the Administrative Agent (for the benefit of the Issuing Bank) an amount of cash equal to the aggregate amount of the Letters of Credit then outstanding, and any amounts paid by the Borrowers shall be held by the Administrative Agent in a cash collateral account, over which the Administrative Agent shall have the exclusive power of withdrawal, for the benefit of the Issuing Bank, as security for the Obligations arising out of the Letters of Credit and the Letter of Credit Agreements. (b) The Administrative Agent may foreclose its lien and security interest in the Collateral, held for the ratable benefit of the Lenders, in any way permitted by applicable law and shall have, without limitation, the remedies of a secured party under the UCC. The Administrative Agent may enter the premises of any Borrower without legal process and without incurring liability to any Borrower and remove the Collateral to such place or places as the Administrative Agent may deem advisable, or the Administrative Agent may require the Borrowers to assemble the Collateral and make the Collateral available to the Administrative Agent at a convenient place and, with or without having the Collateral at the time or place of sale, the Administrative Agent may, for the ratable benefit of the Lenders, sell or otherwise dispose of all or any part of the Collateral whether in its then condition or after further preparation or processing, either at public or private sale or at any broker’s board, in lots or in bulk, for cash or for credit, at any time or place, in one or more sales and upon such terms and conditions as the Administrative Agent may elect. The Administrative Agent shall give not less than ten Business Days’ prior written notice to the Borrowers of the time and place of any public sale of the Collateral or the time after which the Collateral may be sold in a private sale, which each Borrower agrees constitutes commercially reasonable notice. At any such sale the Administrative Agent or any Lender may be the purchaser, subject to the applicable provisions of the UCC.   74 -------------------------------------------------------------------------------- (c) The Borrowers shall, at the request of the Administrative Agent, notify account debtors and other persons obligated on any of the Collateral of the security interest of the Administrative Agent (held for the ratable benefit of the Lenders) in any account, chattel paper, general intangible, instrument or other Collateral and that payment thereof is to be made directly to the Administrative Agent or to any financial institution designated by the Administrative Agent as the Administrative Agent’s agent therefor, and the Administrative Agent may itself, without notice to or demand upon such Borrower, so notify account debtors and other persons obligated on Collateral. After the making of such a request or the giving of any such notification, such Borrower shall hold any proceeds of collection of accounts, chattel paper, general intangibles, instruments and other Collateral received by such Borrower as trustee for the Administrative Agent without commingling the same with other funds of such Borrower and shall turn the same over to the Administrative Agent in the identical form received, together with any necessary endorsements or assignments. The Administrative Agent shall apply the proceeds of collection of accounts, chattel paper, general intangibles, instruments and other Collateral received by the Administrative Agent to the Obligations, ratably in favor of the Lenders, such proceeds to be immediately entered after final payment in cash or other immediately available funds of the items giving rise to them. (d) Notwithstanding any other provisions of this Agreement to the contrary, after the occurrence of an Event of Default and the declaration of the Obligations to be immediately due and payable in accordance with the provisions of this Agreement, all amounts collected or received by the Administrative Agent or any Lender on account of the Obligations or any other amounts outstanding under any of the Loan Documents or in respect of the Collateral shall be paid over or delivered as follows: (1) FIRST, to the payment of all reasonable out-of-pocket costs and expenses (including without limitation reasonable attorneys’ fees) of the Administrative Agent in connection with enforcing the rights of the Lenders under the Loan Documents and any advances made by the Administrative Agent with respect to the Collateral pursuant to Section 9.2(h); (2) SECOND, to the payment of all reasonable out-of-pocket costs and expenses of each of the Lenders in connection with enforcing its respective rights under the Loan Documents or otherwise with respect to the Obligations owing to such Lender and the reasonable fees of appraisers, investment bankers or other professionals retained by the Administrative Agent to provide services to sell, collect or otherwise dispose of the Collateral; (3) THIRD, to the payment of accrued fees and interest on the Swingline Loans; (4) FOURTH, to the payment of all of the other Obligations consisting of accrued fees and interest, and including with respect to any Hedging Agreement between any Borrower and any Lender, or any Affiliate of a Lender, any fees, premiums and scheduled periodic payments due under such Hedging Agreement and any interest accrued thereon;   75 -------------------------------------------------------------------------------- (5) FIFTH, to the payment of the outstanding principal amount of the Swingline Loans; (6) SIXTH, to the payment of the outstanding principal amount of the other Obligations and the payment or cash collateralization of the outstanding LC Exposure and including with respect to any Hedging Agreement between any Borrower and any Lender, or any Affiliate of a Lender, any breakage, termination or other payments due under such Hedging Agreement and any interest accrued thereon; (7) SEVENTH, to all other Obligations and other obligations which shall have become due and payable under the Loan Documents or otherwise and not repaid pursuant to clauses “FIRST” through “SIXTH” above; and (8) EIGHTH, to the payment of the surplus, if any, to whomever may be lawfully entitled to receive such surplus. In carrying out the foregoing, (i) amounts received shall be applied in the numerical order provided until exhausted prior to application to the next succeeding category; (ii) each of the Lenders shall receive an amount equal to its pro rata share (based on the proportion that the then outstanding Aggregate Exposure and obligations outstanding under the Hedging Agreements (if any) held by such Lender (and its Affiliates in the case of Hedging Agreement obligations) bears to the aggregate then outstanding Aggregate Exposure and obligations outstanding under the Hedging Agreements between any Borrower and any Lender or any Affiliate of a Lender of amounts available to be applied pursuant to clauses “FOURTH” and “SIXTH” above; and (iii) to the extent that any amounts available for distribution pursuant to clause “SIXTH” above are attributable to the issued but undrawn amount of outstanding Letters of Credit, such amounts shall be held by the Administrative Agent in a cash collateral account and applied (A) first, to reimburse the Issuing Bank from time to time for any drawings under such Letters of Credit and (B) then, following the expiration of all Letters of Credit, to all other obligations of the types described in clauses “SIXTH” and “SEVENTH” above in the manner provided in this Section. (e) To the extent that the Obligations are now or hereafter secured by property other than the Collateral described herein or by the Guarantee, endorsement or property of any other Person, the Administrative Agent, at its option, may, and upon the written request of the Required Lenders, shall, proceed against such other Guarantee, endorsement or property upon the occurrence of an Event of Default, and the Administrative Agent shall have the right, in its sole discretion, to determine which rights, security, liens, security interests or remedies the Administrative Agent shall at any time pursue, relinquish, subordinate, modify or take any other action with respect thereto, without in any way modifying or affecting any of them or any of the Administrative Agent’s rights hereunder. (f) Subject to Section 2.23(e), the Administrative Agent is hereby authorized at any time or from time to time after the demand for payment of the Obligations pursuant to   76 -------------------------------------------------------------------------------- Section 9.2(a), without prior notice to the Borrowers (any such notice being expressly waived by each Borrower), to setoff and apply any deposit (general or special, time or demand, provisional or final) or investment account at any time held, including any certificate of deposit, and other indebtedness at any time owed by the Administrative Agent or any Lender, whether or not any such deposit or indebtedness is then due, to or for the credit or account of any Borrower against any and all of the Obligations. The Administrative Agent shall give written notice of any setoff to the Borrowers. (g) EACH BORROWER, HAVING KNOWLEDGE THAT IT MAY BE ENTITLED TO NOTICE AND A HEARING PRIOR TO REPOSSESSION OF THE COLLATERAL, WAIVES ANY RIGHT THAT IT MAY HAVE TO NOTICE OF FORECLOSURE, TO ANY HEARING THAT MAY BE HELD RELATING TO FORECLOSURE, AND TO ANY NOTICE THAT MAY BE REQUIRED TO BE GIVEN BY THE ADMINISTRATIVE AGENT OR ANY LENDER PRIOR TO SUCH HEARING, OTHER THAN THE NOTICES OR HEARINGS REQUIRED BY THE LOAN DOCUMENTS, THE UCC OR ANY OTHER APPLICABLE LAW. THE ADMINISTRATIVE AGENT, EACH LENDER AND EACH BORROWER EXPRESSLY WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT. (h) The Administrative Agent itself may perform or comply, or otherwise cause performance or compliance, for the ratable benefit of the Lenders, with the obligations of a Borrower contained in this Agreement, including, without limitation, the obligations of each Borrower to defend and insure the Collateral. The expenses of the Administrative Agent incurred in connection with such performance or compliance, together with interest thereon at the Federal Funds Rate plus 2%, from the date such expenses are paid until the same are repaid, shall be payable by the Borrowers to the Administrative Agent on demand and shall constitute Obligations. SECTION 10. The Administrative Agent. 10.1 Appointment of Administrative Agent. (a) Each Lender irrevocably appoints SunTrust Bank as the Administrative Agent and authorizes it to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent under this Agreement and the other Loan Documents, together with all such actions and powers that are reasonably incidental thereto. The Administrative Agent may perform any of its duties hereunder or under the other Loan Documents by or through any one or more sub-agents or attorneys-in-fact appointed by the Administrative Agent. The Administrative Agent and any such sub-agent or attorney-in-fact may perform any and all of its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions set forth in this Article shall apply to any such sub-agent or attorney-in-fact and the Affiliate of the Administrative Agent, any such sub-agent and any such attorney-in-fact and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent.   77 -------------------------------------------------------------------------------- (b) The Issuing Bank shall act on behalf of the Lenders with respect to any Letters of Credit issued by it and the documents associated therewith until such time and except for so long as the Administrative Agent may agree at the request of the Required Lenders to act for the Issuing Bank with respect thereto; provided, that the Issuing Bank shall have all the benefits and immunities (i) provided to the Administrative Agent in this Article with respect to any acts taken or omissions suffered by the Issuing Bank in connection with Letters of Credit issued by it or proposed to be issued by it and the application and agreements for letters of credit pertaining to the Letters of Credit as fully as if the term “Administrative Agent” as used in this Article included the Issuing Bank with respect to such acts or omissions and (ii) as additionally provided in this Agreement with respect to the Issuing Bank. 10.2 Nature of Duties of Administrative Agent. The Administrative Agent shall not have any duties or obligations except those expressly set forth in this Agreement and the other Loan Documents. Without limiting the generality of the foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default or an Event of Default has occurred and is continuing, (b) the Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except those discretionary rights and powers expressly contemplated by the Loan Documents that the Administrative Agent is required to exercise in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 11.2(b)), and (c) except as expressly set forth in the Loan Documents, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Subsidiaries that is communicated to or obtained by the Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent shall not be liable for any action taken or not taken by it, its sub-agents or attorneys-in-fact with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 11.2(b)) or in the absence of its own gross negligence or willful misconduct or a breach by the Administrative Agent of its specific and express obligations to the Lenders under this Agreement as determined by a final non-appealable judgment by a court of competent jurisdiction. The Administrative Agent shall not be responsible for the negligence or misconduct of any sub-agents or attorneys-in-fact selected by it with reasonable care. The Administrative Agent shall not be deemed to have knowledge of any Default or Event of Default unless and until written notice thereof (which notice shall include an express reference to such event being a “Default” or “Event of Default” hereunder) is given to the Administrative Agent by the Company or any Lender, and the Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with any Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements, or other terms and conditions set forth in any Loan Document, (iv) the validity, enforceability, effectiveness or genuineness of any Loan Document or any other agreement, instrument or document, or (v) the satisfaction of   78 -------------------------------------------------------------------------------- any condition set forth in Section 8 or elsewhere in any Loan Document, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent. The Administrative Agent may consult with legal counsel (including counsel for the Borrowers) concerning all matters pertaining to such duties. The Administrative Agent agrees to exercise such care in performing its duties hereunder as it would for loans for its sole benefit. 10.3 Lack of Reliance on the Administrative Agent. Each of the Lenders, the Swingline Lender and the Issuing Bank acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each of the Lenders, the Swingline Lender and the Issuing Bank also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, continue to make its own decisions in taking or not taking of any action under or based on this Agreement, any related agreement or any document furnished hereunder or thereunder. 10.4 Certain Rights of the Administrative Agent. If the Administrative Agent shall request instructions from the Required Lenders with respect to any action or actions (including the failure to act) in connection with this Agreement, the Administrative Agent shall be entitled to refrain from such act or taking such act, unless and until it shall have received instructions from such Lenders, and the Administrative Agent shall not incur liability to any Person by reason of so refraining in the absence of the Administrative Agent’s own gross negligence or willful misconduct as determined by a final non-appealable judgment by a court of competent jurisdiction. Without limiting the foregoing, no Lender shall have any right of action whatsoever against the Administrative Agent as a result of the Administrative Agent acting or refraining from acting hereunder in accordance with the instructions of the Required Lenders where required by the terms of this Agreement in the absence of the Administrative Agent’s own gross negligence or willful misconduct as determined by a final non-appealable judgment by a court of competent jurisdiction. 10.5 Reliance by Administrative Agent. The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed, sent or made by the proper Person. The Administrative Agent may also rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person and shall not incur any liability for relying thereon. The Administrative Agent may consult with legal counsel (including counsel for the Borrowers), independent public accountants and other experts selected by it and shall not be liable for any action taken or not taken by it in accordance with the advice of such counsel, accountants or experts. 10.6 The Administrative Agent in its Individual Capacity. The bank serving as the Administrative Agent shall have the same rights and powers under this Agreement and any other Loan Document in its capacity as a Lender as any other Lender and may exercise or refrain from exercising the same as though it were not the Administrative Agent; and the terms “Lenders”, “Required Lenders”, “holders of Notes”, or any similar terms shall, unless the context clearly   79 -------------------------------------------------------------------------------- otherwise indicates, include the Administrative Agent in its individual capacity. The bank acting as the Administrative Agent and its Affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrowers or any Subsidiary or Affiliate of the Borrowers as if it were not the Administrative Agent hereunder. 10.7 Successor Administrative Agent. (a) The Administrative Agent may resign at any time by giving notice thereof to the Lenders and the Company. Upon any such resignation, the Required Lenders shall have the right to appoint a successor Administrative Agent, subject to the approval by the Company provided that no Event of Default shall exist at such time. If no successor Administrative Agent shall have been so appointed, and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of resignation, then the retiring Administrative Agent may, on behalf of the Lenders and the Issuing Bank, appoint a successor Administrative Agent, which shall be a commercial bank organized under the laws of the United States of America or any state thereof or a bank which maintains an office in the United States, having a combined capital and surplus of at least $500,000,000. (b) Upon the acceptance of its appointment as the Administrative Agent hereunder by a successor, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement and the other Loan Documents. If within 45 days after written notice is given of the retiring Administrative Agent’s resignation under this Section 10.7 no successor Administrative Agent shall have been appointed and shall have accepted such appointment, then on such 45th day (i) the retiring Administrative Agent’s resignation shall become effective, (ii) the retiring Administrative Agent shall thereupon be discharged from its duties and obligations under the Loan Documents and (iii) the Required Lenders shall thereafter perform all duties of the retiring Administrative Agent under the Loan Documents until such time as the Required Lenders appoint a successor Administrative Agent as provided above. After any retiring Administrative Agent’s resignation hereunder, the provisions of this Article shall continue in effect for the benefit of such retiring Administrative Agent and its representatives and agents in respect of any actions taken or not taken by any of them while it was serving as the Administrative Agent. 10.8 Authorization to Execute other Loan Documents; Collateral. (a) Each Lender authorizes the Administrative Agent to enter into each of the Loan Documents to which it is a party and to take all action contemplated by such Loan Documents. Each Lender agrees that no Lender, other than the Administrative Agent acting on behalf of all Lenders, shall have the right individually to seek to realize upon the security granted by any Loan Document, it being understood and agreed that such rights and remedies may be exercised solely by the Administrative Agent for the benefit of the Lenders, upon the terms of the Loan Documents.   80 -------------------------------------------------------------------------------- (b) In the event that any Collateral is pledged by any Person as collateral security for the Obligations, the Administrative Agent is hereby authorized to execute and deliver on behalf of the Lenders any Loan Documents necessary or appropriate to grant and perfect a Lien on such Collateral in favor of the Administrative Agent on behalf of the Lenders. (c) The Lenders hereby authorize the Administrative Agent, at its option and in its discretion, to release any Lien granted to or held by the Administrative Agent upon any Collateral (i) upon termination of the Commitments and payment and satisfaction of all of the Obligations or the transactions contemplated hereby; (ii) as permitted by, but only in accordance with, the terms of the applicable Loan Document; (iii) if approved, authorized or ratified in writing by the Required Lenders, unless such release is required to be approved by all of the Lenders hereunder; (iv) the release of a Lien granted by a Subsidiary in the case of the sale of the Subsidiary permitted by the terms of this Agreement; or (v) the release of any Lien on any assets which are Disposed of in accordance with the terms of this Agreement. Upon request by the Administrative Agent at any time, the Lenders will confirm in writing the Administrative Agent’s authority to release particular types or items of Collateral pursuant to this Section 10.8(c). (d) Upon any sale or transfer of assets constituting Collateral which is expressly permitted pursuant to the terms of any Loan Documents, or consented to in writing by the Required Lenders, and upon at least ten (10) Business Days’ prior written request by the Company, the Administrative Agent shall (and is hereby irrevocably authorized by the Lenders to) execute such documents as may be necessary to evidence the release of the Liens granted to the Administrative Agent for the benefit of the Lenders, upon the Collateral that was sold or transferred; provided, however, that (i) the Administrative Agent shall not be required to execute any such document on terms which, in the Administrative Agent’s opinion, would expose the Administrative Agent to liability or create any obligation or entail any consequence other than the release of such Liens without recourse or warranty, and (ii) such release shall not in any manner discharge, affect or impair the Obligations or any Liens upon (or obligations of any Borrower) in respect of) all interests retained by any Borrower including (without limitation) the proceeds of the sale, all of which shall continue to constitute part of the Collateral. 10.9 Benefits of Article 10. None of the provisions of this Article 10 shall inure to the benefit of any Borrower or of any Person other than Administrative Agent and each of the Lenders and their respective successors and permitted assigns. Accordingly, neither the Borrowers nor any Person other than Administrative Agent and the Lenders (and their respective successors and permitted assigns) shall be entitled to rely upon, or to raise as a defense, the failure of the Administrative Agent or any Lenders to comply with the provisions of this Article 10. SECTION 11. Miscellaneous. 11.1 Notices. (a) Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications to any party herein to   81 -------------------------------------------------------------------------------- be effective shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows:   To the Borrowers:    NCI Information Systems, Incorporated    11730 Plaza America Drive    Reston, Virginia 20190    Attention: Judith Bjornaas With a copy of notices of Defaults or Events of Default to:    Pillsbury Winthrop Shaw Pittman LLP    1600 Tysons Boulevard    McLean, VA 22102    Attention: Craig Chason, Esq.    Fax: (703) 770-7901 To the Administrative Agent or Swingline Lender:    SunTrust Bank    8330 Boone Blvd.    Suite 700    Vienna VA 22182-2624    Attention: Linda Bergmann, Vice President    Telecopy Number: 703-442-1613 With a copy to:    SunTrust Bank    Agency Services    303 Peachtree Street, N. E./ 25th Floor    Atlanta, Georgia 30308    Attention: Ms. Doris Folsom    Telecopy Number: (404) 658-4906 To the Issuing Bank:    SunTrust Bank    25 Park Place, N. E./Mail Code 3706    Atlanta, Georgia 30303    Attention: Sharon Anderson    Telecopy Number: (404) 588-8129 To the Swingline Lender:    SunTrust Bank    Agency Services    303 Peachtree Street, N.E./25th Floor    Atlanta, Georgia 30308    Attention: Doris Folsom    Telecopy Number: (404) 658-4906 To any other Lender:    the Applicable Lending Office for such Lender   82 -------------------------------------------------------------------------------- (b) Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All such notices and other communications to any party shall be effective when received by such Person at its address specified in this Section 11.1, or upon refusal to accept receipt of such notice. (c) Any agreement of the Administrative Agent and the Lenders herein to receive certain notices by telephone or facsimile is solely for the convenience and at the request of the Company. The Administrative Agent and the Lenders shall be entitled to rely on the authority of any Person purporting to be a Person authorized by the Company and any other Borrower to give such notice and the Administrative Agent and Lenders shall not have any liability to the Borrowers or other Person on account of any action taken or not taken by the Administrative Agent or the Lenders in reliance upon such telephonic or facsimile notice. The joint and several obligations of the Borrowers to repay the Loans and all other Obligations hereunder shall not be affected in any way or to any extent by any failure of the Administrative Agent and the Lenders to receive written confirmation of any telephonic or facsimile notice or the receipt by the Administrative Agent and the Lenders of a confirmation which is at variance with the terms understood by the Administrative Agent and the Lenders to be contained in any such telephonic or facsimile notice. 11.2 Waiver; Amendments. (a) No failure or delay by the Administrative Agent, the Issuing Bank or any Lender in exercising any right or power hereunder or any other Loan Document, and no course of dealing between the Borrowers and the Administrative Agent or any Lender, shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power or any abandonment or discontinuance of steps to enforce such right or power, preclude any other or further exercise thereof or the exercise of any other right or power hereunder or thereunder. The rights and remedies of the Administrative Agent, the Issuing Bank and the Lenders hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or remedies provided by law. No waiver of any provision of this Agreement or any other Loan Document or consent to any departure by the Borrowers therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan or the issuance of a Letter of Credit shall not be construed as a waiver of any Default or Event of Default, regardless of whether the Administrative Agent, any Lender or the Issuing Bank may have had notice or knowledge of such Default or Event of Default at the time. (b) No amendment or waiver of any provision of this Agreement or the other Loan Documents, nor consent to any departure by the Borrowers therefrom, shall in any event be effective unless the same shall be in writing and signed by the Borrowers and the Required Lenders and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, that no amendment or waiver shall: (i) increase the Commitment of any Lender without the written consent of such Lender, (ii) reduce the principal amount of any Loan or unreimbursed LC Disbursement or reduce the rate of interest   83 -------------------------------------------------------------------------------- thereon, or reduce any fees payable hereunder, or change the method of calculating any of the foregoing, without the written consent of each Lender affected thereby, (iii) postpone the date fixed for any payment of any principal of, or interest on, any Loan or unreimbursed LC Disbursement or interest thereon or any fees hereunder or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date for the termination or reduction of any Commitment, without the written consent of each Lender affected thereby, (iv) change Section 2.23(d) or 2.23(e), or any other provision hereof relating to pro rata sharing of payments among the Lenders, in a manner that would alter the pro rata sharing of payments required thereby, without the written consent of each Lender affected thereby, (v) change any of the provisions of this Section or the definition of “Required Lenders,” or any other provision hereof specifying the number or percentage of Lenders which are required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder, without the consent of each Lender; (vi) release Collateral securing any of the Obligations or agree to subordinate any Lien in such Collateral to any other creditor of a Borrower or any Subsidiary without the consent of each Lender, other than Collateral that the Borrowers are entitled to sell or otherwise dispose of pursuant to Section 6.7 and other Collateral with an aggregate value not to exceed $1,000,000 in any fiscal year of the Company; (vii) consent to any assignment by any Borrower of its rights or obligations hereunder without the consent of each Lender, (vii) increase the aggregate of all Commitments (other than pursuant to Section 2.7) without the consent of all of the Lenders; or (viii) if there are any guarantors of the Obligations at any time, release any such Guarantor without the consent of all Lenders; provided further, that no such agreement shall amend, modify or otherwise affect the rights, duties or obligations of the Administrative Agent, the Swingline Lender or the Issuing Bank without the prior written consent of such Person. Each Lender shall reply within ten (10) Business Days after the Administrative Agent’s written request for approval action to be taken by it or any Lenders hereunder, or such lesser time as may be reasonably determined by the Administrative Agent due to time constraints in the Loan Documents and specified in the request for approval. 11.3 Expenses; Indemnification. (a) The Borrowers shall pay (i) all reasonable, out-of-pocket costs and expenses of the Administrative Agent and SunTrust Capital Markets, Inc., including the reasonable fees, charges and disbursements of counsel for the Administrative Agent and SunTrust Capital Markets, Inc., in connection with the syndication of the credit facilities provided for herein, the preparation and administration of the Loan Documents and any amendments, modifications or waivers thereof (whether or not the transactions contemplated in this Agreement or any other Loan Document shall be consummated), (ii) all reasonable out-of-pocket expenses incurred by the Issuing Bank in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder and (iii) all out-of-pocket costs and expenses (including, without limitation, the reasonable fees, charges and disbursements of one set of outside counsel for the Administrative Agent and the Lenders, as selected by the Administrative Agent, including special insolvency counsel and local counsel, but not separate counsel for any Lender) incurred by the Administrative Agent, the Issuing Bank or any Lender in connection with the enforcement or protection of its rights in connection with this Agreement, including its rights under this Section, or in connection with the Loans made or any Letters of Credit issued hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit.   84 -------------------------------------------------------------------------------- (b) The Borrowers shall indemnify the Administrative Agent (and any sub-agent thereof), each Lender and the Issuing Bank, each Affiliate of such Person, and the partners, directors, officers, employees, agents and advisors of such Person and of such Person’s Affiliates (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses (including the fees, charges and disbursements of any counsel for any Indemnitee), and shall indemnify and hold harmless each Indemnitee from all fees and time charges and disbursements for attorneys who may be employees of any Indemnitee, incurred by any Indemnitee or asserted against any Indemnitee by any third party or by a Borrower arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder or the consummation of the transactions contemplated hereby or thereby, (ii) any Loan or Letter of Credit or the use or proposed use of the proceeds therefrom (including any refusal by the Issuing Bank to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by the Company or any of its Subsidiaries, or any Environmental Liability related in any way to the Company or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by a Borrower, and regardless of whether any Indemnitee is a party thereto, provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses (x) are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee or (y) result from a claim brought by the Borrowers against an Indemnitee for material breach of such Indemnitee’s material obligations hereunder or under any other Loan Document which breach continues after notice thereof has been given to such Indemnitee by the Borrowers, if the Borrowers have obtained a final and nonappealable judgment in their favor on such claim as determined by a court of competent jurisdiction. (c) To the extent that the Borrowers fail to pay any amount required to be paid to the Administrative Agent, the Issuing Bank or the Swingline Lender under clauses (a) or (b), each Lender severally agrees to pay to the Administrative Agent, the Issuing Bank or the Swingline Lender, as the case may be, such Lender’s Aggregate Exposure Percentage (determined as of the time that the unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided, that the unreimbursed expense or indemnified payment, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent, the Issuing Bank or the Swingline Lender in its capacity as such. (d) To the extent permitted by applicable law, the parties hereto shall not assert, and hereby waive, any claim against any other party hereto, on any theory of liability, for   85 -------------------------------------------------------------------------------- special, indirect, consequential or punitive damages (as opposed to actual or direct damages) arising out of, in connection with or as a result of, this Agreement or any agreement or instrument contemplated hereby, the transactions contemplated therein, any Loan or any Letter of Credit or the use of proceeds thereof. (e) All amounts due under this Section shall be payable promptly after written demand therefor. 11.4 Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that no Borrower may assign or transfer any of its rights hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by a Borrower without such consent shall be null and void). (b) Any Lender may at any time assign to one or more assignees all or a portion of its rights and obligations under this Agreement and the other Loan Documents (including all or a portion of its Commitment and the Loans, the Swingline Exposure and LC Exposure at the time owing to or held by it); provided, that (i) except in the case of an assignment to a Lender or an Affiliate of a Lender, the Company and the Administrative Agent (and, in the case of an assignment of all or a portion of a Commitment or any Lender’s obligations in respect of its LC Exposure or Swingline Exposure, the Issuing Bank and the Swingline Lender) must give their prior written consent (which consent shall not be unreasonably withheld or delayed if the assignment is to a commercial bank or financial institution organized under the laws of the United States or a state thereof), (ii) except in the case of an assignment to a Lender or an Affiliate of a Lender or an assignment of the entire amount of the assigning Lender’s Commitment hereunder or an assignment while an Event of Default has occurred and is continuing, the amount of the Commitment of the assigning Lender subject to each such assignment (determined as of the date an assignment and acceptance agreement, in form and substance satisfactory to the Administrative Agent, with respect to such assignment is delivered to the Administrative Agent) shall not be less than $1,000,000 (unless the Company and the Administrative Agent shall otherwise consent), (iii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement and the other Loan Documents with respect to any Commitment and the Loans related thereto, (iv) the assigning Lender and the assignee shall execute and deliver to the Administrative Agent an assignment and acceptance agreement, in form and substance satisfactory to the Administrative Agent, together with a processing and recordation fee payable by the assigning Lender or the assignee (as determined between such Persons) in an amount equal to $3,500, and (v) such assignee, if it is not a Lender, shall deliver to the Administrative Agent all information reasonably requested by the Administrative Agent; provided, that any consent of the Company otherwise required hereunder shall not be required if an Event of Default has occurred and is continuing. Upon the execution and delivery of the assignment and acceptance agreement and payment by such assignee to the assigning Lender of an amount equal to the purchase price agreed between such Persons, and the granting of the consents required   86 -------------------------------------------------------------------------------- herein, such assignee shall become a party to this Agreement and any other Loan Documents to which such assigning Lender is a party and, to the extent of such interest assigned by such assignment and acceptance agreement, shall have the rights and obligations of a Lender under this Agreement, and the assigning Lender shall be released from its obligations hereunder to a corresponding extent (and, in the case of an assignment and acceptance agreement covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.17, 2.18, 2.19 and 11.3 with respect to any period of time during which it was a Lender hereunder). Upon the consummation of any such assignment hereunder, the assigning Lender, the Administrative Agent and the Borrowers shall make appropriate arrangements to have new Notes issued if so requested by either or both the assigning Lender or the assignee. Any assignment or other transfer by a Lender that does not fully comply with the terms of this clause (b) shall be treated for purposes of this Agreement as a sale of a participation pursuant to clause (c) below. (c) Any Lender may at any time, without the consent of the Borrowers, the Administrative Agent, the Issuing Bank or the Swingline Lender, sell participations to one or more banks or other financial institutions (a “Participant”) in all or a portion of such Lender’s rights and obligations under this Agreement (including all or a portion of its Commitment, the Loans owing to it and its LC Exposure); provided, that (i) such Lender’s obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of its obligations hereunder, and (iii) the Borrowers, the Administrative Agent, the Swingline Lender, the Issuing Bank and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement and the other Loan Documents. Any agreement between such Lender and the Participant with respect to such participation shall provide that such Lender shall retain the sole right and responsibility to enforce this Agreement and the other Loan Documents and the right to approve any amendment, modification or waiver of this Agreement and the other Loan Documents; provided, that such participation agreement may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver of this Agreement described in the first proviso of Section 11.2(b) that affects the Participant. Each Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.17 and 2.18 to the same extent as if it were a Lender hereunder and had acquired its interest by assignment pursuant to paragraph (b); provided, that no Participant shall be entitled to receive any greater payment under Sections 2.17 or 2.18 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant unless the sale of such participation is made with the Company’s prior written consent and such Participant shall be subject to the provisions of Section 2.24(c). A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 2.19 unless such Participant agrees, for the benefit of the Borrowers, to comply with Section 2.19(e) as though it were a Lender hereunder, provided, that no Participant shall be entitled to receive any greater amount pursuant to such Section 2.19 than the transferor Lender would have been entitled to receive in respect of the amount for the participation transferred by such Lender to such Participant has no such transfer occurred, and such Participant shall be subject to the provisions of Section 2.24(c).   87 -------------------------------------------------------------------------------- (d) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement and its Notes (if any) to secure its obligations to a Federal Reserve Bank without complying with this Section; provided, that no such pledge or assignment shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto. (e) Notwithstanding anything to the contrary contained herein, any Lender (a “Granting Lender”) may grant to a special purpose funding vehicle organized or otherwise formed under the laws of the United States or any State thereof (an “SPV”), identified as such in writing from time to time by the Granting Lender to the Administrative Agent and the Borrowers, the option to provide to the Borrowers all or any part of any Loan that such Granting Lender would otherwise be obligated to make to the Borrowers pursuant to this Agreement; provided, that (i) nothing herein shall constitute a commitment by any SPV to make any Loan and (ii) if an SPV elects not to exercise such option or otherwise fails to provide all or any part of any Loan, the Granting Lender shall be obligated to make such Loan pursuant to the terms hereof. As between the Granting Lender and the SPV, the Granting Lender shall retain the sole right and responsibility to enforce this Agreement or any other Loan Document and the right to approve any amendment, modification or waiver hereof or thereof. The making of a Loan by an SPV hereunder shall utilize the Commitment of the Granting Lender to the same extent, and as if such Loan were made by such Granting Lender. Each party hereto hereby agrees that no SPV shall be liable for any indemnity or similar payment obligation under this Agreement (all liability for which shall remain with the Granting Lender). In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other senior indebtedness of any SPV, it will not institute against, or join any other person in instituting against, such SPV any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under the laws of the United States or any State. Notwithstanding any provision to the contrary in this Section 11.4, any SPV may (i) with notice to, but without the prior written consent of, the Borrowers and the Administrative Agent and without paying any processing fee therefor, assign all or a portion of its interests in any Loans to the Granting Lender or to any financial institutions (consented to by the Company and the Administrative Agent) providing liquidity and/or credit support to or for the account of such SPV to support the funding or maintenance of Loans and (ii) disclose on a confidential basis any non-public information relating to its Loans to any rating agency, commercial paper dealer or provider of any surety, guarantee or credit or liquidity enhancement to such SPV. As this clause (e) applies to any particular SPV, this Section may not be amended without the written consent of such SPV. 11.5 Governing Law; Jurisdiction; Consent to Service of Process. (a) This Agreement and the other Loan Documents shall be construed in accordance with and be governed by the law (without giving effect to the conflict of law principles thereof) of the State.   88 -------------------------------------------------------------------------------- (b) Each Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the non-exclusive jurisdiction of the United States District Court of the Eastern District of Virginia, and of any state court of the Commonwealth of Virginia and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any other Loan Document or the transactions contemplated hereby or thereby, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such Virginia state court or, to the extent permitted by applicable law, such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement or any other Loan Document shall affect any right that the Administrative Agent, the Issuing Bank or any Lender may otherwise have to bring any action or proceeding relating to this Agreement or any other Loan Document against the Borrowers or their respective properties in the courts of any jurisdiction. (c) Each Borrower irrevocably and unconditionally waives any objection which it may now or hereafter have to the laying of venue of any such suit, action or proceeding described in paragraph (b) of this Section and brought in any court referred to in paragraph (b) of this Section. Each of the parties hereto irrevocably waives, to the fullest extent permitted by applicable law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (d) Each party to this Agreement irrevocably consents to the service of process in the manner provided for notices in Section 11.1. Nothing in this Agreement or in any other Loan Document will affect the right of any party hereto to serve process in any other manner permitted by law. (e) The representations, warranties, covenants and agreements contained in this Agreement shall be deemed to have been given and undertaken by the Borrowers jointly and severally. 11.6 WAIVER OF JURY TRIAL. EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.   89 -------------------------------------------------------------------------------- 11.7 Right of Setoff. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, each Lender and the Issuing Bank shall have the right, subject to Section 2.23(e), at any time or from time to time upon the occurrence and during the continuance of an Event of Default and the demand for payment of the Obligations pursuant to Section 9.2(a), without prior notice to the Borrowers, any such notice being expressly waived by the Borrowers to the extent permitted by applicable law, to set off and apply against all deposits (general or special, time or demand, provisional or final) of the Borrowers at any time held or other obligations at any time owing by such Lender or the Issuing Bank to or for the credit or the account of the Borrowers against any and all Obligations held by such Lender or the Issuing Bank, as the case may be, irrespective of whether such Lender or the Issuing Bank shall have made demand hereunder and although such Obligations may be unmatured. Each Lender and the Issuing Bank agree promptly to notify the Administrative Agent and the Borrowers after any such set-off and any application made by such Lender and the Issuing Bank, as the case may be; provided, that the failure to give such notice shall not affect the validity of such set-off and application. 11.8 Counterparts; Integration. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same instrument. This Agreement, the other Loan Documents, and any separate letter agreement(s) relating to any fees payable to the Administrative Agent constitute the entire agreement among the parties hereto and thereto regarding the subject matters hereof and thereof and supersede all prior agreements and understandings, oral or written, regarding such subject matters. 11.9 Survival. All covenants, agreements, representations and warranties made by the Borrowers herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making of any Loans and issuance of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent, the Issuing Bank or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not expired or terminated. The provisions of Sections 2.17, 2.18, 2.19, 11.3, 11.11 and Section 9 shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Letters of Credit and the Commitments or the termination of this Agreement or any provision hereof. All representations and warranties made herein, in the certificates, reports, notices, and other documents delivered pursuant to this Agreement shall survive the execution and delivery of this Agreement and the other Loan Documents, and the making of the Loans and the issuance of the Letters of Credit. 11.10 Severability. Any provision of this Agreement or any other Loan Document held to be illegal, invalid or unenforceable in any jurisdiction, shall, as to such jurisdiction, be   90 -------------------------------------------------------------------------------- ineffective to the extent of such illegality, invalidity or unenforceability without affecting the legality, validity or enforceability of the remaining provisions hereof or thereof; and the illegality, invalidity or unenforceability of a particular provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 11.11 Confidentiality. Each of the Administrative Agent, the Issuing Bank and each Lender agrees to take normal and reasonable precautions to maintain the confidentiality of any information provided to it by the Borrowers or any Subsidiary, except that such information may be disclosed (i) to any Affiliate of the Administrative Agent, the Issuing Bank or any such Lender, and their respective accountants, legal counsel and other professional advisors (provided that all such Persons shall have agreed in writing to keep such information confidential in accordance with the terms of this Section), (ii) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (iii) to the extent requested by any regulatory agency or governmental authority having jurisdiction over the disclosing Administrative Agent, Issuing Bank or Lender, (iv) to the extent that such information becomes publicly available other than as a result of a breach of this Section, (v) in connection with the exercise of any remedy hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder, (vi) subject to provisions substantially similar to this Section 11.11, to any actual or prospective assignee or Participant, or (vii) with the prior written consent of the Company. Non-public information with respect to the Borrowers or any Subsidiary which becomes available to the Administrative Agent, the Issuing Bank, any Lender or any Affiliate, or their accountants, legal counsel or other professional advisors, of any of the foregoing from a source other than the Borrowers may be used by the recipient but not further disclosed, other than in compliance with to clause (i) above. Any Person required to maintain the confidentiality of any information as provided for in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such information as such Person would accord its own confidential information. 11.12 Interest Rate Limitation. Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges and other amounts which may be treated as interest on such Loan under applicable law (collectively, the “Charges”), shall exceed the maximum lawful rate of interest (the “Maximum Rate”) which may be contracted for, charged, taken, received or reserved by a Lender holding such Loan in accordance with applicable law, the rate of interest payable in respect of such Loan hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan but were not payable as a result of the operation of this Section shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Rate to the date of repayment, shall have been received by such Lender. 11.13 Captions. The captions of the various sections and paragraphs of this Agreement have been inserted only for the purposes of convenience; such captions are not a part of this Agreement and shall not be deemed in any manner to modify, explain, enlarge or restrict any of the provisions of this Agreement.   91 -------------------------------------------------------------------------------- 11.14 Use of Defined Terms. All terms defined in this Agreement shall have the defined meanings when used in certificates, reports or other documents made or delivered pursuant to this Agreement, unless the context shall otherwise require. 11.15 Accounting Terms. Unless otherwise defined or specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared, in accordance with GAAP as in effect from time to time, applied on a basis consistent (except for such changes approved by the Company’s independent public accountants) with the most recent audited consolidated financial statements of the Company delivered pursuant to Section 5.8(a); provided, that if the Company notifies the Administrative Agent that the Company wishes to amend any covenant in Section 7 to eliminate the effect of any change in GAAP on the operation of such covenant (or if the Administrative Agent notifies the Company that the Required Lenders wish to amend Section 7 for such purpose), then the Company’s compliance with such covenant shall be determined on the basis of GAAP in effect immediately before the relevant change in GAAP became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Company, the Administrative Agent and the Required Lenders. 11.16 Patriot Act. The Administrative Agent and each Lender hereby notifies the Borrowers that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Patriot Act”), it is required to obtain, verify and record information that identifies each Borrower, which information includes the name and address of such Borrower and other information that will allow such Lender or the Administrative Agent, as applicable, to identify such Borrower in accordance with the Patriot Act. Each Borrower shall, and shall cause each of its Subsidiaries to, provide to the extent commercially reasonable, such information and take such other actions as are reasonably requested by the Administrative Agent or any Lender in order to assist the Administrative Agent and the Lenders in maintaining compliance with the Patriot Act. [SIGNATURES ON FOLLOWING PAGE]   92 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed by their respective duly authorized representatives all as of the day and year first above written.   BORROWERS: NCI, INC., a Delaware corporation Organizational Identification Number: 4006180 By:   /s/ Charles K. Narang Name:   Charles K. Narang Title:   Chief Executive Officer NCI INFORMATION SYSTEMS, INCORPORATED, a Virginia corporation Organizational Identification Number: 03500824 By:   /s/ Charles K. Narang Name:   Charles K. Narang Title:   Chief Executive Officer SCIENTIFIC AND ENGINEERING SOLUTIONS, INC., a Maryland corporation Organizational Identification Number: D04435541 By:   /s/ Charles K. Narang Name:   Charles K. Narang Title:   Chief Executive Officer [SIGNATURES CONTINUE ON FOLLOWING PAGE] -------------------------------------------------------------------------------- ADMINISTRATIVE AGENT: SUNTRUST BANK, a Georgia banking corporation By:   /s/ Linda Bergmann   Linda Bergmann   Vice President [SIGNATURES CONTINUE ON FOLLOWING PAGE] -------------------------------------------------------------------------------- LENDER: SUNTRUST BANK, a Georgia banking corporation By:   /s/ Linda Bergmann   Linda Bergmann   Vice President Revolving Commitment: $24,000,000 Applicable Lending Office: SunTrust Bank 8330 Boone Blvd. Suite 700 Vienna VA 22182-2624 Attention: Linda Bergmann, Vice President Telecopy Number: 703-442-1613 [SIGNATURES CONTINUE ON FOLLOWING PAGE] -------------------------------------------------------------------------------- LENDER: CITIZENS BANK OF PENNSYLVANIA, a Pennsylvania state chartered bank By:   /s/ Richard Krogmann   Richard Krogmann   Vice President Revolving Commitment: $16,500,000 Applicable Lending Office: Citizens Bank of Pennsylvania 8521 Leesburg Pike, Suite 405 Vienna, Va. 22182 Attention: Richard Krogmann, Vice President Telecopy Number: 703-610-6070 [SIGNATURES CONTINUE ON FOLLOWING PAGE] -------------------------------------------------------------------------------- LENDER: BRANCH BANKING AND TRUST COMPANY OF VIRGINIA, a Virginia banking corporation By:   /s/ Thatcher L. Townsend III   Thatcher L. Townsend III   Senior Vice President Revolving Commitment: $19,500,000 Applicable Lending Office: Branch Banking and Trust Company of Virginia 8200 Greensboro Drive, Suite 1000 McLean, Virginia 22102 Attention: James E. Davis, Senior Vice President Telecopy Number: 703-442-5025 -------------------------------------------------------------------------------- EXHIBIT A Covenant Compliance Certificate In connection with the terms of the Loan and Security Agreement, dated as of March 14, 2006 (as amended, modified or supplemented from time to time, the “Loan Agreement”), between NCI, Inc, a Delaware corporation (the “Company”), and its Subsidiaries, SunTrust Bank, a Georgia banking corporation (the “Administrative Agent”), SunTrust Robinson Humphrey, a division of SunTrust Capital Markets, Inc., as Lead Arranger and Book Manager, and each Lender and each other Subsidiary that is, or may become, a party thereto, the undersigned certifies that the following information is true and correct as of the date of this Covenant Compliance Certificate: SECTION 12. No Default or Event of Default has occurred and is continuing. SECTION 13. Net Worth was $             as of the last day of the fiscal quarter ended on                     , calculated as set forth on Schedule 1, and thus exceeded the Minimum Net Worth Compliance Level. SECTION 14. The Senior Funded Debt Ratio was      to 1 as of the last day of the fiscal quarter ended on                     , calculated as set forth on Schedule 2, and thus was in compliance with Section 7.2. SECTION 15. The Fixed Charge Coverage Ratio for the 4-quarter period ended on                     ,         was      to 1, calculated as set forth on Schedule 3, and thus was in compliance with Section 7.3. SECTION 16. During the fiscal year ended on             , consolidated Capital Expenditures made in cash by the Company and its Subsidiaries did not exceed the sum of (a) the Annual Limit for such fiscal year plus, if applicable, (b) the amount by which consolidated Capital Expenditures made in cash by the Company and its Subsidiaries in the immediately preceding fiscal year was less than the Annual Limit for such fiscal year, up to $1,000,000, calculated as set forth on Schedule 4. Capitalized terms used in this Covenant Compliance Certificate shall have the same meanings as those assigned to them in the Loan Agreement. Dated                     ,             .     Name:     Title:     -------------------------------------------------------------------------------- Schedule 1 Net Worth   1. Net Worth    $              2. Minimum Net Worth Compliance Level    (a) 85% of Net Worth as of September 30, 2005    $              (b) 50% of positive consolidated Net Income of the Company and its Subsidiaries on a cumulative basis since September 30, 2005    $              (c) 100% of the amount by which the Borrower’s “total stockholders’ equity” is increased as a result of any public or private offering of common stock of the Company after September 30, 2005    $              (d) AAA Distributions made subsequent to September 30, 2005    $              TOTAL (a+b+c-d)    $              -------------------------------------------------------------------------------- Schedule 2 Senior Funded Debt Ratio   1. Consolidated Senior Funded Debt of the Company and its Subsidiaries    (a) Borrowed Money    $              (b) Deferred purchase price obligations    $              (c) Repurchase Agreements    $              (d) Capital Lease Obligations    $              (e) Obligations constituting the aggregate implied principal amount of Synthetic Leases    $              (f) Guaranties    $              (g) Obligations for letters of credit and acceptances    $              (h) Preferred stock or similar equity interests subject to mandatory sinking fund payments, redemption or acceleration on equity    $              (i) Contingent acquisition obligations    $              (j) Partnership or Joint Venture Debt    $              (k) Subordinated Debt    $              TOTAL (a+b+c+d+e+f+g+h+i+j-k)    $              2. Consolidated EBITDA of the Company and its Subsidiaries for the 4-quarter period ended on                         $              (a) Net Income    $              (b) Taxes    $              (c) Depreciation    $              (d) Amortization    $              (e) Interest Expense    $              (f) Extraordinary or unusual losses or other losses not incurred in the ordinary course of business    $              (g) Extraordinary or unusual gains or other gains not incurred in the ordinary course of business    $              (h) Revenues from discontinued operations    $              -------------------------------------------------------------------------------- (i) Expenses from discontinued operations    $              (j) Unrealized losses on Hedging Agreements    $              (k) Unrealized gains on Hedging Agreements    $              TOTAL (a+b+c+d+e+f-g-h+i+j-k)    $              2. Permitted Acquisition EBITDA of the Company and its Subsidiaries for the 4-quarter period ended on                 $              3. Non-cash stock compensation expense for the 4-quarter period ended on                     , except to the extent that such charges are reserves for future cash charges    $              4. Senior Funded Debt Ratio    Consolidated Senior Funded Debt ($            ) Consolidated EBITDA plus Permitted Acquisition EBITDA plus Non-cash stock compensation expense, except to the extent that such charges are reserves for future cash charges($            )      =      to 1 -------------------------------------------------------------------------------- Schedule 3 Fixed Charge Coverage Ratio   1. Cash Flow Available for Fixed Charges    $              (a) Consolidated EBITDA plus Permitted Acquisition EBITDA for the 4-quarter period ended on                      - Calculated as set forth in Schedule 2    $              (b) Income Taxes Paid in Cash during such period    $              (c) Non-Financed Capital Expenditures for such period    $              (d) Non-cash stock compensation expense for such period, except to the extent that such charges are reserves for future cash charges    $              TOTAL (a-b-c+d)    $              2. Fixed Charges    $              (a) Interest Expense    $              (b) Current Maturities of Long-Term Debt, including Capital Leases (all of the foregoing as of the end of the period and payable over the next succeeding period of four fiscal quarters)    $              (c) Restricted Payments made during such period, other than any AAA Distributions made during such period    TOTAL (a+b+c)    $              3. Fixed Charge Coverage Ratio    Cash Flow Available for Fixed Charges ($            ) Fixed Charges      =      to 1 -------------------------------------------------------------------------------- Schedule 4 Capital Expenditures   1. Consolidated Capital Expenditures made in cash by the Company and its Subsidiaries for the fiscal year ended                 $              2. Total Revenues for the fiscal year ended on                         $              3. Consolidated Capital Expenditures made in cash by the Company and its Subsidiaries for the immediately preceding fiscal year    $              4. Total Revenues for the immediately preceding fiscal year    $              5. Annual Limit for the fiscal year ended on                      (greater of $2,000,000 or 2% of line 2)    $              6. Annual Limit for the immediately preceding fiscal year (greater of $2,000,000 or 2% of line 4)    $              7. Permitted carry-forward (amount by which line 3 exceeds line 5, up to $1,000,000)    $              8. Permitted Capital Expenditures for fiscal year ended                      (line 5 plus line 7)    $              -------------------------------------------------------------------------------- EXHIBIT B COLLATERAL ASSIGNMENT, PATENT MORTGAGE AND SECURITY AGREEMENT This Collateral Assignment, Patent Mortgage and Security Agreement (the “Assignment”) dated as of the      day of                     ,         , from                             , a              corporation (the “Assignor”), in favor of SUNTRUST BANK, a Georgia banking corporation (“Assignee”), as administrative agent for the Lenders (as such term is defined in the Loan Agreement). RECITALS The Lenders and Assignee (as the Administrative Agent for the Lenders) have entered into a Loan and Security Agreement, dated as of March 14, 2006 (as amended, modified or supplemented from time to time, the “Loan Agreement,” the capitalized terms defined therein and not otherwise defined herein being used herein as therein defined) with Assignor and each other Borrower. [Simultaneously herewith, Assignor shall enter into the Assumption Agreement, dated as of                                 , with the Lenders (as amended, modified or supplemented from time to time, the “Assumption Agreement”), thereby becoming a Borrower under the Loan Agreement in accordance with the terms and conditions thereof, and, by its execution and delivery hereof, an Assignor.] It is a condition precedent to the making of the Loans and the issuance of Letters of Credit by Assignee, the Lenders or the Issuing Bank, as applicable, under the Loan Agreement that Assignor shall have assigned certain property to Assignee (for the ratable benefit of the Lenders and the Issuing Bank) in accordance with this Assignment. NOW, THEREFORE, FOR VALUABLE CONSIDERATION, THE RECEIPT AND SUFFICIENCY OF WHICH ARE ACKNOWLEDGED, THE PARTIES HERETO AGREE AS FOLLOWS: SECTION 17. Assignment, Patent Mortgage and Grant of Security Interest. As collateral security for the prompt and complete payment and performance of the Obligations (as defined below), Assignor hereby assigns, transfers, conveys and grants a security interest and mortgage to Assignee, for the ratable benefit of the Lenders and the Issuing Bank, as security, but not as an ownership interest, in and to its entire right, title and interest in, to and under the following (all of which shall collectively be called the “Collateral”): 17.1 All present and future United States copyright registrations owned by Assignor, including, without limitation, the registered copyrights listed in Exhibit A-1 to this Assignment, as amended and supplemented from time to time (and including all of the exclusive rights afforded a copyright registrant in the United States under 17 U.S.C. §106 and any exclusive rights owned by Assignor which may in the future arise by act of Congress or otherwise) (collectively, the “Registered Copyrights”), and any and all royalties, payments, and other amounts payable to Assignor in connection with the Registered Copyrights, together with all renewals and extensions of the Registered Copyrights, Assignor’s right to recover for all past, present, and future infringements of the Registered Copyrights, and all Assignor’s computer programs, computer databases, computer program flow diagrams, source codes, object codes and all tangible property embodying or incorporating the Registered Copyrights, and all other rights of every kind whatsoever owned by Assignor accruing thereunder or pertaining thereto; -------------------------------------------------------------------------------- 17.2 All present and future accounts, accounts receivable and other rights to payment arising from, in connection with or relating to the Copyrights; 17.3 All registered patents and like protections owned by Assignor including, without limitation, improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same, including without limitation the patents set forth on Exhibit B attached hereto as amended and supplemented from time to time (collectively, the “Patents”), and any and all royalties, payments, and other amounts payable to Assignor in connection with the Patents, together with all renewals and extensions of the Patents, the right of Assignor to recover for all past, present, and future infringements of the Patents, and all computer programs, computer databases, computer program flow diagrams, source codes, object codes and all tangible property of Assignor embodying or incorporating the Patents, and all other rights of every kind whatsoever accruing thereunder or pertaining thereto; 17.4 Any federally registered trademark and servicemark rights owned by Assignor and the entire goodwill of the business of Assignor connected with and symbolized by such trademarks, including without limitation those set forth on Exhibit C attached hereto, as amended and supplemented from time to time (collectively, the “Trademarks”), and any and all royalties, payments, and other amounts payable to Assignor in connection with the Trademarks, together with all renewals and extensions of the Trademarks, and the right of Assignor to recover for all past, present, and future infringements of the Trademarks; 17.5 Any and all claims of Assignor for damages by way of past, present and future infringements of any of the Copyrights, Patents and Trademarks included above, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the intellectual property rights of Assignor identified above; 17.6 Assignor’s interest in all licenses or other rights granted by Assignor to use any of the Copyrights, Patents or Trademarks, and all license fees and royalties owing to Assignor arising from such use to the extent permitted by such license or rights; 17.7 All amendments, extensions, renewals and extensions of any of the Copyrights, Trademarks or Patents; and 17.8 All proceeds and products of the foregoing, including without limitation all payments under insurance or any indemnity or warranty payable in respect of any of the foregoing. THE INTEREST IN THE COLLATERAL BEING ASSIGNED HEREUNDER SHALL NOT BE CONSTRUED AS A CURRENT ASSIGNMENT, BUT AS A CONTINGENT ASSIGNMENT TO SECURE ASSIGNOR’S OBLIGATIONS TO ASSIGNEE, THE LENDERS AND THE ISSUING BANK. This Assignment secures the payment of all of the Obligations. Without limiting the generality of the foregoing, this Assignment secures the payment of all amounts that constitute part of the Obligations and would be owed by Assignor to Assignee, the Lenders or the Issuing Bank, as applicable, but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving Assignor.   2 -------------------------------------------------------------------------------- SECTION 18. Authorization and Request. Assignor authorizes and requests that the Register of Copyrights and the Commissioner of Patents and Trademarks record this conditional assignment. SECTION 19. Covenants and Warranties. Assignor represents, warrants, covenants and agrees as follows: 19.1 Assignor is now the sole owner of all material items of Collateral, except for non-exclusive licenses granted by Assignor to its Customers in the ordinary course of business. 19.2 Listed on Exhibit A are all Copyrights owned by Assignor. Listed on Exhibit B are all Patents owned by Assignor. Listed on Exhibit C are all Trademarks owned by Assignor. As of the date hereof, the Assignor does not own or hold any registered copyrights, patents or trademarks, other than as listed on Exhibits A, B and C attached hereto and other than such Intellectual Property that has not been used by the Borrowers in the past 12 months or from which no revenue in excess of $100,000 has been derived in the past 12 months. 19.3 This Assignment creates, and in the case of after acquired Collateral, this Assignment will create at the time Assignor first has rights in such after acquired Collateral, in favor of Assignee, for the ratable benefit of the Lenders and the Issuing Bank, a valid and perfected first priority security interest in the Collateral in the United States securing the payment and performance of the Obligations upon making the filings referred to in clause (m) below. SECTION 20. Assignee’s Rights. Assignee (for the ratable benefit of the Lenders and the Issuing Bank) shall have the right, but not the obligation, to take, at Assignor’s sole expense, any actions that Assignor is required under this Assignment to take but which Assignor fails to take, after fifteen (15) days’ notice to Assignor. Assignor shall reimburse and indemnify Assignee (for the ratable benefit of the Lenders and the Issuing Bank) for all reasonable costs and reasonable expenses incurred in the reasonable exercise of its rights under this Section SECTION 20. SECTION 21. Inspection Rights. Assignor hereby grants to Assignee rights of inspection with respect to the Collateral, as more particularly set forth in Section 5.7 of the Loan Agreement. SECTION 22. Further Assurances; Attorney in Fact. Assignor represents, warrants, covenants and agrees as follows: 22.1 Assignor will make, execute, acknowledge and deliver, and file and record in the proper filing and recording places in the United States, all such instruments, including, appropriate financing and continuation statements and collateral agreements and filings with the United States Patent and Trademark Office and the Register of Copyrights, and take all such action as may reasonably be deemed necessary or advisable, or as requested by Assignee, to perfect Assignee’s security interest (held for the ratable benefit of the Lenders and the Issuing Bank) in all Copyrights, Patents and Trademarks and otherwise to carry out the intent and purposes of this Assignment, or for assuring and confirming to Assignee (for the ratable benefit of the Lenders and the Issuing Bank) the grant or perfection of a security interest in all Collateral.   3 -------------------------------------------------------------------------------- 22.2 Upon an Event of Default, Assignor hereby irrevocably appoints Assignee as its attorney-in-fact, with full authority in the place and stead of Assignor and in the name of Assignor, Assignee or otherwise, from time to time in Assignee’s discretion, upon Assignor’s failure or inability to do so, to take any action and to execute any instrument which Assignee may deem necessary or advisable to accomplish the purposes of this Assignment, including: (a) To modify, in its sole discretion, this Assignment without first obtaining Assignor’s approval of or signature to such modification by amending Exhibit A, , Exhibit B and Exhibit C, thereof, as appropriate, to include reference to any right, title or interest in any Copyrights, Patents or Trademarks acquired by Assignor after the execution hereof or to delete any reference to any right, title or interest in any Copyrights, Patents or Trademarks in which Assignor no longer has or claims any right, title or interest; and (b) To file, in its sole discretion, one or more financing or continuation statements and amendments thereto, relative to any of the Collateral without the signature of Assignor where permitted by law. SECTION 23. Remedies. Upon the occurrence and continuance of an Event of Default under the Loan Agreement, Assignee shall have the right to exercise, for the ratable benefit of the Lenders and the Issuing Bank, all the remedies of a secured party under the UCC, including, without limitation, the right to: 23.1 Require Assignor to assemble any tangible property in which the Collateral is embodied and in which Assignor has a security interest, held for the ratable benefit of the Lenders and the Issuing Bank, and to make it available to Assignee at a place designated by Assignee; 23.2 Exercise any and all rights as beneficial and legal owner of the Collateral (for the ratable benefit of the Lenders and the Issuing Bank), including, without limitation, any and all consensual rights and powers with respect to the Collateral, and 23.3 Without limiting the foregoing paragraphs (a) or (b), the Assignee shall have the right, for the ratable benefit of the Lenders and the Issuing Bank, to sell or assign or grant a license to use, or cause to be sold or assigned or grant a license to use any or all of the Collateral or any part thereof, in each case, free of all rights and claims of Assignor therein and thereto, except to the extent such actions would violate restrictions against assignments contained in any Collateral in which Assignor’s rights arise by contract or license. In that connection, Assignee shall have the right to cause any or all of the Collateral to be transferred of record into the name of Assignee or its nominee (for the ratable benefit of the Lenders and the Issuing Bank) and the right to impose (i) such limitations and restrictions on the sale or assignment of the Collateral as Assignee may deem to be necessary or appropriate to comply with any law, rule or regulation having applicability to such sale or assignment and (ii) requirements for any necessary governmental approvals. To the extent not inconsistent with any license or contract under which Assignor’s rights arise, Assignee (for the ratable benefit of the Lenders and the Issuing Bank) shall have a nonexclusive, royalty-free license to use the Copyrights, Patents and Trademarks to the extent reasonably necessary to permit Assignee to exercise its rights and remedies (for the ratable benefit of the Lenders and the Issuing Bank) upon the occurrence of an Event of Default. Assignor will pay any expenses (including reasonable attorney’s fees) incurred by Assignee in connection with the exercise of any of Assignee’s rights hereunder, including without limitation any expense incurred in disposing of the Collateral. All of Assignee’s rights and remedies with respect to the Collateral shall be cumulative.   4 -------------------------------------------------------------------------------- SECTION 24. Release. At such time as Assignors shall completely satisfy all of the Obligations, Assignee shall execute and deliver to Assignors all assignments and other instruments as may be reasonably necessary or proper to terminate Assignee’s security interest (held for the ratable benefit of the Lenders and the Issuing Bank) and any conditional assignment in the Collateral, subject to any disposition of the Collateral which may have been made by Assignee (for the ratable benefit of the Lenders and the Issuing Bank) pursuant to this Assignment. For the purpose of this Assignment, the Obligations shall be deemed to continue if any Assignor enters into any bankruptcy or similar proceeding at a time when any amount paid to Assignee could be ordered to be repaid as a preference or pursuant to a similar theory, and shall continue until it is finally determined that no such repayment can be ordered. SECTION 25. No Waiver. No course of dealing between any Assignor and Assignee, nor any failure to exercise nor any delay in exercising, on the part of Assignee, any right, power, or privilege under this Assignment or under the Loan Agreement or any other agreement, shall operate as a waiver. No single or partial exercise of any right, power, or privilege under this Assignment or under the Loan Agreement or any other agreement by Assignee shall preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege by Assignee. SECTION 26. Rights Are Cumulative. All of Assignee’s rights and remedies with respect to the Collateral whether established by this Assignment, the Loan Agreement, or any other documents or agreements, or by law shall be cumulative and may be exercised concurrently or in any order. SECTION 27. Course of Dealing. No course of dealing, nor any failure to exercise, nor any delay in exercising any right, power or privilege hereunder shall operate as a waiver thereof. SECTION 28. Attorneys’ Fees. If any action relating to this Assignment is brought by either party hereto against the other party, the prevailing party shall be entitled to recover reasonable attorneys fees, costs and disbursements. SECTION 29. Amendments. This Assignment may be amended only by a written instrument signed by both parties hereto. To the extent that any provision of this Assignment conflicts with any provision of the Loan Agreement, the provision giving Assignee greater rights or remedies shall govern, it being understood that the purpose of this Assignment is to add to, and not detract from, the rights granted to Assignee under the Loan Agreement. This Assignment, the Loan Agreement, and the documents relating thereto comprise the entire agreement of the parties with respect to the matters addressed in this Assignment. SECTION 30. Severability. The provisions of this Assignment are severable. If any provision of this Assignment is held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect only such provision, or part thereof, in such jurisdiction, and shall not in any manner affect such provision or part thereof in any other jurisdiction, or any other provision of this Assignment in any jurisdiction. SECTION 31. Counterparts. This Assignment may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute the same instrument.   5 -------------------------------------------------------------------------------- SECTION 32. Governing Law and Jurisdiction. This Assignment shall be governed by the laws of the Commonwealth of Virginia, without regard for choice of law provisions. Assignor and Assignee consent to the nonexclusive jurisdiction of any state or federal court located in Fairfax County, Virginia. SECTION 33. Confidentiality. In handling any confidential information, Assignee (and its agents) hereby expressly agree to maintain the confidentiality of such information in accordance with the provisions of Section 11.11 of the Loan Agreement. SECTION 34. WAIVER OF RIGHT TO JURY TRIAL. ASSIGNEE AND ASSIGNOR EACH HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO: (a) THIS ASSIGNMENT; OR (b) ANY OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN ASSIGNEE AND ASSIGNOR; OR (c) ANY CONDUCT, ACTS OR OMISSIONS OF ASSIGNEE OR ASSIGNOR OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH ASSIGNEE OR ASSIGNOR; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE. [SIGNATURES ON FOLLOWING PAGE]   6 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties hereto have executed this Assignment on the day and year first above written.       ASSIGNOR:     ___________________________________________________,     a                      corporation Address of Assignor:           By:           Name:           Title:         ASSIGNEE: Address of Assignee:     SUNTRUST BANK, a Georgia banking corporation 8330 Boone Boulevard     By:     Suite 700     Name:     Vienna, Virginia 22182     Title:       7 --------------------------------------------------------------------------------                        OF                                                  )   COUNTY OF                                              ) On                                              ,             , before me,                                                              , Notary Public, personally appeared                                                                                                                           , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. Witness my hand and official seal.     Notary Public (Seal)                              OF                                 )   COUNTY OF                                             ) On                                                          ,         , before me,                                                              , Notary Public, personally appeared                                                                                                                                                                         , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. Witness my hand and official seal.     Notary Public (Seal)   8 -------------------------------------------------------------------------------- EXHIBIT “A-1” REGISTERED COPYRIGHTS   REG. NO.   REG. DATE   COPYRIGHT -------------------------------------------------------------------------------- EXHIBIT “A-2” UNREGISTERED RIGHTS -------------------------------------------------------------------------------- EXHIBIT “A-3” DESCRIPTION OF COPYRIGHT LICENSE AGREEMENTS -------------------------------------------------------------------------------- EXHIBIT “B” PATENTS   DOCKET NO.   COUNTRY   SERIAL NO.   FILING DATE   STATUS -------------------------------------------------------------------------------- EXHIBIT “C” TRADEMARKS   MARK   COUNTRY   SERIAL NO.   STATUS -------------------------------------------------------------------------------- SCHEDULE 3.2 INVENTORY AND EQUIPMENT LOCATIONS   11730 Plaza America Drive    500 Interstate Park Drive Reston, VA 20190    Suite 509    Montgomery, AL 36109 Corporate Centre II    17006 Dahlgren Road 16 Executive Drive, Suite 300    King George, VA 22482 Fairview Heights, IL 62208    74 Washington Ave. North    29900 Lorraine Building 2A-3    Suite 2 Battle Creek, MI 49017    Warren, MI 48093 109 Gaither Drive    Building 1504 Mt. Laurel, NJ 08054    Room 100 Main Post WSMR, NM 88002    3150 Presidential Drive    175 Oak Ridge Turnpike Building 4    Oak Ridge, TN 37830 Fairborn, OH 45324    3850 Presidential Drive    10010 Junction Drive Suite 250    Suite 202 Fairborn, OH 45324    Annapolis Junction, MD 20701 10010 Junction Drive    1857 Paseo San Luis Suite 115-S    Suite 2 Annapolis Junction, MD 20701    Sierra Vista, AZ 85635 621 Shrewsbury Avenue    811 Park Drive Suite 221    Suite 811 Shrewsbury, NJ 07702    Warner Robins, GA 31099 1150 Academy Park Loop    Suite 106    Colorado Springs, CO 80903    -------------------------------------------------------------------------------- SCHEDULE 4.7 MULTIEMPLOYER PLANS Bechtel Jacobs Company LLC Workforce Transition Benefit Accounting Services BJC Management and Integration 401(k) Plan Wackenhut Services, Inc. Multi-Employer Welfare Agreement (WSI-MEWA) Wackenhut Services, Inc. Pension Plan for Employees at Oak Ridge, TN Wackenhut Services, Inc. 401(k) Retirement Plan for Employees at Oak Ridge, TN -------------------------------------------------------------------------------- SCHEDULE 4.13 INTELLECTUAL PROPERTY Copyright Copyright for Spectrum System Services, Inc. TX 4-295-117 TX 4-295-119 TX 4-303-555 TX 4-303-553 TX 4-295-118 All Dated May 17, 1996 Trademark U.S. registered trademark No. 2,553,487 for the service mark “SES SCIENTIFIC & ENGINEERING SOLUTIONS, INC.” Service Mark Service Mark for the name NCI Information Systems, Inc. Registration No. 2,432,466 dated March 6, 2001 Third-Party Intellectual Property None. -------------------------------------------------------------------------------- SCHEDULE 4.16 COLLECTIVE BARGAINING AGREEMENTS International Association of Machinists and Aerospace Workers, District Lodge # 74.

EXHIBIT 10.3   AMEGY CORPORATION, INC. THIRD AMENDED AND RESTATED NON-EMPLOYEE DIRECTORS DEFERRED FEE PLAN   1.    Purpose. The purpose of the Plan is to provide Non-Employee Directors an opportunity to defer payment of all or a portion of their Director’s Fees in accordance with the terms and conditions set forth herein.   2.    Definitions. For the purposes of the Plan, the following capitalized words shall have the meanings set forth below:   “Advisory Director” means an advisory director of the Bank Board and any member of any advisory board of directors or similar group or committee that may be constituted from time to time by the Board, the Bank Board, or management of the Company or the Bank.   “Bank” means Amegy Bank N.A., a wholly-owned subsidiary of the Company.   “Bank Board” means the Board of Directors of the Bank.   “Board” means the Board of Directors of the Company.   “Code” means the Internal Revenue Code of 1986, as amended from time to time.   “Committee” means the Benefits Committee of the Company.   “Common Stock” means the common stock of the Company.   “Company” means Zions Bancorporation.   “Deferral Election Form” means a document, in a form approved by the Committee, pursuant to which a Non-Employee Director makes a deferral election under the Plan.   “Deferral Period” means each calendar year. The first Deferral Period under the Plan shall commence January 1, 2002. If an individual becomes eligible to participate in the Plan after the commencement of a Deferral Period, the Deferral Period for that individual shall be the remainder of such Deferral Period following his Election Date.   “Deferred Benefit” means an amount that will be paid on a deferred basis under the Plan. -------------------------------------------------------------------------------- “Deferred Compensation Account” means the bookkeeping account established for each Non-Employee Director for purposes of measuring his or her Deferred Benefit and shall include subaccounts for Deferred Benefits that are to be paid at different times and/or in a different manner.   “Director’s Fee” means the cash portion of the annual retainer fee and any other fees payable for service on the Bank Board, including, without limitation, any meeting fees or fees for serving as a chair of any committee of the Bank Board or any fees received as an Advisory Director.   “Election Date” means the day immediately preceding the commencement of a Deferral Period. If an individual first becomes eligible to participate in the Plan after the start of a Deferral Period, the Election Date shall be not later than the thirtieth day following the initial date such individual became a Non-Employee Director.   “Fair Market Value” means the closing sales price of a share of Common Stock on the applicable date (or, if there was no trading in the shares on such date, on the next preceding date on which there was trading) on the principal exchange or system on which the shares are sold, as reported in The Wall Street Journal or other reporting service approved by the Committee.   “Non-Employee Director” means a member of the Bank Board and an Advisory Director who is not an employee of the Company or any of its subsidiaries.   “Phantom Stock Unit” means a bookkeeping unit representing the equivalent in value of one share of Common Stock.   “Plan” means the Amegy Bancorporation, Inc. Non-Employee Directors Deferred Fee Plan.   3.    Administration.     (a) The Plan shall be administered by the Committee.     (b) The Committee shall be authorized to interpret the Plan, to establish, amend and rescind any rules and regulations relating to the Plan, to make factual determinations in connection with the administration or interpretation of the Plan, and to make any other determinations that it believes are necessary or advisable for the administration of the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any Deferral Election Form to the extent the Committee deems desirable to carry the Plan into effect. Any decision of the Committee in the administration of the Plan shall be final and conclusive. The Committee may act only by a majority of its members, except that the members thereof may authorize   2 --------------------------------------------------------------------------------   any one or more of the Committee members to execute and deliver documents on behalf of the Committee.     (c) Each member of the Committee and each other person acting at the direction of or on behalf of the Committee shall not be liable for any determination or anything done or omitted to be done by him or by any other member of the Committee or any other such individual in connection with the Plan, except for his own gross negligence or willful misconduct or as expressly provided by statute, and to the extent permitted by law and the bylaws of the Company, shall be fully indemnified and protected by the Company with respect to such determination, act or omission.   4.    Shares Available. The Company is authorized to credit up to 125,000 Phantom Stock Units and to issue up to 125,000 shares of Common Stock, respectively, under the Plan (the “Plan Limit”). Such shares of Common Stock may be newly issued shares of Common Stock or reacquired shares of Common Stock held in the treasury of the Company.   5.    Deferral of Director’s Fees.     (a) Deferral Elections.     (i) General Provisions. Unless the Committee provides otherwise, Non-Employee Directors may elect to defer all, one-half or none of their Director’s Fees with respect to a Deferral Period in the manner provided in this Section 5. A Non-Employee Director’s Deferred Benefit is at all times nonforfeitable.     (ii) Deferral Election Forms. In order for a Non-Employee Director to participate in the Plan for a given Deferral Period, a Deferral Election Form, completed and signed by him, must be delivered to the Company on or prior to the applicable Election Date. A Deferral Election Form shall remain in effect for the Plan Year and for all subsequent Plan years until amended or revoked by the Participant or terminated by the Company as provided herein. A Non-Employee Director electing to participate in the Plan shall indicate on his Deferral Election Form:     (A) the percentage of the Director’s Fees for the Deferral Period to be deferred, which election shall be irrevocable for such Deferral Period, and     (B) the timing and manner of payment of the Director’s Fees deferred for that Deferral Period. Any subsequent change as to the timing and manner of payment   3 --------------------------------------------------------------------------------   of Deferred Benefits already credited to the Non-Employee Director’s Deferred Compensation Account must (i) be made at least 12 months prior to the date of the schedule payment or commencement of payment; (ii) delay the subsequent payment or commencement of payment at least five years after the date on which such payment or commencement of payment would otherwise have been made or commenced; and shall not be effective for 12 months following the change.     (iii) Effect of No Deferral Election. A Non-Employee Director who does not have a completed Deferral Election Form on file with the Company on or prior to the applicable Election Date for a Deferral Period may not defer his Director’s Fees for such Deferral Period.     (b) Establishment of Deferred Compensation Accounts. A Non-Employee Director’s deferrals will be credited to a Deferred Compensation Account set up for that Non-Employee Director by the Company in accordance with the provisions of this Section 5.     (c) Crediting of Phantom Stock Units to Deferred Compensation Accounts.     (i) Number of Phantom Stock Units. The portion of the Director’s Fees that a Non-Employee Director elects to defer shall be credited to the Participant’s Deferral Account no later than the first business day of the calendar quarter following the date as of which the amount would have been paid to the Participant absent a Deferral Election Form. The number of Phantom Stock Units to be credited to the Deferred Compensation Account shall be determined by dividing (1) the amount of the Director’s Fees deferred during such quarter by (2) the Fair Market Value of a share of Common Stock as of the date of crediting, and (3) multiplying such result by 1.25.     (ii) Dividends. No adjustment or credit will be made to a Deferred Compensation Account by reason of the making of any distribution in respect of the Common Stock, other than a transaction described in Section 7(b).     (iii) No Rights as Stockholder. The crediting of Phantom Stock Units to a Non-Employee Director’s Deferred Compensation Account shall not confer on the Non-Employee Director any rights as a stockholder of the Company.   4 --------------------------------------------------------------------------------   (iv) Conversion of Phantom Stock Units. The conversion of Phantom Stock Units based on stock of Amegy Bancorporation, Inc. to stock of the Company shall be determined by the Company.     (d) Written Statements of Account. The Company will furnish each Non-Employee Director with a statement setting forth the value of such Non-Employee Director’s Deferred Compensation Account as of the end of each Deferral Period and all credits to and payments from the Deferred Compensation Account during the Deferral Period. Such statement will be furnished as soon as reasonably practical after the end of the Deferral Period.     (e) Manner of Payment of Deferred Benefit. Payment of the Deferred Benefits shall be in shares of Common Stock. Payment shall be made either in a single lump sum or in a series of five or fewer annual installments, as elected by the Non-Employee Director. The amount of each installment payment to a Non-Employee Director shall be determined in accordance with the formula B/(N-P), where “B” is the total value of the Deferred Compensation Account as of the installment calculation date, “N” is the number of installments elected by the Non-Employee Director and “P” is the number of installments previously paid to the Non-Employee Director. Any partial unit resulting in the calculation above will be settled in cash.     (f) Commencement of Payment of Deferred Benefit. Payment of a Non-Employee Director’s Deferred Compensation Account, including subaccounts, shall commence as soon as reasonably practicable after the earlier to occur of:     (i) his or her termination as a Non-Employee Director; and     (ii) the date specified in the Deferral Election Form executed by the Non-Employee Director;   provided, however, that if the Non-Employee Director is employed by the Company or the Bank following his or her termination as a Non-Employee Director, then payment of such account shall not commence until his or her separation from service with the Company or the Bank; and, provided further, that if he or she is a “specified employee’ as defined under Section 409A of the Code or the regulations promulgated thereunder, payment of a such participant’s Non-Employee Director’s Deferred Compensation Account cannot be made before the earlier of (i) the date that is six months after the date of the specified employee’s separation from service; or (ii) the date of the specified employee’s death.     (g) Death. In the event of a Non-Employee Director’s death, the Non-Employee Director’s entire Deferred Benefit will be distributed in a lump sum to the Non-Employee Director’s beneficiary as soon as reasonably practicable after the date of death.   5 --------------------------------------------------------------------------------   (h) Restrictions on Transfer. The Company shall pay all Deferred Benefits payable under the Plan only to the Non-Employee Director or beneficiary designated under the Plan to receive such amounts. Neither a Non-Employee Director nor his beneficiary shall have any right to anticipate, alienate, sell, transfer, assign, pledge, encumber or change any benefits to which he may become entitled under the Plan, and any attempt to do so shall be void. A Deferred Benefit shall not be subject to attachment, execution by levy, garnishment, or other legal or equitable process for a Non-Employee Director’s or beneficiary’s debts or other obligations.   6.    Designation of Beneficiary.     (a) Beneficiary Designations. Each Non-Employee Director may designate a beneficiary to receive any Deferred Benefit due under the Plan on the Non-Employee Director’s death by executing a beneficiary designation form provided by the Company.     (b) Change of Beneficiary Designation. A Non-Employee Director may change an earlier beneficiary designation by executing a later beneficiary designation form and delivering it to the Company. The execution of a beneficiary designation form and its receipt by the Company revokes and rescinds any prior beneficiary designation form.   7.    Recapitalization or Reorganization.     (a) Authority of the Company and Stockholders. The existence of the Plan shall not affect or restrict in any way the right or power of the Company or the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company’s capital structure or its business, any merger or consolidation of the Company, any issue of stock or of options, warrants or rights to purchase stock or of bonds, debentures, preferred or prior preference stocks having rights superior to or affecting the Common Stock or the rights thereof or which are convertible into or exchangeable for Common Stock, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.     (b) Change in Capitalization. Notwithstanding any other provision of the Plan, in the event of any change in the outstanding Common Stock by reason of a stock dividend, recapitalization, reclassification, reorganization, merger, consolidation, stock split, combination, exchange of shares or other transaction: (i) such proportionate adjustments as may be necessary (as determined by the Committee in its sole discretion) to reflect such change shall be made to prevent dilution or enlargement of the rights of Non-Employee Directors under the Plan with respect to the aggregate number of shares of Common Stock authorized to be   6 --------------------------------------------------------------------------------   awarded under the Plan and the number of Phantom Stock Units credited to a Non-Employee Director’s Deferred Compensation Account, and (ii) the Committee may make such other adjustments, consistent with the foregoing, as it deems appropriate in its sole discretion.     (c) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company and to the extent permitted by Section 409A of the Code, all Deferred Benefits credited to the Non-Employee Director’s Deferred Compensation Account as of the date of the consummation of a proposed dissolution or liquidation shall be paid in cash to the Non-Employee Director or, in the event of death of the Non-Employee Director prior to payment, to the beneficiary thereof on the date of the consummation of such proposed action. The cash amount paid for each Phantom Stock Unit shall be the Fair Market Value of a share of Common Stock as of the date of the consummation of such proposed action.   8.    Plan Limit, Termination and Amendment of the Plan.     (a) Plan Limit. If the Plan Limit has been reached, no additional Director Fees may be deferred after that date and any dividend equivalents credited thereafter shall be credited as a bookkeeping “cash” amount, rather than as Phantom Stock Units, and shall be credited with interest, until paid in cash, at the Company’s prime rate of interest each valuation date.     (b) General Power of Board. Notwithstanding anything herein to the contrary, the Board may at any time and from time to time terminate, modify, suspend or amend the Plan in whole or in part and, upon termination of the Plan, immediately settle all Phantom Stock Units in shares of Common Stock notwithstanding any deferral elections to the contrary; provided, however, that no such termination, modification, suspension or amendment shall be effective without stockholder approval if such approval is required to comply with any applicable law or stock exchange rule; and, provided further, that the Board may not, without stockholder approval, increase the maximum number of shares issuable under the Plan, except as provided in Section 7(b) above.   Notwithstanding anything herein to the contrary, (i) no amendment shall be made to the Plan with respect to any amount deferred and vested prior to January 1, 2005 unless such amendment explicitly provides that it is applicable to such amount; and (ii) except as the Committee otherwise determines in writing, no distribution shall be made upon termination of the Plan if such distribution shall be subject to the excise tax applicable under Section 409A of the Code.   9.    Miscellaneous.     (a) No Right to Reelection. Nothing in the Plan shall be deemed to create any obligation on the part of the Board or Bank Board to nominate any of   7 --------------------------------------------------------------------------------   its members for reelection by the Company’s stockholders, nor confer upon any Non-Employee Director the right to remain a member of the Board or Bank Board or an Advisory Director for any period of time, or at any particular rate of compensation.     (b) Unfunded Plan.     (i) Generally. This Plan is unfunded. Amounts payable under the Plan will be satisfied solely out of the general assets of the Bank subject to the claims of the Bank’s creditors, except to the extent the Company determines to create a Rabbi Trust to hold assets to satisfy any amounts due participants under this Plan.     (ii) Deferred Benefits. A Deferred Benefit represents at all times an unfunded and unsecured contractual obligation of the Company and each Non-Employee Director or beneficiary will be a general unsecured creditor of the Bank. No Non-Employee Director, beneficiary or an other person shall have any interest in any fund or in any specific asset of the Bank by reason of any amount credited to him hereunder, nor shall any Non-Employee Director, beneficiary or any other person have any right to receive any distribution under the Plan except as, and to the extent, expressly provided in the Plan.     (c) Other Compensation Arrangements. Benefits received by a Non-Employee Director pursuant to the provisions of the Plan shall not be included in, nor have any effect on, the determination of benefits under any other arrangement provided by the Company.     (d) Securities Law Restrictions. All certificates for shares of Common Stock delivered under the Plan shall be subject to such stock-transfer orders and other restrictions as the Company may deem advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission or any exchange upon which the Common Stock is then listed, and any applicable federal or state securities law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. No shares of Common Stock shall be issued hereunder unless the Company shall have determined that such issuance is in compliance with, or pursuant to an exemption from, all applicable federal and state securities laws.     (e) Expenses. The costs and expenses of administering the Plan shall be borne by the Bank.     (f) Applicable Law. Except as to matters of federal law, the Plan and all actions taken thereunder shall be governed by and construed in accordance   8 --------------------------------------------------------------------------------   with the laws of the State of Texas without giving effect to conflicts of law principles.     (g) Effective Date. The Plan shall be effective as of January 1, 2002, with amendments effective as of November 5, 2003. This second amendment and restatement of the Plan shall be effective January 1, 2005, and shall be effective only with respect to .amounts deferred and vested on or after January 1, 2005. Therefore, amounts deferred and vested under the Plan prior to January 1, 2005 shall not be subject to the provisions of this second amendment and restatement but shall be subject to the provisions of the Plan in place prior to such amendment and restatement.     (h) Section 409A. This Plan is intended to meet the requirements of Section 409A of the Code, and shall be administered in a manner that is intended to meet those requirements and shall be construed and interpreted in accordance with such intent. To the extent that an award or payment, or the settlement or deferral thereof, is subject to Section 409A of the Code, except as the Committee otherwise determines in writing, the award shall be granted, paid, settled or deferred in a manner that will meet the requirements of Section 409A of the Code, including regulations or other guidance issued with respect thereto, such that the grant, payment, settlement or deferral shall not be subject to the excise tax applicable under Section 409A of the Code. Any provision of this Agreement that would cause the award or the payment, settlement or deferral thereof to fail to satisfy Section 409A of the Code shall be amended to comply with Section 409A of the Code on a timely basis, which may be made on a retroactive basis, in   9

  Exhibit 10.25 CHANGE IN CONTROL AGREEMENT           THIS AGREEMENT (“Agreement”), made and entered into this 9th day of October, 2006 (the “Effective Date”), by and between Ferrellgas, Inc. (the “Company”) and M. Kevin Dobbins (the “Executive”); WITNESSETH THAT:           WHEREAS, the Company wishes to assure itself of the continuity of the Executive’s service in the event of a Change in Control (as defined below); and           WHEREAS, the Company and the Executive accordingly desire to enter into this Agreement on the terms and conditions set forth below;           NOW, THEREFORE, in consideration of the premises and mutual covenants set forth herein, IT IS HEREBY AGREED by and between the parties as follows:           1. Agreement Term. The “Agreement Term” shall begin on the Effective Date and shall continue through December 31, 2007, subject to the following: (a)   As of December 31, 2007, and on each December 31 thereafter, the Agreement Term shall automatically be extended for one additional year unless, not later than the preceding June 30, either party shall have given notice that such party does not wish to extend the Agreement Term.   (b)   If a Change in Control occurs during the Agreement Term (as it may be extended from time to time), the Agreement Term shall continue for a period of twenty-four calendar months beyond the calendar month in which such Change in Control occurs and, following an extension in accordance with this subparagraph (b), no further extensions shall occur under subparagraph 1(a).           2. Certain Definitions. In addition to terms otherwise defined herein, the following capitalized terms used in this Agreement shall have the meanings specified: (a)   Cause. The term “Cause” shall mean:   (i)   the willful and continued failure by the Executive to substantially perform his duties for the Company (other than any such failure resulting from the Executive’s being disabled) within a reasonable period of time after a written demand for substantial performance is delivered to the Executive by the Board of Directors of the Company (the “Board”), which demand specifically identifies the   --------------------------------------------------------------------------------         manner in which the Board believes that the Executive has not substantially performed his duties;     (ii)   the willful engaging by the Executive in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise; or     (iii)   the engaging by the Executive in egregious misconduct involving serious moral turpitude to the extent that, in the reasonable judgment of the Board, the Executive’s credibility and reputation no longer conform to the standard of the Company’s executives.     For purposes of this Agreement, no act, or failure to act, on the Executive’s part shall be deemed “willful” unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive’s action or omission was in the best interest of the Company.   (b)   Change in Control. The term “Change in Control” shall mean any of the following that occur after the Effective Date:   (i)   any merger or consolidation of Ferrell Companies, Inc. in which such entity is not the survivor;     (ii)   any sale of all or substantially all of the common stock of Ferrell Companies, Inc. by the Employee Stock Ownership Trust;     (iii)   a sale of all or substantially all of the common stock of Ferrellgas, Inc.;     (iv)   a replacement of the Company as the General Partner of Ferrellgas Partners, L.P.; or     (v)   a public sale of at least 51 percent of Ferrell Companies, Inc. equity. (c)   COBRA. The term “COBRA” means continuing group health coverage required by section 4980B of the Code or sections 601 et. seq. of the Employee Retirement Income Security Act of 1974, as amended.   (d)   Code. The term “Code” means the Internal Revenue Code of 1986, as amended.   (e)   Covered Termination. The Executive will incur a “Covered Termination” upon his Termination Date if the Termination Date occurs (i) during the Agreement Term, (ii) upon or following a Change in Control, and (iii) on account of termination of employment by the Executive for Good Reason or by Company for reasons other than for Cause. 2 --------------------------------------------------------------------------------   (f)   Good Reason. The term “Good Reason” shall mean:   (a)   The relocation of the Executive’s principal office location to a location which is more than 50 highway miles from the location of the Executive’s principal office location immediately prior to the Change in Control; or     (b)   A reduction in excess of 10% in the Executives’ base salary and target incentive potential as compared to his base salary and target incentive in effect immediately prior to the Change in Control. (g)   Termination Date. The term “Termination Date” means the date on which the Executive’s employment with the Company and its affiliates terminates for any reason, including voluntary resignation. If the Executive becomes employed by the entity into which the Company merged, or the purchaser of substantially all of the assets of the Company, or a successor to such entity or purchaser, the Executive’s Termination Date shall not be treated as having occurred for purposes of this Agreement until such time as the Executive terminates employment with the successor and its affiliates (including, without limitation, the merged entity or purchaser). If the Executive is transferred to employment with an affiliate (including a successor to the Company, and regardless of whether before, on, or after a Change in Control), such transfer shall not constitute the Executive’s Termination Date for purposes of this Agreement.           3. Payments and Benefits. If a Covered Termination occurs, the Executive shall be entitled to the following payments and benefits, conditioned upon the Executive signing an Agreement and Release: (a)   The Executive will be entitled to a payment equal to two times the Executive’s annual base salary in effect immediately prior to the Change in Control;   (b)   The Executive will be entitled to a payment equal to two times the Executive’s target bonus, at his target bonus rate in effect immediately prior to the Change in Control; and   (c)   For the two year period following the Termination Date, the Executive shall be entitled to receive reimbursement (grossed-up for taxes) for group medical coverage for himself and his dependents which is not materially less favorable to the Executive than the group medical coverage which was provided by the Company to the Executive immediately prior to the Change in Control. The coverage provided pursuant to this subparagraph (c) shall be part of, and not in addition to, any coverage to which the Executive (or his dependents) are entitled to receive pursuant to COBRA. Payments pursuant to subparagraphs (a) and (b) next above shall be made in substantially equal monthly installments beginning with the month following the 3 --------------------------------------------------------------------------------   month in which the Termination Date occurs; provided, however, that, to the extent required by section 409A of the Code, payments for the six month period beginning on the Termination Date shall be made in a lump sum on the date that is six months and one day after the Termination Date.           4. Mitigation. The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise. None of the Company or any of its affiliates shall be entitled to set off against the amounts payable to the Executive under this Agreement any amounts owed to the Company or any of its affiliates by the Executive, any amounts earned by the Executive in other employment after his Termination Date, or any amounts which might have been earned by the Executive in other employment had he sought such other employment.           5. Tax Payments. If: (a)   any payment or benefit to which the Executive is entitled from the Company, any affiliate, or trusts established by the Company or by any affiliate (the “Payments,” which shall include, without limitation, the vesting of an option or other non-cash benefit or property) are subject to the tax imposed by section 4999 of the Internal Revenue Code of 1986 or any successor provision to that section; and   (b)   reduction of the Payments to the amount necessary to avoid the application of such tax would result in the Executive retaining an amount that is greater than the amount he would retain if the Payments were made without such reduction but after the reduction for the amount of the tax imposed by section 4999; then the Payments shall be reduced to the extent required to avoid application of the tax imposed by section 4999. The Executive shall be entitled to select the order in which payments are to be reduced in accordance with the preceding sentence. Determination of whether Payments would result in the application of the tax imposed by section 4999, and the amount of reduction that is necessary so that no such tax would be applied, shall be made, at the Company’s expense, by the independent accounting firm employed by the Company immediately prior to the occurrence of the Change in Control.           6. Other Benefits. Except as may be otherwise specifically provided in an amendment of this Agreement adopted in accordance with paragraph 10, in the event of a Covered Termination, the Executive shall not be eligible to receive any benefits that may be otherwise payable to or on behalf of the Executive pursuant to the terms of any severance pay arrangement of the Company (or any affiliate of the Company), including any arrangement of the Company (or any affiliate of the Company) providing benefits upon involuntary termination of employment. 4 --------------------------------------------------------------------------------             7. Withholding. All payments to the Executive under this Agreement will be subject to all applicable withholding of applicable taxes.           8. Assistance with Claims. The Executive agrees that, for the period beginning on the Effective Date, and continuing for a reasonable period after the Executive’s Termination Date, the Executive will assist the Company and its affiliates in defense of any claims that may be made against the Company or its affiliates and will assist the Company and its affiliates in the prosecution of any claims that may be made by the Company or its affiliates, to the extent that such claims may relate to services performed by the Executive for the Company or its affiliates. The Executive agrees to promptly inform the Company if he becomes aware of any lawsuits involving such claims that may be filed against the Company or its affiliates. The Company agrees to provide legal counsel to the Executive in connection with such assistance (to the extent legally permitted), and to reimburse the Executive for all of his reasonable out-of-pocket expenses associated with such assistance, including travel expenses. For periods after the Executive’s employment with the Company terminates, the Company agrees to provide reasonable compensation to the Executive for such assistance. The Executive also agrees to promptly inform the Company if he is asked to assist in any investigation of the Company or its affiliates (or their actions) that may relate to services performed by the Executive for the Company or its affiliates, regardless of whether a lawsuit has then been filed against the Company or its affiliates with respect to such investigation.           9. Nonalienation. The interests of the Executive under this Agreement are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors of the Executive or the Executive’s beneficiary.           10. Amendment. This Agreement may be amended or canceled only by mutual agreement of the parties in writing without the consent of any other person. So long as the Executive lives, no person, other than the parties hereto, shall have any rights under or interest in this Agreement or the subject matter hereof. Without limiting the generality of the foregoing, it is the intent of the parties that all payments hereunder comply with the requirements of section 409A of the Code and applicable guidance issued thereunder and, to the extent applicable, this Agreement shall be amended as the parties deem necessary or appropriate to comply with the requirements of section 409A and applicable guidance issued thereunder in a manner that preserves to the extent possible the intended benefits of this Agreement for the parties.           11. Applicable Law. The provisions of this Agreement shall be construed in accordance with the laws of the State of Kansas, without regard to the conflict of law provisions of any state.           12. Severability. The invalidity or unenforceability of any provision of this Agreement will not affect the validity or enforceability of any other provision 5 --------------------------------------------------------------------------------   of this Agreement, and this Agreement will be construed as if such invalid or unenforceable provision were omitted (but only to the extent that such provision cannot be appropriately reformed or modified).           13. Obligation of Company. Except as otherwise specifically provided in this Agreement, nothing in this Agreement shall be construed to affect the Company’s right to modify the Executive’s position or duties, compensation, or other terms of employment, or to terminate the Executive’s employment. Nothing in this Agreement shall be construed to require the Company or any other person to take steps or not take steps (including, without limitation, the giving or withholding of consents) that would result in a Change in Control.           14. Waiver of Breach. No waiver by any party hereto of a breach of any provision of this Agreement by any other party, or of compliance with any condition or provision of this Agreement to be performed by such other party, will operate or be construed as a waiver of any subsequent breach by such other party of any similar or dissimilar provisions and conditions at the same or any prior or subsequent time. The failure of any party hereto to take any action by reason of such breach will not deprive such party of the right to take action at any time while such breach continues.           15. Successors, Assumption of Contract. This Agreement is personal to the Executive and may not be assigned by the Executive without the written consent of the Company. However, to the extent that rights or benefits under this Agreement otherwise survive the Executive’s death, the Executive’s heirs and estate shall succeed to such rights and benefits pursuant to the Executive’s will or the laws of descent and distribution; provided that the Executive shall have the right at any time and from time to time, by notice delivered to the Company, to designate or to change the beneficiary or beneficiaries with respect to such benefits. This Agreement shall be binding upon and inure to the benefit of the Company and any successor of the Company, subject to the following: (a)   The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place.   (b)   After a successor assumes this Agreement in accordance with this paragraph 15, only such successor shall be liable for amounts payable after such assumption, and no other companies (including, without limitation, the Company and any other predecessors) shall have liability for amounts payable after such assumption.   (c)   Notwithstanding the foregoing provisions of this paragraph 15, if the successor is required to assume the obligations of this Agreement under 6 --------------------------------------------------------------------------------       subparagraph (a), and fails to execute and deliver to the Executive a written acknowledgment of the assumption upon the Change in Control or, if later, promptly following demand by the Executive for execution and deliver of such an acknowledgment, then the successor shall not be substituted as the Company, the Executive shall be entitled to payments and benefits as provided under paragraph 3, and if the Executive is then employed by the Company (or successor), the Executive’s employment shall be deemed to have been terminated by the Company under circumstances described in clause 4(I), and the Executive shall not be required to perform services under this Agreement after such deemed termination.           16. Notices. Notices and all other communications provided for in this Agreement shall be in writing and shall be delivered personally or sent by registered or certified mail, return receipt requested, postage prepaid (provided that international mail shall be sent via overnight or two-day delivery), or sent by facsimile or prepaid overnight courier to the parties at the addresses set forth below. Such notices, demands, claims and other communications shall be deemed given: (a)   in the case of delivery by overnight service with guaranteed next day delivery, the next day or the day designated for delivery;   (b)   in the case of certified or registered U.S. mail, five days after deposit in the U.S. mail; or   (c)   in the case of facsimile, the date upon which the transmitting party received confirmation of receipt by facsimile, telephone or otherwise; provided, however, that in no event shall any such communications be deemed to be given later than the date they are actually received. Communications that are to be delivered by the U.S. mail or by overnight service or two-day delivery service are to be delivered to the addresses set forth below: to the Company: Gene Caresia Vice President, Human Resources 7500 College Blvd, Suite 1000 Overland Park, Kansas 66210 or to the Executive: [address to be inserted] Each party, by written notice furnished to the other party, may modify the applicable delivery address, except that notice of change of address shall be effective only upon receipt. 7 --------------------------------------------------------------------------------             17. Arbitration of All Disputes. Any controversy or claim arising out of or relating to this Agreement (or the breach thereof) shall be settled by final, binding and non-appealable arbitration in Overland Park, Kansas by three arbitrators. Except as otherwise expressly provided in this paragraph 17, the arbitration shall be conducted in accordance with the rules of the American Arbitration Association (the “Association”) then in effect. One of the arbitrators shall be appointed by the Company, one shall be appointed by the Executive, and the third shall be appointed by the first two arbitrators. If the first two arbitrators cannot agree on the third arbitrator within 30 days of the appointment of the second arbitrator, then the third arbitrator shall be appointed by the Association.           18. Survival of Agreement. Except as otherwise expressly provided in this Agreement, the rights and obligations of the parties to this Agreement shall survive the termination of the Executive’s employment with the Company.           19. Entire Agreement. Except as otherwise provided herein, this Agreement constitutes the entire agreement between the parties concerning the subject matter hereof and supersedes all prior or contemporaneous agreements, if any, between the parties relating to the subject matter hereof; provided, however, that nothing in this Agreement shall be construed to limit any policy or agreement that is otherwise applicable relating to confidentiality, rights to inventions, copyrightable material, business and/or technical information, trade secrets, solicitation of employees, interference with relationships with other businesses, competition, and other similar policies or agreement for the protection of the business and operations of the Company and its affiliates.           20. Counterparts. This Agreement may be executed in two or more counterparts, any one of which shall be deemed the original without reference to the others.           IN WITNESS THEREOF, the Executive has hereunto set his hand, and the Company has caused these presents to be executed in its name and on its behalf, all as of the Effective Date.                   /s/ M. Kevin Dobbins                   EXECUTIVE                       FERRELLGAS, INC.                       By                           Its                       8

Exhibit 10.7.5   AMENDMENT NO. 4 TO ADMINISTRATIVE AND INVESTMENT SERVICES AGREEMENT between State Street Bank and Trust Company and the ABA Retirement Funds (f/k/a “American Bar Retirement Association”)   WHEREAS, pursuant to Section 16.07 of the Administrative and Investment Services Agreement, amended and restated as of November 18, 2002 (the “AISA Agreement”) between State Street Bank and Trust Company (“State Street”) and the American Bar Retirement Association, now called “ABA Retirement Funds” (“ARF”), the AISA Agreement may be amended by written instrument and executed by State Street and ARF.   NOW THEREFORE, BE IT RESOLVED, that, pursuant to the power of amendment contained in Section 16.07 of the AISA Agreement, the AISA Agreement hereby is amended, effective as of the date hereof, as follows:     1. The name “ABA Retirement Funds” is substituted for the name “American Bar Retirement Association” in each place where the latter name appears, and the term “ARF” is substituted for the term “ABRA” in each place where the latter name appears.     2. Section 2.02(b) of the AISA Agreement hereby is amended by deleting the period at the end of said section, inserting a semi-colon in lieu thereof and adding the following immediately after said semi-colon:   provided, however, that State Street shall not have any authority to, and shall not, appoint an Investment Advisor that is an Affiliate or is controlled by or under common control with CitiStreet unless directed to in writing by ARF, in which event Sections 2.04, 2.05 and 2.06 shall not apply and the responsibility for monitoring and removing such Investment Advisor shall exclusively be that of ARF.   IN WITNESS WHEREOF, ARF and State Street hereby cause this instrument to be executed by duly authorized officers this 24th day of January, 2006.   ABA RETIREMENT FUNDS   STATE STREET BANK AND TRUST COMPANY By:   /s/ Donald Schiller --------------------------------------------------------------------------------   By:   /s/ Beth M. Halberstadt -------------------------------------------------------------------------------- Its:   President   Its:   Vice President

Exhibit 10.4 EARTHLINK, INC. APPRECIATION RIGHTS AGREEMENT THIS APPRECIATION RIGHTS AGREEMENT (this "Agreement") is made as of the 17th day of February, 2006, by and between EarthLink, Inc., a Delaware corporation (the "Company"), and Thomas E. Wheeler (the "Participant"), to provide additional compensation to the Participant to serve as a non-employee member of the Board of Directors of HELIO Inc. (the "Management Company") (as further defined below), which will oversee and manage HELIO LLC (the "Operating Company") (as further defined below). Grant of Rights . In return for the Participant's service to the Company to serve as its representative as a non-employee member of the Board of Directors of the Management Company, the Company, effective as of the date above (the "Date of Grant"), hereby grants to the Participant, subject to the terms and conditions set forth herein, a stock appreciation right ("SAR") with respect to 100,000 shares of the Class A Common Stock, par value $.01 per share, of the Management Company that entitles the Participant to receive the cash payments described in this Agreement. This SAR entitles the Participant to receive additional cash compensation from the Company for service as the Company's representative on the Board of Directors of the Management Company, at the time set forth herein, that equals the amount by which the Final Value of the Common Stock has increased over the Base Value of the Common Stock for the shares of Common Stock with respect to which the vested SAR is being paid. This SAR is payable as hereinafter provided. The Participant is serving as the Company's representative on the Board of Directors of the Management Company only to the extent the Participant is then serving pursuant solely to the Company's right to appoint a member of the Board of Directors of the Management Company. Vesting of SAR . Except as provided below, this SAR vests with respect to 25,000 shares of Common Stock on each of March 24, 2006, 2007, 2008 and 2009, provided that the Participant has been continuously serving as the Company's representative on the Board of Directors of the Management Company from the Date of Grant until each such time. If either a Management Company Change in Control, an EarthLink Change in Control or an Operating Company Change in Control (each as defined below) occurs prior to the vesting of all the Participant's SARs pursuant to the preceding sentence, all SARs granted under this Agreement shall immediately vest provided the Participant has been continuously serving as the Company's representative on the Board of Directors of the Management Company from the Date of Grant through the time of such Control Change Date. Additionally, in the event that the Company terminates the Participant's status as its representative on the Board of Directors of the Management Company other than for Cause before this SAR vests with respect to all 100,000 shares and before the Participant otherwise ceases to serve as the Company's representative, then, solely for vesting purposes, the Participant shall be given an additional 24 months credit for service as the Company's representative on the Board of Directors of the Management Company. Once this SAR has vested in accordance with this paragraph, it shall remain vested until payment of the SAR, the crediting of the SAR to the SAR Participant Account or the termination of the Participant's rights hereunder pursuant to paragraphs 3, 4, 5, 6, 11 or 12. Cessation of Service as Company's Representative. If prior to the date the SAR is paid pursuant to paragraphs 4, 5 or 6, or terminated pursuant to paragraphs 11 or 12, the Participant ceases to serve as the Company's representative on the Board of Directors of the Management Company other than termination by the Company for Cause, then, after taking into account any additional vesting described in paragraph 2 for involuntary termination of service without Cause, as applicable, (i) all unvested SARs shall immediately terminate and (ii) an amount equal to the excess of the Final Value over the Base Value multiplied by the number of shares of Common Stock represented by the vested portion of the outstanding SARs will be credited to the Participant's SAR Participant Account; provided, however, that if at the time of such cessation of service the Final Value does not exceed the Base Value, the Participant's vested SARs shall terminate immediately without any payment or credit therefor. The Participant's SAR Participant Account shall be paid on the earliest to occur of (i) the Initial Payment Date, (ii) when the Participant dies, becomes Disabled or has a Separation from Service or (iii) an EarthLink Change in Control occurs, provided the Participant's SAR Participant Account has not terminated previously pursuant to paragraphs 11 or 12. The Participant shall receive payment of Participant's SAR Participant Account in one lump sum payment. Notwithstanding the foregoing, if the Participant is entitled to payment of Participant's SAR Participant Account on a Separation of Service and the Participant is a Specified Employee, then the payment shall be made in a lump sum on the date that is six months after the date of Separation from Service. Payment on Initial Payment Date. Except as provided in paragraphs 3, 5, 6, 11 or 12, on the Initial Payment Date (as defined below) (i) all unvested SARs shall immediately terminate and (ii) the Participant shall receive payment as described in this paragraph of all vested SARs not previously paid. If the Participant is entitled to payment of the SARs on the Initial Payment Date, the Participant shall receive in one lump sum cash payment the amount by which the Final Value has increased over the Base Value multiplied by the number of shares of Common Stock represented by the vested portion of such outstanding SARs not previously paid. Notwithstanding any other provisions of this paragraph, if as of the Initial Payment Date the Final Value does not exceed the Base Value, the Participant's vested SARs shall terminate immediately without any payment thereunder. Payment on Death, Disability, Separation from Service. If prior to the date the SAR is paid pursuant to paragraphs 4 or 6, credited pursuant to paragraph 3 or terminated pursuant to paragraphs 11 or 12, the Participant dies, becomes Disabled, or has a Separation from Service, then, after taking into account any additional vesting described in paragraph 2 for involuntary termination of service without Cause, as applicable, (i) all unvested SARs shall immediately terminate and (ii) the Participant shall receive in one lump sum cash payment the amount by which the Final Value has increased over the Base Value multiplied by the number of shares of Common Stock represented by the vested portion of such outstanding SAR not previously paid. Notwithstanding any other provisions of this paragraph, if as of the Participant's death, becoming Disabled or Separation from Service, the Final Value does not exceed the Base Value, the Participant's vested SARs shall terminate immediately without any payment thereunder. Notwithstanding the above, if the Participant is entitled to payment of this SAR on a Separation from Service and the Participant is a Specified Employee, then the payment shall be made in a lump sum on the date that is six months after the date of the Separation from Service. EarthLink Change in Control. If prior to the date the SAR is paid pursuant to paragraphs 4 or 5, credited pursuant to paragraph 3 or terminated pursuant to paragraphs 11 or 12, an EarthLink Change in Control occurs, then, after taking into account any additional vesting described in paragraph 2 for an EarthLink Change in Control, as applicable, the Participant shall receive in one lump sum cash payment the amount by which the Final Value has increased over the Base Value multiplied by the number of shares of Common Stock represented by the portion of such outstanding SAR not previously paid. Notwithstanding any other provisions of this paragraph, if as of such time the Final Value does not exceed the Base Value, the Participant's SARs shall terminate immediately without any payment thereunder. Participant's Beneficiary . In the event of the Participant's death prior to receiving all payments due under this Agreement, payments will be made to the Participant's Beneficiary. The Participant shall have the right, at any time, to designate any person, persons or entity as his Beneficiary or Beneficiaries. A Beneficiary designation shall be made, and may be amended by the Participant, by filing a written designation with the Company on such form in accordance with such procedures that the Company shall establish from time to time. If the Participant fails to designate a Beneficiary as provided above, or if all designated Beneficiaries predecease the Participant or are no longer in existence at the time of the Participant's death, then the Participant's Beneficiary shall be deemed to be the Participant's estate. 1. SAR Participant Account. The Company shall, as necessary, establish on its books a hypothetical bookkeeping account to record the SAR Participant Account (the "SAR Participant Account"). Amounts paid to the Participant in respect of any SAR Participant Account shall result in a corresponding reduction in the value of such SAR Participant Account. The SAR Participant Account shall be credited with interest for each year as of the end of the Company's fiscal year. However, no interest will be credited to any SAR Participant Account after it has been paid in full. Interest shall be credited based on the five-year Treasury Note rate (as reported in the Wall Street Journal) as of the end of the relevant fiscal year and shall be calculated based on the average balance in the SAR Participant Account over the period for which the interest is being credited. Any amount credited to a SAR Participant Account shall be utilized solely as a device for the measurement and determination of amounts to be paid to the Participant hereunder and shall represent a general unsecured liability of the Company and shall not constitute a trust fund or otherwise create any property interest in any Participant. The Company shall distribute to the Participant at least annually a statement showing the activity and credits to the Participant's SAR Participant Account, in such form as the Company deems desirable, setting forth the balance to the credit of such Participant as of the end of the most recent fiscal year of the Company. Nontransferability . This SAR is nontransferable except by will or by the laws of descent and distribution. No right or interest of the Participant in this SAR shall be liable for, or subject to, any lien, obligation or liability of the Participant. Positive Value . Anything herein to the contrary notwithstanding, no payment will be made pursuant to this SAR, in whole or in part, unless (i) with respect to payment of the SAR, the Final Value of the Common Stock on the date of payment exceeds the Base Value of the Common Stock and (ii) with respect to payment of the SAR Participant Account, the balance of the account on the date of payment exceeds zero. Termination of Service for Cause . Notwithstanding any other provision of this Agreement, all rights hereunder (including rights to the SAR or the SAR Participant Account ) will be immediately discontinued and forfeited, and the Company shall not have any further obligation hereunder to the Participant, if the Participant is removed from service for Cause as the Company's representative on the Board of Directors of the Management Company or as a member of the Board of Directors of the Company. Expiration of Rights . If the Participant terminates service as the Company's representative on the Board of Directors of the Management Company prior to vesting of the Participant's SARs, including any additional vesting described in paragraph 2 for involuntary termination of service without Cause, then all rights hereunder with respect to unvested SARs will be immediately discontinued and forfeited, and the Company shall not have any further obligation hereunder to the Participant. With respect to vested SARs, if at the time the Participant is entitled to payment of the SAR or credit to the SAR Participant Account the Final Value does not exceed the Base Value, all rights hereunder with respect to the SARs which are then payable or creditable will be immediately discontinued and forfeited, and the Company shall not have any further obligation hereunder to the Participant with respect to such vested SARs. Change in Capital Structure . The terms of this SAR shall be adjusted as the Company determines is equitably required in the event the Management Company effects one or more stock dividends, stock split-ups, subdivisions or consolidations of shares or other similar changes in capitalization. No Right to Continued Service . This SAR does not confer upon the Participant any right with respect to continued service as a member of the Board of Directors of the Management Company or as the Company's representative on such Board of Directors or as a member of the Board of Directors of the Company, nor shall it interfere in any way with any rights of the Company, the Management Company or their shareholders to terminate such service at any time. Binding Effect . Subject to the limitations stated above, this Agreement shall be binding upon and inure to the benefit of the legatees, distributees, transferees and personal representatives of the Participant and the successors of the Company. Governing Law . This Agreement shall be governed by the laws of the State of Delaware. Shareholder Rights . The Participant shall not have any rights as a shareholder with respect to any shares of Common Stock represented by the SAR. Unfunded Benefits . The Agreement is unfunded, and the Company shall not be required to segregate any assets that may at any time be payable under this Agreement. Any liability of the Company to the Participant hereunder shall be based solely upon any contractual obligations that may be created hereunder. No such obligation of the Company shall be deemed to be secured by any pledge of, or other encumbrance on, any assets or property of the Company. Tax Withholding . The Participant shall be responsible for satisfying any income or other withholding obligations attributable to the grant, ownership or payment of the SAR or the SAR Participant Account. In accordance with such procedures as the Company may establish, the Participant may be subject to withholding on any payments hereunder or otherwise in satisfaction of all or part of any such income or other withholding obligations. Compliance with Section 409A . This Agreement is intended to be comply with the requirements for "deferred compensation" within the meaning of Section 409A of the Code and shall be construed and interpreted in accordance with those provisions. Any provision of this Agreement which is inconsistent with Section 409A of the Code shall be void and without effect. The Company may at any time amend, suspend or terminate this Agreement; provided, however, that no such amendment, suspension or termination shall adversely affect the rights of the Participant unless such amendment, suspension or termination is necessary for the Agreement to be in compliance with Section 409A of the Code so as to assure the continued deferred taxation of amounts owed under this Agreement. In the event the Company suspends or terminates this Agreement, no amounts may be paid hereunder in connection with the suspension or termination that are not in compliance with Section 409A of the Code, with all amounts to be paid as otherwise set forth herein. Notwithstanding the preceding, the Company shall not be liable to Participant or any other person if the Internal Revenue Service or any court or other authority having jurisdiction over such matter determines for any reason that any payments under this Agreement are subject to taxes, penalties or interest as a result of failing to comply with Code Section 409A. Definitions . The following terms shall have the following definitions for purposes of this Agreement. a. "Affiliate" means any entity with whom a given person would be considered a single employer under Code Sections 414(b) or 414(c). b. "Base Value" means, for purposes of this Agreement, $1.71 per share of Common Stock. c. "Cause" means that the Participant (i) has committed fraud or misappropriated, stolen or embezzled funds or property from the Company, the Management Company or the Operating Company or any of their Affiliates or secured or attempted to secure personally any profit in connection with any transaction entered into on behalf of the Company, the Management Company or the Operating Company or any of their Affiliates, (ii) has been convicted of, or entered a plea of guilty or "nolo contendere" to, any criminal act or has committed any other act of willful misconduct which brings the Participant into disrepute or is likely to cause material harm to the Company's, the Management Company's or the Operating Company's (or any of their Affiliate) reputation, business, subscribers, financial condition or prospects, (iii) has violated or breached any material law or regulation to the material detriment of the Company, the Management Company, the Operating Company or any of their Affiliates, (iv) has committed any act of willful malfeasance or gross negligence in a matter of material importance to the Company, the Management Company, the Operating Company or any of their Affiliates or (v) has breached any fiduciary duty that the Participant owes to the Company, the Management Company, the Operating Company or any of their Affiliates. d. "Code" means the Internal Revenue Code of 1986, as amended. e. "Common Stock" means the Class A Common Stock, par value $.01 per share, of the Management Company. f. "Control Change Date" means the date on which a Management Company Change in Control, an EarthLink Change in Control or an Operating Company Change in Control, whichever is applicable, occurs. g. "Disabled" means the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months or has been determined to be totally disabled by the Social Security Administration. h. "EarthLink Change in Control" means any of the following: (i) any one Person (other than an Excluded Person and its Affiliates), or more than one Person (other than an Excluded Person and its Affiliates) acting as a group, acquires ownership of stock of the Company that, together with stock held by such Person or group, constitutes more than 50 percent of the total fair market value or total voting power of the stock of the Company, provided, that if any one person or more than one person acting as a group is considered to own more than 50 percent of the total fair market value or voting power of the stock of the Company, the acquisition of additional stock by the same person or persons is not considered to cause an EarthLink Change in Control or (ii) any one Person (other than an Excluded Person and its Affiliates), or more than one Person (other than an Excluded Person and its Affiliates) acting as a group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such Person or Persons) assets from the Company that have a total gross fair market value (determined without regard to any liabilities associated with such assets) of more than 50 percent of the total gross fair market value of all of the assets of the Company (determined without regard to any liabilities associated with such assets) immediately prior to such acquisition or acquisitions, other than assets transferred to: (a) a shareholder of the Company (immediately before the asset transfer) in exchange for or with respect to its stock, (b) an entity, 50 percent or more of the total value or voting power of which is owned directly or indirectly, by the Company immediately after the transfer, (c) a Person, or more than one Person acting as a group, that owns, directly or indirectly, 50 percent or more of the total value or voting power of all the outstanding stock of the Company immediately after the transfer or (d) an entity, at least 50 percent of the total value or voting power of which is owned, directly or indirectly, by a Person, or more than one Person acting as a group, that owns, directly or indirectly, 50 percent or more of the total value or voting power of all the outstanding stock of the Company immediately after the transfer or (iii) a majority of the members of the Company's Board of Directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Company's Board of Directors prior to the date of the appointment or election. For purposes of this paragraph, Persons will not be considered to be acting as a group solely because they purchase or own stock of the same corporation at the same time, or as a result of the same public offering. However, Persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the Company. For purposes of determining whether an EarthLink Change in Control has occurred, (i) stock underlying a vested option is considered owned by the individual who holds the option (so long as the underlying stock would not be subject to a substantial risk of forfeiture on exercise) and (ii) the rules of Section 318(a) of the Code apply to determine stock ownership. If an EarthLink Change in Control occurs on account of a series of transactions, the EarthLink Change in Control is considered to occur on the date of the last of such transactions. i. "Exchange Act" means the Securities Exchange Act of 1934, as amended. j. "Excluded Person" means the Company, Sky Dayton and SK Telecom USA Holdings, Inc., a Delaware corporation. k. "Fair Market Value" of a share of Common Stock of the Management Company means, on any given date, the fair market value of a share of Common Stock as the Company in its discretion shall reasonably determine, consistent with historical practices and valuations of the Common Stock performed for other business purposes and taking into account any available fair market value determination prepared by an independent third-party appraiser that the Company has retained for such purpose; provided, however, that the Company shall determine Fair Market Value without regard to any restriction other than a restriction which, by its terms, will never lapse and, if the shares of Common Stock are traded on any national stock exchange or quotation system, the Fair Market Value of a share of Common Stock shall be the closing price of a share of Common Stock as reported on such stock exchange or quotation system on such date, or if the shares of Common Stock are not traded on such stock exchange or quotation system on such date, then on the next preceding day that the shares of Common Stock were traded on such stock exchange or quotation system, all as reported by such source as the Company shall select. l. "Final Value" means the Fair Market Value of one share of the Common Stock of the Management Company as of the date the SAR is paid or credited to a SAR Participant Account. m. "Initial Payment Date" means the initial date for payment of an SAR which for purposes of this Agreement will be March 24, 2011. n. "Management Company" means HELIO Inc., a Delaware corporation, or any successor thereto. o. "Management Company Change in Control" means any of the following: (i) any one Person (other than an Excluded Person and its Affiliates), or more than one Person (other than an Excluded Person and its Affiliates) acting as a group, acquires ownership of stock of the Management Company that, together with stock held by such Person or group, constitutes more than 50 percent of the total fair market value or total voting power of the stock of the Management Company, provided, that if any one person or more than one person acting as a group is considered to own more than 50 percent of the total fair market value or voting power of the stock of the Management Company, the acquisition of additional stock by the same person or persons is not considered to cause a Management Company Change in Control or (ii) any one Person (other than an Excluded Person and its Affiliates), or more than one Person (other than an Excluded Person and its Affiliates) acting as a group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such Person or Persons) assets from the Management Company that have a total gross fair market value (determined without regard to any liabilities associated with such assets) of more than 50 percent of the total gross fair market value of all of the assets of the Management Company (determined without regard to any liabilities associated with such assets) immediately prior to such acquisition or acquisitions, other than assets transferred to: (a) a shareholder of the Management Company (immediately before the asset transfer) in exchange for or with respect to its stock, (b) an entity, 50 percent or more of the total value or voting power of which is owned directly or indirectly, by the Management Company immediately after the transfer, (c) a Person, or more than one Person acting as a group, that owns, directly or indirectly, 50 percent or more of the total value or voting power of all the outstanding stock of the Management Company immediately after the transfer or (d) an entity, at least 50 percent of the total value or voting power of which is owned, directly or indirectly, by a Person, or more than one Person acting as a group, that owns, directly or indirectly, 50 percent or more of the total value or voting power of all the outstanding stock of the Management Company immediately after the transfer or (iii) a majority of the members of the Management Company's Board of Directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Management Company's Board of Directors prior to the date of the appointment or election. For purposes of this paragraph, Persons will not be considered to be acting as a group solely because they purchase or own stock of the same corporation at the same time, or as a result of the same public offering. However, Persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the Management Company. For purposes of determining whether a Management Company Change in Control has occurred, (i) stock underlying a vested option is considered owned by the individual who holds the option (so long as the underlying stock would not be subject to a substantial risk of forfeiture on exercise) and (ii) the rules of Section 318(a) of the Code apply to determine stock ownership. If a Management Company Change in Control occurs on account of a series of transactions, the Management Company Change in Control is considered to occur on the date of the last of such transactions. p. "Member" shall have the meaning set forth in the Operating Company Agreement. q. "Membership Units" shall have the meaning set forth in the Operating Company Agreement. r. "Operating Company" means HELIO LLC, a Delaware limited liability company, or any successor thereto. s. "Operating Company Agreement" means the Limited Liability Company Agreement of HELIO LLC by an among EarthLink, Inc., SK Telecom USA Holdings, Inc. and HELIO Inc. dated as of March 24, 2005, in its current form and as subsequently amended. t. "Operating Company Change in Control" means any of the following: (i) any one Person (other than an Excluded Person and its Affiliates), or more than one Person (other than an Excluded Person and its Affiliates) acting as a group, acquires ownership of Membership Units of the Operating Company that, together with Membership Units held by such Person or group, constitutes more than 50 percent of the total fair market value or total voting power of the Membership Units of the Operating Company, provided, that if any one person or more than one person acting as a group is considered to own more than 50 percent of the total fair market value or voting power of the Membership Units of the Operating Company, the acquisition of additional Membership Units by the same person or persons is not considered to cause a Operating Company Change in Control or (ii) any one Person (other than an Excluded Person and its Affiliates), or more than one Person (other than an Excluded Person and its Affiliates) acting as a group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such Person or Persons) assets from the Operating Company that have a total gross fair market value (determined without regard to any liabilities associated with such assets) of more than 50 percent of the total gross fair market value of all of the assets of the Operating Company (determined without regard to any liabilities associated with such assets) immediately prior to such acquisition or acquisitions, other than assets transferred to: (a) a Member of the Operating Company (immediately before the asset transfer) in exchange for or with respect to its Membership Units, (b) an entity, 50 percent or more of the total value or voting power of which is owned directly or indirectly, by the Operating Company immediately after the transfer, (c) a Person, or more than one Person acting as a group, that owns, directly or indirectly, 50 percent or more of the total value or voting power of all the outstanding Membership Units of the Operating Company immediately after the transfer or (d) an entity, at least 50 percent of the total value or voting power of which is owned, directly or indirectly, by a Person, or more than one Person acting as a group, that owns, directly or indirectly, 50 percent or more of the total value or voting power of all the outstanding Membership Units of the Operating Company immediately after the transfer. For purposes of this paragraph, Persons will not be considered to be acting as a group solely because they purchase or own stock of the same corporation, or membership interest in a partnership, at the same time, or as a result of the same public offering. However, Persons will be considered to be acting as a group if they are owners of a corporation, or members of a partnership, that enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the Operating Company. For purposes of determining whether a Operating Company Change in Control has occurred, (i) stock and Membership Units underlying a vested option is considered owned by the individual who holds the option (so long as the underlying stock or Membership Units would not be subject to a substantial risk of forfeiture on exercise) and (ii) the rules of Section 318(a) of the Code apply to determine Membership Units ownership. If an Operating Company Change in Control occurs on account of a series of transactions, the Operating Company Change in Control is considered to occur on the date of the last of such transactions. u. "Person" means any human being, firm, corporation, partnership, or other entity. "Person" also includes any human being, firm, corporation, partnership, or other entity as defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act. The term "Person" does not include the Management Company, the Operating Company or any of their Affiliates, and the term Person does not include any employee-benefit plan maintained by the Management Company, the Operating Company or any of their Affiliates, or any person or entity organized, appointed, or established by the Management Company, the Operating Company or any of their Affiliates for or pursuant to the terms of any such employee-benefit plan. v. "SAR Participant Account" has the meaning given in paragraph 8. w. "Separation from Service" means the termination of the Participant's service with the Company and its Affiliates. The Participant will not be considered to have had a Separation from Service if (i) the Participant does not have a complete termination of service and employment with the Company and its Affiliates or (ii) the Company or any Affiliate anticipates a renewal of the Participant's service as the Company's representative on the Board of Directors of the Management Company, or the relationship of the Participant becoming an employee or other independent contractor with the Company or any Affiliate. This definition is intended to comply with the definition of "separation from service" within the meaning of Section 409A of the Code and shall be interpreted accordingly. x. "Specified Employee" means a service provider who is (i) an officer of the Company or an Affiliate having annual compensation greater than $135,000 (with certain adjustments for inflation after 2005), (ii) a five-percent owner of the Company or (iii) a one-percent owner of the Company having annual compensation greater than $150,000. For purposes of this paragraph, no more than 50 employees (or, if lesser, the greater of three or 10 percent of the employees) shall be treated as officers. Service providers who (i) normally work less than 17 1/2 hours per week, (ii) normally work not more than 6 months during any year, (iii) have not attained age 21 or (iv) are included in a unit of employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and the Company or an Affiliate (except as otherwise provided in regulations issued under the Code) shall be excluded for purposes of determining the number of officers. For purposes of this paragraph, the term "five-percent owner" (or "one-percent owner") means any person who owns more than five percent (or one percent) of the outstanding stock of the Company or stock possessing more than five percent (or one percent) of the total combined voting power of all stock of the Company. For purposes of determining ownership, the attribution rules of Section 318 of the Code shall be applied by substituting "five percent" for "50 percent" in Section 318(a)(2) and the rules of Sections 414(b), 414(c) and 414(m) of the Code shall not apply. For purposes of this paragraph, the term "compensation" has the meaning given such term under Section 414(q)(4) of the Code. The determination of whether the Participant is a Specified Employee will be based on a December 31 identification date such that if the Participant satisfies the above definition of Specified Employee at any time during the 12-month period ending on December 31, he will be treated as a Specified Employee if he has a Separation from Service during the 12-month period beginning on the first day of the fourth month following the identification date. This definition is intended to comply with the "specified employee" rules of Section 409A(a)(2)(B)(i) of the Code and shall be interpreted accordingly. IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by a duly authorized officer, and the Participant has affixed his signature hereto. COMPANY: EARTHLINK, INC.   By: /s/ Charles G. Betty Title: Chief Executive Officer       PARTICIPANT:   /s/ Thomas E. Wheeler Thomas E. Wheeler

Exhibit 10.131(W) AMENDMENT NUMBER 1 TO SECOND AMENDED AND RESTATED SECURITY AGREEMENT (FIARC) THIS AMENDMENT NUMBER 1 TO SECOND AMENDED AND RESTATED SECURITY AGREEMENT, dated as of October 11, 2006 (this “Amendment”), is entered into by and among FIRST INVESTORS AUTO RECEIVABLES CORPORATION, a Delaware corporation (the “Debtor”), FIRST INVESTORS FINANCIAL SERVICES, INC., a Texas corporation (“FIFS” or “Seller”), FIRST INVESTORS SERVICING CORPORATION, a Delaware corporation (“FISC” or the “Servicer”), VARIABLE FUNDING CAPITAL COMPANY LLC (successor by assignment from Blue Ridge Asset Funding Corporation), a Delaware limited liability company, (“VFCC”), WACHOVIA CAPITAL MARKETS, LLC, a Delaware corporation (successor in interest to Wachovia Securities, Inc., formerly known as First Union Securities, Inc.) (“Wachovia”) and WELLS FARGO BANK, NATIONAL ASSOCIATION, successor by merger to Wells Fargo Bank Minnesota, National Association (“Wells Fargo”).  Capitalized terms used and not otherwise defined herein are used as defined in the Security Agreement (as defined below). WHEREAS, the parties hereto entered into that certain Second Amended and Restated Security Agreement, dated as of March 16, 2006 (as amended, supplemented or restated to the date hereof, the “Security Agreement”); WHEREAS, the parties hereto desire to amend the Security Agreement in certain respects as provided herein; NOW THEREFORE, in consideration of the premises and the other mutual covenants contained herein, the parties hereto agree as follows: SECTION 1.           AMENDMENTS.  EFFECTIVE AS OF THE EFFECTIVE DATE, THE SECURITY AGREEMENT IS HEREBY AMENDED AS FOLLOWS: (A)           THE DEFINITION OF “FACILITY LIMIT” IN SECTION 1.1 OF THE SECURITY AGREEMENT IS HEREBY AMENDED AND RESTATED IN ITS ENTIRETY TO READ AS FOLLOWS: “Facility Limit:  $300,000,000.” (B)           THE FOLLOWING DEFINITIONS ARE ADDED IN ALPHABETICAL ORDER TO SECTION 1.1 OF THE SECURITY AGREEMENT: (i)            “Shareholder’s Equity: On any date with respect to (a) FIFSG, an amount equal to the Total Assets less the Total Debt and (b) any Person 1 -------------------------------------------------------------------------------- other than FIFSG, such Person’s shareholder’s equity determined in accordance with GAAP, consistently applied.” (ii)           “Subordinated Debt:  On any date, the aggregate principal amount of any outstanding non-recourse, unsecured subordinated debt owing by FIFSG (including, but not limited to, any shareholder’s loans) that matures more than eighteen (18) months after such date.” (iii)          “Total Assets:  On any date, an amount equal to the sum of (i) the aggregate amount of assets of FIFSG on such date, determined in accordance with GAAP and (ii) to the extent not included in clause (i), the aggregate amount of Subordinated Debt of FIFSG on such date.” (iv)          “Total Debt:  On any date, an amount equal to the aggregate amount of liabilities of FIFSG on such date, determined in accordance with GAAP, but excluding the aggregate amount of Subordinated Debt of FIFSG on such date.” (c)           Section 6.1(z) is hereby amended and restated in its entirety as follows: “(z)          FIFSG’s Shareholder’s Equity as a percentage of its on-balance portfolio falls below 6.5% measured as of the end of each fiscal quarter of FIFSG, beginning with the first fiscal quarter ending after October 11,  2006; and”. SECTION 2.           EFFECTIVE DATE.  THIS AMENDMENT SHALL BECOME EFFECTIVE AS OF THE DATE (THE “EFFECTIVE DATE”) ON WHICH THE ADMINISTRATIVE AGENT SHALL HAVE RECEIVED COUNTERPARTS OF THIS AMENDMENT EXECUTED BY A DULY AUTHORIZED OFFICER OF EACH PARTY HERETO AND THE DEBTOR SHALL HAVE TAKEN SUCH OTHER ACTION, INCLUDING DELIVERY OF APPROVALS, CONSENTS, OPINIONS, DOCUMENTS, FEES AND INSTRUMENTS, AS THE COMPANY AND THE ADMINISTRATIVE AGENT MAY REASONABLY REQUEST. SECTION 3.           MISCELLANEOUS. (A)           REFERENCES IN THE SECURITY AGREEMENT.  UPON THE EFFECTIVENESS OF THIS AMENDMENT, EACH REFERENCE IN THE SECURITY AGREEMENT TO “THIS AGREEMENT”, “HEREUNDER”, “HEREOF”, “HEREIN”, OR WORDS OF LIKE IMPORT SHALL MEAN AND BE A REFERENCE TO THE SECURITY AGREEMENT AS AMENDED HEREBY, AND EACH REFERENCE TO THE SECURITY AGREEMENT IN ANY OTHER TRANSACTION DOCUMENT OR ANY OTHER DOCUMENT, INSTRUMENT OR AGREEMENT, EXECUTED AND/OR DELIVERED IN CONNECTION WITH ANY TRANSACTION DOCUMENT SHALL MEAN AND BE A REFERENCE TO THE SECURITY AGREEMENT AS AMENDED HEREBY. (B)           EFFECT ON THE SECURITY AGREEMENT.  EXCEPT AS SPECIFICALLY AMENDED HEREBY, THE SECURITY AGREEMENT SHALL REMAIN IN FULL FORCE AND EFFECT.  THIS AMENDMENT SHALL NOT CONSTITUTE A NOVATION OF THE SECURITY AGREEMENT, BUT SHALL CONSTITUTE AN AMENDMENT THEREOF. (C)           SUCCESSORS AND ASSIGNS.  THIS AMENDMENT SHALL BE BINDING UPON AND SHALL INURE TO THE BENEFIT OF THE PARTIES HERETO AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS. 2 -------------------------------------------------------------------------------- (D)           COUNTERPARTS.  THIS AMENDMENT MAY BE EXECUTED IN ANY NUMBER OF COUNTERPARTS, AND BY THE DIFFERENT PARTIES HERETO ON THE SAME OR SEPARATE COUNTERPARTS, EACH OF WHICH SHALL BE DEEMED TO BE AN ORIGINAL INSTRUMENT BUT ALL OF WHICH TOGETHER SHALL CONSTITUTE ONE AND THE SAME AGREEMENT.  DELIVERY OF AN EXECUTED COUNTERPART OF A SIGNATURE PAGE BY FACSIMILE SHALL BE EFFECTIVE AS DELIVERY OF A MANUALLY EXECUTED COUNTERPART OF THIS AMENDMENT. (E)           HEADINGS.  THE DESCRIPTIVE HEADINGS OF THE VARIOUS SECTIONS OF THIS AMENDMENT ARE INSERTED FOR CONVENIENCE OF REFERENCE ONLY AND SHALL NOT BE DEEMED TO AFFECT THE MEANING OR CONSTRUCTION OF ANY OF THE PROVISIONS HEREOF. (F)            AMENDMENTS.  THIS AMENDMENT MAY NOT BE AMENDED OR OTHERWISE MODIFIED EXCEPT AS PROVIDED IN THE SECURITY AGREEMENT. (G)           GOVERNING LAW.  THIS AMENDMENT (INCLUDING, BUT NOT LIMITED TO, THE VALIDITY AND ENFORCEABILITY HEREOF) SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,THE LAWS OF THE STATE OF NEW YORK, OTHER THAN THE CONFLICT OF LAW RULES THEREOF. [Remainder of page left intentionally blank] 3 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by their respective officers thereunto duty authorized, as of the date first above written.   FIRST INVESTORS AUTO RECEIVABLES     CORPORATION.                   By:           Name: Bennie H. Duck       Title: Vice President - Treasurer                       FIRST INVESTORS FINANCIAL SERVICES, INC.                   By:           Name: Bennie H. Duck       Title: Vice President - Treasurer                     FIRST INVESTORS SERVICING CORPORATION                   By:           Name: Bennie H. Duck       Title: Vice President - Treasurer   [Signatures continued on next page] [Signature page to Amendment Number 1 to the Second Amended and Restated Security Agreement for FIARC] --------------------------------------------------------------------------------   WACHOVIA CAPITAL MARKETS, LLC                   By:         Name:       Title:                       VARIABLE FUNDING CAPITAL COMPANY LLC           By Wachovia Capital Markets, LLC     as attorney-in-fact                   By:         Name: Douglas R. Wilson, Sr.       Title: Vice President                 WELLS FARGO BANK, NATIONAL ASSOCIATION                   By:         Name: Sue Dignan       Title: Assistant Vice President     [Signatures continued on next page] [Signature page to Amendment Number 1 to the Second Amended and Restated Security Agreement for FIARC] --------------------------------------------------------------------------------   Agreed to as of the 11th day of October, 2006 WACHOVIA BANK, NATIONAL ASSOCIATION, as liquidity agent and sole liquidity provider under the Liquidity Purchase Agreement     By:     Name: Title:   [End of signatures] [Signature page to Amendment Number 1 to the Second Amended and Restated Security Agreement for FIARC] --------------------------------------------------------------------------------

EXHIBIT 10(b)   CONSULTING AGREEMENT   THIS CONSULTING AGREEMENT (the “Agreement”) is made as of this 8th day of May 2006 by and between ILLINOIS TOOL WORKS INC., a Delaware corporation (“ITW”), and SLP LLC, an Illinois Limited Liability company (“SLP”).   In consideration of the mutual covenants and agreements hereinafter set forth and for other good and valuable consideration, the parties hereto agree as follows:   1.            Services. SLP hereby agrees to make available to ITW the services of its employee, W. James Farrell (the “Consultant”), to provide such management consulting services to ITW as may be reasonably required by ITW. The Consultant’s services shall be rendered at such times and places as may be mutually agreed to by ITW and SLP. Nothing in this Agreement shall be deemed to constitute the Consultant as an employee, officer, or agent of ITW. The business areas where consulting services are initially anticipated to be required by ITW are: acquisition related projects, growth strategy reviews, and advisory services including, but not limited to assistance with key customer and supplier relationships and civic and community relationships. These business areas are listed in the order of their currently anticipated priority.   2.            Term. Subject to the termination provision hereinafter contained, the term of this Agreement shall be for a period of two (2) years from the date hereof. Upon expiration of the initial term, the parties shall have the option to extend the Agreement on a month-to-month basis.   3.            Compensation. SLP shall be compensated by ITW hereunder by payment of consulting fees at the rate of Two Hundred Fifty Thousand Dollars ($250,000) per annum to be payable to SLP in equal monthly installments of Twenty Thousand Eight Hundred Thirty Three Dollars and Thirty-Four Cents ($20,833.34). SLP shall be reimbursed in accordance with prevailing practices of ITW for reasonable out-or-pocket business, travel and entertainment expenses incurred by SLP or the Consultant in connection with the performance of the consulting services hereunder up to a maximum of Fifty Thousand Dollars ($50,000) annually; provided, however, that SLP shall be solely responsible for compensation of its employee. In addition, ITW shall reimburse SLP for the reasonable rental of office space for Consultant up to a maximum of Thirty Thousand Dollars ($30,000) annually for base rent and shall provide Consultant with office equipment such as computers, fax machine, etc., with aggregate value not to exceed Fifteen Thousand Dollars ($15,000) and an ITW employee to serve as Consultant’s administrative assistant at ITW’s expense.   4.            Termination. ITW and SLP may terminate this Agreement at any time by mutual agreement. In addition, ITW may terminate this Agreement (i) on any anniversary date hereof by providing SLP written notice of its intention to terminate this Agreement not less than thirty (30) days before such anniversary date, or (ii) in the event that (a) the Consultant willfully refuses in a material respect to perform services hereunder, or (b) SLP materially breaches Section 5 or Section 6 hereof. Either party may terminate this Agreement in the event that the Consultant shall die or cease for any reason to be an executive officer of SLP. In lieu of termination by ITW on the occurrence of the death or resignation of the Consultant as an employee of SLP, SLP shall be permitted to provide a substitute consultant, but only if such substitute is acceptable to ITW in its sole discretion. In the event this Agreement terminates otherwise than by expiration, consulting fees for the year in which termination occurs shall be pro-rated as of the effective date of such termination.   5.          Disclosure of Information. SLP agrees that (except as may be required by its duties to ITW) it shall not, at any time or times during the term of this Agreement and for five (5) years thereafter, directly or indirectly, (a) use for the benefit of anyone or any entity or (b) disclose to any third party or to the public, any confidential or proprietary information or trade secrets of ITW' which shall include, but not be limited to, any technical or non-technical data, formulae, patterns, compilations, programs, devices, methods, techniques, drawings, designs, processes, procedures, improvements, models or manuals of ITW or which are licensed by ITW or written lists of actual or potential customers or suppliers of ITW, and any information regarding ITW's marketing, sales or dealer network, which is not generally available to the public other than as a result of a breach of this Agreement by SLP. ITW and SLP acknowledge and agree that such Confidential Information is extremely valuable to ITW and shall be deemed to be a "trade secret". In the event that any part of the Confidential Information becomes available to the public (other than by the breach of this Agreement by SLP), that part of the Confidential Information shall no longer be deemed Confidential Information for purposes of this Agreement.   6.            Noncompetition. In addition to any covenant not to compete contained in any other agreement between Consultant and ITW, SLP agrees that, during the term of this Agreement and for a period of two (2) years following the expiration or termination of this Agreement, SLP shall cause the Consultant not to, without the prior written consent of ITW, engage, directly or indirectly, in any business competitive with the businesses in which ITW or any affiliate, division or subsidiary of ITW is presently engaged and for which SLP or the Consultant performed services either as an employee or a Consultant under the provisions of this Agreement at any time during the immediately preceding three (3) year period. Without limiting the generality of this covenant not to compete, engaging in such business shall include owning, managing, operating, joining, controlling, loaning money to, arranging credit for, leasing or contributing property to, providing services to (or participating directly or indirectly in any of the foregoing) such businesses, but shall not include acquiring or owning not more than one (1 %) percent of the outstanding voting securities (or securities convertible into voting securities) of any company whose securities are listed and actively traded on any national or regional securities exchange, or the over-the-counter market, in the United States of America. This covenant not to compete shall include the United States of America and any country outside the United States where ITW or any affiliate, division or subsidiary thereof shall have, in the year preceding the date of such termination, done or committed itself to do business. SLP acknowledges that the restrictions contained in this Section 6 are reasonable and necessary to protect the legitimate interests of ITW and recognize that in the event of the material breach of this covenant not to compete, ITW will incur substantial and irreparable damage, and, therefore, ITW shall, in addition to any other relief allowed in law or in equity, be entitled to seek preliminary and permanent injunctive relief from any court of competent jurisdiction.   7.           Assignment of Patents. SLP hereby assigns to ITW its entire right, title and interest in any invention or idea, patentable or not, hereafter made or conceived solely or jointly by SLP or Consultant:     (a) During the term of this Agreement and any subsequent retention of SLP or Consultant by ITW and for six (6) months thereafter; and   (b) Which relates in any manner to the actual or anticipated business of ITW, its subsidiaries or affiliates, or relates to its actual or anticipated research and development, or is suggested by or results from any task assigned to SLP or Consultant or work performed by SLP or Consultant for or on behalf of ITW.   Consultant shall promptly disclose to ITW any invention or idea contemplated by this paragraph, and upon request, will execute a specific assignment of title to ITW, and do anything else reasonably necessary to enable ITW, at SLP's expense, to secure a patent therefore in the United States and in foreign countries.   8.           Expenses Relating to Patents. ITW shall pay the patent preparation and prosecution expenses for those inventions of SLP it wishes to protect with patents. In the event that a question should arise as to whether or not an application should be filed on an invention, ITW shall be the sole judge as to whether or not a patent application should be filed or a public disclosure made.   9.           Indemnification. SLP hereby releases ITW and its agents, subsidiaries, divisions, guests and employees of and from any and all liability of any kind or nature which may result from or arise out of any accident or occurrence during or in connection with Consultant's presence on the property of ITW or any of its subsidiaries, divisions or affiliates or the performance of SLP's services under this Agreement.   SLP further agrees to indemnify and save harmless ITW and its agents, servants and employees against any and all loss, damage or expense which ITW may sustain, incur or become liable for on account of injury to or death of person, or on account of damage to or destruction of property resulting from the execution of work performed by SLP or Consultant or by any agent or subcontractor of either of them, or due to or arising in any manner from the wrongful act or negligence of SLP or Consultant or any agent or subcontractor and their respective employees. Said loss, damage or expense shall include claims arising under Worker's Compensation Acts, Workmen's Occupational Diseases Act, Structural Work Act, and from any other claims for damages for personal injury, including death which may arise from operations or work performance on the premises of ITW, whether such operations or work be by SLP or Consultant or by any agent, subcontractor or anyone employed directly or indirectly by SLP or Consultant.   During the term of this Agreement, ITW agrees to indemnify and hold harmless SLP and Consultant, from and against, and to reimburse SLP or Consultant, with respect to any and all loss, damage, liability, cost and expense, including reasonable attorneys' fees (collectively "Liabilities"), incurred by SLP or Consultant, by reason of or arising out of or in connection with any allegations of any personal liability by any unrelated third party, by reason of or arising out of or in connection with the performance of the consulting services rendered hereunder on the same basis that ITW indemnifies its senior executives in connection with their services to ITW. Notwithstanding the foregoing, ITW shall have no responsibility or obligation to indemnify and hold harmless SLP or Consultant for any such Liabilities arising out of SLP or Consultant's gross negligence, willful misconduct or the commission of any act in breach of the terms of this Agreement or in violation of any criminal or civil law, statute, regulation or similar provision.   10.         Entire Agreement. The terms and provisions of this Agreement constitute the entire agreement between the parties and supersede any previous oral or written communications, representations or agreements with respect to the subject matter hereof.   11.         Notice. Any notice or other communication with respect to this Agreement shall be in writing and shall be given by personal delivery or by certified or registered mail, return receipt requested, addressed to:       if to ITW: 3600 West Lake Avenue Glenview, Illinois 60026   Illinois Tool Works Inc.   Attention: Chairman         if to SLP: SLP LLC 207 East Westminster, Suite 202 Lake Forrest, Illinois 60045 Attention: W. James Farrell   or to such other address as either party may have previously designated by notice to the other party given in the foregoing manner.   12.          Severability. The invalidity or unenforceability of any particular provision of this Agreement shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if the invalid or unenforceable provision had been omitted.   13.          Assiqnment. ITW may not assign this Agreement except to a successor to all or substantially all of ITW's business by purchase, merger, consolidation, or otherwise. SLP may not assign this Agreement except to a successor employer of the Consultant.     14.          Waiver. No waiver by either party at any time of any breach by the other party of, or compliance with, any condition or provision of this Agreement to be performed by the other party shall be deemed a waiver of any other provisions or conditions at the same time or at any prior to subsequent time.   15. Applicable Law. This Agreement shall be governed by and in accordance with the laws of the State of Illinois.   16. Amendment. This Agreement may be amended only in a writing signed by both parties.     IN WITNESS WHEREOF, the parties have executed this Consulting Agreement effective as of the date and year first above written.   ILLINOIS TOOL WORKS INC. SLP LLC     By: /s/ David B. Speer By: /s/ W. James Farrell      

Exhibit 10.17 LOGO [g33500image002.jpg] PURCHASE AGREEMENT   1. TERMS:   Purchaser:    SINGH PROPERTIES CO., L.L.C.    5001 Weston Parkway—Suite 106 Cary, NC 27513 Phone: (919) 677-1700                     Fax: (919) 678-8300 E-Mail Address: [email protected] Sellers:    CAROLINA INVESTMENT PARTNERS, a North Carolina general partnership 4000 Blue Ridge Road Raleigh, NC 27607 Attn: Alton Smith Phone:         (919) 227-5539 Fax:             (919) 783-9934 E-Mail Address: [email protected] Property Address: 17.76 acres at the Northwest Corner of US-1 & Cary Parkway REID #s: 0164173; 0328692; 0150575 (part that is west of Cary Parkway) X Legal Description on Exhibit “A” hereto (the “Property”)   Purchase Price:    $5.50 per GROSS square foot (which shall include all buffers, conservation areas, setbacks and other non-buildable areas), as such exact square footage is determined by the Survey in accordance with Section 12 hereof. Deposit:    Fifty Thousand ($50,000.00) Dollars Effective Date:    June 27, 2006 Seller agrees to sell and Purchaser agrees to purchase the Property, together with all improvements, appurtenances, fixtures, easements, mineral rights, air rights, and riparian rights pertaining to the land, the reversionary interest in any land lying in the bed --------------------------------------------------------------------------------    of any adjacent rights of way, and all other rights, privileges or covenants appurtenant to or inuring to the benefit of the land (the “Property”), all for the Purchase Price stated in Paragraph 1, above, upon the terms and conditions contained herein.   2. DEPOSIT: Within three (3) business days of receipt by Purchaser of Seller’s acceptance of this Purchase Agreement, Purchaser shall remit the Initial Deposit described in Paragraph 1, above, as an earnest money deposit, which shall be applied to the Purchase Price at the Closing (as such term is defined in Section 6 hereof). The deposit shall be nonrefundable to Purchaser except as expressly set forth herein, and shall be remitted directly to Seller.   3. CASH SALE: The sale is to be consummated by payment of the Purchase Price shown in Paragraph 1, by wire transfer, certified check, or disbursement through the title insurer at the Closing on the Closing Date.   4. INTENTIONALLY LEFT BLANK   5. REVIEW PERIOD:     (A) Purchaser shall have ninety (90) days from the Effective Date (the “Review Period”) to study the Property at its own expense to determine whether the Property can be utilized as a Continuing Care Retirement Community. In the event that Purchaser determines that the Property is unsuitable for its intended development then Purchaser may terminate this Purchase Agreement by written notice to Seller at ay time during the Review Period, in which event Seller shall retain the Deposit (except as set forth in Paragraph 5(B) below) and neither party shall have any further obligation to the other.     (B) Within sixty (60) days of the Effective Date Purchaser shall at its own expense obtain a Phase I Environmental Report and a Geotechnical (soils condition) Report. If the Environmental Report discloses the presence of hazardous wastes or contaminates on the Property, or if the Geotechnical Report discloses that the soils are not suitable for conventional footings and foundations for Purchaser’s intended building, Purchaser may terminate this Purchase Agreement by written notice to Seller within five (5) business days of receipt of such reports, and Seller shall refund the Deposit to Purchaser.     (C) If Purchaser does not send a termination notice under Paragraphs 5(A) or (B), above, Purchaser shall be deemed to be satisfied with its studies and reports, and its right to terminate this Agreement due to the information contained in such studies and reports, and otherwise with respect to the condition of the Property, shall be forever waived.   6. TIME OF CLOSING: The closing (“Closing”) of the purchase and sale shall be held at or in escrow through the offices of the title insurer within ten (10) days after the expiration of the Review Period (the date of Closing being referred to herein as the “Closing Date”).   7. POSSESSION: The Seller shall deliver and the Purchaser shall accept possession of said property on the Closing Date subject to rights of the following tenants: NONE -------------------------------------------------------------------------------- 8. EVIDENCE OF TITLE: As evidence of title, Seller agrees to furnish Purchaser as soon as possible a photocopy of Seller’s most recent title insurance policy insuring title to the Property. Purchaser shall obtain its own title insurance commitment and policy at Purchaser’s own expense. Title shall be unencumbered fee simple marketable title conveyed by General Warranty Deed, subject only to the Permitted Exceptions.   9. TITLE OBJECTIONS: If Purchaser or its attorney objects to the title shown by the title insurance commitment (an “Objection”), on or before sixty (60) days following the Effective Date, the Seller shall the right, within thirty (30) days from the date of Purchaser’s written objection, to: (1) fulfill the requirements in said title insurance commitment and remedy the Objection, (2) to obtain an appropriate endorsement over the Objection (if Purchaser agrees to accept such endorsement), or (iii) to terminate this Agreement and refund the Deposit if Seller determines that it is unable or unwilling to remedy the Objection. In the event that Seller elects to terminate this Agreement, then the Deposit shall be returned to Purchaser and neither party shall have any continuing obligation to the other except with respect to those obligations herein that expressly survive Closing, unless Purchaser elects within five (5) days of Seller’s notice to waive the Objections and take the Property subject thereto. If the Closing Date set forth in Paragraph 6 is to occur during said title cure period, then the Closing Date shall be automatically postponed until a date which is within ten (10) days of Purchaser’s receipt of notice from Seller that the Objection has been cured or insured over (or Seller’s election not to cure any Objection, and Purchaser’s subsequent waiver thereof), as set forth herein. In the even that Purchaser fails to make any Objection within thirty days following the date hereof, it shall be deemed to elect to consent to all title and survey matters. Any matters not objected to by Purchaser, or waived by Purchaser, shall be deemed “Permitted Exceptions”.   10. PURCHASER’S DEFAULT: In the event of default by the Purchaser, the Seller shall declare forfeiture and retain the Deposit as liquidated damages as its sole remedy, except for any physical damage to the property caused by Purchaser during Purchaser’s investigations.   11. SELLER’S DEFAULT: In the event of default by the Seller hereunder, the Purchaser’s sole remedy shall be to enforce the terms hereof by seeking specific performance of Seller’s obligations to convey the Property to Purchaser.   12. SURVEY: Within sixty (60) days of the Effective Date Purchaser shall, at its sole cost and expense, obtain a survey (the “Survey”) of the Property to be prepared by a surveyor registered and licensed in the State of North Carolina and designated by Purchaser. The Survey shall certify the actual boundaries, gross acreage and gross square footage of the Property, computed to the nearest whole square foot (without deduction for any areas due to their status as conservation areas, buffers or other such non-buildable portions), and shall be certified to Purchaser, Seller and Purchaser’s title insurance company. On or before the expiration of the Review Period, Purchaser shall deliver the Survey to Seller, together with written notice of Purchaser’s objections to any encumbrances (other than Permitted Exceptions) revealed thereby. If Seller disputes the square footage shown on the Survey, Seller shall have the right to have the Property resurveyed by its surveyor, at Seller’s expense, within thirty (30) days of receipt of the Survey, and if the respective surveyors cannot agree on the square footage contained in the Property, then the respective surveyors shall select a third surveyor who shall survey --------------------------------------------------------------------------------    the Property at the joint expense of Purchaser and Seller and such third survey shall be accepted by all parties hereto. The survey shall be used as the basis for the preparation of the legal description to be included in the general warranty deed to be delivered by Seller to Purchaser at Closing, and the total square footage of the Property, as shown on the Survey, shall be used to determine the Purchase Price.   13. SPECIAL ASSESSMENTS: If, on the Closing Date, any special assessments, levies, liens, payback agreements or charges, are currently owing, the Seller shall pay the same. If said charge is payable in installments, then for the purposes of this Purchase Agreement, all the unpaid installments of any such charge shall be deemed to be due and payable and they shall be paid and discharged by the Seller at the Closing. Notwithstanding anything to the contrary herein, the parties acknowledge that there is currently a transportation fee due to the Town of Cary in the amount of approximately $160,000 (the “Transportation Fee”). Purchaser shall be responsible for all Transportation Fees payable to the Town of Cary and/or Wake County with respect to the Property, which total approximately $80,000, to be paid at the time it secures its permits (approximately $90,000 in additional Transportation Fees are payable by Dilweg Group, the owner of adjacent property).   14. POSSESSION AND ACCESS TO THE PROPERTY: Seller agrees that Purchaser and any of its duly authorized representatives shall have access to the Property at all reasonable times to make such tests, surveys, studies, and investigations as Purchaser desires; provided, however, that in the event the Purchase is not consummated, Purchaser shall substantially restore and return the Property to its condition which existed prior to such activity by Purchaser. Purchaser shall indemnify and hold Seller harmless from and against any loss or damage arising out of any such inspection related activity conducted by Purchaser and/or its agents. This indemnity shall survive the expiration or termination of this Purchase Agreement.   15. SELLER’S COOPERATION: Seller hereby acknowledges that Purchaser intends to develop the property, and agrees upon the request of Purchaser to reasonably assist Purchaser in such efforts by executing, alone or together with Purchaser, all such site plans and such other similar instruments which may be required or appropriate for Purchaser’s intended development of the property. Purchaser shall bear all costs and expenses in connection with the preparation and filing of any such documents.   16. EXISTING DOCUMENTS: Within ten (10) days of the date hereof, Seller shall make available to Purchaser all existing maps, surveys, title insurance policies, soil reports, environmental reports, market studies, licenses, permits, easements, building and use restrictions, hydrological studies, engineering studies, percolation tests or data, septic permits, traffic studies, grading or erosion permits, plats or other similar materials relating to the Property (if any) which are currently in Seller’s possession. In the event this Agreement is terminated prior to Closing, all of said materials shall be returned to Seller. Seller makes no warranty to Purchaser as to the accuracy of any documents delivered to Purchaser in accordance with this Section 16.   17. SELLER’S REPRESENTATIONS AND WARRANTIES: Seller hereby represents, covenants and warrants to Purchaser as follows:     (A) Seller holds fee simple marketable title to the Property, and has a good and lawful right to sell the same to Purchaser. --------------------------------------------------------------------------------   (B) To the knowledge of Seller, proceeds from the sale of the Property are sufficient to pay off any and all sums which may be necessary to discharge all liens, debts, mortgages or other encumbrances on Seller’s title to the Property and that Seller can and will deliver marketable title in accordance with this agreement at Closing.     (C) To the knowledge of Seller, there are no condemnation or eminent domain proceedings either pending or threatened against the whole or any part of the Property.     (D) Seller has no knowledge of any unrecorded easements, building and use restrictions, which may affect the Property.     (E) To the knowledge of Seller, there are no construction liens, or unpaid contractor’s or materialman’s accounts, which are or may become a construction lien upon the Property.     (F) The Property is currently zoned O&I.     (G) The Property is assessed as a separate parcel, and is not a part of a larger parcel for property tax purposes. There are no pending or threatened tax sales affecting the whole or any part of the Property, nor are there any deferred taxes affecting the Property.     (H) To the knowledge of Seller, the Property has legal access to and from an adjacent public street, road or highway.     (I) Seller has not received any notice of any violation of any federal, state or local laws, rules, regulations or ordinances pertaining to the Property.     (J) To the knowledge of Seller, there are no claims, causes of action or other litigation or proceedings pending or threatened against the Property or affecting Seller’s interest in the Property.     (K) Seller has no knowledge of any underground storage tanks, land fill, hazardous or toxic substances, hazardous or toxic waste, pollutants or contaminants including, without limitation, asbestos, P.C.B.’s, urea formaldehydes and radioactive materials which have been or are presently being generated, stored or deposited at the Property or into any water systems on or below the surface of the Property, or are located in any structures on the Property.     (L) Seller is not a “foreign person” within the meaning of Internal Revenue Code Section 1445, and Seller qualifies for an exception to the withholding requirements set forth therein. The representations, warranties, and covenants of the Seller contained herein shall be true and correct as of the Closing Date and shall survive the Closing and the Closing Date. Whenever the phrase “to the knowledge of Seller” appears herein, such phrase shall refer to the actual knowledge of Alton Smith, without any obligation for inquiry or investigation. -------------------------------------------------------------------------------- 18. MORATORIUM: In the event that a moratorium is declared with respect to use and zoning ordinances, building permit(s), sewer, water or any other necessary utilities for the development of the Property, then the term of this Purchase Agreement and the time for Purchaser’s performance of its duties hereunder shall be extended for a period equal to a maximum of one hundred twenty (120) days, after which time either of the parties hereto shall have the right to terminate this Agreement, the Deposit shall be retained by Seller, and neither party shall have any rights or obligations hereunder expect as expressly provided herein.   19. ENCUMBRANCES: Seller agrees that during the term of this Purchase Agreement, it will not sell, offer to sell, convey, mortgage, pledge, hypothecate, rezone, option, plat, grant easements, dedications or otherwise materially encumber the Property or permit to be done any act or deed to materially and adversely diminish, change or encumber the title to the Property or the Purchaser’s intended use thereof, except with the prior written consent of Purchaser.   20. DISCLOSURE OF REAL ESTATE LICENSES: Purchaser hereby discloses to Seller that Purchaser and some of its related entities, and some of its and their various officers, stockholders, partners, employees and other parties related to Purchaser or its related entities, are licensed by the State of North Carolina and/or the State of Michigan as Real Estate Brokers, Associate Brokers and/or Real Estate Sales Persons. This disclosure is made in accordance with the statutes of the State of Michigan or the State of North Carolina and the rules promulgated by the various regulatory agencies of the State of Michigan or the State of North Carolina as applicable.   21. PRORATION OF TAXES: All real estate taxes (including any deferred taxes, interest, penalties, redemption surcharges or other fees or costs pertaining to late payment) which have become due and payable with respect to the Property prior to the Closing Date shall be paid in full by Seller on or prior to the Closing Date. All real estate taxes for the year in which the Closing Date occurs shall be prorated as of the Closing Date on a calendar year basis. The taxes so prorated shall be deducted from or added to the Purchase Price, as the case may be.   22. SIGNS: Purchaser shall, during the term of this Agreement, have the right to erect and maintain a sign or signs on the Property announcing Purchaser’s intended development of the Property, and indicating the mortgage lender for the development.   23. EMINENT DOMAIN: In the event that prior to the Closing Date a material portion of the Property shall be condemned or taken by eminent domain, then and in such event Seller shall immediately notify Purchaser in writing of the same and Purchaser shall have the option to either: (i) terminate this Agreement, and the Deposit shall be retained by Seller, or (ii) to consummate the transactions described herein, in which event Purchaser shall be entitled to the receipt of the entire awards for said Property or the portion thereof so taken and Seller hereby agrees to execute and deliver to Purchaser on the Closing Date all proper instruments for the assignment and collection of such awards by Purchaser.   24. NON-RECOURSE: Purchaser shall have no personal liability whatsoever for any default by Purchaser under this Agreement or claim for any unpaid balance of the purchase price or any other amount which may be claimed due under this Purchase Agreement, except as otherwise set forth herein, and the parties agree that the sole and exclusive remedy of Seller shall be to retain the Deposit and terminate the rights of the Purchaser under this Agreement, except with regard to the indemnities herein that expressly survive the termination of this Agreement. -------------------------------------------------------------------------------- 25. ASSIGNMENT: Purchaser shall have the right to assign all or any part of its right, title and interest in and to this Purchase Agreement at any time and from time to time to any trust(s), firm(s), partnership(s), person(s), or any other entity(ies) or corporation(s) controlled by any of the controlling principals of Purchaser or their families and this Purchase Agreement shall be binding upon and inure to the benefits of said assignee, their respective heirs, representatives, successors and assigns. Purchaser may sell or assign to unrelated persons or entities with Seller’s approval, which shall not be unreasonably withheld.   26. GOVERNING LAW; SURVIVAL OF AGREEMENTS: This Purchase Agreement shall be governed by, construed and enforced in accordance with the laws of the State of North Carolina. The terms and conditions of this Agreement shall survive the Closing and shall survive the conveyance of the land to Purchaser for a period of six (6) months following the Closing Date.   27. NOTICES: Any notice, delivery or tender required or permitted to be given or served upon any party hereto in connection with this Purchase Agreement shall be deemed to be completed and legally sufficient when (i) personally delivered, (ii) on the next business day after it is deposited with an expedited mail service company for delivery on the next business day, (iii) sent by facsimile transmission with a confirmation of transmission, or (iv) on the next business day after the date when deposited in the United States Mails, first class and postage prepaid, addressed to the party for whom the same is intended. Any party hereto may, at any time by written notice to the other party hereto, designate any other address in substitution of the foregoing address to which such notice shall be given and the parties to whom copies of all notices hereunder shall be sent. If any notice or tender is required or permitted to be given on a Saturday, Sunday or legal holiday, then the time for giving such notice or tender is hereby extended to the next regular business day.   28. BROKERS: The parties hereto represent and warrant each to the other, which representation and warranty shall survive the Closing, that there are no claims or amounts due for any brokerage or salesman commissions or fees or for any finders or referral fees in connection with the transactions set forth in this Agreement other than the brokerage commission due and payable to the broker listed below, as to which Seller hereby acknowledges its exclusive liability and agrees to pay, and each party further agrees to indemnify and hold and save the other party harmless from any other claims or demands for commissions and/or fees incurred by such party in connection with the transactions set forth in this Agreement. BROKER: Cary Joshi Address: 1001 Wade Ave.—Suite 100, Raleigh, NC 27605 Phone: (919) 789-5203                E-Mail: [email protected]   29. BINDING EFFECT: The covenants herein shall bind and inure to the benefit of the parties hereto, and their respective heirs, executors, administrators, successors and assigns. -------------------------------------------------------------------------------- 30. SECTION 1031 EXCHANGE: Purchaser and Seller shall cooperate with each other in allowing either or both to effectuate a like kind exchange under IRC Section 1031 provided that the exchange shall cause no delay, and the cooperating party shall bear no cost in so doing, shall not be required to take title to any property other than the Property and shall have no responsibility for the efficacy of the other party’s exchange.   31. TIME PERIOD OF OFFER: This offer shall expire if not accepted by the Seller within seven (7) business days from the date Purchaser executes this Agreement, and any deposit shall be returned forthwith to the Purchaser. If the offer is accepted by the Seller, the Purchaser agrees to complete the purchase of said Property within the time set forth in Paragraph 5 hereof.   32. TIME OF ESSENCE. TIME IS OF THE ESSENCE OF THIS AGREEMENT. [Signatures Appear on Following Page] -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties have executed this agreement as of the latter date set forth below and each declares that the signatory of each party is fully qualified and authorized to execute this agreement.     PURCHASER:   SINGH PROPERTIES CO., L.L.C.   A Michigan limited liability company Date: June 22, 2006       By:   /s/ Gurmale S. Grewal     Gurmale S. Grewal   Its:   President   SELLER:   CAROLINA INVESTMENT PARTNERS,   a North Carolina general partnership   By:   WALSMITH ASSOCIATES TWO, a North Carolina general partnership   Its:   General Partner     By:   /s/ Alton Smith       Alton Smith, General Partner Date: June 27, 2006 -------------------------------------------------------------------------------- EXHIBIT “A” [Insert Metes & Bounds Legal Description]

Exhibit 10.2 PERFORMANCE-BASED RESTRICTED STOCK RIGHTS AND RELATED CASH AWARD ISSUED UNDER RYDER SYSTEM, INC. 2005 EQUITY COMPENSATION PLAN TERMS AND CONDITIONS The following terms and conditions apply to the performance-based restricted stock rights (the “RSRs “) and related cash awards (the “Related Cash Award”) granted by Ryder System, Inc. (the “Company”) under the Ryder System, Inc. 2005 Equity Compensation Plan (the “Plan”), as specified in the Performance-Based Restricted Stock Rights Award Notification Letter (the “Notification Letter”), to which these terms and conditions are appended. Certain terms of the RSRs and the Related Cash Award including the number of shares of Ryder common stock underlying the RSRs, are set forth in the Notification Letter. The Compensation Committee of the Company’s Board of Directors (the “Committee”) shall administer the RSRs and Related Cash Awards in accordance with the Plan. Capitalized terms used herein and not defined shall have the meaning ascribed to such terms in the Plan or in the Notification Letter.   1.   General. Each RSR represents the right to receive one Share (and the Related Cash Award represents the right to receive a fixed dollar amount) on a future date based upon the attainment of certain financial performance goals, on the terms and conditions set forth herein, in the Notification Letter and in the Plan, the applicable terms, conditions and other provisions of which are incorporated by reference herein (collectively, the “Award Documents”). A copy of the Plan and the documents that constitute the “Prospectus” for the Plan under the Securities Act of 1933, have been delivered to the Participant prior to or along with delivery of the Notification Letter. In the event there is an express conflict between the provisions of the Plan and those set forth in any other Award Document, the terms and conditions of the Plan shall govern. It is intended that the RSRs and Related Cash Awards qualify as “performance-based compensation” for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended, including any successor provisions and regulations. The terms and conditions contained herein may be amended by the Committee as permitted by the Plan; none of the terms and conditions of the RSRs or Related Cash Awards may be amended or waived without the prior approval of the Committee. Any amendment or waiver not approved by the Committee will be void and have no force or effect. Any employee or officer of the Company who authorizes any such amendment or waiver without the prior approval of the Committee will be subject to disciplinary action up to and including forfeiture of the RSRs and Related Cash Awards and/or termination of employment (unless otherwise prohibited by law). All decisions and determination made by the Committee relating to the RSRs and Related Cash Awards shall be final and binding on the Participant, his or her beneficiaries and any other person having or claiming an interest under the Plan.   2.   Financial Performance Goals; Performance Period. The RSRs and Related Cash Awards will vest only if, for the three-year period ending December 31, 2008 (the “Performance Period”), the Company’s Total Shareholder Return meets or exceeds the Total Shareholder Return for the S&P Composite Index for the Performance Period as published by Standard & Poor’s as the “S&P 500 TR”, or, if no such publication is available, based on a comparable publication selected by the Committee (the “Performance Goal”). As used herein, the term “Total Shareholder Return” shall mean the percentage change in the stock price or index, as applicable, assuming reinvestment of dividends on the ex-dividend date.   3.   Delivery of Shares and Payment of Cash. Subject to Section 3 and 4 below, if the Performance Goal is attained, as determined by the Committee, and the Committee otherwise approves the issuance of the RSRs and the payment of the Related Cash Award, the RSRs will vest and the Participant will be entitled to receive the Related Cash Award, provided the Participant is, on the last day of the Performance Period, and has been from the date of grant of the RSRS and Related Cash Award, continuously employed by the Company or one of its Subsidiaries. For purposes of these terms and conditions, the Participant shall not be deemed to have terminated his or her employment with the Company and its Subsidiaries if he or she is immediately thereafter employed by the Company or another Subsidiary. For the avoidance of doubt, in no event shall a Participant be entitled to receive any cash payment under the Related Cash Award unless the RSRs have vested. Upon vesting, (i) a share certificate evidencing the Shares subject to the vested RSRs will be issued in the name of the Participant and delivered to the Participant at the Participant’s address on file with the Company on the vesting date, provided that the Participant may request to receive delivery of the shares either by transfer of the Shares to a broker or by depositing the Shares in an account with the Company’s transfer agent, by delivering to the Company a written election form satisfactory to the Company specifying such alternate delivery instructions and (ii) the Participant will receive the cash payment by the March 15th immediately following the end of the Performance Period, unless administratively impracticable to do so.   4.   Termination of RSRs; Forfeiture. The RSRs and Related Cash Award will terminate upon or following the termination of the Participant’s employment with the Company and its Subsidiaries as described below.   (a)   Resignation by the Participant or Termination by the Company or a Subsidiary: All outstanding RSRs will be forfeited, the Related Cash Award will be cancelled and the Participant will not have any right to delivery of Shares or cash in respect of RSRs or the Related Cash Award that did not vest prior to such termination. If the Participant’s employment is terminated by the Company or a Subsidiary for Cause, then the Company shall have the right to reclaim and receive from the Participant any Shares or cash delivered to the Participant upon the vesting of any RSRs or Related Cash Awards within the one year period before the date of the Participant’s termination of employment, or to the extent the Participant has transferred such Shares, the equivalent value thereof in cash.   (b)   Death, Disability or Retirement: If the death, Disability or Retirement occurs after the end of the Performance Period, the Participant (or his or her Beneficiary, in the event of death) shall receive the number of shares of common stock and cash amounts due to him or her under the Award on the Payment Date. If the death, Disability or Retirement occurs during the Performance Period and the Participant would have received a payment under the Award but for his or her death, Disability or Retirement, the Participant (or his or her Beneficiary, in the event of death) will receive a pro-rata number of shares of common stock and a pro-rata cash payment on the Payment Date based on the number of days worked during the Performance Period. On the date of death, Disability or Retirement, the Company shall calculate the pro-rata number of shares of common stock that the Participant would be entitled to receive on the Payment Date if the Performance Goals are achieved and shall cancel the balance of the RSRs to which the Participant will no longer be entitled.   (c)   Proscribed Activity: If, during the Proscribed Period but prior to a Change of Control, the Participant engages in a Proscribed Activity, then the Company shall have the right to reclaim and receive from the Participant all Shares and cash delivered to the Participant upon the vesting of any RSRSs or Related Cash Awards during the one year period immediately prior to, or at any time following, the date of the Participant’s termination of employment, or to the extent the Participant has transferred such Shares, the equivalent value thereof in cash.   5.   Change of Control. Notwithstanding anything contained herein to the contrary, unless otherwise determined by the Committee prior to a Change of Control, all outstanding RSRs and Related Cash Awards will become fully vested immediately prior to any such Change of Control, and all Shares subject to such RSRs and cash payable under the Related Cash Awards will be delivered to the Participant at that time in accordance with Section 2 above. To the extent (i) Participant’s employment was terminated by the Company other than for Cause or Disability during the 12 month period prior to the Change of Control, (ii) during such 12 month period the Participant did not engage in a Proscribed Activity, and (iii) the Committee determines, in its sole and absolute discretion, that the decision related to such termination was made in contemplation of the Change of Control, then the Participant shall be treated as if he or she had remained employed with the Company until the date of the Change of Control.   6.   Rights as a Shareholder; Dividend Equivalents. The Participant will not have the rights of a shareholder of the Company with respect to Shares subject to the RSRs until such Shares are actually delivered to the Participant. However, the Company will pay cash dividend equivalents with respect to each RSR at the same time and in the same amount as cash dividends are paid on a Share.   7.   Withholding Taxes. RSRs and the Related Cash Awards will not be taxable until the Shares and cash are delivered, provided that cash dividend equivalents will be taxable to the Participant as ordinary income, subject to wage-based withholding and reporting. The Shares and cash when delivered will be taxable to the Participant at their then fair market value as ordinary income, subject to wage-based withholding and reporting. With respect to the Shares, the Company will satisfy this withholding obligation by reducing the number of Shares to be delivered to the Participant in an amount sufficient to satisfy the withholding obligations (based on the Fair Market Value of the Shares on the day immediately prior to the vesting date for the related RSRs), provided that the Participant may elect to satisfy all or part of the withholding tax obligation in cash or its equivalent by (i) delivering to the Company a written election form satisfactory to the Company to that effect prior to the vesting date for the related RSRs and (ii) delivering the cash or cash equivalents to the Company no later than the vesting date for the related RSRs.   8.   Statute of Limitations and Conflicts of Laws. All rights of action by, or on behalf of the Company or by any shareholder against any past, present, or future member of the Board of Directors, officer, or employee of the Company arising out of or in connection with the RSRs or Related Cash Awards or the Award Documents, must be brought within three years from the date of the act or omission in respect of which such right of action arises. The RSRs and Related Cash Awards, and the Award Documents, shall be governed by the laws of the State of Florida, without giving effect to principles of conflict of laws, and construed accordingly.   9.   No Employment Right. Neither the grant of the RSRs or Related Cash Awards, nor any action taken hereunder, shall be construed as giving any employee or any Participant any right to be retained in the employ of the Company. The Company is under no obligation to grant RSRs or Related Cash Awards hereunder. Nothing contained in the Award Documents shall limit or affect in any manner or degree the normal and usual powers of management, exercised by the officers and the Board of Directors or committees thereof, to change the duties or the character of employment of any employee of the Company or to remove the individual from the employment of the Company at any time, all of which rights and powers are expressly reserved.   10.   No Assignment. A Participant’s rights and interest under the RSRs or Related Cash Awards may not be assigned or transferred, except as otherwise provided herein, and any attempted assignment or transfer shall be null and void and shall extinguish, in the Company’s sole discretion, the Company’s obligation under the RSRs or Related Cash Awards or the Award Documents.   11.   Unfunded Plan. Any amounts owed under the Related Cash Awards shall be unfunded. The Company shall not be required to establish any special or separate fund, or to make any other segregation of assets, to assure payment of any earned amounts.   12.   Definitions.   (a)   “Cause” shall have the meaning set forth in any individual, valid, written agreement between the Participant and the Company or any Subsidiary, or, if none exists, shall mean a determination of “Just Cause” under the Ryder Severance Plan, as in effect on the date of grant of the RSRs and Related Cash Awards. Notwithstanding the foregoing, during the three year period following a Change of Control, in no event shall a failure to meet performance expectations constitute Cause unless such failure was willful.   (b)   “Change of Control” occurs when:   (i)   any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “1934 Act”)) (a “Person”) becomes the beneficial owner, directly or indirectly, of twenty percent (20%) or more of the combined voting power of the Company’s outstanding voting securities ordinarily having the right to vote for the election of directors of the Company; provided, however, that for purposes of this subparagraph (i), the following acquisitions shall not constitute a Change of Control: (A) any acquisition by any employee benefit plan or plans (or related trust) of the Company and its subsidiaries and affiliates or (B) any acquisition by any corporation pursuant to a transaction which complies with clauses (A), (B) and (C) of subparagraph (iii) below; or   (ii)   the individuals who, as of August 18, 1995, constituted the Board of Directors of the Company (the “Board” generally and as of August 18, 1995 the “Incumbent Board”) cease for any reason to constitute at least two-thirds (2/3) of the Board, provided that any person becoming a director subsequent to August 18, 1995 whose election, or nomination for election, was approved by a vote of the persons comprising at least two-thirds (2/3) of the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the 1934 Act) shall be, for purposes of this Plan, considered as though such person were a member of the Incumbent Board; or   (iii)   there is a reorganization, merger or consolidation of the Company (a “Business Combination”), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Company’s outstanding Shares and outstanding voting securities ordinarily having the right to vote for the election of directors of the Company immediately prior to such Business Combination beneficially own, directly or indirectly, more than fifty percent (50%) of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities ordinarily having the right to vote for the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Company’s outstanding Shares and outstanding voting securities ordinarily having the right to vote for the election of directors of the Company, as the case may be, (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan or plans (or related trust) of the Company or such corporation resulting from such Business Combination and their subsidiaries and affiliates) beneficially owns, directly or indirectly, 20% or more of the combined voting power of the then outstanding voting securities of the corporation resulting from such Business Combination and (C) at least two-thirds (2/3) of the members of the board of directors of the corporation resulting from such Business combination were members of the incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business combination; or   (iv)   there is a liquidation or dissolution of the Company approved by the shareholders; or (v) there is a sale of all or substantially all of the assets of the Company.   (c)   “Disability” means an illness or injury that entitles the Participant to long-term disability payments under the Company’s Long Term Disability Plan or any successor plan, as in effect from time to time.   (d)   “Proscribed Activity” means any of the following:   (i)   the Participant’s breach of any written agreement between the Participant and the Company or any of its Subsidiaries, including any agreement relating to nondisclosure, noncompetition, nonsoliciation and/or nondisparagement;   (ii)   the Participant’s direct or indirect unauthorzied use or disclosure of confidential information or trade secrets of the Company or any Subsidiary, including, but not limited to, such matters as costs, profits, markets, sales, products, product lines, key personnel, pricing policies, operational methods, customers, customer requirements, suppliers, plans for future developments, and other business affairs and methods and other information not readily available to the public;   (iii)   the Participant’s direct or indirect engaging or becoming a partner, director, officer, principal, employee, consultant, investor, creditor or stockholder in/for any business, proprietorship, association, firm or corporation not owned or controlled by the Company or its Subsidiaries which is engaged or proposes to engage in a business competitive directly or indirectly with the business conducted by the Company or its Subsidiaries in any geographic area where such business of the Company or its Subsidiaries is conducted, provided that the Participant’s investment in one percent (1%) or less of the outstanding capital stock of any corporation whose stock is listed on a national securities exchange shall not be treated as a Proscribed Activity;   (iv)   the Participant’s direct or indirect, either on the Participant’s own account or for any person, firm or company, soliciting, interfering with or inducing, or attempting to induce, any employee of the Company or any of its Subsidiaries to leave his or her employment or to breach his or her employment agreement;   (v)   the Participant’s direct or indirect taking away, interfering with relations with, diverting or attempting to divert from the Company or any Subsidiary any business with any customer of the Company or any Subsidiary, including (A) any customer that has been solicited or serviced by the Company within one (1) year prior to the date of termination of Participant’s employment with the Company and (B) any customer with which the Participant has had contact or association, or which was under the supervision of Participant, or the identity of which was learned by the Participant as a result of Participant’s employment with the Company;   (vi)   the Participant’s making of any remarks disparaging the conduct or character of the Company or any of its Subsidiaries, or their current or former agents, employees, officers, directors, successors or assigns; or   (vii)   the Participant’s failure to cooperate with the Company or any Subsidiary, for no additional compensation (other than reimbursement of expenses), in any litigation or administrative proceedings involving any matters with which the Participant was involved during the Participant’s employment with the Company or any Subsidiary.   (e)   “Proscribed Period” means the period beginning on the date of termination of Participant’s employment and ending on the later of (A) the one year anniversary of such termination date or (B) if the Participant is entitled to severance benefits in the form of salary continuation, the date on which salary continuation is no longer payable to the Participant.   (f)   “Retirement” means retirement under the provisions of the Ryder System, Inc. Retirement Plan, or any successor pension plan maintained by the Company, in each case as in effect from time to time.       13. Other Benefits. No amount accrued or paid under the RSRs or Related Cash Awards shall be deemed compensation for purposes of computing a Participant’s benefits under any retirement plan of the Company or its Subsidiaries, nor affect any benefits under any other benefit plan now or subsequently in effect under which the availability or amount of benefits is related to the Participant’s level of compensation.

Exhibit 10.4 RAE SYSTEMS INC. STOCK OPTION AGREEMENT RAE Systems Inc. has granted to the individual (the “Optionee”) named in the Notice of Grant of Stock Option (the “Notice”) to which this Stock Option Agreement (the “Option Agreement”) is attached an option (the “Option”) to purchase certain shares of Stock upon the terms and conditions set forth in the Notice and this Option Agreement. The Option has been granted pursuant to and shall in all respects be subject to the terms and conditions of the RAE Systems Inc. 2002 Stock Option Plan (the “Plan”), as amended to the Date of Option Grant, the provisions of which are incorporated herein by reference. By signing the Notice, the Optionee: (a) represents that the Optionee has received copies of, and has read and is familiar with the terms and conditions of, the Notice, the Plan, this Option Agreement, and a prospectus for the Plan in the form most recently registered with the Securities an Exchange Commission (the “Plan Prospectus”) (b) accepts the Option subject to all of the terms and conditions of the Notice, the Plan and this Option Agreement, and (c) agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under the Notice, the Plan or this Option Agreement. 1. DEFINITIONS AND CONSTRUCTION. 1.1 Definitions. Unless otherwise defined herein, capitalized terms shall have the meanings assigned to such terms in the Notice or the Plan. 1.2 Construction. Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of this Option Agreement. Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term “or” is not intended to be exclusive, unless the context clearly requires otherwise. 2. TAX CONSEQUENCES. 2.1 Tax Status of Option. This Option is intended to have the tax status designated in the Notice. (a) Incentive Stock Option. If the Notice so designates, this Option is intended to be an Incentive Stock Option within the meaning of Section 422(b) of the Code, but the Company does not represent or warrant that this Option qualifies as such. The Optionee should consult with the Optionee’s own tax advisor regarding the tax effects of this Option and the requirements necessary to obtain favorable income tax treatment under Section 422 of the Code, including, but not limited to, holding period requirements. (NOTE TO OPTIONEE: If the Option is exercised more than three (3) months after the date on which you cease to be an Employee (other than by reason of your death or permanent and total disability as defined in Section 22(e)(3) of the Code), the Option will be treated as a Nonstatutory Stock Option and not as an Incentive Stock Option to the extent required by Section 422 of the Code.)   1 -------------------------------------------------------------------------------- (b) Nonstatutory Stock Option. If the Notice so designates, this Option is intended to be a Nonstatutory Stock Option and shall not be treated as an Incentive Stock Option within the meaning of Section 422(b) of the Code. 2.2 ISO Fair Market Value Limitation. If the Notice designates this Option as an Incentive Stock Option, then to the extent that the Option (together with all Incentive Stock Options granted to the Optionee under all stock option plans of the Participating Company Group, including the Plan) becomes exercisable for the first time during any calendar year for shares having a Fair Market Value greater than One Hundred Thousand Dollars ($100,000), the portion of such options which exceeds such amount will be treated as Nonstatutory Stock Options. For purposes of this Section 2.2, options designated as Incentive Stock Options are taken into account in the order in which they were granted, and the Fair Market Value of stock is determined as of the time the option with respect to such stock is granted. If the Code is amended to provide for a different limitation from that set forth in this Section 2.2, such different limitation shall be deemed incorporated herein effective as of the date required or permitted by such amendment to the Code. If the Option is treated as an Incentive Stock Option in part and as a Nonstatutory Stock Option in part by reason of the limitation set forth in this Section 2.2, the Optionee may designate which portion of such Option the Optionee is exercising. In the absence of such designation, the Optionee shall be deemed to have exercised the Incentive Stock Option portion of the Option first. Separate certificates representing each such portion shall be issued upon the exercise of the Option. (NOTE TO OPTIONEE: If the aggregate Exercise Price of the Option (that is, the Exercise Price multiplied by the Number of Option Shares) plus the aggregate exercise price of any other Incentive Stock Options you hold (whether granted pursuant to the Plan or any other stock option plan of the Participating Company Group) is greater than $100,000, you should contact the Chief Financial Officer of the Company to ascertain whether the entire Option qualifies as an Incentive Stock Option.) 3. ADMINISTRATION. All questions of interpretation concerning this Option Agreement shall be determined by the Board. All determinations by the Board shall be final and binding upon all persons having an interest in the Option. Any Officer shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, or election which is the responsibility of or which is allocated to the Company herein, provided the Officer has apparent authority with respect to such matter, right, obligation, or election. 4. EXERCISE OF THE OPTION. 4.1 Right to Exercise. Except as otherwise provided herein, the Option shall be exercisable on and after the Initial Vesting Date and prior to the termination of the Option (as provided in Section 6) in an amount not to exceed the number of Vested Shares less the number of shares previously acquired upon exercise of the Option. In no event shall the Option be exercisable for more shares than the Number of Option Shares. 4.2 Method of Exercise. Exercise of the Option shall be by written notice to the Company which must state the election to exercise the Option, the number of whole shares of Stock for which the Option is being exercised and such other representations and agreements as   2 -------------------------------------------------------------------------------- to the Optionee’s investment intent with respect to such shares as may be required pursuant to the provisions of this Option Agreement. The written notice must be signed by the Optionee and must be delivered in person, by certified or registered mail, return receipt requested, by confirmed facsimile transmission, or by such other means as the Company may permit, to the Chief Financial Officer of the Company, or other authorized representative of the Participating Company Group, prior to the termination of the Option as set forth in Section 6, accompanied by full payment of the aggregate Exercise Price for the number of shares of Stock being purchased. The Option shall be deemed to be exercised upon receipt by the Company of such written notice and the aggregate Exercise Price. 4.3 Payment of Exercise Price. (a) Forms of Consideration Authorized. Except as otherwise provided below, payment of the aggregate Exercise Price for the number of shares of Stock for which the Option is being exercised shall be made (i) in cash, by check, or cash equivalent, (ii) by tender to the Company, or attestation to the ownership, of whole shares of Stock owned by the Optionee having a Fair Market Value not less than the aggregate Exercise Price, (iii) by means of a Cashless Exercise, as defined in Section 4.3(b), or (iv) by any combination of the foregoing. (b) Limitations on Forms of Consideration. (i) Tender of Stock. Notwithstanding the foregoing, the Option may not be exercised by tender to the Company, or attestation to the ownership, of shares of Stock to the extent such tender or attestation would constitute a violation of the provisions of any law, regulation or agreement restricting the redemption of the Company’s stock. If required by the Company, the Option may not be exercised by tender to the Company, or attestation to the ownership, of shares of Stock unless such shares either have been owned by the Optionee for more than six (6) months or such other period, if any, required by the Company and not used for another option exercise by attestation during such period) or were not acquired, directly or indirectly, from the Company. (ii) Cashless Exercise. A “Cashless Exercise” means the delivery of a properly executed notice together with irrevocable instructions to a broker in a form acceptable to the Company providing for the assignment to the Company of the proceeds of a sale or loan with respect to some or all of the shares of Stock acquired upon the exercise of the Option pursuant to a program or procedure approved by the Company (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System). The Company reserves, at any and all times, the right, in the Company’s sole and absolute discretion, to decline to approve or terminate any such program or procedure. 4.4 Tax Withholding. At the time the Option is exercised, in whole or in part, or at any time thereafter as requested by the Company, the Optionee hereby authorizes withholding from payroll and any other amounts payable to the Optionee, and otherwise agrees to make adequate provision for (including by means of a Cashless Exercise to the extent permitted by the Company), any sums required to satisfy the federal, state, local and foreign tax   3 -------------------------------------------------------------------------------- withholding obligations of the Participating Company Group, if any, which arise in connection with the Option, including, without limitation, obligations arising upon (i) the exercise, in whole or in part, of the Option, (ii) the transfer, in whole or in part, of any shares acquired upon exercise of the Option, (iii) the operation of any law or regulation providing for the imputation of interest, or (iv) the lapsing of any restriction with respect to any shares acquired upon exercise of the Option. The Option is not exercisable unless the tax withholding obligations of the Participating Company Group are satisfied. Accordingly, the Company shall have no obligation to deliver shares of Stock until the tax withholding obligations of the Participating Company Group have been satisfied by the Optionee. 4.5 Certificate Registration. Except in the event the Exercise Price is paid by means of a Cashless Exercise, the certificate for the shares as to which the Option is exercised shall be registered in the name of the Optionee, or, if applicable, in the names of the heirs of the Optionee. 4.6 Restrictions on Grant of the Option and Issuance of Shares. The grant of the Option and the issuance of shares of Stock upon exercise of the Option shall be subject to compliance with all applicable requirements of federal, state or foreign law with respect to such securities. The Option may not be exercised if the issuance of shares of Stock upon exercise would constitute a violation of any applicable federal, state or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Stock may then be listed. In addition, the Option may not be exercised unless (i) a registration statement under the Securities Act shall at the time of exercise of the Option be in effect with respect to the shares issuable upon exercise of the Option or (ii) in the opinion of legal counsel to the Company, the shares issuable upon exercise of the Option may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. THE OPTIONEE IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary to the lawful issuance and sale of any shares subject to the Option shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained. As a condition to the exercise of the Option, the Company may require the Optionee to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company. 4.7 Fractional Shares. The Company shall not be required to issue fractional shares upon the exercise of the Option. 5. NONTRANSFERABILITY OF THE OPTION. The Option may be exercised during the lifetime of the Optionee only by the Optionee or the Optionee’s guardian or legal representative and may not be assigned or transferred in any manner except by will or by the laws of descent and distribution. Following the death of the Optionee, the Option, to the extent provided in Section 7, may be exercised by the Optionee’s legal representative or by any person empowered to do so under the deceased Optionee’s will or under the then applicable laws of descent and distribution.   4 -------------------------------------------------------------------------------- 6. TERMINATION OF THE OPTION. The Option shall terminate and may no longer be exercised after the first to occur of (a) the Option Expiration Date, (b) the last date for exercising the Option following termination of the Optionee’s Service as described in Section 7, or (c) a Change in Control to the extent provided in Section 8. 7. EFFECT OF TERMINATION OF SERVICE. 7.1 Option Exercisability. (a) Disability. If the Optionee’s Service terminates because of the Disability of the Optionee, the Option, to the extent unexercised and exercisable on the date on which the Optionee’s Service terminated, may be exercised by the Optionee (or the Optionee’s guardian or legal representative) at any time prior to the expiration of twelve (12) months after the date on which the Optionee’s Service terminated, but in any event no later than the Option Expiration Date. (b) Death. If the Optionee’s Service terminates because of the death of the Optionee, the Option, to the extent unexercised and exercisable on the date on which the Optionee’s Service terminated, may be exercised by the Optionee’s legal representative or other person who acquired the right to exercise the Option by reason of the Optionee’s death at any time prior to the expiration of twelve (12) months after the date on which the Optionee’s Service terminated, but in any event no later than the Option Expiration Date. The Optionee’s Service shall be deemed to have terminated on account of death if the Optionee dies within three (3) months after the Optionee’s termination of Service. (c) Other Termination of Service. If the Optionee’s Service terminates for any reason, except Disability or death, the Option, to the extent unexercised and exercisable by the Optionee on the date on which the Optionee’s Service terminated, may be exercised by the Optionee at any time prior to the expiration of three (3) months after the date on which the Optionee’s Service terminated, but in any event no later than the Option Expiration Date. 7.2 Extension if Exercise Prevented by Law. Notwithstanding the foregoing, if the exercise of the Option within the applicable time periods set forth in Section 7.1 is prevented by the provisions of Section 4.6, the Option shall remain exercisable until three (3) months after the date the Optionee is notified by the Company that the Option is exercisable, but in any event no later than the Option Expiration Date. 7.3 Extension if Optionee Subject to Section 16(b). Notwithstanding the foregoing, if a sale within the applicable time periods set forth in Section 7.1 of shares acquired upon the exercise of the Option would subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option shall remain exercisable until the earliest to occur of (i) the tenth (10th) day following the date on which a sale of such shares by the Optionee would no longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day after the Optionee’s termination of Service, or (iii) the Option Expiration Date.   5 -------------------------------------------------------------------------------- 8. CHANGE IN CONTROL. 8.1 Definitions. (a) An “Ownership Change Event” shall be deemed to have occurred if any of the following occurs with respect to the Company: (i) the direct or indirect sale or exchange in a single or series of related transactions by the shareholders of the Company of more than fifty percent (50%) of the voting stock of the Company; (ii) a merger or consolidation in which the Company is a party; (iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company; or (iv) a liquidation or dissolution of the Company. (b) A “Change in Control” shall mean an Ownership Change Event or a series of related Ownership Change Events (collectively, a “Transaction”) wherein the shareholders of the Company immediately before the Transaction do not retain immediately after the Transaction, in substantially the same proportions as their ownership of shares of the Company’s voting stock immediately before the Transaction, direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding voting securities of the Company or, in the case of a Transaction described in Section 8.1(a)(iii), the corporation or other business entity to which the assets of the Company were transferred (the “Transferee”), as the case may be. For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting securities of one or more corporations or other business entities which own the Company or the Transferee, as the case may be, either directly or through one or more subsidiary corporations or other business entities. The Board shall have the right to determine whether multiple sales or exchanges of the voting securities of the Company or multiple Ownership Change Events are related, and its determination shall be final, binding and conclusive. 8.2 Effect of Change in Control on Option. In the event of a Change in Control, the surviving, continuing, successor, or purchasing corporation or other business entity or parent thereof, as the case may be (the “Acquiring Corporation”), may, without the consent of the Optionee, either assume the Company’s rights and obligations under the Option or substitute for the Option a substantially equivalent option for the Acquiring Corporation’s stock. The Option shall terminate and cease to be outstanding effective as of the date of the Change in Control to the extent that the Option is neither assumed or substituted for by the Acquiring Corporation in connection with the Change in Control nor exercised as of the date of the Change in Control. Notwithstanding the foregoing, shares acquired upon exercise of the Option prior to the Change in Control and any consideration received pursuant to the Change in Control with respect to such shares shall continue to be subject to all applicable provisions of the Option Agreement except as otherwise provided herein. Furthermore, notwithstanding the foregoing, if the corporation the stock of which is subject to the Option immediately prior to an Ownership Change Event described in Section 8.1(a)(i) constituting a Change in Control is the surviving or continuing corporation and immediately after such Ownership Change Event less than fifty percent (50%) of the total combined voting power of its voting stock is held by another   6 -------------------------------------------------------------------------------- corporation or by other corporations that are members of an affiliated group within the meaning of Section 1504(a) of the Code without regard to the provisions of Section 1504(b) of the Code, the Option shall not terminate unless the Board otherwise provides in its discretion. For the purposes of this Section 8.2, the Option shall be considered assumed if, for every share of Stock subject thereto immediately prior to the Change in Control, the Optionee has the right, following the Change in Control, to acquire in accordance with the terms and conditions of the assumed Option the consideration (whether stock, cash or other securities or property) received in the Change in Control transaction by holders of shares of Stock for each share held immediately prior to such transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares of Stock); provided, however, that if such consideration received in the Change in Control transaction was not solely common stock of the Acquiring Corporation, the Board may, with the consent of the Acquiring Corporation, provide for the consideration to be acquired to be solely common stock of the Acquiring Corporation equal in Fair Market Value to the per share consideration received by holders of Stock in the Change in Control transaction. 9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. Subject to any required action by the stockholders of the Company, in the event of any change in the Stock effected without receipt of consideration by the Company, whether through merger, consolidation, reorganization, reincorporation, recapitalization, reclassification, stock dividend, stock split, reverse stock split, split-up, split-off, spin-off, combination of shares, exchange of shares, or similar change in the capital structure of the Company, or in the event of payment of a dividend or distribution to the stockholders of the Company in a form other than Stock (excepting normal cash dividends) that has a material effect on the Fair Market Value of shares of Stock, appropriate and proportionate adjustments shall be made in the number, Exercise Price and class of shares subject to the Option, in order to prevent dilution or enlargement of the Optionee’s rights under the Option. For purposes of the foregoing, conversion of any convertible securities of the Company shall not be treated as “effected without receipt of consideration by the Company.” Any fractional share resulting from an adjustment pursuant to this Section 9 shall be rounded down to the nearest whole number, and in no event may the Exercise Price of the Option be decreased to an amount less than the par value, if any, of the stock subject to the Option. Such adjustments shall be determined by the Board, and its determination shall be final, binding and conclusive. 10. RIGHTS AS A SHAREHOLDER, EMPLOYEE OR CONSULTANT. The Optionee shall have no rights as a shareholder with respect to any shares covered by the Option until the date of the issuance of a certificate for the shares for which the Option has been exercised (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). No adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date such certificate is issued, except as provided in Section 9. If the Optionee is an Employee, the Optionee understands and acknowledges that, except as otherwise provided in a separate, written employment agreement between a Participating Company and the Optionee, the Optionee’s employment is “at will” and is for no specified term. Nothing in this Option Agreement shall confer upon the Optionee any right to continue in the Service of a Participating Company or interfere in any way with any right of the Participating Company Group to terminate the Optionee’s Service as an Employee or Consultant, as the case may be, at any time.   7 -------------------------------------------------------------------------------- 11. NOTICE OF SALES UPON DISQUALIFYING DISPOSITION. The Optionee shall dispose of the shares acquired pursuant to the Option only in accordance with the provisions of this Option Agreement. In addition, if the Notice designates this Option as an Incentive Stock Option, the Optionee shall (a) promptly notify the Chief Financial Officer of the Company if the Optionee disposes of any of the shares acquired pursuant to the Option within one (1) year after the date the Optionee exercises all or part of the Option or within two (2) years after the Date of Option Grant and (b) provide the Company with a description of the circumstances of such disposition. Until such time as the Optionee disposes of such shares in a manner consistent with the provisions of this Option Agreement, unless otherwise expressly authorized by the Company, the Optionee shall hold all shares acquired pursuant to the Option in the Optionee’s name (and not in the name of any nominee) for the one-year period immediately after the exercise of the Option and the two-year period immediately after Date of Option Grant. At any time during the one-year or two-year periods set forth above, the Company may place a legend on any certificate representing shares acquired pursuant to the Option requesting the transfer agent for the Company’s stock to notify the Company of any such transfers. The obligation of the Optionee to notify the Company of any such transfer shall continue notwithstanding that a legend has been placed on the certificate pursuant to the preceding sentence. 12. LEGENDS. The Company may at any time place legends referencing any applicable federal, state or foreign securities law restrictions on all certificates representing shares of stock subject to the provisions of this Option Agreement. The Optionee shall, at the request of the Company, promptly present to the Company any and all certificates representing shares acquired pursuant to the Option in the possession of the Optionee in order to carry out the provisions of this Section. Unless otherwise specified by the Company, legends placed on such certificates may include, but shall not be limited to, the following: “THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE CORPORATION TO THE REGISTERED HOLDER UPON EXERCISE OF AN INCENTIVE STOCK OPTION AS DEFINED IN SECTION 422 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (“ISO”). IN ORDER TO OBTAIN THE PREFERENTIAL TAX TREATMENT AFFORDED TO ISOs, THE SHARES SHOULD NOT BE TRANSFERRED PRIOR TO [INSERT DISQUALIFYING DISPOSITION DATE HERE]. SHOULD THE REGISTERED HOLDER ELECT TO TRANSFER ANY OF THE SHARES PRIOR TO THIS DATE AND FOREGO ISO TAX TREATMENT, THE TRANSFER AGENT FOR THE SHARES SHALL NOTIFY THE CORPORATION IMMEDIATELY. THE REGISTERED HOLDER SHALL HOLD ALL SHARES PURCHASED UNDER THE INCENTIVE STOCK OPTION IN THE REGISTERED HOLDER’S NAME (AND NOT IN THE NAME OF ANY NOMINEE) PRIOR TO THIS DATE OR UNTIL TRANSFERRED AS DESCRIBED ABOVE.”   8 -------------------------------------------------------------------------------- 13. MISCELLANEOUS PROVISIONS. 13.1 Binding Effect. Subject to the restrictions on transfer set forth herein, this Option Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors and assigns. 13.2 Termination or Amendment. The Board may terminate or amend the Plan or the Option at any time; provided, however, that except as provided in Section 8.2 in connection with a Change in Control, no such termination or amendment may adversely affect the Option or any unexercised portion hereof without the consent of the Optionee unless such termination or amendment is necessary to comply with any applicable law or government regulation or is required to enable the Option, if designated an Incentive Stock Option in the Notice, to qualify as an Incentive Stock Option. No amendment or addition to this Option Agreement shall be effective unless in writing. 13.3 Notices. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given (except to the extent that this Option Agreement provides for effectiveness only upon actual receipt of such notice) upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail, with postage and fees prepaid, addressed to the other party at the address shown below that party’s signature or at such other address as such party may designate in writing from time to time to the other party. 13.4 Integrated Agreement. The Notice, this Option Agreement and the Plan constitute the entire understanding and agreement of the Optionee and the Participating Company Group with respect to the subject matter contained herein or therein and supersedes any prior agreements, understandings, restrictions, representations, or warranties among the Optionee and the Participating Company Group with respect to such subject matter other than those as set forth or provided for herein or therein. To the extent contemplated herein or therein, the provisions of the Notice and the Option Agreement shall survive any exercise of the Option and shall remain in full force and effect. 13.5 Applicable Law. This Option Agreement shall be governed by the laws of the State of California as such laws are applied to agreements between California residents entered into and to be performed entirely within the State of California. 13.6 Counterparts. The Notice may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.   9 -------------------------------------------------------------------------------- ™ Incentive Stock Option    Optionee:                                    ™ Nonstatutory Stock Option           Date:                         STOCK OPTION EXERCISE NOTICE RAE Systems Inc. Attention: Chief Financial Officer 3775 North First Street San Jose, California 95134 Ladies and Gentlemen: 1. Option. I was granted an option (the “Option”) to purchase shares of the common stock (the “Shares”) of RAE Systems Inc. (the “Company”) pursuant to the Company’s 2002 Stock Option Plan (the “Plan”), my Notice of Grant of Stock Option (the “Notice”) and my Stock Option Agreement (the “Option Agreement”) as follows:   Grant Number:    ______________ Date of Option Grant:    ______________ Number of Option Shares:    ______________ Exercise Price per Share:    $______________ 2. Exercise of Option. I hereby elect to exercise the Option to purchase the following number of Shares, all of which are Vested Shares in accordance with the Notice and the Option Agreement:   Total Shares Purchased:    ______________ Total Exercise Price (Total Shares X Price per Share)    $______________ 3. Payments. I enclose payment in full of the total exercise price for the Shares in the following form(s), as authorized by my Option Agreement:   ™ Cash:    $______________ ™ Check:    $______________ ™ Tender of Company Stock:    Contact Plan Administrator 4. Tax Withholding. I authorize payroll withholding and otherwise will make adequate provision for the federal, state, local and foreign tax withholding obligations of the Company, if any, in connection with the Option. If I am exercising a Nonstatutory Stock Option, I enclose payment in full of my withholding taxes, if any, as follows: (Contact Plan Administrator for amount of tax due.)   ™ Cash:    $______________ ™ Check:    $______________   1 -------------------------------------------------------------------------------- 5. Optionee Information.   My address is:           My Social Security Number is:     6. Notice of Disqualifying Disposition. If the Option is an Incentive Stock Option, I agree that I will promptly notify the Chief Financial Officer of the Company if I transfer any of the Shares within one (1) year from the date I exercise all or part of the Option or within two (2) years of the Date of Option Grant. 7. Binding Effect. I agree that the Shares are being acquired in accordance with and subject to the terms, provisions and conditions of the Option Agreement, including the Right of First Refusal set forth therein, to all of which I hereby expressly assent. This Agreement shall inure to the benefit of and be binding upon my heirs, executors, administrators, successors and assigns.   2 -------------------------------------------------------------------------------- I understand that I am purchasing the Shares pursuant to the terms of the Plan, the Notice and my Option Agreement, copies of which I have received and carefully read and understand.   Very truly yours,   (Signature) Receipt of the above is hereby acknowledged. RAE Systems Inc.   By:     Name:   Title:   Dated:   3

  Exhibit 10.5 T-3 ENERGY SERVICES, INC. NON-STATUTORY STOCK OPTION AGREEMENT Optionee:      1. Grant of Stock Option. As of the Grant Date (identified in Section 17 below), T-3 Energy Services, Inc., a Delaware corporation (the “Company”), hereby grants a Non-statutory Stock Option (the “Option”) to the Optionee (identified above), a non-employee director of the Company, to purchase the number of shares of the Company’s common stock, $.001 par value per share (the” Common Stock”) identified in Section 17 below (the “Shares”), subject to the terms and conditions of this agreement (the “Agreement”) and the T-3 Energy Services 2002 Stock Incentive Plan (the “Plan”). The Plan is hereby incorporated herein in its entirety by reference. The Shares, when issued to Optionee upon the exercise of the Option, shall be fully paid and non-assessable. The Option is not an “incentive stock option” as defined in Section 422 of the Internal Revenue Code.      2. Definitions. All capitalized terms used herein shall have the meanings set forth in the Plan unless otherwise provided herein. Section 17 sets forth meanings for certain of the capitalized terms used in this Agreement.      3. Option Term. The Option shall commence on the Grant Date (identified in Section 17) and terminate on the tenth (10th) anniversary of the Grant Date as specified in Section 17. The period during which the Option is in effect and may be exercised is referred to herein as the “Option Period”.      4. Option Price. The Option Price per Share is identified in Section 17.      5. Vesting. The total number of Shares subject to this Option shall vest in accordance with the Vesting Schedule (described in Section 17). The Shares may be purchased at any time after they become vested, in whole or in part, during the Option Period; provided, however, the Option may only be exercisable to acquire whole Shares. The right of exercise provided herein shall be cumulative so that if the Option is not exercised to the maximum extent permissible after vesting, the vested portion of the Option shall be exercisable, in whole or in part, at any time during the Option Period.      6. Method of Exercise. The Option is exercisable by delivery of a written notice to the Secretary of the Company, signed by the Optionee, specifying the number of Shares to be acquired on, and the effective date of, such exercise. The Optionee may withdraw notice of exercise of this Option, in writing, at any time prior to the close of business on the business day preceding the proposed exercise date.      7. Method of Payment. Subject to applicable provisions of the Plan, the Option Price upon exercise of the Option shall be payable to the Company in full either: (i) in cash or its equivalent; (ii) subject to prior approval by the Committee in its discretion, by tendering previously acquired Shares having an aggregate Fair Market Value (as defined   --------------------------------------------------------------------------------   in the Plan) at the time of exercise equal to the total Option Price (provided that the Shares must have been held by the Optionee for at least six (6) months prior to their tender to satisfy the Option Price); (iii) subject to prior approval by the Committee in its discretion, by withholding Shares which otherwise would be acquired on exercise having an aggregate Fair Market Value at the time of exercise equal to the total Option Price; or (iv) any other permitted method pursuant to the applicable terms and conditions of the Plan. As soon as practicable after receipt of a written notification of exercise and full payment, the Company shall deliver to or on behalf of the Optionee, in the name of the Optionee or other appropriate recipient, Share certificates or other evidence of ownership for the number of Shares purchased under the Option.      8. Restrictions on Exercise. The Option may not be exercised if the issuance of such Shares or the method of payment of the consideration for such Shares would constitute a violation of any applicable federal or state securities or other laws or regulations, or any rules or regulations of any stock exchange on which the Common Stock may be listed. In addition, Optionee understands and agrees that the Option cannot be exercised if the Company determines that such exercise, at the time of such exercise, will be in violation of the Company’s insider trading policy.      9. Termination of Directorship Service. Voluntary or involuntary termination of the Optionee as a member of the Company’s Board of Directors shall affect Optionee’s rights under the Option as follows:      (a) Termination for Cause. The entire Option, including any vested portion thereof, shall expire at 12:01 a.m. (CST) on the date of termination of the Optionee’s directorship and shall not be exercisable to any extent if Optionee’s directorship is terminated for Cause (as defined in the Plan at the time of such termination of directorship).      (b) Other Involuntary Termination or Voluntary Termination. Subject to the Vesting Schedule in Section 17, if Optionee’s directorship is terminated for any reason other than for Cause, then (i) any non-vested portion of the Option shall immediately expire on the termination date and (ii) the vested portion of the Option shall expire to the extent not exercised as of the earlier of (A) the expiration of the Option Period or (B) two (2) years after the effective date of his termination of directorship.      10. Independent Legal and Tax Advice. Optionee acknowledges that the Company has advised Optionee to obtain independent legal and tax advice regarding the grant and exercise of the Option and the disposition of any Shares acquired thereby.      11. Reorganization of Company. The existence of the Option shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in Company’s capital structure or its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stock ahead of or affecting the Shares or the rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. --------------------------------------------------------------------------------        12. Adjustment of Shares. In the event of stock dividends, spin-offs of assets or other extraordinary dividends, stock splits, combinations of shares, recapitalizations, mergers, consolidations, reorganizations, liquidations, issuances of rights or warrants and similar transactions or events involving Company, appropriate adjustments shall be made to the terms and provisions of the Option as provided in the Plan.      13. No Rights in Shares. Optionee shall have no rights as a stockholder in respect of the Shares until the Optionee becomes the record holder of such Shares.      14. Investment Representation. Optionee will enter into such written representations, warranties and agreements as Company may reasonably request in order to comply with any federal or state securities law. Moreover, any stock certificate for any Shares issued to Optionee hereunder may contain a legend restricting their transferability as determined by the Company in its discretion. Optionee agrees that Company shall not be obligated to take any affirmative action in order to cause the issuance or transfer of Shares hereunder to comply with any law, rule or regulation that applies to the Shares subject to the Option.      15. No Guarantee of Directorship. The Option shall not confer upon Optionee any right to continued membership on the Company’s Board of Directors.      16. General.      (a) Notices. All notices under this Agreement shall be mailed or delivered by hand to the parties at their respective addresses set forth beneath their signatures below or at such other address as may be designated in writing by either of the parties to one another, or to their permitted transferees if applicable. Notices shall be effective upon receipt.      (b) Shares Reserved. The Company shall at all times during the Option Period reserve and keep available under the Plan such number of Shares as shall be sufficient to satisfy the requirements of this Option.      (c) Transferability of Option. The Option is transferable only to the extent permitted under the Plan at the time of transfer (i) by will or by the laws of descent and distribution, (ii) by a qualified domestic relations order (as defined in Section 414(p) of the Internal Revenue Code), or (iii) to Optionee’s Immediate Family. No right or benefit hereunder shall in any manner be liable for or subject to any debts, contracts, liabilities, obligations or torts of Optionee or any permitted transferee thereof.      (d) Amendment and Termination. No amendment, modification or termination of this Agreement shall be made at any time without the written consent of Optionee and Company.      (e) No Guarantee of Tax Consequences. The Company makes no commitment or guarantee that any tax treatment will apply or be available to Optionee or any other person. The Optionee has been advised, and provided with the opportunity, to obtain independent legal and tax advice regarding the grant and exercise of the Option and the disposition of any Shares acquired thereby.      (f) Severability. In the event that any provision of this Agreement shall be held illegal, invalid, or unenforceable for any reason, such provision shall be fully severable, --------------------------------------------------------------------------------   but shall not affect the remaining provisions of the Agreement, and the Agreement shall be construed and enforced as if the illegal, invalid, or unenforceable provision had not been included herein.      (g) Supersedes Prior Agreements. This Agreement shall supersede and replace all prior agreements and understandings, oral or written, between the Company and the Optionee regarding the grant of the Options covered hereby.      (h) Governing Law. The Option shall be construed in accordance with the laws of the State of Delaware, without regard to its conflict of law provisions, to the extent federal law does not supersede and preempt Delaware law.      17. Definitions and Other Terms. The following capitalized terms shall have those meanings set forth opposite them:   (a)   Optionee:     (b)   Grant Date:     (c)   Shares:     (d)   Option Price:     (e)   Option Period:     (f)   Vesting Schedule:      In the event of a “Change in Control” of the Company (as defined in the Plan at the time of such event), the non-vested portion of the Option shall become immediately 100% vested as of the Change in Control date. In addition, in the event that Optionee (i) is not nominated for re-election to the Board, (ii) is nominated for re-election to the Board but is not re-elected to the Board, or (iii) is involuntarily forced to resign or is removed from his position as a director on the Board for whatever reason except for Cause, then any non-vested portion of the Option at such time shall become immediately 100% vested as of the date of such event. In the event that Optionee voluntarily resigns his position as a director on the Board for whatever reason, or is involuntarily removed from such position for Cause, then no accelerated vesting shall occur. [Signature page follows.]   --------------------------------------------------------------------------------        IN WITNESS WHEREOF, the Company, as of the Grant Date, has caused this Agreement to be executed on its behalf by its duly authorized officer and Optionee has hereunto executed this Agreement as of the same date.                       T-3 ENERGY SERVICES, INC.                           By:                              Name:         Title:                           Address for Notices:                           T-3 Energy Services, Inc.         13111 Northwest Freeway, Suite 500         Houston, TX 77040         Attn: Corporate Secretary                           OPTIONEE                           Signature:                                             Address for Notices:      

Exhibit 10.13 EXECUTION COPY PURCHASE AND EXCHANGE AGREEMENT This Purchase and Exchange Agreement (this “Agreement”) is dated as of December 1, 2006 between TRC Companies, Inc., a Delaware corporation (the “Company”), and Fletcher International, Ltd., a Bermuda company (“Purchaser”). WHEREAS, the Purchaser is the holder of 15,000 shares of Series A-1 Cumulative Convertible Preferred Stock, par value $0.10 per share, of the Company (the “Preferred Stock”); WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 promulgated thereunder, the Purchaser wishes (i) to exchange its Preferred Stock for 1,132,075 shares of the Company’s Common Stock, par value $.10 per share (the “Common Stock”) plus accrued and unpaid dividends through the Closing Date (as defined herein), and (ii) to purchase from the Company additional shares of Common Stock as more fully described in this Agreement. NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and the Purchaser agree as follows: ARTICLE I DEFINITIONS 1.1           Definitions.  In addition to the terms defined elsewhere in this Agreement, the following terms have the meanings indicated: “Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 144.  With respect to the Purchaser, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as the Purchaser will be deemed to be an Affiliate of the Purchaser. “Closing” means the closing of the purchase and sale of the Shares pursuant to Section 2.1. “Closing Date” means the date of the Closing. “Commission” means the Securities and Exchange Commission. “Common Stock” means the common stock of the Company, par value $0.10 per share. “Company Counsel” means Paul, Hastings, Janofsky & Walker LLP. --------------------------------------------------------------------------------   “Exchange Act” means the Securities Exchange Act of 1934, as amended. “Exchanged Shares” means the shares of Common Stock issuable hereunder pursuant to Section 2.1(ii). “Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind. “Purchased Shares” means the shares of Common Stock issuable hereunder pursuant to Section 2.1(i). “Purchase Price” means $9.79, the closing price of the Common Stock on the New York Stock Exchange on the date hereof. “Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule. “Securities Act” means the Securities Act of 1933, as amended. “Shares” means the Purchased Shares and the Exchanged Shares. “Subsidiary” means any subsidiary of the Company that would be required to be listed on Exhibit 21 to the Company’s Annual Report on Form 10-K. “Trading Day” means (a) any day on which the Common Stock is traded on its primary Trading Market, or (b) if the Common Stock is not then listed or quoted on any national securities exchange, market or trading or quotation facility, then a day on which trading occurs on the New York Stock Exchange (or any successor thereto). “Trading Market” means New York Stock Exchange or any other national securities exchange, market or trading or quotation facility on which the Common Stock is then listed or quoted. ARTICLE II PURCHASE AND SALE 2.1           Closing.  Subject to the terms and conditions set forth in this Agreement, at the Closing (i) the Company shall issue and sell to the Purchaser, and the Purchaser shall, purchase from the Company 204,290 shares of Common Stock (determined by dividing $2,000,000 by the Purchase Price), and (ii) in exchange for the 15,000 shares of Preferred Stock held by the Purchaser (which shall constitute the sole consideration for the Exchanged Shares), the Company shall issue to the Purchaser 1,132,075 shares of Common Stock.  The Closing shall take place via facsimile on December 8, 2006 or such earlier date specified by the Purchaser and acceptable to the Company; provided that original certificates representing the Purchased Shares shall be delivered via overnight carrier to the Purchaser. 2 --------------------------------------------------------------------------------   2.2           Closing Deliveries. (a)           At the Closing, the Company shall deliver or cause to be delivered to the Purchaser: (i)         one or more stock certificates evidencing the Purchased Shares, registered in the name of the Purchaser and delivered to the address listed on Schedule A; and (ii)        issue the Exchanged Shares and the shares of Common Stock representing payment for the accrued and unpaid dividends on the Preferred Stock through the Closing Date, to the Purchaser’s account listed on Schedule A with The Depository Trust Company through its Deposit Withdrawal Agent Commission system. (b)           At the Closing, the Purchaser shall deliver or cause to be delivered to the Company, the following: (i)         valid and marketable title to the Preferred Stock,  free and clear of all liabilities, obligations,  claims,  liens  and  encumbrances  (except  for  those  imposed by applicable securities laws),  by  delivering to the Company one or more stock certificates  representing the Preferred Stock,  duly  endorsed  in  blank  or accompanied  by one or more stock powers duly endorsed in blank, and in form for transfer reasonably satisfactory to Company Counsel; and (ii)        $2,000,000 in immediately available funds delivered in accordance with the wire instructions set forth on Schedule A. ARTICLE III REPRESENTATIONS AND WARRANTIES 3.1           Representations and Warranties of the Company.  The Company hereby makes the following representations and warranties to the Purchaser: (a)           (i) The Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2005 (the “10-K”) complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the SEC promulgated thereunder applicable to the 10-K, and none of the Company’s filings with the Commission under Section 13(a) or 15(d) of the Exchange Act, at the time they were filed with the Commission, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. (ii)           The financial statements of the Company included in the 10-K complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the Commission with respect thereto.  Such financial statements have been prepared in accordance with United States generally accepted accounting principles, consistently applied (“GAAP”), during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of 3 --------------------------------------------------------------------------------   unaudited interim statements, to the extent they may not include footnotes, normal year-end adjustments or may be condensed or summary statements) and fairly present in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). (b)           Schedule 3.1(b) includes a list of all Subsidiaries of the Company.  Each of the Company and each Subsidiary is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization (as applicable), with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted.  Neither the Company nor any Subsidiary is in violation of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents.  Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not, individually or in the aggregate: (i) adversely affect the legality, validity or enforceability of this Agreement, (ii) have or reasonably be expected to result in a material adverse effect on the results of operations, assets, prospects, business or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) adversely impair the Company’s ability to perform fully on a timely basis its obligations under this Agreement (any of (i), (ii) or (iii), a “Material Adverse Effect”). (c)           The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and otherwise to carry out its obligations hereunder.  The execution and delivery of each of this Agreement by the Company and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company and no further action is required by the Company, or its stockholders.  This Agreement has been duly executed by the Company and, assuming this Agreement constitutes the legal, valid and binding agreement of each other party thereto other than the Company, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms. (d)           As of the date hereof and immediately prior to giving effect to the transactions contemplated by this Agreement, the authorized capital stock of the Company consists of 30,000,000 shares of Common Stock, of which 16,749,369 shares are issued and outstanding and 500,000 shares of preferred stock, $.10 par value, 15,000 of which are designated as Series A-1 Cumulative Convertible Preferred Stock, and all of which are issued and outstanding.  All of such outstanding shares of Common Stock are duly authorized, validly issued, fully paid and nonassessable.  The Shares have been duly authorized and when issued pursuant to the terms hereof will be validly issued, fully paid and nonassessable and will not be subject to any encumbrances, preemptive rights or any other similar contractual rights of the stockholders of the Company or any other Person.  No shares of capital stock of the Company are subject to preemptive rights or any other similar rights of the stockholders of the Company or any other Person or any liens or encumbrances imposed through the actions or failure to act of the Company.  As of the date hereof, the Company had outstanding options to purchase 3,124,477 shares of Common Stock, as well as options to purchase 211,430 shares of Common 4 --------------------------------------------------------------------------------   Stock that may be issued, under its Restated Stock Option Plan.  As of the date of this Agreement, except to the extent described in the preceding sentence and Schedule 3.1(d) there are no outstanding options, warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal, agreements, understandings, claims or other commitments or rights of any character whatsoever relating to, or securities or rights convertible into or exchangeable for any shares of capital stock of the Company or any of its Subsidiaries, or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock. (e)           The execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby do not and will not: (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, or (ii) subject to obtaining the Required Approvals (as defined below), conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to any Person any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected or (iv) result in a violation of any rule or regulation of the New York Stock Exchange applicable to the Company or the transactions contemplated hereby; except in the case of each of clauses (ii), (iii) and (iv), such as could not, individually or in the aggregate, have or could reasonably be expected to result in a Material Adverse Effect. (f)            Neither the Company nor any Subsidiary is required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Agreement, other than applicable Blue Sky filings (the “Required Approvals”). (g)           There is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”) which adversely affects or challenges the legality, validity or enforceability of any of this Agreement. (h)           All of the Shares will, when issued, be duly listed and admitted for trading on the New York Stock Exchange. (i)            Assuming the accuracy of the representations and warranties of the Purchaser set forth herein, the offer, issuance and sale of the Shares to the Purchaser as contemplated hereby are exempt from the registration requirements of the Securities Act.  Neither the Company nor any Person acting on the Company’s behalf has sold or offered to sell 5 --------------------------------------------------------------------------------   or solicited any offer to buy the Shares by means of any form of general solicitation or advertising.  The offer, sale and issuance of the Common Stock to the Purchaser pursuant to this Agreement will not be integrated with any other past or current offer, sale and issuance of the Company’s securities under the Securities Act or any regulations of any exchange or automated quotation system on which any of the securities of the Company are listed or designated or for purposes of any stockholder approval provision applicable to the Company or its securities. (j)            The Purchaser has not requested from the Company and the Company has not furnished to the Purchaser, any material non-public information concerning the Company or its subsidiaries. 3.2           Representations and Warranties of the Purchaser.  The Purchaser hereby represents and warrants to the Company as follows: (a)           The Purchaser is an entity duly organized, validly existing and in good standing under the laws of Bermuda with the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and otherwise to carry out its obligations hereunder.  The purchase by the Purchaser of the Shares hereunder has been duly authorized by all necessary action on the part of the Purchaser.  This Agreement has been duly executed by the Purchaser, and when delivered by the Purchaser in accordance with the terms hereof and assuming the Agreement constitutes the legal, valid and binding agreement of the Company, will constitute the valid and legally binding obligation of the Purchaser, enforceable against it in accordance with its terms except as limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws that affect creditors’ rights generally; (ii) equitable limitations on the availability of specific remedies; and (iii) principles of equity. (b)           The Purchaser is the lawful owner of 15,000 shares of Preferred Stock and has good title thereto, free and clear of all liens, claims and encumbrances of any kind, other than liens in favor of Credit Suisse Securities (USA) that will be released on or before the Closing.  Such Preferred Stock and 60,803 shares of Common Stock owned by the Purchaser are the only shares of capital stock of the Company beneficially owned by the Purchaser or its Affiliates. (c)           The Purchaser is acquiring the Shares as principal for its own account for investment purposes only and not with a view to or for distributing or reselling such Shares or any part thereof, without prejudice, however, to the Purchaser’s right, subject to the provisions of this Agreement at all times to sell or otherwise dispose of all or any part of such Shares pursuant to an effective registration statement under the Securities Act or under an exemption from such registration and in compliance with applicable federal and state securities laws.  The Purchaser is acquiring the Shares hereunder in the ordinary course of its business. The Purchaser does not have any agreement or understanding, directly or indirectly, with any Person to distribute any of the Shares. (d)           At the time the Purchaser was offered the Shares, it was, and at the date hereof it is, an “accredited investor” as defined in Rule 501(a) under the Securities Act.  The Purchaser has not been formed solely for the purpose of acquiring the Shares. 6 --------------------------------------------------------------------------------   (e)           The Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Shares, and has so evaluated the merits and risks of such investment. (f)            The Purchaser is able to bear the economic risk of an investment in the Shares and, at the present time, is able to afford a complete loss of such investment. (g)           The Purchaser acknowledges that it has reviewed the 10-K and has been afforded (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Shares and the merits and risks of investing in the Shares; (ii) access to information about the Company and the Subsidiaries and their respective financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment; and (iii) the opportunity to obtain such additional information that the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to the investment. (h)           The Purchaser is not purchasing the Purchased Shares as a result of any advertisement, article, notice or other communication regarding the Purchased Shares published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement. (i)            The Purchaser understands and acknowledges that: (i) the Shares are being offered and sold to it without registration under the Securities Act in a private placement that is exempt from the registration provisions of the Securities Act and (ii) the availability of such exemption, depends in part on, and the Company will rely upon the accuracy and truthfulness of, the foregoing representations and the Purchaser hereby consents to such reliance. ARTICLE IV OTHER AGREEMENTS OF THE PARTIES 4.1           Preferred Rights.  The Purchaser and the Company expressly acknowledge and agree that effective at the Closing, all rights of the Purchaser in and to the Preferred Stock shall cease and the Shares are being received in full satisfaction of any rights associated therewith, including, without limitation, any rights to dividends or redemption payments.  Accordingly, all obligations of the Company under the Purchase and Sale Agreement between the Purchaser and the Company dated December 14, 2001 (the “Prior Purchase Agreement”) shall be deemed satisfied and discharged and the Prior Purchase Agreement shall be cancelled, terminated and of no further force and effect. The Purchaser hereby releases and forever discharges the Company from any and all claims it may have had under the Prior Purchase Agreement or in connection with its ownership of the Preferred Stock. 4.2           Piggy-Back Registrations; Other Registrations.  If at any time between the date hereof and the later of (i) November 30, 2008 and (ii) the date when the Purchaser can resell all of the Purchased Shares pursuant to Rule 144(k) of the Securities Act, the Company shall 7 --------------------------------------------------------------------------------   determine to prepare and file with the Commission a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with a stock option, equity compensation or other employee benefit plans, then the Company shall send to the Purchaser a written notice of such determination as soon as practicable, but in no event less than fifteen (15) days before the anticipated filing date, and, if within ten (10) days after the date of such notice, the Purchaser shall so request in writing, the Company shall include in such registration statement all or any part of the Purchased Shares the Purchaser requests to be registered pursuant to a plan of distribution to be provided by the Purchaser, subject to customary underwriter cutbacks applicable to all holders of registration rights. 4.3           Form D; Blue Sky Laws.  Promptly upon completion of the Closing and in any event within 15 days thereof, the Company shall file with the Commission a Form D with respect to the Shares as required under Regulation D and each applicable state securities commission and will provide a copy thereof to the Purchaser promptly after such filing. 4.4           Transfer Restrictions. (a)           Shares may only be disposed of pursuant to an effective registration statement under the Securities Act, to the Company or pursuant to an available exemption from or in a transaction not subject to the registration requirements of the Securities Act, and in compliance with any applicable state securities laws.  In connection with any transfer of Shares other than pursuant to an effective registration statement or to the Company, except as otherwise set forth herein, the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Shares under the Securities Act.  Notwithstanding the foregoing, the Company hereby consents to and agrees to register on the books of the Company and with any transfer agent for the Shares of the Company, without any such legal opinion, any transfer of Shares by a Purchaser to an Affiliate of the Purchaser, provided that the transferee certifies to the Company that it is an “accredited investor” as defined in Rule 501(a) under the Securities Act and that it is acquiring the Shares solely for investment purposes (subject to the qualifications hereof).  As a condition of transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement and shall have the rights of a Purchaser under this Agreement. (b)           The Purchaser agrees to the imprinting, so long as is required by this Section 4.4(b), of the following legend on the Purchased Shares: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED UNLESS (1) THERE IS AN EFFECTIVE 8 --------------------------------------------------------------------------------   REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT COVERING SUCH SECURITIES, OR (2) THE SALE IS MADE IN ACCORDANCE WITH RULE 144 OR ANOTHER APPLICABLE EXEMPTION UNDER THE SECURITIES ACT. The legend set forth above shall be removed and the Company shall issue a certificate without such legend to any holder of Purchased Shares if, unless otherwise required by state securities laws, such Purchased Shares are sold pursuant to (i) an effective Registration Statement under the Securities Act, (ii) Rule 144 or (iii) another applicable exemption from registration under the Securities Act. 4.5           Furnishing of Information.  From and after the first anniversary of the date hereof, as long as the Purchaser owns Shares, the Company covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act.  Upon the request of the Purchaser, the Company shall deliver to the Purchaser a written certification of a duly authorized officer as to whether it has complied with the preceding sentence. As long as the Purchaser owns Shares, if the Company is not required to file reports pursuant to such laws, it will prepare and furnish to the Purchaser and make publicly available in accordance with Rule 144(c) such information as is required for the Purchaser to sell the Shares under Rule 144.  The Company further covenants that it will take such further action as the Purchaser may reasonably request, all to the extent required from time to time to enable the Purchaser to sell such Shares without registration under the Securities Act within the limitation of the exemptions provided by Rule 144. 4.6           Integration.  The Company shall not, and shall use its best efforts to ensure that no Affiliate of the Company shall, sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Shares in a manner that would require the registration under the Securities Act of the sale of the Shares to the Purchaser or that would require the Company to seek stockholder approval for the issuance of the Shares under any stockholder approval provision applicable to the Company. 4.7           Indemnification of the Purchaser.  The Company will indemnify and hold the Purchaser and its directors, officers, shareholders, partners, employees and agents (each, a “Purchaser Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of or relating to (i) any misrepresentation, breach or inaccuracy, or any allegation by a third party that, if true, would constitute a breach or inaccuracy, of any of the representations and warranties made by the Company in this Agreement, (ii) any breach or non-performance by the Company of any of its covenants, agreements or obligations contained in this Agreement or (iii) any litigation, investigation or proceeding instituted by any Person with respect to this Agreement or the Shares (excluding, however, any such litigation, investigation or proceeding which arises solely from the acts or omissions of the Purchaser Party seeking indemnification or its Affiliates).  The Company will reimburse such Purchaser Party for its reasonable legal and other expenses (including the cost of 9 --------------------------------------------------------------------------------   any investigation, preparation and travel in connection therewith) incurred in connection therewith, as such expenses are incurred. ARTICLE V CONDITIONS TO CLOSING 5.1           Conditions Precedent to the Obligations of the Purchaser.  The obligation of the Purchaser to acquire Shares at the Closing is subject to the satisfaction or waiver by the Purchaser, at or before the Closing, of each of the following conditions: (a)           Representations and Warranties.  The representations and warranties of the Company contained herein shall be true and correct in all material respects (provided however that such materiality qualification shall only apply to representations and warranties not otherwise qualified by materiality) as of the Closing Date; (b)           Performance.  The Company and the Purchaser shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by it at or prior to the Closing; (c)           Consents.  Any consents or approvals required to be secured by the Company for the consummation of the transactions contemplated by this Agreement shall have been obtained and shall be reasonably satisfactory to the Purchaser. (d)           No Injunction.  No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction that prohibits the consummation of any of the transactions contemplated by this Agreement; (e)           Adverse Changes.  Since the date of execution of this Agreement, there shall have been no Material Adverse Effect, nor shall any event or series of events shall have occurred that reasonably could be expected to have or result in a Material Adverse Effect. (f)            No Suspensions of Trading in Common Stock; Listing.  Trading in the Common Stock shall not have been suspended by the Commission or any Trading Market (except for any suspensions of trading of not more than one Trading Day solely to permit dissemination of material information regarding the Company) at any time since the date of execution of this Agreement, and the Common Stock shall be listed for trading on the New York Stock Exchange. (g)           Delivery of Exhibit A.  On or prior to December 6, 2006, the Company shall have delivered the letter set forth in Exhibit A. 5.2           Conditions Precedent to the Obligations of the Company.  The obligation of the Company to sell Shares at the Closing is subject to the satisfaction or waiver by the Company, at or before the Closing, of each of the following conditions: 10 --------------------------------------------------------------------------------   (a)           Representations and Warranties.  The representations and warranties of the Purchaser contained herein shall be true and correct in all material respects as of the Closing Date; and (b)           No Injunction.  No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction that prohibits the consummation of any of the transactions contemplated by this Agreement. (c)           Release of Liens.  Any and all liens by Credit Suisse Securities (USA) on the Preferred Stock shall have been released. ARTICLE VI MISCELLANEOUS 6.1           Entire Agreement.  This Agreement, together with the Exhibits and Schedules hereto, contain the entire understanding of the parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, Exhibits and Schedules. 6.2           Notices.  Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section prior to 5:30 p.m. (New York City time) (with confirmation of transmission) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) (with confirmation of transmission) on any Trading Day, (c) the Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service (next day service specified), or (d) upon actual receipt by the party to whom such notice is required to be given.  The address for such notices and communications shall be as follows: If to the Company: TRC Companies, Inc. 21 Griffin Road North Windsor, Connecticut 06095 Attention: General Counsel and Chief Financial Officer     Telephone: (860) 298-9692     Facsimile: (860) 298-6291         If to the Purchaser: To the address set forth under the Purchaser’s name on the signature pages hereof;   or such other address as may be designated in writing hereafter, in the same manner, by such Person. 11 --------------------------------------------------------------------------------   To the extent that any funds shall be delivered to the Company by wire transfer, unless otherwise instructed by the Company, such funds should be delivered in accordance with the wire instructions set forth on Schedule A. 6.3           Amendments; Waivers.  No provision of this Agreement may be waived or amended except in a written instrument signed, in the case of an amendment, by the Company and the Purchaser or, in the case of a waiver, by the party against whom enforcement of any such waiver is sought. 6.4           Headings.  The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. 6.5           Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns.  The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Purchaser. 6.6           No Third-Party Beneficiaries.  This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except that each Purchaser Party is an intended third party beneficiary of Section 4.7 and may enforce the provision of such Section. 6.7           Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware, without regard to the principles of conflicts of law thereof.  Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto (including its affiliates, agents, officers, directors and employees) hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.  If any party shall commence an action or proceeding to enforce any provisions of this Agreement, then the prevailing party in such action or proceeding shall be reimbursed by the non-prevailing party for its attorneys fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding. 6.8           Survival.  The covenants and representations and warranties contained herein shall survive the Closing and the delivery of the Shares until the three-year anniversary of the Closing Date. 6.9           Execution.  This Agreement may be executed in one or more counterparts, all of which when taken together shall be considered one and the same agreement and shall 12 --------------------------------------------------------------------------------   become effective when counterparts have been signed by each party and delivered to the other parties, it being understood that all parties need not sign the same counterpart.  In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile signature page were an original thereof. 6.10         Severability.  If any provision of this Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision that is a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement. 6.11         Remedies.  In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, the Purchaser and the Company will be entitled to specific performance under this Agreement.  The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations described in the foregoing sentence and hereby agrees to waive in any action for specific performance of any such obligation the defense that a remedy at law would be adequate. 6.12         Publicity.  The Company and the Purchaser shall have the right to review for a reasonable period of time before issuing any press releases or any other public statements with respect to the transactions contemplated hereby; provided, however, that the Company shall be entitled, without the prior approval of the Purchaser, to make any press release with respect to such transactions as is required by applicable law and regulations (although the Purchaser shall be consulted by the Company in connection with any such press release prior to its release and shall be provided with a copy thereof and be given an opportunity to comment thereon).  Notwithstanding the foregoing, the Company shall file with the SEC a Form 8-K disclosing the transactions herein within two (2) business days of the Closing Date and attach the relevant agreements and instruments to either such Form 8-K or the first Quarterly Report on Form 10-Q filed by the Company following the Closing Date. [SIGNATURE PAGES FOLLOW] 13 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties hereto have caused this Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above. TRC COMPANIES, INC.         By: /s/ Martin H. Dodd   Name: Martin H. Dodd   Title: Secretary   --------------------------------------------------------------------------------   FLETCHER INTERNATIONAL, LTD., by its duly authorized investment advisor, FLETCHER ASSET MANAGEMENT, INC.         By: /s/ Peter Zayfert   Name: Peter Zayfert   Title: Authorized Signatory           By: /s/ Michael McCarville   Name: Michael McCarville   Title: Authorized Signatory   Address for Notice:       Fletcher International, Ltd.   c/o A. S. & K. Services Ltd.   Cedar House, 41 Cedar Avenue   Hamilton HM EX Bermuda   Attention:   Telephone: 441-295-2244   Facsimile: 441-292-8666       with a copy to:       Fletcher Asset Management, Inc.   48 Wall Street   5th Floor   New York, NY 10005   Attention:   Telephone: (212) 284-4800   Facsimile: (212) 284-4801       with a copy (which copy shall not constitute notice) to:       Skadden, Arps, Slate, Meagher & Flom LLP   525 University Avenue, Suite 1100   Palo Alto, CA 94301   Attention: Leif King, Esq.   Telephone: (650) 470-4500   Facsimile: (650) 470-4570   --------------------------------------------------------------------------------

AMENDMENT NO. 1 TO AMENDED AND RESTATED LOAN AGREEMENT         This AMENDMENT NO. 1 TO THE AMENDED AND RESTATED LOAN AGREEMENT (the "Amendment") is being made and entered into as of the 20th day of September, 2006, by and between German American Bancorp, Inc. (formerly known as German American Bancorp) ("Borrower"), and JPMorgan Chase Bank, NA., a national banking association (“Lender”). WITNESSETH THAT:         WHEREAS, the parties entered into the Amended and Restated Loan Agreement as of September 20, 2005 (the “Agreement”); and         WHEREAS, Borrower and Lender desire to renew and extend the Revolving Loan Termination Date; and         WHEREAS, the parties hereto desire to amend the Agreement as set forth below.         NOW, THEREFORE, the parties agree as follows:         Section 1.     Definitions; References.     Unless otherwise specifically defined herein, each term used herein, which is defined in the Agreement, shall have the meaning assigned to such term in the Agreement. Except as amended and supplemented hereby, all the terms of the Agreement shall remain and continue in full force and effect and are hereby confirmed in all respects.         Section 2.     Amendment To Section 1.     Section 1 of the Agreement is hereby amended by amending and restating the definition of the term “Revolving Loan Termination Date” to read as follows:   “Revolving Loan Termination Date” shall means September 20, 2007, or such earlier date on which the Revolving Credit Commitment shall be terminated or reduced to zero in accordance with the terms of this Agreement, including, without limitation, the limitation described in Section 3.2(e).         Section 3.     Amendment to Section 3.1.     The fourth sentence in Section 3.1 of the Agreement (which includes the definition of the term “Revolving Note”) is hereby amended and restated in its entirety to read as follows:   The Revolving Loan made by Lender to Borrower under this subsection 3.1 shall be evidenced by a promissory note dated as of September 20, 2006, in the form of Exhibit A (the “Revolving Note”) to the Amendment No. 1 to Amended and Restated Loan Agreement dated as of September 20, 2006, by and between Borrower and Lender.         Section 4.     Consent to Consolidation of Bank Subsidiaries.     Borrower has informed Lender that Borrower intends to consolidate all of Borrower’s Bank Subsidiaries into a new bank to be incorporated under Indiana law, to be named German American Bancorp, and to cause its new Bank Subsidiary, German American Bancorp, to operate through divisions having the trade names of the former Bank Subsidiaries, and Lender hereby consents to such consolidation for purposes of Sections 8.3 and 8.4 of the Agreement.         Section 5.     Representations and Warranties.     To induce Lender to enter into this Amendment, Borrower warrants and represents to Lender that as of the date hereof:         (a)         Power; No Conflict.     The execution and delivery of this Amendment, and the performance by Borrower of his duties and obligations under this Amendment, and the Revolving Note, are within Borrower’s power and capacity, have received all necessary governmental approval, and do not and will not contravene or conflict with or result in any violation of or loss of a material benefit under or permit acceleration of any obligation under any provision of law or of any agreement, indenture or instrument binding upon Borrower.         (b)         Validity, and Binding Nature.     This Amendment is, and will be, the legal, valid and binding obligation of Borrower enforceable against Borrower in accordance with its terms, except, with regard to enforceability, as Lender’s rights may be affected by applicable bankruptcy and insolvency law and principles of equity.         (c)         No Default.     No Event of Default (as defined in the Agreement) has occurred and is continuing or will result from the execution and delivery of this Amendment, and the representations and warranties of Borrower contained in this Amendment and the Agreement are true and correct as of the date hereof.         Section 6.     Documents.     Lender shall have received this Amendment, the Revolving Note, and all of the following; each duly executed and dated the date of this Amendment, in form and substance satisfactory to Lender:         (a)         Confirmatory Certificate.     A certificate signed by Borrower as to the matters set out in Section 11(c) and Section 11(d) and as to the compliance by Borrower with all of the conditions precedent to the making of this Amendment.         (b)         Consents. etc.     Certified copies of all documents evidencing any necessary action, consents and governmental approvals, including, without limitation, all consents, approvals, filings and registrations of or with any Federal or state governmental authorities, with respect to this Amendment.         (c)         Updated Exhibits.     Updated Exhibits 8. 1(b), 8.1(v), 8.l(aa)(i) and 8.l(cc) to the Agreement.         (d)         Other.     Such other documents as Lender may reasonably request.         (e)         Lender Review.     Lender shall have completed such review of Borrower as it deems necessary in its sole discretion. 2         Section 7.     Security for the Term Note and Events of Default.     Borrower and Lender hereby agree that all of the obligations of Borrower hereunder and under the Agreement and the Term Note (as originally issued and as reissued) are part of Borrower’s Liabilities (as defined in the Agreement) and that the Collateral (as defined in the Agreement and amended hereby) has been pledged by Borrower to secure Borrower’s payment of all of Borrower’s Liabilities.         Section 8.     Headings, Etc.     The section headings contained in this Amendment are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Amendment.         Section 9.     Governing Law.     This Amendment shall be a contract made under and governed by the internal laws of the State of Illinois.         Section 10.     Survival.     All covenants, agreements, representations and warranties made herein shall be deemed to have been material and relied upon by Lender and shall survive the execution and delivery of this Amendment and any and all of the other documents.         Section 11.     Successors and Assigns.     This Amendment shall be binding upon Borrower and Lender and their respective successors and assigns, and shall inure to the benefit of Borrower and Lender and the respective successors and assigns of Lender.         Section 12.     Cost and Expenses.     Borrower agrees to pay all reasonable attorneys’ fees and expenses incurred by Lender in connection with the negotiation and preparation of this Amendment.         Section 13.     Counterparts; Effectiveness.     This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. When counterparts executed by all the parties shall have been lodged with Lender, this Amendment shall become effective as of the date set forth above.         IN WITNESS WHEREOF, the undersigned have caused this Amendment to be executed as of the day and year first above written.   GERMAN AMERICAN BANCORP, INC. By:  /s/ Mark A. Schroeder -------------------------------------------------------------------------------- Name:  Mark A. Schroeder -------------------------------------------------------------------------------- Title:  President and CEO --------------------------------------------------------------------------------   JPMORGAN CHASE BANK, N.A. By:  /s/ Milena Kostadinova -------------------------------------------------------------------------------- Name:  Milena Kostadinova -------------------------------------------------------------------------------- Title:  Officer -------------------------------------------------------------------------------- 3 Exhibit "A" $15,000,000.00 Chicago Illinois September 20, 2006 REVOLVING NOTE         FOR VALUE RECEIVED, the undersigned, German American Bancorp, Inc., an Indiana corporation, formerly known as German American Bancorp. ("Borrower"), hereby unconditionally promises to pay to the order of JPMorgan Chase Bank, N.A., a national banking association (“Lender”), at the office of Lender at 120 South LaSalle Street, Chicago, Illinois 60603, or at such other place as the holder of this Note may from time to time designate in writing, on the Revolving Loan Termination Date (as defined in the Loan Agreement), in lawful money of the United States of American and in immediately available funds, the principal sum of FIFTEEN MILLION AND 00/100 DOLLARS ($15,000,000.00), or, if less, the aggregate unpaid principal amount of all advances made by Lender pursuant to subsection 3.1 of the Loan Agreement. This Note is referred to as the "Revolving Note" in and was executed and delivered pursuant to that certain Amended and Restated Loan Agreement, dated as of September 20, 2005, between Borrower and Lender, as amended by Amendment No. I to Amended and Restated Loan Agreement, dated as of September 20, 2006, between Borrower and Lender (collectively, as amended, modified or supplemented from time to time, the “Loan Agreement”), to which reference is hereby made for a statement of the terms and conditions under which the loans evidenced hereby were made and are to be repaid. All terms which are capitalized and used herein (which are not otherwise specifically defined herein) and which are defined in the Loan Agreement shall be used in this Note as defined in the Loan Agreement.         Borrower further promises to pay interest at said office on the unpaid principal amount hereof from time to time outstanding at the rates and on the dates specified in subsection 3.4 of, or as otherwise provided in, the Loan Agreement. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed.         Subject to the provisions contained in the Loan Agreement relating to the determination of Interest Periods for LIBOR Rate Advances, if any payment hereunder becomes due and payable on a day other than a Business Day, the due date thereof shall be extended to the next succeeding Business Day, and interest shall be payable thereon during such extension at the rate specified above. In no contingency or event whatsoever shall interest charged hereunder, however such interest may be characterized or computed, exceed the highest rate permissible under any law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. In the event that such a court determines that Lender has received interest hereunder in excess of the highest rate applicable hereto, Lender shall apply such excess to the reduction of the unpaid principal amount hereof or if such excess exceeds the unpaid principal balance refund such excess interest to Borrower.         Except as otherwise agreed in the Loan Agreement, payments received by Lender from Borrower on this Note shall be applied first to the payment of interest which is due and payable and only thereafter to the outstanding principal balance hereof, subject to Lender’s rights to otherwise apply such payments as provided in the Loan Agreement.         At any time a Default has occurred and is continuing or as otherwise provided in the Loan Agreement, this Note may, at the option of Lender, and without prior demand, notice or legal process of any kind (except as otherwise expressly required in the Loan Agreement), be declared, and thereupon immediately shall become, due and payable. This Note shall also become immediately due and payable upon termination of the Loan Agreement.         Borrower, and all endorsers and other persons obligated hereon, hereby waive presentment, demand, protest, notice of demand, notice of protest and notice of nonpayment and agree to pay all costs of collection, including reasonable attorneys’ fees and expenses.         This Note evidences the renewal and extension of maturity of the indebtedness evidenced by that certain Revolving Note in the stated principal sum of $15,000,000.00 dated as of September 20, 2005, made by Borrower payable to the order of Lender.         This Note has been delivered at and shall be deemed to have been made at Chicago, Illinois and shall be interpreted and the rights and liabilities of the parties hereto determined in accordance with the internal laws (as opposed to conflicts of law provisions) and decisions of the State of Illinois. Whenever possible each provision of this Note shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Note shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Note.         Whenever in this Note reference is made to Lender or Borrower, such reference shall be deemed to include, as applicable, a reference to their respective successors and assigns. The provisions of this Note shall be binding upon and shall inure to the benefit of said successors and assigns. Borrower’s successors and assigns shall include, without limitation, a receiver, trustee or debtor in possession of or for Borrower.   German American Bancorp, Inc. By:   -------------------------------------------------------------------------------- Name:   -------------------------------------------------------------------------------- Title:   --------------------------------------------------------------------------------

            (NORTEL LOGO) [o19217o1921700.gif]   Exhibit 10.65   (LOGO) [o19217o1921701.gif] January 18, 2006 Mr. Mike S. Zafirovski 1291 North Green Bay Road Lake Forest, Illinois 60045 Dear Mike: This letter will confirm our discussions concerning the terms and conditions on which Nortel Networks Corporation and/or Nortel Networks Limited (collectively or individually “Nortel”) will indemnify you, net of any tax benefits received by you, for the loss of certain of your severance benefits provided for in the Motorola Separation Agreement (as defined below) by reason of your agreement to settle the legal proceeding commenced by Motorola, Inc. (“Motorola”) against you in the Circuit Court of Cook County, Illinois, County Department, Chancery Division on October 18, 2005 (the “Motorola Proceeding”) in response to your acceptance of Nortel’s offer of employment as the president and chief executive officer of Nortel. In consideration of the foregoing, Nortel hereby agrees with you as follows: 1.   Nortel will indemnify and hold you harmless for the full amount of your Indemnifiable Losses net of any Tax Benefits (as defined below).       For the purposes of this agreement, “Indemnifiable Losses” means the $11.5 million which you paid to Motorola pursuant to the terms of the Settlement Agreement.       “Motorola Separation Agreement” means the Separation and Release Agreement between you and Motorola dated February 15, 2005.       “Settlement Agreement” means the agreement between Motorola, Nortel and you dated October 31, 2005.           2.   (a)   If Nortel is required to withhold or deduct any amount for or on account of Taxes (as defined below) from any payment to you on account of Indemnifiable Losses pursuant to Section 1 hereof, Nortel will pay to you such additional amounts (the “Additional Amounts”), net of any Tax Benefits, as may be necessary so that the net amount received by you (including the Additional Amounts) after such withholding or deduction Gordon A.Davies General Counsel – Corporate and Corporate Secretary Nortel 8200 Dixie Road Suite 100 Brampton Ontario Canada L6T 5P6 T 905.863.1144 (ESN 333) F905.863.8386 nortel.com   --------------------------------------------------------------------------------   Page 2 of 3       will not be less than the amount you would have received under Section 1 hereof if such Taxes had not been withheld or deducted, net of any Tax Benefits.   (b)   Nortel will also indemnify and hold you harmless for:   (i)   the full amount of any Taxes, net of any Tax Benefits, levied or imposed and paid by you in connection with the receipt by you of any payment on account of Indemnifiable Losses pursuant to Section 1 hereof to the extent such Taxes exceed the Additional Amounts paid to you pursuant to Section 2(a) hereof, and     (ii)   any Taxes levied or imposed and paid by you with respect to any payments made to you under clause (i) above and under this clause (ii).   (c)   For the purposes of this agreement:         “Tax Benefits” means a reduction in Taxes payable by you as a result of a deduction in computing wages or taxable income, or a credit against Taxes payable by you, to which you are entitled as a result of a payment made by you to Motorola pursuant to the terms of the Settlement Agreement in respect to the Indemnifiable Losses. For greater certainty, Tax Benefits include but are not limited to the following: i) the net reduction in taxes payable as a result of your Motorola W-2 wages being reduced by the amount of your repayment to Motorola (which was funded by Nortel), ii) the reduction in current, past or future taxes that may be created as a result of repayments you make to Nortel of other Tax Benefits (including non-operating losses created) and iii) foreign tax credits against current, future or past taxes payable, created from Canadian taxes paid by Nortel as a result of the Indemnifiable Loss reimbursement to you.         “Taxes” means all United States, Canada and other nations’ federal, provincial, state, local and foreign taxes, duties, assessments, social security taxes or governmental charges imposed or levied in respect to the relevant amounts referred to in this Section 2. 3.   Nortel further agrees to pay or reimburse you for the reasonable legal fees and expenses incurred by you in connection with the Motorola Proceeding and for the negotiation and preparation of the Settlement Agreement and this agreement, and for advice and representation since October 31, 2005 regarding your activities for Nortel under the Settlement Agreement.   4.   This agreement and the benefit of the obligations of Nortel hereunder shall inure to the benefit of you, your heirs, estate, executors and administrators and shall be binding upon Nortel’s successors and assigns.   --------------------------------------------------------------------------------   Page 3 of 3 5.   This agreement shall in all respects be governed by and construed in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein, and all disputes, claims or matters arising out of or under it shall be governed by such laws.   6.   All dollar amounts used herein are expressed in United States dollars. If the foregoing is acceptable, please indicate your agreement to the above terms and conditions by signing the enclosed copy of this letter and returning it to me. Yours truly, Nortel Networks Corporation Nortel Networks Limited           By:         /s/ Gordon A. Davies           Gordon A. Davies         General Counsel – Corporate and         Corporate Secretary     The foregoing is accepted and agreed to by me this 26 day of January , 2006.             SIGNED AND DELIVERED in the presence of   ü ï ý ï þ                 /s/ D. L. Warnock                   Witness   /s/ M. S. Zafirovski                   Mike Zafirovski      

Exhibit 10.1   Execution Version   DEPOSIT ACCOUNT CONTROL AGREEMENT   This Deposit Account Control Agreement (this “Agreement”) dated as of July 26, 2006, is made by and among HSBC Automotive Trust (USA) 2006-2, as issuer (the “Issuer”), The Bank of New York, as indenture trustee (the “Indenture Trustee”) under the Indenture referred to below, and HSBC Bank USA, National Association, as administrator and as bank (“HSBC” and, in its capacity as Administrator, the “Administrator”, and in its capacity as bank, the “Bank”). Capitalized terms used but not defined herein shall have the meaning assigned (including by reference therein) in the Indenture dated as of July 26, 2006 (the “Indenture”) among the Issuer, HSBC, as administrator, and the Indenture Trustee. All references herein to the “UCC” shall mean the Uniform Commercial Code as in effect in the State of New York.   SECTION 1.              ESTABLISHMENT OF DEPOSIT ACCOUNTS. THE BANK HEREBY CONFIRMS AND AGREES THAT:   (A)   THE BANK HAS ESTABLISHED ACCOUNT NUMBERS 10-879533 (THE “COLLECTION ACCOUNT”) AND 10-879534 (THE “RESERVE ACCOUNT”) IN THE NAME “HSBC BANK USA, NATIONAL ASSOCIATION, AS ADMINISTRATOR ON BEHALF OF THE BANK OF NEW YORK, AS INDENTURE TRUSTEE, IN TRUST FOR THE REGISTERED HOLDERS OF HSBC AUTOMOTIVE TRUST (USA) 2006-2 NOTES” (SUCH ACCOUNTS AND ANY SUCCESSOR ACCOUNTS THEREOF, THE “DEPOSIT ACCOUNTS”) DESIGNATED AS THE “COLLECTION ACCOUNT” AND THE “RESERVE ACCOUNT”, RESPECTIVELY, PURSUANT TO THE INDENTURE. EXCEPT AS PROVIDED IN SECTION 12 HEREOF, THE BANK SHALL NOT CHANGE THE NAME, ACCOUNT NUMBER OR DESIGNATION OF THE DEPOSIT ACCOUNTS WITHOUT THE PRIOR WRITTEN CONSENT OF THE INDENTURE TRUSTEE AND WITHOUT PRIOR WRITTEN NOTICE TO THE SERVICER, WHICH NOTICE SHALL STATE THE PROPOSED EFFECTIVE DATE OF ANY SUCH CHANGE;   (B)   THE BANK IS AN ORGANIZATION ENGAGED IN THE BUSINESS OF BANKING AND IS ACTING IN SUCH CAPACITY IN MAINTAINING THE DEPOSIT ACCOUNTS AND ACTING AS BANK HEREUNDER;   (C)   EACH DEPOSIT ACCOUNT HAS BEEN ESTABLISHED AND WILL BE MAINTAINED AS A “DEPOSIT ACCOUNT”(AS DEFINED IN SECTION 9-102(29) OF THE UCC) AND IS NOT EVIDENCED BY AN “INSTRUMENT” (AS DEFINED IN SECTION 9-102(47) OF THE UCC);   (D)   THE INDENTURE TRUSTEE IS THE BANK’S SOLE “CUSTOMER” (WITHIN THE MEANING OF SECTION 9-104 OF THE UCC) WITH RESPECT TO THE DEPOSIT ACCOUNTS;   (E)   ALL CASH AND MONEY DELIVERED TO THE BANK PURSUANT TO THE INDENTURE WILL BE PROMPTLY CREDITED TO THE DEPOSIT ACCOUNTS IN ACCORDANCE WITH THE TERMS OF THE BASIC DOCUMENTS; AND   (F)    THE BANK’S “JURISDICTION” (WITHIN THE MEANING OF SECTION 9-304 OF THE UCC) IS THE STATE OF NEW YORK.   SECTION 2.              INDENTURE TRUSTEE’S DIRECTIONS. NOTWITHSTANDING ANYTHING TO THE CONTRARY AND FOR THE AVOIDANCE OF DOUBT, IF AT ANY TIME THE BANK SHALL RECEIVE ANY INSTRUCTIONS ORIGINATED BY THE INDENTURE TRUSTEE DIRECTING THE DISPOSITION OF FUNDS IN THE DEPOSIT ACCOUNTS, THE BANK SHALL COMPLY WITH SUCH INSTRUCTIONS WITHOUT FURTHER CONSENT BY THE ISSUER OR ANY OTHER PERSON. THE PARTIES HERETO ACKNOWLEDGE THAT THE ADMINISTRATOR MAY GIVE INSTRUCTIONS TO THE BANK DIRECTING THE DISPOSITION OF FUNDS IN THE DEPOSIT ACCOUNTS PURSUANT TO THE INDENTURE. IN THE EVENT OF A CONFLICT BETWEEN THE INSTRUCTIONS ORIGINATED BY THE INDENTURE TRUSTEE AND THE   --------------------------------------------------------------------------------   INSTRUCTIONS ORIGINATED BY THE ADMINISTRATOR DIRECTING THE DISPOSITION OF FUNDS IN THE DEPOSIT ACCOUNTS, THE INSTRUCTIONS OF THE INDENTURE TRUSTEE SHALL PREVAIL.   SECTION 3.              SUBORDINATION OF LIENS; WAIVER OF SET-OFF. IN THE EVENT THAT THE BANK HAS OR SUBSEQUENTLY OBTAINS BY AGREEMENT, BY OPERATION OF LAW OR OTHERWISE, A SECURITY INTEREST OR OTHER RIGHTS IN THE DEPOSIT ACCOUNTS OR ANY MONIES CREDITED THERETO, THE BANK HEREBY AGREES THAT SUCH SECURITY INTEREST SHALL BE SUBORDINATE TO THE SECURITY INTEREST OF THE INDENTURE TRUSTEE. THE MONIES DEPOSITED IN THE DEPOSIT ACCOUNTS WILL NOT BE SUBJECT TO DEDUCTION, SET-OFF, BANKER’S LIEN, OR ANY OTHER RIGHT IN FAVOR OF ANY PERSON OTHER THAN THE INDENTURE TRUSTEE (EXCEPT THAT THE BANK MAY SET OFF (I) ALL AMOUNTS DUE TO THE BANK IN RESPECT OF CUSTOMARY FEES AND EXPENSES FOR THE ROUTINE MAINTENANCE AND OPERATION OF THE DEPOSIT ACCOUNTS AND (II) THE FACE AMOUNT OF ANY CHECKS WHICH HAVE BEEN CREDITED TO THE DEPOSIT ACCOUNTS BUT ARE SUBSEQUENTLY RETURNED UNPAID BECAUSE OF UNCOLLECTED OR INSUFFICIENT FUNDS).   SECTION 4.              GOVERNING LAW. BOTH THIS AGREEMENT AND THE DEPOSIT ACCOUNTS SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED THEREIN. REGARDLESS OF ANY PROVISION IN ANY OTHER AGREEMENT, FOR PURPOSES OF THE UCC, THE STATE OF NEW YORK SHALL BE DEEMED TO BE THE BANK’S JURISDICTION (IN ACCORDANCE WITH SECTION 9-304(B) OF THE UCC), AND THE DEPOSIT ACCOUNTS SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.   SECTION 5.              CONFLICT WITH OTHER AGREEMENTS; AMENDMENTS.   (A)   IN THE EVENT OF ANY CONFLICT BETWEEN THIS AGREEMENT (OR ANY PORTION THEREOF) AND ANY OTHER AGREEMENT NOW EXISTING OR HEREAFTER ENTERED INTO REGARDING THE DEPOSIT ACCOUNTS, THE TERMS OF THIS AGREEMENT SHALL PREVAIL.   (B)   NO AMENDMENT OR MODIFICATION OF THIS AGREEMENT OR WAIVER OF ANY RIGHT HEREUNDER SHALL BE BINDING ON ANY PARTY HERETO UNLESS IT IS IN WRITING AND IS SIGNED BY ALL OF THE PARTIES HERETO. THIS AGREEMENT MAY NOT BE AMENDED WITHOUT SATISFACTION OF THE RATING AGENCY CONDITION.   (C)   THE BANK, STRICTLY IN SUCH CAPACITY, HEREBY CONFIRMS AND AGREES THAT IT HAS NOT ENTERED INTO, AND UNTIL THE TERMINATION OF THIS AGREEMENT WILL NOT ENTER INTO, ANY AGREEMENT WITH THE ISSUER, THE INDENTURE TRUSTEE OR ANY OTHER PERSON PURPORTING TO LIMIT OR CONDITION THE OBLIGATION OF THE BANK TO COMPLY WITH THE INDENTURE TRUSTEE’S DIRECTIONS OR INSTRUCTIONS WITH RESPECT TO THE DEPOSIT ACCOUNTS.   SECTION 6.              ADVERSE CLAIMS. EXCEPT FOR THE CLAIMS AND INTEREST OF THE INDENTURE TRUSTEE AND THE ISSUER IN THE DEPOSIT ACCOUNTS, THE BANK DOES NOT KNOW OR HAVE NOTICE OF ANY CLAIM TO, OR INTEREST IN, THE DEPOSIT ACCOUNTS. IF THE BANK OBTAINS ACTUAL KNOWLEDGE OF ANY PERSON ASSERTING ANY LIEN, ENCUMBRANCE OR ADVERSE CLAIM (INCLUDING ANY WRIT, GARNISHMENT, JUDGMENT, WARRANT OF ATTACHMENT, EXECUTION OR SIMILAR PROCESS) AGAINST THE DEPOSIT ACCOUNTS, THE BANK WILL PROMPTLY NOTIFY THE INDENTURE TRUSTEE AND THE ISSUER THEREOF.   SECTION 7.              MAINTENANCE OF DEPOSIT ACCOUNTS. THE BANK WILL PROMPTLY SEND COPIES OF ALL STATEMENTS, CONFIRMATIONS AND OTHER CORRESPONDENCE CONCERNING THE DEPOSIT ACCOUNTS   2   --------------------------------------------------------------------------------   SIMULTANEOUSLY TO THE INDENTURE TRUSTEE, THE SERVICER AND THE ISSUER AT THE ADDRESSES SET FORTH IN SECTION 11 OF THIS AGREEMENT.   SECTION 8.              REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BANK. THE BANK HEREBY MAKES THE FOLLOWING REPRESENTATIONS, WARRANTIES AND COVENANTS:   (A)           THE DEPOSIT ACCOUNTS HAVE BEEN ESTABLISHED AS SET FORTH IN SECTION 1 ABOVE, AND THE DEPOSIT ACCOUNTS WILL BE MAINTAINED IN THE MANNER SET FORTH HEREIN UNTIL TERMINATION OF THIS AGREEMENT; AND   (B)           THIS AGREEMENT IS THE VALID AND LEGALLY BINDING OBLIGATION OF THE BANK.   SECTION 9.              EXCULPATORY PROVISIONS; INDEMNIFICATION OF BANK. THE ISSUER AND THE INDENTURE TRUSTEE HEREBY AGREE THAT THE BANK IS RELEASED FROM ANY AND ALL LIABILITIES TO THE ISSUER AND THE INDENTURE TRUSTEE ARISING FROM THE TERMS OF THIS AGREEMENT AND THE COMPLIANCE OF THE BANK WITH THE TERMS HEREOF, EXCEPT TO THE EXTENT THAT SUCH LIABILITIES ARISE FROM THE BANK’S WILLFUL MISCONDUCT, NEGLIGENCE OR BAD FAITH. THE ISSUER AND ITS SUCCESSORS AND ASSIGNS SHALL AT ALL TIMES INDEMNIFY AND SAVE HARMLESS THE BANK FROM AND AGAINST ANY AND ALL CLAIMS, ACTIONS AND SUITS OF OTHERS ARISING OUT OF THE TERMS OF THIS AGREEMENT OR THE COMPLIANCE OF THE BANK WITH THE TERMS HEREOF, AND FROM AND AGAINST ANY AND ALL LIABILITIES, LOSSES, DAMAGES, COSTS, CHARGES, COUNSEL FEES AND OTHER EXPENSES OF EVERY NATURE AND CHARACTER ARISING BY REASON OF THE SAME, EXCEPT TO THE EXTENT THAT SUCH ARISES FROM THE BANK’S WILLFUL MISCONDUCT, NEGLIGENCE OR BAD FAITH. THIS SECTION 9 SHALL SURVIVE THE TERMINATION OF THIS AGREEMENT.   SECTION 10.            SUCCESSORS; ASSIGNMENT. THE TERMS OF THIS AGREEMENT SHALL BE BINDING UPON, AND SHALL INURE TO THE BENEFIT OF, THE PARTIES HERETO AND THEIR RESPECTIVE CORPORATE SUCCESSORS WHO OBTAIN SUCH RIGHTS SOLELY BY OPERATION OF LAW. IN THE CASE OF AN ASSIGNMENT OF THIS AGREEMENT, NOTICE SHALL BE PROVIDED TO THE RATING AGENCIES.   SECTION 11.            NOTICES. ANY NOTICE, REQUEST OR OTHER COMMUNICATION REQUIRED OR PERMITTED TO BE GIVEN UNDER THIS AGREEMENT SHALL BE IN WRITING AND DEEMED TO HAVE BEEN PROPERLY GIVEN WHEN DELIVERED IN PERSON, OR WHEN SENT BY TELECOPY OR OTHER ELECTRONIC MEANS AND ELECTRONIC CONFIRMATION OF ERROR FREE RECEIPT IS RECEIVED OR TWO DAYS AFTER BEING SENT BY CERTIFIED OR REGISTERED UNITED STATES MAIL, RETURN RECEIPT REQUESTED, POSTAGE PREPAID, ADDRESSED TO THE PARTY AT THE ADDRESS SET FORTH BELOW.   Issuer: HSBC Automotive Trust (USA) 2006-2 c/o U.S. Bank Trust National Association 209 South LaSalle Street, Suite 300 Chicago, Illinois 60604 Attention: Corporate Trust Services, HSBC Automotive Trust (USA) 2006-2 Telephone Number:  (312) 325-8902 Facsimile:  (312) 325-8905   3 --------------------------------------------------------------------------------   Indenture Trustee: The Bank of New York 101 Barclay Street, 8 West ABS New York, New York 10286 Attention: Structured Finance, HSBC Automotive Trust (USA) 2006-2 Telephone Number:  (212) 815-6019 Facsimile:  (212) 815-2493     Bank: HSBC Bank USA, National Association 452 Fifth Avenue New York, New York 10018 Attention: Corporate Trust Telephone Number:  (212) 525-1367 Facsimile:  (212) 525-1300       Servicer: HSBC Finance Corporation 2700 Sanders Road Prospect Heights, Illinois 60070 Attention: Treasurer Telephone Number:  (847) 564-5000 Facsimile:  (847) 205-7538     Any party may change his address for notices in the manner set forth above.   SECTION 12.            TERMINATION. THE OBLIGATIONS OF THE BANK TO THE INDENTURE TRUSTEE PURSUANT TO THIS AGREEMENT SHALL CONTINUE IN EFFECT UNTIL THE SECURITY INTEREST OF THE INDENTURE TRUSTEE IN THE DEPOSIT ACCOUNTS HAS BEEN TERMINATED PURSUANT TO THE TERMS OF THE INDENTURE AND THE INDENTURE TRUSTEE HAS NOTIFIED THE BANK OF SUCH TERMINATION IN WRITING.   SECTION 13.            LIMITED RECOURSE.  NOTWITHSTANDING ANY OTHER PROVISION CONTAINED HEREIN OR IN ANY OF THE BASIC DOCUMENTS, THE LIABILITY OF THE ISSUER TO THE INDENTURE TRUSTEE AND THE BANK HEREUNDER IS LIMITED IN RECOURSE TO THE SERIES TRUST ESTATE AND TO THE EXTENT THE PROCEEDS OF THE SERIES TRUST ESTATE, WHEN APPLIED IN ACCORDANCE WITH SECTION 4.04 OF THE SERIES SUPPLEMENT, DATED AS OF JULY 26, 2006, AMONG HSBC FINANCE CORPORATION, AS SERVICER, THE ISSUER, HSBC AUTO RECEIVABLES CORPORATION, AS SELLER, THE INDENTURE TRUSTEE, THE OWNER TRUSTEE AND THE ADMINISTRATOR, ARE INSUFFICIENT TO MEET THE OBLIGATIONS OF THE ISSUER HEREUNDER IN FULL, THE ISSUER SHALL HAVE NO FURTHER LIABILITY IN RESPECT OF ANY SUCH OUTSTANDING OBLIGATIONS WHICH SHALL THEREUPON EXTINGUISH AND SHALL NOT THEREAFTER REVIVE.   SECTION 14.            NON-PETITION.  NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, NEITHER THE INDENTURE TRUSTEE NOR THE BANK, IN ITS CAPACITY AS BANK HEREUNDER, MAY, PRIOR TO THE DATE WHICH IS ONE YEAR (OR, IF LONGER, THE APPLICABLE PREFERENCE PERIOD THEN IN EFFECT) AND ONE DAY AFTER THE PAYMENT IN FULL OF ALL NOTES, INSTITUTE AGAINST, OR JOIN ANY OTHER PERSON IN INSTITUTING AGAINST, THE ISSUER ANY BANKRUPTCY, REORGANIZATION, ARRANGEMENT, INSOLVENCY, MORATORIUM OR LIQUIDATION PROCEEDINGS, OR OTHER PROCEEDINGS UNDER FEDERAL OR STATE BANKRUPTCY OR SIMILAR LAWS.   4 --------------------------------------------------------------------------------   SECTION 15.            COUNTERPARTS. THIS AGREEMENT MAY BE EXECUTED IN ANY NUMBER OF COUNTERPARTS, ALL OF WHICH SHALL CONSTITUTE ONE AND THE SAME INSTRUMENT, AND ANY PARTY HERETO MAY EXECUTE THIS AGREEMENT BY SIGNING AND DELIVERING ONE OR MORE COUNTERPARTS.   SECTION 16.            HEADINGS. THE HEADINGS OF THE SECTIONS OF THIS AGREEMENT ARE INSERTED FOR PURPOSES OF CONVENIENCE ONLY AND SHALL NOT BE CONSTRUED TO AFFECT THE MEANING OR CONSTRUCTION OF ANY OF THE PROVISIONS HEREOF.   SECTION 17.            OWNER TRUSTEE LIMITATION OF LIABILITY. IT IS EXPRESSLY UNDERSTOOD AND AGREED BY THE PARTIES HERETO THAT (A) THIS AGREEMENT IS EXECUTED AND DELIVERED BY THE OWNER TRUSTEE, NOT INDIVIDUALLY OR PERSONALLY BUT SOLELY AS OWNER TRUSTEE OF THE ISSUER UNDER THE TRUST AGREEMENT, IN THE EXERCISE OF THE POWERS AND AUTHORITY CONFERRED AND VESTED IN IT, (B) EACH OF THE REPRESENTATIONS, UNDERTAKINGS AND AGREEMENTS HEREIN MADE ON THE PART OF THE ISSUER IS MADE AND INTENDED NOT AS PERSONAL REPRESENTATIONS, UNDERTAKINGS AND AGREEMENTS BY THE OWNER TRUSTEE BUT IS MADE AND INTENDED FOR THE PURPOSE OF BINDING ONLY THE ISSUER, (C) NOTHING HEREIN CONTAINED SHALL BE CONSTRUED AS CREATING ANY LIABILITY ON THE OWNER TRUSTEE INDIVIDUALLY OR PERSONALLY, TO PERFORM ANY COVENANT EITHER EXPRESSED OR IMPLIED CONTAINED HEREIN, ALL SUCH LIABILITY, IF ANY, BEING EXPRESSLY WAIVED BY THE PARTIES TO THIS AGREEMENT AND BY ANY PERSON CLAIMING BY, THROUGH OR UNDER THEM AND (D) UNDER NO CIRCUMSTANCES SHALL THE OWNER TRUSTEE BE PERSONALLY LIABLE FOR THE PAYMENT OF ANY INDEBTEDNESS OR EXPENSES OF THE ISSUER OR BE LIABLE FOR THE BREACH OR FAILURE OF ANY OBLIGATION, REPRESENTATION, WARRANTY OR COVENANT MADE OR UNDERTAKING BY THE ISSUER UNDER THIS AGREEMENT OR ANY RELATED DOCUMENTS.   Section 18. Waiver of Jury Trial.    Each party to this Agreement hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement, the Notes or the transactions contemplated hereby.   5 --------------------------------------------------------------------------------   IN WITNESS WHEREOF the parties have caused this Deposit Account Control Agreement to be duly executed by their officers or partners thereunto duly authorized as of the day and year first above written.     HSBC AUTOMOTIVE TRUST (USA) 2006-2,     as Issuer       By: U.S. BANK TRUST NATIONAL     ASSOCIATION,     not in its individual capacity but     solely as Owner Trustee           By:  /s/ Patricia M. Child       Name: Patricia M. Child     Title: Vice President               HSBC BANK USA, NATIONAL ASSOCIATION     not in its individual capacity, but solely as Administrator           By:  /s/ Susie Moy       Name: Susie Moy     Title: Vice President               HSBC BANK USA, NATIONAL ASSOCIATION     not in its individual capacity, but solely as Bank           By:  /s/ Susie Moy       Name: Susie Moy     Title: Vice President               THE BANK OF NEW YORK,     as Indenture Trustee           By:  /s/ Alan Li       Name: Alan Li     Title: Assistant Treasurer   --------------------------------------------------------------------------------

  Exhibit 10.6      FIRST AMENDMENT (the “Amendment”) to each of the various Stock Option Agreements (the “Option Agreements”) by and between [                    ] (the “Executive”) and Phelps Dodge Corporation, a New York corporation (the “Corporation”), dated as of July    , 2006. Terms used without definition herein shall have the respective meanings set forth in the applicable Option Agreement or the Corporation’s 2003 Stock Option and Restricted Stock Plan (the “Plan”).      WHEREAS, the Corporation has awarded Options to the Executive pursuant to the Plan or a predecessor plan (as evidenced by the Option Agreements) for the purpose of incentivizing the Executive to improve the performance of the Corporation and create value for its shareholders;      WHEREAS, each Option is governed by the terms of the applicable Option Agreement and the Plan;      WHEREAS, the Corporation has entered into a definitive agreement dated as of June 25, 2006 (the “Combination Agreement”) pursuant to which the Corporation will combine with Inco Limited pursuant to a plan of arrangement under the laws of Canada (the “Transaction”);      WHEREAS, the consummation of the Transaction will constitute a Change of Control for purposes of the Option Agreements and the Plan; and      WHEREAS, pursuant to and in accordance with Section 7 of the Plan, the Corporation and the Executive have determined that, in light of and subject to the consummation of the Transaction, it is in the mutual best interests of the Corporation, its shareholders and the Executive to amend the Option Agreements to reduce certain of the Executive’s rights and entitlements under the Option Agreements and the Plan and to make the other changes set forth in this Amendment. AMENDMENT      NOW THEREFORE, in consideration of the premises and the mutual covenants and promises contained herein and for other good and valuable consideration, the Corporation and the Executive hereby agree as follows: 1.   This Amendment shall be effective as of the Effective Time (as such term is defined in the Combination Agreement). In the event that the Combination Agreement is terminated prior to the occurrence of the Effective Time or if the Effective Time does not otherwise occur on or prior to January 1, 2007, this Amendment shall be null and void ab initio and shall have no force or effect. The parties hereto acknowledge and agree that the Amendment shall apply solely with respect to the Transaction and shall not apply with respect to any other transaction (including, without limitation, any transaction that is consummated subsequent to the Transaction) that, if consummated, would constitute a Change of Control for purposes of the Option Agreements and the Plan.   --------------------------------------------------------------------------------   2.   Section 2 of each Option Agreement is hereby amended to delete subsection (b) thereof. 3.   Section 4 of each Option Agreement is hereby amended to delete the phrase “not earlier than six months from the Grant Date” from the proviso included in the second sentence thereof. 4.   Section 1 of Supplement B to each Option Agreement is hereby amended to delete the phrase “not earlier than six months from the date on which the Option was granted and” from the first sentence thereof. 5.   Section 1 of Supplement B to each Option Agreement is hereby amended to replace subsection c. thereof with the following subsection c.:      “c. Good Reason. For purposes of the definition of Qualifying Termination, “Good Reason” means a termination of employment with the Corporation and its Subsidiaries by the Employee on account of one or more of the following events (and the Employee has not agreed to such event in writing):      (i) a material reduction in the duties and responsibilities held by the Employee immediately prior to such Change of Control;      (ii) a reduction by the Corporation or any Subsidiary of the Employee’s base salary or target bonus opportunity under the Corporation’s Annual Incentive Compensation Plan (or any successor plan thereto) as in effect immediately prior to such Change of Control;      (iii) a material reduction in the aggregate level of benefits from those provided to the Employee immediately prior to the Change of Control under the Corporation’s employee benefit plans and programs, not taking into account any reduction that is generally applicable to all employees eligible to participate in any such plan or program; or      (iv) the Corporation’s or any Subsidiary’s requiring the Employee to be based anywhere other than a location within 50 miles of his or her location immediately prior to such Change of Control.” 6.   The remaining provisions of each Option Agreement shall remain in full force and effect. 7.   Confidentiality. The Executive hereby agrees that he or she will not disclose to any person or entity (other than to his or her personal legal advisor on a need-to-know basis), the nature and content of any negotiations, discussions, presentations or other communications with respect to this Amendment or, prior to the public disclosure of this Amendment by the Corporation, the existence or the terms and conditions of this Amendment. 8.   Governing Law. This Amendment shall be governed by the laws of the State of New York. 2 --------------------------------------------------------------------------------             IN WITNESS WHEREOF, the Corporation has duly executed this Amendment by its authorized representative and the Executive has hereunto set [his]/[her] hand, in each case as of the date of this Amendment.                   PHELPS DODGE CORPORATION                         By:                                       Name:             Title:                       EXECUTIVE:                                   Name:             Title:     3

  Exhibit 10.1   FIRST AMENDMENT TO THE LOAN AGREEMENT   FIRST AMENDMENT TO THE LOAN AGREEMENT (this “Amendment”) dated as of June 30, 2005, between AMERICAN MORTGAGE ACCEPTANCE COMPANY (the “Borrower”) and CHARTERMAC (the “Lender”).   WHEREAS, the Borrower and the Lender are parties to a Loan Agreement dated as of June 30, 2004 (as amended, modified, restated and/or supplemented from time to time, the “Loan Agreement”) (capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to such terms in the Loan Agreement); and   WHEREAS, the Borrower has requested, and the Lender has agreed to, the amendment provided herein on the terms and conditions set forth herein;   NOW, THEREFORE, in consideration of the mutual promises contained herein, the parties agree that effective as of the date hereof, the Loan Agreement is hereby amended as follows:   Section 1. Amendment. Section 2.4 of the Loan Agreement is hereby amended by deleting the text “June 30, 2005” therein and inserting the text “June 30, 2006” in lieu thereof.   Section 2. Representations and Warranties.     The Borrower hereby represents and warrants to the Lender that: 2.1          Authorization. The Borrower is duly authorized to execute and deliver this Amendment and is and will continue to be duly authorized to perform its obligations under the Loan Agreement, as amended hereby. 2.2          No Conflicts. The execution and delivery of this Amendment and the performance by the Borrower of its obligations under the Loan Agreement, as amended hereby, do not and will not (i) require any consent or authorization of, filing with, notice to or other act by or in respect of, any governmental authority or any other Person or (ii) violate any law, rule or regulation or any material agreement or contract to which the Borrower is a party or is otherwise bound and will not result in, or require, the creation or imposition of any lien or encumbrance on any of its properties or revenues pursuant to any law, rule or regulation or any such material agreement or contract. 2.3          Validity and Binding Effect. The Loan Agreement, as amended hereby, constitutes a legal, valid and binding obligation of the Borrower, enforceable against it in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’     --------------------------------------------------------------------------------   rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). 2.4          Loan Agreement Representations and Warranties. The representations and warranties set forth in Section 4 of the Loan Agreement are true and correct, in all material respects, with the same effect as if such representations and warranties had been made on the date hereof (except to the extent such representations and warranties are made as of some other date(s), in which case such representations and warranties shall be true and correct in all material respects as of such other date(s)). 2.5          No Event of Default. As of the date hereof, no Default or Event of Default has occurred or is continuing. Section 3. Effectiveness of Amendment. Except as specifically amended hereby, the Loan Agreement is and shall remain in full force and effect. This Amendment shall become effective upon the first date on which the the Borrower and the Lender shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered (including by way of facsimile transmission) the same to the other party. Section 4. No Further Amendments. Except for the amendments set forth herein, the text of the Loan Agreement and all other Loan Documents shall remain unchanged and in full force and effect. No waiver by the Lenders under the Loan Agreement or any other Loan Document is granted or intended except as expressly set forth herein, and the Lenders expressly reserve the right to require strict compliance with the terms of each of the Loan Agreement, as amended hereby, and the other Loan Documents in all respects. The waivers, extensions, consents and amendments agreed to herein shall not constitute a modification of, or a course of dealing at variance with, the Loan Agreement, as amended hereby, such as to require further notice by the Lender to require strict compliance with the terms of the Loan Agreement, as amended hereby, and the other Loan Documents in the future. Section 5. Legal Fees. The Borrower shall pay all reasonable expenses incurred by the Lender in the drafting, negotiation and closing of the documents and transactions contemplated hereby, including the reasonable fees and disbursements of the Lender’s special counsel. Section 6. Miscellaneous. 6.1          Governing Law. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.     --------------------------------------------------------------------------------   6.2          Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. 6.3          Headings. Section and subsection headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect. 6.4          Severability. In case any provision in or obligation under this Amendment shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. *       *       *     --------------------------------------------------------------------------------     IN WITNESS WHEREOF, the parties have executed and delivered this Amendment as of the date first written above.   THE BORROWER:   AMERICAN MORTGAGE ACCEPTANCE COMPANY   By:                                                          Name:   Title:     THE LENDER:   CHARTERMAC By: Related Capital Company LLC,   its manager   By:                                                          Name:   Title:      

Exhibit 10.1 LICENSE AGREEMENT   THIS LICENSE AGREEMENT (“License”), entered into this 29th day of September, 2006, by and between LEGENT CLEARING LLC, a Delaware limited liability company (hereinafter “Licensor”), and UNITED WESTERN BANCORP, INC., a Colorado corporation (hereinafter referred to collectively as “Licensee”).   1. License. Licensor grants to Licensee, and Licensee accepts a limited term, non-transferable, non-exclusive license to use the property located on Exhibit “A” attached hereto on the terms and conditions set forth in this License (hereinafter “the Property”). Licensor warrants that it has the right to grant the license pursuant to this License and that it has obtained any and all necessary permissions from third parties to grant the license. Licensor shall indemnify and hold Licensee harmless for any losses, claims, damages, awards, penalties, or injuries incurred, including reasonable attorney's fees, which arise from any claim by any third party of an alleged infringement of a property right arising out of the use of the license by the Licensee in accordance with the terms of this License. This indemnity shall survive the termination of this agreement.   2. Term. This License shall be for an initial term of seven (7) months (“Initial Term”), commencing on the date hereof. Provided that Licensee shall not be in default under this License, Licensee shall have the right, subject to payment of the Monthly Payment (as defined below), to renew the License on a month to month basis (“Subsequent Term”), and the License shall be terminable on thirty (30) days notice given at any time by either party. All other provisions of this License except those pertaining to the term shall apply to the Subsequent Term.   3. Compensation. Licensee agrees to pay Licensor for the non-exclusive right to use the Property during Initial Term of this License the sum of Twenty One Thousand and No/100 Dollars ($21,000.00), which shall be payable in monthly installments on the first day of each month in the amount of Three Thousand and No/100 Dollars ($3,000.00) (the “Monthly Payment”). During the Subsequent Term, Licensee shall pay the Three Thousand and No/100 Dollar ($3,000.00) Monthly Payment on the first day of each month.   4. Use. The Licensee shall have the non-exclusive right to use of the Property solely for a business continuity site and for disaster planning site purposes for no more than fifty (50) employees and for no other purpose, without Licensor’s written consent. To the extent the Property is already in use by Licensor or Licensor requires the use of the Property subsequent to commencement of Licensee’s use, Licensor’s use of the Property shall take priority over Licensee’s use of the Property. Further, in the event Licensee is using the Property, Licensor shall be entitled to exclusive use of the Property 24 hours after notice is given, whether by telephone, facsimile or by mail or overnight carrier, from Licensor to Licensee, and Licensee shall remove Licensee’s staff and restore the Property to its previous condition prior to Licensee’s use within 24 hours after notice.       --------------------------------------------------------------------------------     5. Payments. All payments under this License shall be made in current U.S. funds to Licensor at 9300 Underwood Ave. Suite 400, Omaha, NE 68114, or at such other place and to such other person as Licensor may from time to time designate in writing.   6. Assignment; Subletting. Licensee shall not assign this License, nor sublicense any rights to the Property or any part thereof, nor shall it use the same for any other purpose than set forth in Paragraph 4 above without the express written consent of Licensor.   7. Risk of Loss of Personalty. All personal property of Licensee placed or located upon the Property shall be at the risk of Licensee or the owners thereof, and Licensor shall not be liable for any damage to such personal property of Licensee or to Licensee arising from any act, omission to act, or negligence of any other person, firm or corporation. Licensor agrees to keep any and all Licensee information, including but not limited to Licensee customer information, that Licensor may have access to confidential.   8. Indemnity; Insurance. Licensee covenants and agrees to indemnify and save Licensor harmless from and against all liabilities, claims, actions or causes of action for damages or injuries to property and/or for any personal injury or loss of life in or about the Property or common areas, arising for any reason whatsoever during the term of this License, caused in whole or in part by Licensee, its employees, agents and invitees. Licensee covenants to provide on or before commencement of this License, and to keep in force during its term, a comprehensive liability policy of insurance against any liability of Licensee, its employees, agents and invitees, occasioned by accident or neglect, naming Licensor as an additional insured. Such policy shall be written by a good and solvent insurance company acceptable to Licensor, with coverage of not less than One Million and No/100 Dollars ($1,000,000.00) combined or aggregate single limit for personal injury, death or property damage per occurrence. Licensee shall be liable to Licensor for any and all costs and attorneys’ fees incurred or expended by Licensor in defending any claims for which Licensee may be liable under this indemnity, including those incurred in enforcing this paragraph.   Licensor covenants and agrees to indemnify and save Licensee harmless from and against all liabilities, claims, actions or causes of action for damages or injuries to property and/or for any personal injury or loss of life in or about the Property or common areas, arising for any reason whatsoever during the term of this License, caused in whole or in part by Licensor, its employees, agents and invitees. Licensor covenants to provide on or before commencement of this License, and to keep in force during its term, a comprehensive liability policy of insurance against any liability of Licensor, its employees, agents and invitees, occasioned by accident or neglect, naming Licensee as an additional insured. Such policy shall be written by a good and solvent insurance company acceptable to Licensee, with coverage of not less than One Million and No/100 Dollars ($1,000,000.00) combined or aggregate single limit for personal injury, death or property damage per occurrence. Licensor shall be liable to Licensee for any and all costs and attorneys’ fees incurred or expended by Licensee in defending any claims for which Licensor may be liable under this indemnity, including those incurred in enforcing this paragraph.     - 2 - --------------------------------------------------------------------------------     9. Compliance With Governmental Ordinances. Licensor and Licensee shall comply with all statutes, ordinances, rules, orders and regulations of all federal, state and local governmental agencies having jurisdiction over the Property.   10. Damage or Destruction of Property. If any buildings, structures or other improvements containing the Property (the “Improvements”) shall be destroyed by fire or the elements during the term of this License or damaged thereby to such an extent as to render the Property unfit for use by Licensee, either party may give notice to the other party within fifteen (15) days from the date of such destruction or damage and this License shall thereupon terminate as of the date of such destruction or damage, and the Monthly Payments shall be adjusted and paid to such date. Provided, however, nothing herein contained shall obligate Licensor to expend for repairs or rebuilding after such damage or destruction, and if Licensor elects not to repair or rebuild as necessary, either party may terminate this License as provided above.   11. Default; Notice. The prompt payment of all sums due hereunder, and the faithful observance of the provisions of this License, are conditions of this License and any failure on the part of Licensee to comply with the terms of this License shall, at the option of Licensor, constitute a default under this License. In the event of such a default (exclusive of the payment of any monies due hereunder which shall constitute a default if not paid within ten (10) days after due, without notice), Licensor shall give Licensee written notice of such default and Licensee shall have ten (10) days within which to cure such default. Upon the failure of Licensee to do so, Licensor, its agents or attorneys, may exercise all rights permitted under Colorado law, including without limitation, the right to enter the Property and remove all persons therefrom, and the exercise of any right shall be without waiver of its right to pursue any other legal remedy. In addition to such rights and remedies, Licensor shall have the right to accelerate the payment of all amounts due hereunder and upon the exercise of such right by the Licensor, all such payments shall become immediately due and payable.   All notices shall be given, if to Licensee, at such address as may be designated by the Licensee, and if to Licensor, at the address for payment of rent, and shall be sufficient if hand-delivered or sent by U.S. Postal Service, certified, return receipt requested.   12. Surrender of Site. Upon the expiration, revocation, termination, or default under this License, Licensee shall, at no expense to the Licensor, release and surrender the Property to the Licensor. In the event Licensee fails to remove any or all improvements and/or personal property placed on or about the Property after reasonable notice by the Licensor, License’s improvements and/or personal property will be considered abandoned.   13. Maintenance. Licensee accepts the Property in the condition at the beginning of this License and agrees to maintain the interior of the Improvements (except for reasonable wear and tear arising from normal use thereof) during Licensee’s use of the Property, and to repair or pay for any damages upon demand of Licensor, whether caused by any act or neglect of Licensee or any person other than Licensor during Licensee’s use of the Property.   14. Alterations. Licensee shall make no alterations to the Property or the Improvements without Licensor’s written approval.     - 3 - --------------------------------------------------------------------------------     15. Liens. Licensee shall indemnify and hold Licensor harmless from any and all liens, claim or lien or other encumbrances against Licensee sought to be enforced against the Property, of any kind or nature whatsoever including statutory mechanic’s liens (other than as may be created by Licensor), including costs and attorneys’ fees incurred by or arising out of such claims, and in the event that any such claim is made against the Property, it shall constitute a default hereunder if such claim is not discharged or transferred to other security within ten (10) days.   16. Time of the Essence. Time is of the essence in this License and the performance of its terms and conditions.   17. Licensee’s Personalty. All moveable fixtures and equipment placed upon the Property by Licensee shall remain the property of Licensee, and may be removed by Licensee upon termination of this License, provided Licensee has fulfilled its covenants under this License, and provided Licensee restores any portion of the Property to which such property was attached to its original condition.   18. Subordination. Licensee acknowledges that this License shall be subordinate to all existing and future mortgages, and Licensee shall execute all documents requested by Licensor or any Mortgagee to confirm such subordination.   19. Attorneys’ Fees. Should it be necessary for either party to employ an attorney to enforce any of the terms of this License, the prevailing party shall be entitled to recover its reasonable attorneys’ fees and costs in addition to its other damages.   20. Governing Law. This License shall be interpreted and construed in accordance with the laws of the State of Colorado. The parties agree to submit to jurisdiction and venue in the state and federal courts located in Denver, Colorado for any dispute which may arise under this Agreement.   IN WITNESS WHEREOF, the parties hereto executed this License effective as of the day and year first set forth above.     - 4 - --------------------------------------------------------------------------------             LICENSOR:       LEGENT CLEARING LLC               By:   /s/ Jeffrey N. Sime   -------------------------------------------------------------------------------- Jeffrey N. Sime, President       LICENSEE:       UNITED WESTERN BANCORP, INC.,               By:  /s/ Theodore J. Abariotes   Print Name: --------------------------------------------------------------------------------  Theodore J. Abariotes   Print Title: --------------------------------------------------------------------------------  Senior Vice President     --------------------------------------------------------------------------------                     - 5 - --------------------------------------------------------------------------------  

[Form of Grant -- Non-Employee Manager ] ATLAS PIPELINE HOLDINGS LONG-TERM INCENTIVE PLAN PHANTOM UNIT GRANT AGREEMENT THIS PHANTOM UNIT GRANT AGREEMENT ("Agreement"), dated as of _____ ____________, 200__ (the "Date of Grant"), is delivered by Atlas Pipeline Holdings, L.P., a Delaware limited partnership (the "Partnership"), to ______________ (the "Participant"). RECITALS A. The Atlas Pipeline Holdings Long-Term Incentive Plan (the "Plan") provides for the grant of phantom units ("Phantom Units"), which are phantom (notional) rights that represent the right to receive one or more common units of limited partner interest of the Partnership (a "Unit") or its then Fair Market Value (as defined in the Plan) in cash, as determined by the Committee (the "Committee") (as defined in the Plan). The Plan also permits the granting of rights to receive an amount in cash equal to, and at the same time as, the cash distributions made by the Partnership with respect to a Unit during the period such Phantom Unit is outstanding ("DERs"). B. The Committee has decided to make a Phantom Unit grant, with DERs, subject to the terms and conditions set forth in this Agreement and the Plan, as an inducement for the Participant to promote the best interests of the Partnership and its equity holders. The Participant may receive a copy of the Plan by contacting __________ at ________. NOW, THEREFORE , the parties hereto, intending to be legally bound, hereby agree as follows: Grant of Phantom Restricted Units . a. Each Manager (as defined in the Plan), shall be awarded Phantom Units with DERs as of , in an amount equal to the lesser of (A) 500 or (B) that number of Phantom Units equal to $15,000 divided by the Fair Market Value of a Unit as of that date. Each Manager who is first appointed to the Board on or after the effective date of the Plan shall be awarded Phantom Units with DERs as of the date of first appointment in an amount equal to the lesser of (A) 500 or (B) that number of Phantom Units equal to $15,000 divided by the Fair Market Value of a Unit as of that date. Thereafter, on each anniversary of the date on which a Manager is first awarded Phantom Units during the term of the Plan, the Manager shall be awarded Phantom Units with DERs as of that date in an amount equal to the lesser of (A) 500 or (B) that number of Phantom Units equal to $15,000 divided by the Fair Market Value of a Unit as of that date. A Manager shall vest in 25% of his or her Phantom Units on each anniversary of the original Award for such Phantom Units such that each Award shall fully vest on the fourth anniversary of the Award. b. Subject to the terms and conditions set forth in this Agreement and the Plan, the Partnership hereby grants to the Participant _____ Phantom Units (the "Phantom Restricted Units"). The Phantom Restricted Units will become vested in accordance with Paragraph 3 below and will be distributed in accordance with Paragraph 4 below. Except as otherwise provided below, prior to the date the Phantom Restricted Units are distributed as Units, if any, in accordance with Paragraph 4 below, the Participant will not be deemed to have any voting rights or cash distribution rights with respect to any Units subject to this grant. For purposes of this Agreement, each Phantom Restricted Unit shall be equivalent to one Unit. Phantom Unit Account . The Partnership shall establish and maintain a Restricted Phantom Unit account, as a bookkeeping account on its records, (the " Phantom Restricted Unit Account ") for the Participant and shall record in such Phantom Restricted Unit Account the number of Phantom Restricted Units granted to the Participant pursuant to this Agreement. The Participant shall not have any interest in any fund or specific assets of the Partnership by reason of this grant or the Phantom Restricted Unit Account established for the Participant. Vesting . (a) Except as otherwise provided in subparagraphs (b) and (c) below, the Participant will become vested in the Phantom Restricted Units awarded pursuant to this grant and credited to the Participant's Phantom Restricted Unit Account according to the following vesting schedule, provided the Participant does not cease to be a non-employee member of the Managing Board of Atlas Pipeline Holdings GP, LLC (the "Company") prior to the applicable vesting date (the "Vesting Date"): Date Percentage of Phantom Restricted Units First anniversary of Date of Grant   Second anniversary of Date of Grant   Third anniversary of Date of Grant   Fourth anniversary of Date of Grant   The vesting of the Phantom Restricted Units shall be cumulative, but shall not exceed 100% of the Phantom Restricted Units subject to the grant. If the foregoing schedule would produce fractional Phantom Restricted Units, the number of Phantom Restricted Units that vest shall be rounded down to the nearest whole Phantom Restricted Unit. (b) If the Participant terminates as a non-employee member of the Managing Board of the Company (the "Board") prior to the Vesting Date for any portion of the Phantom Restricted Units, the Phantom Restricted Units credited to the Participant's Phantom Restricted Unit Account that have not vested as of such Vesting Date shall terminate and the corresponding Units shall be forfeited; provided, however, that if the Participant terminates as a non-employee member of the Board on account of death or Disability (as defined in the Plan), all of the Participant's unvested Phantom Restricted Units shall become vested as of the date of the Participant's termination as a non-employee member of the Board on account of death or Disability. (c) If a Change in Control (as defined in the Plan) occurs while the Participant is a non-employee member of the Board, but prior to the Vesting Date for any portion of the Phantom Restricted Units, the portion of the Phantom Restricted Units credited to the Participant's Phantom Restricted Unit Account that have not vested prior to the consummation of the Change in Control shall become vested as of the date of the Change in Control. Distribution. On ______ ___ of each calendar year, or the next business day after _____ ___ if ____ __ is not a business day, (the " Distribution Date ") all of the Phantom Restricted Units credited to the Participant's Phantom Restricted Unit Account that vested during such calendar year pursuant to Paragraph 3 above shall become converted to, at the Participant's election prior to the applicable Distribution Date, Units to be issued under the Plan or the cash equivalent value of such Phantom Restricted Units, based on the Fair Market Value of such vested Phantom Restricted Units on the Distribution Date, and distributed as such to the Participant as soon as administratively practicable on or after the Distribution Date. Notwithstanding the immediately preceding sentence, if a Change in Control occurs prior to the Distribution Date, all of the Phantom Restricted Units credited to the Participant's Phantom Restricted Unit Account that have not previously been distributed or forfeited shall be converted and distributed to the Participant as described in the immediately preceding sentence on the date of the Change in Control; provided, however, that such conversion and distribution shall not occur if doing so would violate the requirements of section 409A of the Internal Revenue Code of 1986, as amended (the " Code "), if applicable. DERs . From the Date of Grant through the date the Phantom Restricted Units are converted and distributed pursuant to Paragraph 4 or earlier forfeited, if any cash distributions are made by the Partnership with respect to its Units, a DER will be paid to the Participant equal to the value of the cash payment that would have been paid if such Phantom Restricted Units credited to the Participant's Phantom Restricted Unit Account at the time of the declaration of the cash payment had been Units. The DERs will be paid to the Participant as soon as administratively practicable after the cash payments are paid to the holders of Units. Change in Control . The provisions set forth in the Plan applicable to a Change in Control shall apply to the Phantom Restricted Units. Acknowledgment by Participant . By executing this grant, the Participant hereby acknowledges that with respect to any right to a distribution and DERs pursuant to this Agreement, the Participant is and shall be an unsecured creditor of the Partnership without any preference as against other unsecured general creditors of the Partnership, and the Participant hereby covenants for himself or herself, and anyone at any time claiming through or under the Participant, not to claim any such preference, and hereby disclaims and waives any such preference that may at any time be at issue, to the fullest extent permitted by applicable law. Restrictions on Issuance or Transfer of Units . (a) The obligation of the Partnership to deliver Units upon distribution of the Phantom Restricted Units shall be subject to the condition that if at any time the Committee shall determine in its discretion that the listing, registration or qualification of the Units upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the issuance of the Units, the Units may not be issued in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Committee. In the event an exemption from registration under the Securities Act of 1933 (the "Securities Act") is available, the Participant (or the Participant's estate or personal representative in the event of the Participant's death or incapacity), if requested by the Partnership to do so, will execute and deliver to the Partnership in writing an agreement containing such provisions as the Partnership may require to assure compliance with applicable securities laws. No sale or disposition of Units acquired pursuant to this grant by the Participant shall be made in the absence of an effective registration statement under the Securities Act with respect to such Units unless an opinion of counsel satisfactory to the Partnership is provided that such sale or disposition will not constitute a violation of the Securities Act or any other applicable securities laws is first obtained. (b) The Participant understands and agrees that the sale of any Units received by the Participant pursuant to this grant will be subject to, and must comply with, the Partnership's Insider Trading Policy. (c) As soon as reasonably practicable after the Distribution Date, the Partnership shall deliver to the Participant a certificate or certificates for the Units then being distributed. Grant Subject to Plan Provisions . This grant is made pursuant to the Plan, the terms of which are incorporated herein by reference, and in all respects shall be interpreted in accordance with the Plan. In the event of any contradiction, distinction or difference between this Agreement and the terms of the Plan, the terms of the Plan will control. This grant is subject to the interpretations, regulations and determinations concerning the Plan established from time to time by the Committee in accordance with the provisions of the Plan, including, but not limited to, provisions pertaining to (i) rights and obligations with respect to withholding taxes, (ii) the registration, qualification or listing of Units, (iii) changes in capitalization of the Partnership, and (iv) other requirements of applicable law. The Committee shall have the authority to interpret and construe this Agreement pursuant to the terms of the Plan, and its decisions shall be conclusive as to any questions arising hereunder. By receiving this grant, the Participant hereby agrees to be bound by the terms and conditions of the Plan and this Agreement. The Participant further agrees to be bound by the determinations and decisions of the Committee with respect to this Agreement and the Plan and the Participant's rights to benefits under this Agreement and the Plan and agrees that all such determinations and decisions of the Committee shall be binding on the Participant, his or her beneficiaries and any other person having or claiming an interest under this Agreement and the Plan on behalf of the Participant. Assignment and Transfers . No Phantom Restricted Units or DERs awarded to the Participant under this Agreement may be transferred, assigned, pledged or encumbered by the Participant, and Phantom Restricted Units and DERs shall be distributed during the lifetime of the Participant only for the benefit of the Participant; provided, however, that in the event of the Participant's death, the Units subject to the Phantom Restricted Units or the cash equivalent value of the Units, as applicable, shall be issued (subject to the limitations specified in the Plan and this Agreement) solely to the legal representatives of the Participant, or by the person who acquires the right to receive the Units subject to the Phantom Restricted Units or the cash equivalent value of the Units, as applicable, by will or by the laws of descent and distribution, to the extent that the Phantom Restricted Units subject to this grant are otherwise vested pursuant to this Agreement. Any attempt to transfer, assign, pledge or encumber the Phantom Restricted Units or DERs by the Participant shall be null, void and without effect. The rights and protections of the Partnership hereunder shall extend to any successors or assigns of Partnership. Taxes/Withholding. The vesting of Restricted Phantom Units, as well as any amounts received upon distribution of Restricted Phantom Units pursuant to Paragraph 4 above, and the payment of cash for any DERs, is treated as taxable income to the Participant, and the Participant (or the Participant's legal representative in the event of the death of the Participant) shall be solely responsible for all tax consequences that result from the vesting and distribution of the Restricted Phantom Units, as well as any subsequent sale of Units, and the payment of cash with respect to DERs. The Partnership or the Company, as applicable, is authorized, if required by applicable law, to withhold from any payment due or transfer made under this grant or from any compensation or other amount owing to the Participant, the amount (in cash, Units, other securities, Units that would otherwise be issued pursuant to this grant or other property) of any applicable withholding taxes that are due in respect of this grant, the lapse of restrictions thereon, or any payment or transfer under this grant and to take such other action as may be necessary in the opinion of the Partnership or the Company to satisfy its withholding obligations for the payment of such taxes. No Rights as Unitholder . The Participant shall not have any rights as a Unitholder of the Partnership, including the right to any cash distributions (except as provided in Paragraph 5), or the right to vote, with respect to any Phantom Restricted Units. Membership on the Managing Board of the Company Not Affected. This grant of Phantom Restricted Units and DERs shall not confer upon the Participant any right to be retained as a non-employee member of the Board. Amendments. The Partnership may waive any conditions or rights under and amend any terms of this Agreement, provided that no change shall materially reduce the benefit to the Participant without the consent of the Participant, except as necessary to comply with the requirements of Paragraph 17 below. Governing Law . The validity, construction, interpretation and effect of this Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to the conflict of laws provisions thereof, and applicable federal law. Notice . Any notice to the Partnership provided for in this Agreement shall be addressed to the Partnership in care of the Chief Legal Officer at the principal office of the Partnership, and any notice to the Participant shall be addressed to such Participant at the current address shown in the records of the Company, or to such other address as the Participant may designate to the Company in writing. Any notice shall be delivered by hand, sent by telecopy or enclosed in a properly sealed envelope addressed as stated above, registered and deposited, postage prepaid, in a post office regularly maintained by the United States Postal Service. Section 409A of the Code . Notwithstanding anything in the Plan or this Agreement to the contrary, the Committee may, without the Participant's consent, amend this Agreement to comply with the requirements of section 409A of the Code and any corresponding guidance and regulations issued under section 409A of the Code to the extent it is subsequently determined, in the sole discretion of the Committee, that such amendments are necessary for this grant to comply with the requirements of section 409A of the Code, if applicable.       [SIGNATURES APPEAR ON FOLLOWING PAGE] IN WITNESS WHEREOF, this Agreement has been duly executed as of the Date of Grant. ATLAS PIPELINE HOLDINGS, L.P. Witness: By: Atlas Pipeline Holdings GP, LLC, its general partner By: Name: Title:     I hereby accept the Phantom Restricted Units and DERs described in this Agreement, and I agree to be bound by the terms of the Plan and this Agreement. I hereby further agree that all of the decisions and interpretations of the Committee with respect to this Agreement and the Plan shall be final and binding.   Participant :                  

Exhibit 10.1 Execution Version AMENDMENT NO. 3 AND WAIVER TO CREDIT AGREEMENT This AMENDMENT NO. 3 AND WAIVER to CREDIT AGREEMENT, dated as of March 16, 2006 (this “Amendment”) to the Credit Agreement dated as of February 11, 2005 (as the same may be further amended, supplemented or otherwise modified from time to time, the “Credit Agreement”) entered into among CONSTAR INTERNATIONAL INC., a Delaware corporation (the “Borrower”), the institutions from time to time party thereto as Lenders (the “Lenders”), the institutions from time to time party thereto as Issuers (the “Issuers”) and CITICORP USA, INC., a Delaware corporation, in its capacity as administrative agent for the Lenders and Issuers (in such capacity, the “Administrative Agent”), is entered into among the Borrower, the Guarantors, the Administrative Agent and the Lenders party hereto. Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement. W i t n e s s e t h: WHEREAS, the Borrower has requested that the Lenders amend the Credit Agreement in certain respects as set forth below; and WHEREAS, the Lenders have agreed, subject to the terms and conditions hereinafter set forth, to amend the Credit Agreement in certain respects as set forth below; NOW, THEREFORE, in consideration of the premises and the covenants and obligations contained herein, the sufficiency of which is hereby acknowledged, the parties hereto agree as follows: Section 1. Amendments to the Credit Agreement The Credit Agreement is, effective as of the date first written above (the “Effective Date”) and subject to the satisfaction (or due waiver) of the conditions set forth in Section 2 (Conditions Precedent to the Effectiveness of this Amendment) hereof, hereby amended as follows: (a) Amendments to Article I (Definitions, Interpretation and Accounting Terms) (i) The following definitions are hereby inserted in Section 1.1 (Defined Terms) of the Credit Agreement in the appropriate place to preserve the alphabetical order of the definitions in such section (and, if applicable, the following definitions shall replace in their entirety existing definitions for the corresponding terms in such section): “Collateral Availability” means, at any time, the amount by which (a) the Borrowing Base at such time exceeds (b) the Revolving Credit Outstandings at such time. “Normal Monthly Adjustments” means, those adjustments made by management (or proposed by auditors) in connection with the closing of the monthly financial statements between the time of the preliminary closing of the monthly financial statements and both (i) the Borrower’s final closing of the books each month and (ii) the filing with the SEC of the quarterly or annual reports required by Sections 6.1( b) and (c) at any time. -------------------------------------------------------------------------------- (b) Amendments to Article V (Financial Covenants) Section 5.1 (Maximum Liquidity) of the Credit Agreement is hereby amended by deleting the dollar amount of “$10,000,000.” and replacing it with “$5,000,000.” Section 5.2 (Minimum Interest Coverage Ratio) of the Credit Agreement is hereby amended by deleting the section in its entirety (including the heading) and replacing it with the following: “Section 5.2 (Minimum Collateral Availability) The Borrower shall maintain at all times Collateral Availability of more than $20,000,000.” (c) Amendments to Article VI (Reporting Covenants) Section 6.1(a) (Financial Statements, Monthly Reports) of the Credit Agreement is hereby amended by (i) adding the word “not” before the words “the last month in a Fiscal Quarter” prior to the first comma in such section and (ii) replacing the words “normal year-end audit adjustments” with “Normal Monthly Adjustments” in the parenthetical at the end of such section. (d) Amendments to Article IX (Events of Defaults) Section 9.1(d) of the Credit Agreement is hereby amended by deleting such section in its entirety and replacing it with the following: “(d) any Loan Party shall fail to perform or observe (i) any term, covenant or agreement contained in Article V (Financial Covenants), 6.2 (Default Notices), 7.1 (Preservation of Corporate Existence, Etc.), 7.6 (Access), 7.9 (Application of Proceeds), 7.11 (Additional Collateral and Guaranties), 7.12 (Control Accounts; Approved Deposit Accounts) or Article VIII (Negative Covenants), (ii) any term, covenant or agreement contained in Section 6.1 (Financial Statements) or 6.12 (Borrowing Base Determination) if such failure under this clause (ii) shall remain unremedied for 5 Business Days after the earlier of (A) the date on which a Responsible Officer of the Borrower becomes aware of such failure and (B) the date on which written notice thereof shall have been given to the Borrower by the Administrative Agent or any Lender, or (iii) any other term, covenant or agreement contained in this Agreement or in any other Loan Document if such failure under this clause (iii) shall remain unremedied for 30 days after the earlier of (A) the date on which a Responsible Officer of the Borrower becomes aware of such failure and (B) the date on which written notice thereof shall have been given to the Borrower by the Administrative Agent or any Lender; or” Section 2. Conditions Precedent to the Effectiveness of this Amendment This Amendment shall become effective as of the date first written above when, and only when, each of the following conditions precedent shall have been satisfied or duly waived by the Administrative Agent and the Lenders constituting the Requisite Lenders: (a) the Administrative Agent shall have received this Amendment, duly executed by the Borrower, each Guarantor, the Administrative Agent and the Lenders constituting the Requisite Lenders; and -------------------------------------------------------------------------------- (b) the Administrative Agent shall have received payment of the fees referred to in Section 4(a) of this Amendment. Section 3. Representations and Warranties On and as of the date hereof, after giving effect to this Amendment, the Borrower hereby represents and warrants to the Administrative Agent and each Lender as follows: (a) this Amendment has been duly authorized, executed and delivered by the Borrower and each Guarantor and constitutes the legal, valid and binding obligation of the Borrower and each Guarantor, enforceable against the Borrower and each Guarantor in accordance with its terms and the Credit Agreement as amended by this Amendment constitutes the legal, valid and binding obligation of the Borrower and each Guarantor, enforceable against the Borrower and each Guarantor in accordance with its terms; (b) each of the representations and warranties contained in Article IV (Representations and Warranties) of the Credit Agreement, the other Loan Documents or in any certificate, document or financial or other statement furnished at any time under or in connection therewith is true and correct in all material respects on and as of the date hereof as if made on and as of such date and except to the extent that such representations and warranties specifically relate to a specific date, in which case such representations and warranties shall be true and correct in all material respects as of such specific date; provided, however, that references therein to the “Credit Agreement” shall be deemed to refer to the Credit Agreement as amended hereby (if applicable); (c) no Default or Event of Default has occurred and is continuing (except for those that are duly waived); and (d) no litigation has been commenced against any Loan Party or any of its Subsidiaries seeking to restrain or enjoin (whether temporarily, preliminarily or permanently) the performance of any action by any Loan Party required or contemplated by this Amendment, the Credit Agreement or any Loan Document, in each case as amended hereby (if applicable). Section 4. Fees and Expenses The Borrower agrees to pay the Administrative Agent (i) a fee equal to $87,500 for the account of the Lenders to be shared by them pro rata in accordance with their respective Revolving Credit Commitments and (ii) in accordance with the terms of Section 11.3 (Costs and Expenses) of the Credit Agreement all reasonable out of pocket costs and expenses of the Administrative Agent in connection with the preparation, reproduction, execution and delivery of this Amendment and all other Loan Documents entered into in connection herewith (including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Administrative Agent with respect thereto and all other Loan Documents). -------------------------------------------------------------------------------- Section 5. Waiver The Lenders waive to the extent necessary for the Borrower’s compliance with former Section 6.1(a) of the Credit Agreement the delivery of monthly financial statements through the Effective Date. Section 6. Reference to the Effect on the Loan Documents (a) As of the date hereof, each reference in the Credit Agreement to “this Agreement,” “hereunder,” “hereof,” “herein,” or words of like import, and each reference in the other Loan Documents to the Credit Agreement (including, without limitation, by means of words like “thereunder”, “thereof” and words of like import), shall mean and be a reference to the Credit Agreement as modified hereby, and this Amendment and the Credit Agreement shall be read together and construed as a single instrument. (b) Except as expressly modified hereby, all of the terms and provisions of the Credit Agreement and all other Loan Documents are and shall remain in full force and effect and are hereby ratified and confirmed. (c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of the Lenders or the Administrative Agent under any of the Loan Documents, nor constitute a waiver or amendment of any other provision of any of the Loan Documents or for any purpose except as expressly set forth herein. (d) This Amendment shall be deemed a Loan Document. Section 7. Amendment of Guarantors Each Guarantor hereby consents to this Amendment and agrees that the terms hereof shall not affect, impair or reduce in any way its obligations, liabilities or liens under the Loan Documents (as amended and otherwise expressly modified hereby), all of which obligations, liabilities and liens shall remain in full force and effect and each of which is hereby reaffirmed (as amended and otherwise expressly modified hereby). Section 8. Execution in Counterparts This Amendment may be executed in any number of counterparts and by different parties in separate counterpart (including by facsimile), each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are attached to the same document. Delivery of an executed counterpart by telecopy shall be effective as delivery of a manually executed counterpart of this Amendment. Section 9. Governing Law This Amendment shall be governed by and construed in accordance with the law of the State of New York. -------------------------------------------------------------------------------- Section 10. Section Titles The Section titles contained in this Amendment are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. Section 11. Notices All communications and notices hereunder shall be given as provided in the Credit Agreement. Section 12. Severability The fact that any term or provision of this Agreement is held invalid, illegal or unenforceable as to any person in any situation in any jurisdiction shall not affect the validity, enforceability or legality of the remaining terms or provisions hereof or the validity, enforceability or legality of such offending term or provision in any other situation or jurisdiction or as applied to any person. Section 13. Successors The terms of this Amendment shall be binding upon, and shall inure to the benefit of, the Lenders, the other parties hereto and their respective successors and assigns. Section 14. Waiver of Jury Trial Each of the parties hereto irrevocably waives trial by jury in any action or proceeding with respect to this Amendment or any other Loan Document. [Signature Pages Follow] -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first written above.   CONSTAR INTERNATIONAL INC. as Borrower By:   /s/ Walter S. Sobon Name:   Walter S. Sobon Title:   Executive Vice President and Chief Financial Officer CITICORP USA, INC., as Administrative Agent, Swing Loan Lender and Lender By:   /s/ David Jaffe Name:   David Jaffe Title:   Director and Vice President WELLS FARGO FOOTHILL, LLC as Lender By:   /s/ Dennis King Name:   Dennis King Title:   Vice President STATE OF CALIFORNIA PUBLIC EMPLOYEES’ RETIREMENT SYSTEM, as Lender By:   /s/ Mike Claybar Name:   Mike Claybar Title:   Investment Officer [Constar Amendment No. 3 Signature Page] -------------------------------------------------------------------------------- Guarantors: CONSTAR INTERNATIONAL U.K. LIMITED, as Guarantor By:   /s/ Frank Edward Gregory Name:   Frank Edward Gregory Title:   Vice President, European Operations CONSTAR, INC., as Guarantor By:   /s/ Walter S. Sobon Name:   Walter S. Sobon Title:   Vice President and Chief Financial Officer BFF INC., as Guarantor By:   /s/ Walter S. Sobon Name:   Walter S. Sobon Title:   Vice President and Chief Financial Officer DT, INC., as Guarantor By:   /s/ Walter S. Sobon Name:   Walter S. Sobon Title:   Vice President and Chief Financial Officer CONSTAR FOREIGN HOLDINGS, INC., as Guarantor By:   /s/ Walter S. Sobon Name:   Walter S. Sobon Title:   Vice President and Chief Financial Officer [Constar Amendment No. 3 Signature Page]

  Exhibit 10.11 THE HARTFORD 2005 INCENTIVE STOCK PLAN (as amended effective December 21, 2005)   1.   Purpose           The purpose of the Plan is to motivate and reward superior performance on the part of Key Employees of The Hartford Financial Services Group, Inc. (“The Hartford” or “the Company”) and its subsidiaries and affiliates and to thereby attract and retain Key Employees of superior ability. In addition, the Plan is intended to further opportunities for stock ownership by such Key Employees and Directors in order to increase their proprietary interest in The Hartford and, as a result, their interest in the success of the Company. Awards will be made, in the discretion of the Committee, to Key Employees (including officers and directors who are also Key Employees) whose responsibilities and decisions directly affect the performance of any Participating Company and its subsidiaries, and also to Directors. Such incentive awards may consist of Options, Rights, Performance Shares, Restricted Stock, Restricted Units or any combination of the foregoing, as the Committee may determine.   2.   Definitions           When used herein, the following terms shall have the following meanings:           “Act” means the Securities Exchange Act of 1934, as amended.           “Award” means an award granted to any Key Employee or Director in accordance with the provisions of the Plan in the form of Options, Rights, Performance Shares, Restricted Stock or Restricted Units, or any combination of the foregoing, as applicable.           “Award Document” means the written notice, agreement, or other document evidencing each Award granted under the Plan.           “Beneficial Owner” means any Person who, directly or indirectly, has the right to vote or dispose of or has “beneficial ownership” (within the meaning of Rule 13d-3 under the Act) of any securities of a company, including any such right pursuant to any agreement, arrangement or understanding (whether or not in writing), provided that: (a) a Person shall not be deemed the Beneficial Owner of any security as a result of an agreement, arrangement or understanding to vote such security (i) arising solely from a revocable proxy or consent given in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the Act and the applicable rules and regulations thereunder, or (ii) made in connection with, or to otherwise participate in, a proxy or consent solicitation made, or to be made, pursuant to, and in accordance with, the applicable provisions of the Act and the applicable rules and regulations thereunder, in either case described in clause (i) or (ii) above, whether or not such agreement, arrangement or understanding is also then reportable by such Person on Schedule 13D   --------------------------------------------------------------------------------   under the Act (or any comparable or successor report); and (b) a Person engaged in business as an underwriter of securities shall not be deemed to be the Beneficial Owner of any security acquired through such Person’s participation in good faith in a firm commitment underwriting until the expiration of forty days after the date of such acquisition.           “Beneficiary” means the beneficiary or beneficiaries designated pursuant to the Plan to receive the amount, if any, payable under the Plan upon the death of an Award recipient.           “Board” means the Board of Directors of the Company.           “Change of Control” means the occurrence of an event defined in Section 9 of the Plan.           “Code” means the Internal Revenue Code of 1986, as amended.           “Committee” means the Compensation and Personnel Committee of the Board or such other committee as may be designated by the Board to administer the Plan.           “Company” means The Hartford Financial Services Group, Inc. and its successors and assigns.           “Director” means a member of the Board who is not an employee of any Participating Company.           “Dividend Equivalents” means an amount credited with respect to an outstanding Restricted Unit equal to the cash dividends paid or property distributions awarded upon one share of Stock.           “Eligible Employee” means an Employee as defined in the Plan; provided, however, that except as the Board or the Committee, pursuant to authority delegated by the Board, may otherwise provide on a basis uniformly applicable to all persons similarly situated, “Eligible Employee” shall not include any “Ineligible Person,” which includes: (a) a person who (i) holds a position with the Company’s “HARTEMP” Program, (ii) is hired to work for a Participating Company through a temporary employment agency, or (iii) is hired to a position with a Participating Company with notice on his or her date of hire that the position will terminate on a certain date; (b) a person who is a leased employee (within the meaning of Code Section 414(n)(2)) of a Participating Company or is otherwise employed by or through a temporary help firm, technical help firm, staffing firm, employee leasing firm, or professional employer organization, regardless of whether such person is an Employee of a Participating Company, and (c) a person who performs services for a Participating Company as an independent contractor or under any other non-employee classification, or who is classified by a Participating Company as, or determined by a Participating Company to be, an independent contractor, regardless of whether such person is characterized or 2 --------------------------------------------------------------------------------   ultimately determined by the Internal Revenue Service or any other Federal, State or local governmental authority or regulatory body to be an employee of a Participating Company or its affiliates for income or wage tax purposes or for any other purpose.           Notwithstanding any provision in the Plan to the contrary, if any person is an Ineligible Person, or otherwise does not qualify as an Eligible Employee, or otherwise is ineligible to participate in the Plan, and such person is later required by a court or governmental authority or regulatory body to be classified as a person who is eligible to participate in the Plan, such person shall not be eligible to participate in the Plan, notwithstanding such classification, unless and until designated as an Eligible Employee by the Committee, and if so designated, the participation of such person in the Plan shall be prospective only.           “Employee” means any person regularly employed by a Participating Company, but shall not include any person who performs services for a Participating Company as an independent contractor or under any other non-employee classification, or who is classified by a Participating Company as, or determined by a Participating Company to be, an independent contractor.           “Fair Market Value,” unless otherwise indicated in the provisions of this Plan, means, as of any date, the composite closing price for one share of Stock on the New York Stock Exchange or, if no sales of Stock have taken place on such date, the composite closing price on the most recent date on which selling prices were quoted, the determination to be made in the discretion of the Committee.           “Formula Price” means the highest of: (a) the highest composite daily closing price of the Stock during the period beginning on the 60th calendar day prior to the Change of Control and ending on the date of such Change of Control, (b) the highest gross price paid for the Stock during the same period of time, as reported in a report on Schedule 13D filed with the Securities and Exchange Commission, or (c) the highest gross price paid or to be paid for a share of Stock (whether by way of exchange, conversion, distribution upon merger, liquidation or otherwise) in any of the transactions set forth in Section 9 of the Plan as constituting a Change of Control; provided that in the case of the exercise of any such Right related to an Incentive Stock Option, “Formula Price” shall mean the Fair Market Value of the Stock at the time of such exercise.           “Incentive Stock Option” means a stock option qualified under Section 422 of the Code.           “Key Employee” means an Eligible Employee (including any officer or director who is also an Eligible Employee) whose responsibilities and decisions, in the judgment of the Committee, directly affect the performance of the Company and its subsidiaries.           “Option” means an option awarded under Section 5 of the Plan to purchase Stock of the Company, which option may be an Incentive Stock Option or a non-qualified stock option. 3 --------------------------------------------------------------------------------             “Participating Company” means the Company or any subsidiary or other affiliate of the Company; provided, however, for Incentive Stock Options only, “Participating Company” means the Company or any corporation which at the time such Option is granted qualifies as a “subsidiary” of the Company under Section 424(f) of the Code.           “Performance Share” means a performance share awarded under Section 6 of the Plan.           “Person” has the meaning ascribed to such term in Section 3(a)(9) of the Act, as supplemented by Section 13(d)(3) of the Act; provided, however, that Person shall not include: (a) the Company, any subsidiary of the Company or any other Person controlled by the Company, (b) any trustee or other fiduciary holding securities under any employee benefit plan of the Company or of any subsidiary of the Company, or (c) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of securities of the Company.           “Plan” means The Hartford 2005 Incentive Stock Plan, as the same may be amended, administered or interpreted from time to time.           “Plan Year” means the calendar year.           “Potential Change of Control” means the occurrence of an event defined in Section 9 of the Plan.           “Retirement” means the following:           (a) Key Employees Hired Before 2001. Solely with respect to a Key Employee with an original hire date with a Participating Company before January 1, 2001 who: (i) is covered in whole or in part under the final average pay formula of the Retirement Plan, or (ii) is not eligible for coverage under the Retirement Plan, “Retirement” means satisfaction of the requirements for early or normal retirement under the final average pay formula of the Retirement Plan (assuming such Key Employee were covered under the final average pay formula of the Retirement Plan), provided such event results in such Key Employee’s separation from employment with the Company, or           (b) Key Employees Hired During 2001. Solely with respect to a Key Employee with an original hire date with a Participating Company on or after January 1, 2001 but before January 1, 2002 who: (i) is covered under the cash balance formula of the Retirement Plan, or (ii) is not eligible for coverage under the Retirement Plan, “Retirement” means satisfaction of the requirements for early or normal retirement under the final average pay formula of the Retirement Plan (assuming such Key Employee were covered under the final average pay formula of the Retirement Plan), provided such event results in such Member’s separation from the employment of the Company. 4 --------------------------------------------------------------------------------             “Retirement Plan” means The Hartford Retirement Plan for U.S. Employees, as amended from time to time.           “Restricted Stock” means Stock awarded under Section 7 of the Plan subject to such restrictions as the Committee deems appropriate or desirable.           “Restricted Unit” means a contractual right awarded under Section 7 of the Plan to receive pursuant to the Plan one share of Stock at the end of a specified period of time, subject to such restrictions as the Committee deems appropriate or desirable.           “Restriction Period” means, in the case of Performance Shares, Restricted Stock or Restricted Units the period established by the Committee pursuant to Section 6 or 7, as applicable, during which shares of Stock or other rights of the recipient of such an Award (or his or her permissive assigns) remain subject to forfeiture pending completion of a period of service or such other criteria or conditions as the Committee shall specify.           ”Right” means a stock appreciation right awarded under Section 5 of the Plan.           “Stock” means the common stock ($.01 par value) of The Hartford.           “The Hartford” means the Company and its subsidiaries, and their successors and assigns.           “Total Disability” means the complete and permanent inability of a Key Employee to perform all of his or her duties under the terms of his or her employment with any Participating Company, as determined by the Committee upon the basis of such evidence, including independent medical reports and data, as the Committee deems appropriate or necessary.           “Transferee” means any person or entity to whom or to which a non-qualified stock option has been transferred and assigned in accordance with Section 5(h) of the Plan. Unless the Committee shall expressly permit otherwise, with respect to any Key Employee or Director, only (i) the Key Employee’s or Director’s child, stepchild, grandchild, parent, stepparent, grandparent, spouse, mother-in-law, father-in-law, son-in-law or daughter-in-law (including adoptive relationships), (ii) trusts for the exclusive benefit of one or more such persons and/or the Key Employee or Director, and (iii) another entity owned solely by one or more such persons and/or the Key Employee or Director shall be a Transferee.   3.   Shares Subject to the Plan           Subject to adjustments in accordance with Section 13, the aggregate number of shares of Stock which may be awarded under the Plan shall be subject to a maximum limit applicable to all Awards for the duration of the Plan (the “Maximum Limit”). The Maximum Limit shall be 7,000,000 shares of Stock. The maximum number of shares of 5 --------------------------------------------------------------------------------   Stock with respect to which Awards may be granted under the Plan in the form of Incentive Stock Options shall be 7,000,000.           Subject to adjustments in accordance with Section 13, and subject to the Maximum Limit set forth above on the number of Shares that may be awarded in the aggregate under the Plan, the maximum number of shares that may be awarded to Directors under the Plan shall be 500,000 shares of Stock. Additionally, a Director may not be granted an Award covering more than 25,000 shares of Stock in any Plan Year, except that this annual limit on Director Awards shall be 50,000 shares of Stock for any Director serving as Chairman of the Board and provided, however, that in the Plan Year in which an individual is first appointed or elected as a Director, the limit applicable to such Director shall be increased by 25,000 shares of Stock.           In addition to the foregoing, in any Plan Year: (a) no individual Key Employee may receive an Award of Options or Rights for more than 1,000,000 shares, and (b) no individual Key Employee may receive an Award of Restricted Stock, Restricted Units or Performance Shares for more than 200,000 shares.           Except with respect to shares of Stock equivalent to a maximum of five percent of the Maximum Limit authorized above in this Section 3, and except as may be provided in Section 9 regarding a Change of Control, any Full Value Awards which vest on the basis of a Key Employee’s continued employment with the Company shall not provide for vesting, other than vesting upon death, Total Disability or Retirement, or such other circumstances, such as a substantial reduction in force or a divestiture or sale of a business or unit, that the Committee finds than a waiver of the applicable restrictions (or any portion thereof) would be in the best interests of the Company, which is more rapid than pro rata annual vesting over a three year period, and any Full Value Awards which vest upon the attainment of performance objectives shall provide for a performance period of at least twelve months. For purposes of this paragraph, a “Full Value Award” is an Award other than in the form of an Option or Right. Notwithstanding the foregoing, Awards of Restricted Units attributable to a Key Employee’s voluntary deferral of an amount which would otherwise have been payable to the Key Employee in cash shall not be subject to the restrictions set forth in this paragraph and shall not be counted against the five percent limit referenced above.           Subject to the above limitations, shares of Stock to be issued under the Plan may be made available from the authorized but unissued shares, or shares held by the Company in treasury or from shares purchased in the open market.           For the purpose of computing the total number of shares of Stock available for Awards under the Plan, there shall be counted against the foregoing limitations the number of shares of Stock subject to issuance upon exercise or settlement of Awards and the number of shares of Stock which equals the value of Performance Share Awards based upon their target payout, in each case determined as at the dates on which such Awards are granted. If any Awards under the Plan are forfeited, terminated, expire unexercised, or are settled in cash in lieu of Stock, the shares of Stock which were 6 --------------------------------------------------------------------------------   theretofore subject to such Awards shall again be available for Awards under the Plan to the extent of such forfeiture, termination, expiration, or cash settlement of such Awards. If any award under the prior The Hartford Incentive Stock Plan (as approved by the Company’s shareholders in 2000), or under The Hartford Restricted Stock Plan for Non-Employee Directors, is forfeited, terminated or expires unexercised, or is settled in cash in lieu of Stock, the shares of Stock subject to such award (or the relevant portion thereof) shall be available for Awards under the Plan and such shares shall be added to the Maximum Limit.   4.   Grant of Awards and Award Documents           (a) Subject to the provisions of the Plan, the Committee shall: (i) determine and designate from time to time those Key Employees and Directors or groups of Key Employees and Directors to whom Awards are to be granted, (ii) determine the form or forms of Award to be granted to any Key Employee and any Director; (iii) determine the amount or number of shares of Stock subject to each Award; and (iv) determine the terms and conditions of each Award.           (b) Each Award granted under the Plan shall be evidenced by a written Award Document. Such Award Document shall be subject to and incorporate the express terms and conditions of each Award, if any, required under the Plan or required by the Committee.   5.   Options and Rights           (a) With respect to Options and Rights, the Committee shall: (i) authorize the granting of Incentive Stock Options, non-qualified stock options, or a combination of Incentive Stock Options and non-qualified stock options; (ii) authorize the granting of Rights which may or may not be granted in connection with all or part of any Option granted under this Plan; (iii) determine the number of shares of Stock subject to each Option or the number of shares of Stock that shall be used to determine the value of a Right; and (iv) determine the time or times when and the manner in which each Option or Right shall be exercisable and the duration of the exercise period.           (b) Any option issued hereunder which is intended to qualify as an Incentive Stock Option shall be subject to such limitations or requirements as may be necessary for the purposes of Section 422 of the Code or any regulations and rulings thereunder to the extent and in such form as determined by the Committee in its discretion.           (c) The exercise period for an Option and a Right shall not exceed ten years from the date of grant.           (d) The Option price per share shall be determined by the Committee at the time any Option is granted and shall be not less than the Fair Market Value of one share 7 --------------------------------------------------------------------------------   of Stock on the date the Option is granted. The grant price related to each Right shall be determined by the Committee at the time any Right is granted; however, such grant price shall not be less than the Fair Market Value of one share of Stock on the date the Right is granted.           (e) No part of any Option or Right may be exercised until the Key Employee who has been granted the Award shall have remained in the employ of a Participating Company for such period after the date of grant as the Committee may specify, if any, and the Committee may further require exercisability in installments.           (f) Except as provided in Section 9, the purchase price of the shares of Stock as to which an Option is exercised shall be paid to the Company at the time of exercise either in cash, Stock already owned by the optionee, or a combination of the foregoing having a total Fair Market Value equal to the purchase price. The Committee shall determine acceptable methods for tendering Stock as payment upon exercise of an Option and may impose such limitations and prohibitions on the use of Stock for such purpose as it deems appropriate.           (g) Unless otherwise set forth in the Award Document, in case of a Key Employee’s termination of employment with all Participating Companies, the following provisions shall apply:                (i) If a Key Employee who has been granted an Option or Right shall die before such Option or Right has expired, his or her Option or Right may be exercised in full by: (A) the person or persons to whom the Key Employee’s rights under the Option or Right pass upon his or her death pursuant to the terms of the Plan, or if no such person has such right, by his or her executors or administrators; (B) his or her Transferee(s) (with respect to non-qualified Options or Rights); or (C) his or her Beneficiary designated pursuant to the Plan, at any time, or from time to time, within five years after the date of the Key Employee’s death or within such other period, and subject to such terms and conditions as the Committee may specify, but not later than the expiration date specified in Section 5(c) above. Any such Options or Rights not fully exercisable immediately prior to such optionee’s death shall become fully exercisable upon such death unless the Committee, in its sole discretion, shall otherwise determine.                (ii) If the Key Employee’s employment with all Participating Companies terminates: (A) because of his or her Total Disability, or (B) solely in the case of a Key Employee with an original hire date with a Participating Company before January 1, 2002, because of his or her voluntary termination of employment due to Retirement; he or she may exercise his or her Options or Rights in full at any time, or from time to time, within five years after the date of the termination of his or her employment, or within such other period, and subject to such terms and conditions as the Committee may specify, but not later than the expiration date specified in Section 5(c) above. Any such Options or Rights not fully exercisable immediately prior to such optionee’s Total Disability or Retirement shall become fully exercisable upon such Total Disability or Retirement unless the Committee, in its sole discretion, shall otherwise determine at the time of grant. 8 --------------------------------------------------------------------------------                  (iii) If the Key Employee shall be terminated for cause as determined by the Committee, all of such Key Employee’s Options or Rights outstanding at the date of such termination (whether or not then exercisable) shall be canceled without further action by the Key Employee, the Committee or the Company coincident with the effective date of such termination.                (iv) Except as provided in Section 5(g)(ii) and Section 9, if a Key Employee’s employment terminates for any other reason (including a voluntary resignation), he or she may exercise his or her Options or Rights, to the extent that he or she shall have been entitled to do so at the date of the termination of his or her employment, at any time, or from time to time, within four months after the date of the termination of his or her employment, or within such other period, and subject to such terms and conditions, as the Committee may specify, but not later than the expiration date specified in Section 5(c) above. All Options and Rights held by such Key Employee or any of his or her assigns that are not eligible to be exercised upon the date of such termination shall be canceled without further action by the Key Employee, the Committee or the Company coincident with the effective date of such termination.                (v) Any Options or Rights not exercised within the period established in accordance with this Section 5(g) shall be canceled without further action by the Key Employee, the Committee or the Company on the date following the last date on which such Option or Right may have been exercised in accordance with this Section 5(g).           (h) Except as provided in this Section 5(h) or required by applicable law, no Option or Right granted under the Plan shall be transferable other than upon the death of the recipient of such Option or Right. During the lifetime of the optionee, an Option or Right shall be exercisable only by the Key Employee or Director to whom the Option or Right is granted. Notwithstanding the foregoing, all or a portion of a non-qualified Option or Right may be transferred and assigned by such persons designated by the Committee, to such persons or groups of persons designated as permissible Transferees by the Committee, and upon such terms and conditions as the Committee may from time to time authorize and determine in its sole discretion. Notwithstanding the preceding sentence, no Award under the Plan may be transferred for value (as defined in the General Instructions to Form S-8 with respect to the registration, pursuant to the Securities Act of 1933, of employee benefit plan securities and/or interests).           (i) Except as provided in Section 9, if a Director’s service on the Board terminates for any reason, including without limitation, termination due to death, disability or retirement, such Director (or Beneficiary, in the event of death) may exercise any Option or Right granted to him or her only to the extent determined by the Committee as set forth in such Director’s Award Document and/or any administrative rules or other terms and conditions adopted by the Committee from time to time applicable to such Option or Right granted to such Director.           (j) With respect to an Incentive Stock Option, the Committee shall specify 9 --------------------------------------------------------------------------------   such terms and provisions as the Committee may determine to be necessary or desirable in order to qualify such Option as an “incentive stock option” within the meaning of Section 422 of the Code.           (k) With respect to the exercisability and settlement of Rights:                (i) Except as expressly provided below, upon exercise of a Right, a Key Employee or Director shall be entitled, subject to such terms and conditions as the Committee may specify, to receive all or a portion of the excess of (A) the Fair Market Value of a specified number of shares of Stock at the time of exercise, as determined by the Committee, over (B) a specified amount which shall not, subject to Section 5(d), be less than the Fair Market Value of such specified number of shares of Stock at the time the Right is granted. Payment of any such excess shall be made as the Committee shall specify in cash, the issuance or transfer to the Key Employee or Director of whole shares of Stock with a Fair Market Value at such time equal to any excess, or a combination of cash and shares of Stock with a combined Fair Market Value at such time equal to any such excess, all as determined by the Committee. The Company will not issue a fractional share of Stock and, if a fractional share would otherwise be issuable, the Company shall pay cash equal to the Fair Market Value of the fractional share of Stock at such time.                (ii) Notwithstanding Section 5(k)(i), the Committee may specify at grant that payment of any excess referenced in the first sentence of Section 5(k)(i) shall not be paid until a specified date or, if earlier, upon the termination of the Key Employee’s employment, the cessation of the Director’s service on the Board or a Change of Control. To the extent permissible without adverse tax consequences for the Key Employee or Director, the Committee may permit the Key Employee or Director to elect when such payment is made. Amounts, if any, deferred pursuant to this Section 5(k)(ii) shall be subject to such terms and conditions as the Committee shall determine, including the manner in which any deemed earnings on such deferred amounts shall be determined.                (iii) In the event of the exercise of such Right, the Company’s obligation in respect of any related Option or such portion thereof will be discharged by payment of the Right so exercised.   6.   Performance Shares           (a) Subject to the provisions of the Plan, the Committee shall: (i) determine and designate from time to time those Key Employees and Directors or groups of Key Employees and Directors to whom Awards of Performance Shares are to be made, (ii) determine the performance period (the “Performance Period”) and performance objectives (the “Performance Objectives”) applicable to such Awards, (iii) determine whether to impose a Restriction Period following the completion of the Performance Period applicable to any Key Employees and Directors or groups of Key Employees and Directors, (iv) determine the form of settlement of a Performance Share, and (v) 10 --------------------------------------------------------------------------------   generally determine the terms and conditions of each such Award. At any date, each Performance Share shall have a value equal to the Fair Market Value of a share of Stock at such date; provided that the Committee may limit the aggregate amount payable upon the settlement of any Award.           (b) The Committee shall determine a Performance Period of not less than one nor more than five years. Performance Periods may overlap and Key Employees or Directors may participate simultaneously with respect to Performance Shares for which different Performance Periods are prescribed.           (c) The Committee may impose a Restriction Period of any duration with respect to any shares of stock issued in payment of a Performance Share Award, which shall apply immediately following the completion of the Performance Period to which it relates.           (d) The Committee shall determine the Performance Objectives of Awards of Performance Shares. Performance Objectives may vary from Key Employee to Key Employee, Director to Director and between groups of Key Employees and Directors, and shall be based upon one or more of the following objective criteria, as the Committee deems appropriate: (A) earnings per share, (B) return on equity, (C) cash flow, (D) return on total capital, (E) return on assets, (F) economic value added, (G) increase in surplus, (H) reductions in operating expenses, (I) increases in operating margins, (J) earnings before income taxes and depreciation, (K) total shareholder return, (L) return on invested capital, (M) cost reductions and savings, (N) earnings before interest, taxes, depreciation and amortization (“EBITDA”), (O) pre-tax operating income, (P) net income, (Q) after-tax operating income, and/or (R) productivity improvements. The objective criteria shall be (i) determined solely by reference to any one or more of the above performance factors of the Company (or the performance factors of any subsidiary or affiliate of the Company or any division or unit thereof), or (ii) based on any one or more of the above performance factors of the Company (or the performance factors of any subsidiary or affiliate of the Company or any division or unit thereof), as compared with the performance factors of other companies or entities, or (iii) based on a Key Employee’s attainment of personal objectives with respect to any one or more of the performance factors of the Company (or the performance factors of any subsidiary or affiliate of the Company or any division or unit thereof), or with respect to any one or more of the following: growth and profitability, customer satisfaction, leadership effectiveness, business development, negotiating transactions and sales or developing long term business goals. If during the course of a Performance Period there shall occur significant events which the Committee expects to have a substantial effect on the applicable Performance Objectives during such period, the Committee may revise such Performance Objectives.           (e) At the beginning of a Performance Period, the Committee shall determine for each Key Employee or group of Key Employees the number of Performance Shares or the percentage of Performance Shares which shall be paid to the Key Employee or member of the group of Key Employees following completion of the Performance Period 11 --------------------------------------------------------------------------------   or if later, following any applicable Restriction Period, if the applicable Performance Objectives are met in whole or in part.           (f) If a Key Employee terminates service with all Participating Companies during a Performance Period or any applicable Restriction Period: (i) because of death, (ii) because of Total Disability, (iii) solely in the case of a Key Employee with an original hire date with a Participating Company before January 1, 2002, because of his or her voluntary termination of employment due to Retirement, or (iv) under other circumstances where the Committee in its sole discretion finds that a waiver would be in the best interests of the Company; that Key Employee may, as determined by the Committee, be entitled to payment in settlement of such Performance Shares at the end of the Performance Period or if later, at the end of any applicable Restriction Period, based upon the extent to which the Performance Objectives were satisfied at the end of such Performance Period and prorated for the portion of the Performance Period together with any applicable Restriction Period during which the Key Employee was actively employed by any Participating Company; provided, however, the Committee may provide for an earlier payment in settlement of such Performance Shares in such amount and under such terms and conditions as the Committee deems appropriate or desirable. If a Key Employee terminates service with all Participating Companies during a Performance Period or any applicable Restriction Period for any other reason, then such Key Employee shall not be entitled to any Award with respect to that Performance Period and shall forfeit any shares of Stock subject to a Restriction Period unless the Committee shall otherwise determine.           (g) Except as provided in Section 9, if a Director’s service on the Board terminates for any reason, including, without limitation, termination due to death, disability or retirement, prior to the lapse of any applicable Restriction Period, such Director (or Beneficiary, in the event of death) shall be or become vested in, or entitled to payment in respect of, such Award to the extent determined by the Committee as set forth in such Director’s Award Document and/or any administrative rules or other terms and conditions adopted by the Committee from time to time applicable to such Award granted to such Director.           (h) Each Award of a Performance Share shall be paid in whole shares of Stock, or cash, or a combination of Stock and cash either as a lump sum payment or in annual installments, all as the Committee shall determine, with payment to commence as soon as practicable after the end of the relevant Performance Period or if later, at the end of any applicable Restriction Period.           (i) Except as otherwise required by applicable law, no Performance Share granted under the Plan shall be transferable other than on account of death in accordance with the terms of the Plan.           (j) Notwithstanding anything else contained in the Plan to the contrary, unless the Committee otherwise determines at the time of grant, any Award of Performance Shares, to an officer of the Company or a Subsidiary who is subject to the reporting 12 --------------------------------------------------------------------------------   requirements of Section 16(a) of the Act, shall become vested, if at all, upon the determination by the Committee that Performance Objectives established by the Committee have been attained, in whole or in part, to the extent required to ensure that such Award is deductible by the Company or such Subsidiary pursuant to Section 162(m) of the Code. To the extent such Award is so intended to qualify as performance-based compensation under Section 162(m), notwithstanding anything else in the Plan to the contrary, the Committee shall not have any discretionary power or authority to increase the amount payable with respect to such Award after it has been granted, and shall be deemed not to have and may not exercise with respect to such Award any authority or discretion afforded to it under the Plan that would cause the Award to fail to so qualify. 7. Restricted Stock and Restricted Units      (a) Except as provided in Section 9, Restricted Stock and Restricted Units shall be subject to a Restriction Period specified by the Committee. The Committee may provide for the lapse of a Restriction Period in installments where deemed appropriate, and it may also require the achievement of predetermined performance objectives in order for such Restriction Period to lapse. Except as otherwise provided in the Plan or as specified by the Committee, certificates for shares related to an Award of Restricted Stock or Restricted Units shall be delivered to a Key Employee or Director as soon as administratively practicable following the end of the applicable Restriction Period.      (b) Except when the Committee determines otherwise pursuant to Section 7(d), if a Key Employee terminates employment with all Participating Companies for any reason before the expiration of the Restriction Period, all shares of Restricted Stock and all rights with respect to any Award of Restricted Units still subject to restriction shall be forfeited by the Key Employee and shall be reacquired by the Company.      (c) Except as otherwise provided in this Section 7 or required by applicable law, no shares of Restricted Stock received by a Key Employee or Director and no rights conveyed by an Award of Restricted Units shall be sold, exchanged, transferred, pledged, hypothecated or otherwise disposed of during the Restriction Period.      (d) In the event that a Key Employee’s employment terminates due to (i) death, (ii) Total Disability, (iii) solely in the case of a Key Employee with an original hire date with a Participating Company before January 1, 2002, a voluntary termination of employment due to Retirement, or (iv) such other circumstances, such as a substantial reduction in force or a divestiture or sale of a business or unit, that the Committee finds that a waiver of the applicable restrictions (or any portion thereof) would be in the best interests of the Company, such Key Employee (or Beneficiary, in the event of death) shall be or become vested in, or entitled to payment in respect of, Restricted Stock or Restricted Units then held by such Key Employee to the extent determined by the Committee as set forth in such Key Employee’s Award Documents and/or any administrative rules or other terms and conditions adopted by the Committee from time to time applicable to such Restricted Stock or Restricted Units granted to such Key 13 --------------------------------------------------------------------------------   Employee. With respect to any Award of Restricted Units, unless otherwise determined by the Committee, any amount payable to the Key Employee or his or her Beneficiary in accordance with this Section 7(d) shall be paid promptly following the end of the applicable Restriction Period determined without regard to this paragraph.      (e) Except as provided in Section 9, if a Director’s service on the Board terminates for any reason, including without limitation termination due to death, disability or retirement, prior to the lapse of any applicable Restriction Period, such Director (or Beneficiary, in the event of death) shall be or become vested in, or entitled to payment in respect of, such Award to the extent determined by the Committee as set forth in such Director’s Award Document and/or any administrative rules or other terms and conditions adopted by the Committee from time to time applicable to such Award granted to such Director.      (f) The Committee may require, on such terms and conditions as it deems appropriate or desirable, that the certificates for Stock delivered under the Plan in respect of any grant of Restricted Stock may be held in custody by a bank or other institution, or that the Company may itself hold such shares in custody until the Restriction Period expires or until restrictions thereon otherwise lapse, or later as provided in Section 14 hereof. The Committee may require, as a condition of any Award of Restricted Stock that the Key Employee or Director shall have delivered a stock power endorsed in blank relating to the Restricted Stock. Notwithstanding any provision of the Plan to the contrary, Restricted Stock may be evidenced on a book entry or electronic basis or pursuant to other arrangements (including, without limitation, in an omnibus or nominee account administered by a third party) until restrictions thereon otherwise lapse, in lieu of issuing physical certificates to the Key Employee or Director.      (g) At the discretion of the Committee, the Restricted Unit account of a Key Employee or Director may be credited with Dividend Equivalents during the Restricted Period which shall be subject to the same terms and conditions (and become payable and be paid) as the Restricted Units to which they relate. Unless the Committee shall otherwise determine at or after grant, all Dividend Equivalents payable in respect of Restricted Units shall be deemed reinvested in that number of Restricted Units determined based on the Fair Market Value on the date the corresponding dividend on the Stock is payable to stockholders.      (h) Nothing in this Section 7 shall preclude a Key Employee or Director from exchanging any shares of Restricted Stock subject to the restrictions contained herein for any other shares of Stock that are similarly restricted.      (i) Subject to Section 7(f) and Section 8, a stock certificate shall be issued in the name of each Key Employee or Director awarded Restricted Stock under the Plan. Such certificate shall be registered in the name of the Key Employee or Director, and shall bear an appropriate legend reciting the terms, conditions and restrictions, if any, applicable to such Award and shall be subject to appropriate stop-transfer orders. Upon the lapse of the Restricted Period with respect to Restricted Stock, such shares shall no 14 --------------------------------------------------------------------------------   longer be subject to the restrictions imposed under this Section 7 and the Company shall issue or have issued new share certificates, or otherwise render available the shares represented by the certificate, without the legend referred to herein in exchange for those certificates previously issued. Upon the lapse of the Restricted Period with respect to any Restricted Units, the Company shall deliver (or otherwise render available) to the Key Employee or Director (or, if applicable, his or her beneficiary or permitted assigns, one share of Stock for each Restricted Unit as to which restrictions have lapsed (including any such Restricted Units related to any Dividend Equivalents credited with respect to such Restricted Units). The Committee may, in its sole discretion, elect to pay cash or part cash and part Stock in lieu of delivering only Stock for Restricted Units. If a cash payment is made in lieu of delivering Stock, the amount of such cash payment for each share of Stock to which a Key Employee or Director is entitled shall be equal to the Fair Market Value on the date on which the Restricted Period lapsed with respect to the related Restricted Unit. Notwithstanding the foregoing, the Committee may, to the extent possible without adverse tax consequences to the Key Employee or Director, require or permit the deferral of payment in respect of Restricted Units to a date or dates (including, without limitation, the date the Key Employee’s employment or a Director’s services on the Board terminates) subsequent to the date that the Restriction Period lapses on such terms and conditions (including, without limitation, the manner in which the amounts payable shall be deemed invested during the period of deferral) as it shall determine from time to time.      (j) Except for the restrictions set forth herein and unless otherwise determined by the Committee, a Key Employee or Director shall have all the rights of a shareholder with respect to shares of Restricted Stock, including but not limited to, the right to vote and the right to receive dividends. A Key Employee or Director shall not have any right, in respect of Restricted Units awarded pursuant to the Plan, to vote on any matter submitted to the Company’s stockholders until such time, if at all, as the shares of Stock attributable to such Restricted Units have been issued.      (k) In addition, the Committee may permit Key Employees and Directors or any group of Key Employees and Directors to elect to receive Restricted Units in exchange for or in lieu of other compensation (including salaries, annual bonuses, annual retainer and meeting fees) that would otherwise have been payable to such Key Employees and Directors in cash. The Committee shall establish the terms and conditions of any such Restricted Units, including the Restriction Period applicable thereto, and the date on which Stock shall be issued in respect thereof. The Committee shall establish the terms and conditions applicable to any election by a Key Employee or Director to receive Restricted Units (including the time at which any such election shall be made).      (l) Notwithstanding anything else contained in the Plan to the contrary, the Committee may determine at the time of grant that any Award of Restricted Stock or Restricted Units to a Key Employee or Director shall become vested, if at all, only upon the determination by the Committee that Performance Objectives established by the Committee have been attained, in whole or in part. In such case, the Performance 15 --------------------------------------------------------------------------------   Objectives determined by the Committee may vary from Key Employee to Key Employee, Director to Director and between groups of Key Employees and Directors, and shall be established by the Committee and determined by applying the standards (and selecting from the criteria) applicable to Performance Shares under Section 6(d). If there shall occur significant events which the Committee expects to have a substantial effect on the applicable Performance Objectives, the Committee may revise such Performance Objectives. Unless the Committee otherwise determines at the time of grant, any Award of Restricted Stock or Restricted Units that is subject to performance-based vesting in accordance with this Section 7(l), to an officer of the Company or a Subsidiary who is subject to the reporting requirements of Section 16(a) of the Act, shall be subject to the same requirements and restrictions as apply to a Performance Share Award under Section 6(j). 8. Issuance of Stock      (a) The Company shall not be required to issue or deliver any shares of Stock prior to: (i) the listing of such shares on any stock exchange on which the Stock may then be listed, (ii) the completion of any registration or qualification of such shares under any federal or state law, or any ruling or regulation of any government body which the Company shall, in its sole discretion, determine to be necessary or advisable, and (iii) the satisfaction of any tax withholding obligations as provided in Section 14 hereof.      (b) All shares of Stock delivered under the Plan shall also be subject to such stop-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Stock is then listed and any applicable federal or state securities laws, and the Committee may cause a legend or legends to be placed on any such certificates to make appropriate reference to such restrictions. In making such determination, the Committee may rely upon an opinion of counsel for the Company.      (c) Except to the extent such shares are subject to forfeiture during any applicable Restriction Period, each Key Employee or Director who receives Stock in settlement of or as part of an Award, shall have all of the rights of a shareholder with respect to such shares, including the right to vote the shares and receive dividends and other distributions. No Key Employee or Director awarded an Option, a Right, a Restricted Unit or a Performance Share shall have any right as a shareholder with respect to any shares of Stock covered by his or her Option, Right, Restricted Unit or Performance Share prior to the date of issuance to him or her of such shares. 16 --------------------------------------------------------------------------------   9. Change of Control      (a) For purposes of this Plan, a Change of Control shall occur if:           (i) a report on Schedule 13D shall be filed with the Securities and Exchange Commission pursuant to Section 13(d) of the Act disclosing that any Person, other than the Company or a subsidiary of the Company or any employee benefit plan sponsored by the Company or a subsidiary of the Company is the Beneficial Owner of twenty percent or more of the outstanding stock of the Company entitled to vote in the election of directors of the Company;           (ii) any Person other than the Company or a subsidiary of the Company or any employee benefit plan sponsored by the Company or a subsidiary of the Company shall purchase shares pursuant to a tender offer or exchange offer to acquire any stock of the Company (or securities convertible into stock) for cash, securities or any other consideration, provided that after consummation of the offer, the Person in question is the Beneficial Owner of fifteen percent or more of the outstanding stock of the Company entitled to vote in the election of directors of the Company (calculated as provided in paragraph (d) of Rule 13d-3 under the Act in the case of rights to acquire stock);           (iii) any merger, consolidation, recapitalization or reorganization of the Company approved by the stockholders of the Company shall be consummated, other than any such transaction immediately following which the persons who were the Beneficial Owners of the outstanding securities of the Company entitled to vote in the election of directors of the Company immediately prior to such transaction are the Beneficial Owners of at least 55% of the total voting power represented by the securities of the entity surviving such transaction entitled to vote in the election of directors of such entity (or the ultimate parent of such entity) in substantially the same relative proportions as their ownership of the securities of the Company entitled to vote in the election of directors of the Company immediately prior to such transaction; provided that, such continuity of ownership (and preservation of relative voting power) shall be deemed to be satisfied if the failure to meet such threshold (or to preserve such relative voting power) is due solely to the acquisition of voting securities by an employee benefit plan of the Company, such surviving entity or any subsidiary of such surviving entity;           (iv) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets of the Company approved by the stockholders of the Company shall be consummated; or           (v) within any 24 month period, the persons who were directors of the Company immediately before the beginning of such period (the “Incumbent Directors”) shall cease (for any reason other than death) to constitute at least a majority of the Board or the board of directors of any successor to the Company, provided that any director who was not a director at the beginning of such period shall be deemed to be an Incumbent Director if such director (A) was elected to the Board by, or on the recommendation of or 17 --------------------------------------------------------------------------------   with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors either actually or by prior operation of this clause (v), and (B) was not designated by a Person who has entered into an agreement with the Company to effect a transaction described in Section 9(a)(iii) or Section 9(a)(iv) of the Plan.      (b) For purposes of this Plan, a Potential Change of Control shall occur if:           (i) A Person shall commence a tender offer, which if successfully consummated, would result in such Person being the Beneficial Owner of at least 15% of the stock of the Company entitled to vote in the election of directors of the Company;           (ii) The Company enters into an agreement, the consummation of which would constitute a Change of Control;           (iii) Solicitation of proxies for the election of directors of the Company by anyone other than the Company, which, if such directors were elected, would result in the occurrence of a Change of Control as described in Section 9(a)(v); or           (iv) Any other event shall occur which is deemed to be a Potential Change of Control by the Board, the Committee, or any other appropriate committee of the Board in its sole discretion.      (c) Notwithstanding any provision in this Plan to the contrary, upon the occurrence of a Change of Control:           (i) Each Option and Right outstanding on the date such Change of Control occurs, and which is not then fully vested and exercisable, shall immediately vest and become exercisable to the full extent of the original grant for the remainder of its term.           (ii) The surviving or resulting corporation may, in its discretion, provide for the assumption or replacement of each outstanding Option and Right granted under the Plan on terms which are no less favorable to the optionee than those applicable to the Options and Rights immediately prior to the Change of Control.           (iii) The restrictions applicable to shares of Restricted Stock or to Restricted Units held by Key Employees pursuant to Section 7 shall lapse upon the occurrence of a Change of Control, and such Key Employees shall receive immediately unrestricted certificates for all of such shares.           (iv) If a Change of Control occurs during the course of a Performance Period or any Restriction Period applicable to an Award of Performance Shares pursuant to Section 6, then a Key Employee shall be deemed to have satisfied the Performance Objectives and to have completed any applicable Restriction Period effective on the date of such occurrence. 18 --------------------------------------------------------------------------------             (v) Notwithstanding any provision in this Plan to the contrary, in the event of a Change of Control the Committee may, in its discretion, provide any of the following either absolutely or subject to the election of such Key Employees: a. Each Option and Right shall be surrendered or exercised for an immediate lump sum cash amount equal to the excess of the Formula Price over the exercise price; b. Each Restricted Stock, Restricted Unit and Award of Performance Shares shall be exchanged for an immediate lump sum cash amount equal to the number of outstanding units or shares awarded to such Key Employee multiplied by the Formula Price.      (d) Notwithstanding any provision in this Plan to the contrary, in the event of a Change of Control as described in Section 9(a)(iii) or Section 9(a)(iv) of the Plan, in the case of an awardee whose employment or service involuntarily terminates on or after the date of a shareholder approval described in either of such Sections but before the date of a consummation described in either of such Sections, the date of termination of such an awardee’s employment or service shall be deemed for purposes of the Plan to be the day following the date of the applicable consummation. 10. Beneficiary      (a) Each Key Employee, Director and/or his or her Transferee may file with the Company a written designation of one or more persons as the Beneficiary who shall be entitled to receive the Award, if any, payable under the Plan upon his or her death. A Key Employee, Director or Transferee may from time to time revoke or change his or her Beneficiary designation without the consent of any prior Beneficiary by filing a new designation with the Company. The last such designation received by the Company shall be controlling; provided, however, that no designation, or change or revocation thereof, shall be effective unless received by the Company prior to the Key Employee’s, Director’s or Transferee’s death, as the case may be, and in no event shall it be effective as of a date prior to such receipt.      (b) If no such Beneficiary designation is in effect at the time of death of a Key Employee, Director or Transferee, as the case may be, or if no designated Beneficiary survives the Key Employee, Director or Transferee or if such designation conflicts with applicable law, the estate of the Key Employee, Director or Transferee, as the case may be, shall be entitled to receive the Award, if any, payable under the Plan upon his or her death. If the Committee is in doubt as to the right of any person to receive such Award, the Company may retain such Award, without liability for any interest thereon, until the Committee determines the rights thereto, or the Company may pay such Award into any court of appropriate jurisdiction and such payment shall be a complete discharge of the liability of the Company therefore. 19 --------------------------------------------------------------------------------   11. Administration of the Plan      (a) All decisions, determinations or actions of the Committee made or taken pursuant to grants of authority under the Plan shall be made or taken in the sole discretion of the Committee and shall be final, conclusive and binding on all persons for all purposes.      (b) The Committee shall have full power, discretion and authority to interpret, construe and administer the Plan and any part thereof, and its interpretations and constructions thereof and actions taken thereunder shall be, except as otherwise determined by the Board, final, conclusive and binding on all persons for all purposes. Except to the extent otherwise expressly provided in the Plan, any action, authority or power reserved to the Committee shall be within the Committee’s sole and absolute discretion.      (c) The Committee’s decisions and determinations under the Plan need not be uniform and may be made selectively among Key Employees and Directors, whether or not such Key Employees and Directors are similarly situated.      (d) The Committee may, in its sole discretion, delegate such of its powers as it deems appropriate to the Company’s Executive Vice President, Human Resources (or other person holding a similar position) or the Company’s Chief Executive Officer, except that Awards to executive officers shall be made, and matters related thereto shall be determined, solely by the Committee or the Board or any other appropriate committee of the Board. 12. Amendment, Extension or Termination    The Board or the Committee may, at any time, amend or modify the Plan and, specifically, may make such modifications to the Plan as it deems necessary to avoid the application of Section 162(m) of the Code and the Treasury regulations issued thereunder. However: (i) with respect only to Incentive Stock Options, no amendment shall, without approval by a majority of the Company’s stockholders, (A) alter the group of persons eligible to participate in the Plan, or (B) except as provided in Section 13 increase the maximum number of shares of Stock which are available for Awards under the Plan; or, (ii) with respect to all Options and Rights, allow the Committee to reprice the Options or Rights. The Board may suspend or terminate the Plan at any time without the consent of any person. Notwithstanding anything in this Plan to the contrary, the Plan shall not be amended, modified, suspended or terminated during the period in which a Change of Control is threatened. For purposes of the preceding sentence, a Change of Control shall be deemed to be threatened for the period beginning on the date of any Potential Change of Control, and ending upon the earlier of: (I) the second anniversary of the date of such Potential Change of Control, (II) the date a Change of Control occurs, or (III) the date the Board or the Committee determines in good faith that a Change of Control is no longer threatened. Further, notwithstanding anything in this Plan to the 20 --------------------------------------------------------------------------------   contrary, no amendment, modification, suspension or termination following a Change of Control shall adversely impair or reduce the rights of any person with respect to a prior Award without the consent of such person. Notwithstanding any other provision of the Plan to the contrary, the Board or the Committee may amend the Plan or an Award Document to take effect retroactively or otherwise, as deemed necessary or advisable for the purpose of conforming the Plan or an Award Document to any present or future law relating to plans of this or similar nature (including, but not limited to, Code Section 409A) and the administrative regulations and rulings promulgated thereunder. 13. Adjustments in Event of Change in Common Stock      In the event of any reorganization, merger, recapitalization, consolidation, liquidation, stock dividend, stock split, reclassification, combination of shares, rights offering, split-up or extraordinary dividend (including a spin-off) or divestiture, or any other change in the corporate structure or shares, the Committee may make such adjustment in the Stock subject to Awards, including Stock subject to purchase by an Option or issuable in respect of Restricted Units, or the terms, conditions or restrictions on Stock or Awards, including the price payable upon the exercise of such Option and the number of shares subject to Restricted Stock or Restricted Unit Awards, as the Committee deems equitable. 14. Miscellaneous      (a) If a Change of Control has not occurred and if the Committee determines that a Key Employee has taken action inimical to the best interests of any Participating Company, the Committee may, in its sole discretion, terminate in whole or in part such portion of any Option or Right as has not yet become exercisable at the time of termination, terminate any Performance Share Award for which the Performance Period or any applicable Restriction Period has not been completed or terminate any Award of Restricted Stock or Restricted Units for which the Restriction Period has not lapsed.      (b) Except as provided in Section 9, nothing in this Plan or any Award granted hereunder shall confer upon any employee any right to continue in the employ of any Participating Company or interfere in any way with the right of any Participating Company to terminate his or her employment at any time. No Award payable under the Plan shall be deemed salary or compensation for the purpose of computing benefits under any employee benefit plan or other arrangement of any Participating Company for the benefit of its employees unless the Company shall determine otherwise. No Key Employee shall have any claim to an Award until it is actually granted under the Plan. To the extent that any person acquires a right to receive payments from the Company under this Plan, such right shall be no greater than the right of an unsecured general creditor of the Company. All payments to be made hereunder shall be paid from the general funds of the Company and no special or separate fund shall be established and no segregation of assets shall be made to assure payment of such amounts except as provided in Section 21 --------------------------------------------------------------------------------   7(e) with respect to Restricted Stock.      (c) The Committee shall have the right to make such provisions as deemed appropriate in its sole discretion to satisfy any obligation of the Company to withhold federal, state or local income or other taxes incurred by reason of the operation of the Plan or an Award under the Plan, including but not limited to at any time: (i) requiring a Key Employee to submit payment to the Company for such taxes before making settlement of any Award of Stock or other amount due under the Plan, (ii) withholding such taxes from wages or other amounts due to the Key Employee before making settlement of any Award of Stock or other amount due under the Plan, (iii) making settlement of any Award of Stock or other amount due under the Plan to a Key Employee part in Stock and part in cash to facilitate satisfaction of such withholding obligations, or (iv) receiving Stock already owned by, or withholding Stock otherwise due to, the Key Employee in an amount determined necessary to satisfy such withholding obligations; provided, however, that, notwithstanding any language herein to the contrary, any Key Employee who is an executive officer of the Company (within the meaning of Section 16 of the Act) shall have the right to satisfy his or her obligations to the Company pursuant to this Section 14(c) by instructing the Company not to deliver to the Key Employee Stock otherwise deliverable to the Key Employee in an amount sufficient to satisfy such obligations to the Company.      (d) The Committee may permit deferrals of compensation pursuant to the Plan or any subplan hereof which meet the requirements of Code Section 409A and the regulations thereunder. Additionally, to the extent any Award is subject to Code Section 409A, notwithstanding any provision herein to the contrary, the Plan does not permit the acceleration of the time or schedule of any distribution related to such Award, except as permitted by Code Section 409A and the regulations and rulings promulgated thereunder.      (e) The Plan and the grant of Awards shall be subject to all applicable federal and state laws, rules, and regulations and to such approvals by any government or regulatory agency as may be required. The Plan and each Award Document shall be governed by the laws of the State of Delaware, excluding any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of the Plan to the substantive law of another jurisdiction. Unless otherwise provided in the Award Document, recipients of an Award under the Plan are deemed to submit to the exclusive jurisdiction and venue of the federal or state courts of Connecticut to resolve any and all issues that may arise out of or relate to the Plan or any related Award Document.      (f) The terms of the Plan shall be binding upon the Company and its successors and assigns.      (g) Captions preceding the sections hereof are inserted solely as a matter of convenience and in no way define or limit the scope or intent of any provision hereof. 22 --------------------------------------------------------------------------------   15. Effective Date, Term of Plan and Shareholder Approval      The effective date of the Plan shall be May 18, 2005. No Award shall be granted under this Plan after the Plan’s termination date. The Plan’s termination date shall be the earlier of: (a) May 18, 2015, or (b) the date on which the Maximum Limit (as defined in Section 3 of the Plan) is reached; provided, however, that the Plan will continue in effect for existing Awards as long as any such Award is outstanding. 23

       Exhibit 10.02 INTERWOVEN, INC. 2000 STOCK INCENTIVE PLAN As Adopted May 16, 2000 As Amended Thereafter      1. PURPOSE. The purpose of this Plan is to provide incentives to attract, retain and motivate eligible persons whose present and potential contributions are important to the success of the Company, its Parent and Subsidiaries, by offering them an opportunity to participate in the Company’s future performance through awards of Options, Restricted Stock and Restricted Stock Units (RSU). Capitalized terms not defined in the text are defined in Section 23 if they are not otherwise defined in other sections of this Plan.      2. SHARES SUBJECT TO THE PLAN.           2.1 Number of Shares Available. Subject to Sections 2.2 and 18, the total number of Shares reserved and available for grant and issuance pursuant to this Plan will be 12,000,0001 Shares. Subject to Sections 2.2 and 18, Shares that are subject to: (a) issuance upon exercise of an Option but cease to be subject to such Option for any reason other than exercise of such Award and (b) an Award granted hereunder but are forfeited or are repurchased by the Company at the original issue price because the Shares are Unvested Shares at the time of the Participant’s Termination, will again be available for grant and issuance in connection with future Awards under this Plan. At all times the Company shall reserve and keep available a sufficient number of Shares as shall be required to satisfy the requirements of all outstanding Awards granted under this Plan.           2.2 Adjustment of Shares. If the number of outstanding shares is changed by a stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification or similar change in the capital structure of the Company without consideration, then (a) the number of Shares reserved for issuance under this Plan, (b) the Exercise Prices of and number of Shares subject to outstanding Options, and (c) the number of Shares subject to other outstanding Awards, will be proportionately adjusted, subject to any required action by the Board or the stockholders of the Company and compliance with applicable securities laws; provided, that fractions of a Share will not be issued but will either be paid in cash at the Fair Market Value of such fraction of a Share or will be rounded up to the nearest whole Share, as determined by the Committee; and provided, further, that the Exercise Price of any Award may not be decreased to below the par value of the Shares.      3. ELIGIBILITY. Awards may be granted to employees, officers, directors, consultants, independent contractors and advisors of the Company or any Parent or Subsidiary of the Company; provided such consultants, independent contractors and advisors render bona fide services not in connection with the offer and sale of securities in a capital-raising transaction. A person may be granted more than one Award under this Plan. Awards granted to officers may not   1   Adjusted to reflect (i) the 2-for-1 split of the Company’s Common Stock effected in July 2000 (the “Split”); (ii) the authorization of an additional 4,000,000 (post-Split) shares of the Company’s Common Stock for issuance under the Plan approved by the Company’s Board of Directors on September 7, 2000; and (iii) the 2-for-1 split of the Company’s Common Stock effected in December 2000.   --------------------------------------------------------------------------------   Interwoven, Inc. 2000 Stock Incentive Plan exceed in the aggregate forty percent (40%) of all Shares that are reserved for grant under this Plan. Awards granted as Restricted Stock to officers may not exceed in the aggregate forty percent (40%) of all Shares that are granted as Restricted Stock.      4. ADMINISTRATION.           4.1 Committee Authority. This Plan will be administered by the Committee or by the Board acting as the Committee. Subject to the general purposes, terms and conditions of this Plan, and to the direction of the Board, the Committee will have full power to implement and carry out this Plan. Without limitation, the Committee will have the authority to:                (a) construe and interpret this Plan, any Award Agreement and any other agreement or document executed pursuant to this Plan;                (b) prescribe, amend and rescind rules and regulations relating to this Plan or any Award;                (c) select persons to receive Awards;                (d) determine the form and terms of Awards;                (e) determine the number of Shares subject to Awards;                (f) determine whether Awards will be granted singly, in combination with, in tandem with, in replacement of, or as alternatives to, other Awards under this Plan or any other incentive or compensation plan of the Company or any Parent or Subsidiary of the Company;                (g) grant waivers of Plan or Award conditions;                (h) determine the vesting, exercisability and payment of Awards;                (i) correct any defect, supply any omission or reconcile any inconsistency in this Plan, any Award or any Award Agreement;                (j) determine whether an Award has been earned; and                (k) make all other determinations necessary or advisable for the administration of this Plan.           4.2 Committee Discretion. Any determination made by the Committee with respect to any Award will be made in its sole discretion at the time of grant of the Award or, unless in contravention of any express term of this Plan or Award, at any later time, and such determination will be final and binding on the Company and on all persons having an interest in any Award under this Plan. The Committee may delegate to one or more officers of the Company the authority to grant an Award under this Plan to Participants who are not officers. 2 --------------------------------------------------------------------------------   Interwoven, Inc. 2000 Stock Incentive Plan      5. OPTIONS. Only nonqualified stock options that do not qualify as incentive stock options within the meaning of Section 422(b) of the Code may be granted under this Plan. The Committee may grant Options to eligible persons and will determine (i) the number of Shares subject to the Option, (ii) the Exercise Price of the Option, (iii) the period during which the Option may be exercised, and (iv) all other terms and conditions of the Option, subject to the following:           5.1 Form of Option Grant. Each Option granted under this Plan will be evidenced by a Stock Option Agreement. The Stock Option Agreement will be in such form and contain such provisions (which need not be the same for each Participant) as the Committee may from time to time approve, and which will comply with and be subject to the terms and conditions of this Plan.           5.2 Date of Grant. The date of grant of an Option will be the date on which the Committee makes the determination to grant the Option, unless a later date is otherwise specified by the Committee. The Stock Option Agreement and a copy of this Plan will be delivered to the Participant within a reasonable time after the Option is granted.           5.3 Exercise Period and Expiration Date. Options will be exercisable within the times or upon the occurrence of events determined by the Committee as set forth in the Stock Option Agreement governing such Option; provided, however, that no Option will be exercisable after the expiration of ten (10) years from the date the Option is granted. The Committee also may provide for Options to become exercisable at one time or from time to time, periodically or otherwise, in such number of Shares or percentage of Shares as the Committee determines.           5.4 Exercise Price. The Exercise Price of an Option will be determined by the Committee when the Option is granted and may be not less than the par value of the Shares on the date of grant. Payment for the Shares purchased must be made in accordance with Section 8 of this Plan.           5.5 Method of Exercise. Options may be exercised only by delivery to the Company of a written stock option exercise agreement (the “Exercise Agreement”) in a form approved by the Committee (which need not be the same for each Participant), stating the number of Shares being purchased, the restrictions imposed on the Shares purchased under such Exercise Agreement, if any, and such representations and agreements regarding Participant’s investment intent and access to information and other matters, if any, as may be required or desirable by the Company to comply with applicable securities laws, together with payment in full of the Exercise Price for the number of Shares being purchased.           5.6 Termination. Notwithstanding the exercise periods set forth in the Stock Option Agreement, exercise of an Option will always be subject to the following:                (a) If the Participant is Terminated for any reason except death or Disability, then the Participant may exercise such Participant’s Options only to the extent that such Options would have been exercisable upon the Termination Date no later than three (3) months after the Termination Date (or such shorter or longer time period not exceeding five (5) 3 --------------------------------------------------------------------------------   Interwoven, Inc. 2000 Stock Incentive Plan years as may be determined by the Committee, but in any event, no later than the expiration date of the Options.                (b) If the Participant is Terminated because of Participant’s death or Disability (or the Participant dies within three (3) months after a Termination other than for Cause or because of Participant’s Disability), then Participant’s Options may be exercised only to the extent that such Options would have been exercisable by Participant on the Termination Date and must be exercised by Participant (or Participant’s legal representative or authorized assignee) no later than twelve (12) months after the Termination Date (or such shorter or longer time period not exceeding five (5) years as may be determined by the Committee) but in any event no later than the expiration date of the Options.                (c) Notwithstanding the provisions in paragraph 5.6(a) above, if a Participant is terminated for Cause, neither the Participant, the Participant’s estate nor such other person who may then hold the Option shall be entitled to exercise any Option with respect to any Shares whatsoever, after termination of service, whether or not after termination of service the Participant may receive payment from the Company or any Parent or Subsidiary of the Company for vacation pay, for services rendered prior to termination, for services rendered for the day on which termination occurs, for salary in lieu of notice, or for any other benefits. In making such determination, the Board shall give the Participant an opportunity to present to the Board evidence on his behalf. For the purpose of this paragraph, termination of service shall be deemed to occur on the date when the Company dispatches notice or advice to the Participant that his service is terminated.           5.7 Limitations on Exercise. The Committee may specify a reasonable minimum number of Shares that may be purchased on any exercise of an Option, provided that the minimum number will not prevent a Participant from exercising the Option for the full number of Shares for which it is then exercisable.           5.8 Modification, Extension or Renewal. The Committee may modify, extend or renew outstanding Options and authorize the grant of new Options in substitution therefor, provided that any such action may not, without the written consent of a Participant, impair any of such Participant’s rights under any Option previously granted. The Committee may reduce the Exercise Price of outstanding Options without the consent of Participants affected by a written notice to them; provided, however, that the Exercise Price may not be reduced below the minimum Exercise Price that would be permitted under Section 5.4 of this Plan for Options granted on the date the action is taken to reduce the Exercise Price; and provided, further, that the Exercise Price shall not be reduced below the par value of the Shares.      6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the Company to sell to an eligible person Shares that are subject to restrictions. The Committee will determine to whom an offer will be made, the number of Shares the person may purchase, the price to be paid (the “Purchase Price”), the restrictions to which the Shares will be subject, and all other terms and conditions of the Restricted Stock Award, subject to the following: 4 --------------------------------------------------------------------------------   Interwoven, Inc. 2000 Stock Incentive Plan           6.1 Form of Restricted Stock Award. All purchases under a Restricted Stock Award made pursuant to this Plan will be evidenced by an Award Agreement (“Restricted Stock Purchase Agreement”) that will be in such form (which need not be the same for each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions of this Plan. The offer of Restricted Stock will be accepted by the Participant’s execution and delivery of the Restricted Stock Purchase Agreement and full payment for the Shares to the Company within thirty (30) days from the date the Restricted Stock Purchase Agreement is delivered to the person. If such person does not execute and deliver the Restricted Stock Purchase Agreement along with full payment for the Shares to the Company within thirty (30) days, then the offer will terminate, unless otherwise determined by the Committee.           6.2 Purchase Price. The Purchase Price of Shares sold pursuant to a Restricted Stock Award will be determined by the Committee on the date the Restricted Stock Award is granted and may be not less than the par value of the Shares on the date of grant. Payment of the Purchase Price may be made in accordance with Section 8 of this Plan.           6.3 Terms of Restricted Stock Awards. Restricted Stock Awards shall be subject to such restrictions as the Committee may impose. These restrictions may be based upon completion of a specified number of years of service with the Company or upon completion of the performance goals as set out in advance in the Participant’s individual Restricted Stock Purchase Agreement. Restricted Stock Awards may vary from Participant to Participant and between groups of Participants. Prior to the payment of any Restricted Stock Award, the Committee shall determine the extent to which such Restricted Stock Award has been earned.           6.4 Termination During Performance Period. If a Participant is Terminated during a performance period for any reason, then such Participant will be entitled to payment (whether in Shares, cash or otherwise) with respect to the Restricted Stock Award only to the extent earned as of the date of Termination in accordance with the Restricted Stock Purchase Agreement, unless the Committee will determine otherwise.      7. RESTRICTED STOCK UNITS           7.1 Award of Restricted Stock Units. An RSU is an award to a Participant covering a number of Shares that may be settled in cash, or by issuance of those Shares for services to be rendered or for past services already rendered to the Company or any Subsidiary. RSUs will vest over a minimum of three years as measured from the date of grant.           7.2 Form and Timing of Settlement. To the extent permissible under applicable law, the Committee may permit a Participant to defer payment under a RSU to a date or dates after the RSU is earned, provided that the terms of the RSU and any deferral satisfy the requirements of Section 409A of the Code (or any successor) and any regulations or rulings promulgated thereunder. Payment may be made in the form of cash or whole Shares or a combination thereof in a lump sum payment, all as the Committee determines. 5 --------------------------------------------------------------------------------   Interwoven, Inc. 2000 Stock Incentive Plan      8. PAYMENT FOR SHARE PURCHASES.           8.1 Payment. Payment for Shares purchased on exercise of an Award may be made in cash (by check) or, where expressly approved for the Participant by the Committee and where permitted by law:                (a) by cancellation of indebtedness of the Company to the Participant;                (b) by surrender of shares that either: (1) have been owned by Participant for more than six (6) months and have been paid for within the meaning of SEC Rule 144 (and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such shares); or (2) were obtained by Participant in the public market;                (c) by tender of a full recourse promissory note having such terms as may be approved by the Committee and bearing interest at a rate sufficient to avoid imputation of income under Sections 483 and 1274 of the Code; provided, however, that a Participant who is not an employee of the Company may not purchase Shares with a promissory note unless the note is adequately secured by collateral other than the Shares; and provided, further, that the portion of the Exercise Price equal to the par value of the Shares must be paid in cash;                (d) by waiver of compensation due or accrued to the Participant for services rendered;                (e) provided that a public market for the Company’s stock exists:                     (1) through a “same day sale” commitment from the Participant and a broker-dealer that is a member of the National Association of Securities Dealers (an “NASD Dealer”) whereby the Participant irrevocably elects to exercise the Option and to sell a portion of the Shares so purchased to pay for the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Exercise Price directly to the Company; or                     (2) through a “margin” commitment from the Participant and a NASD Dealer whereby the Participant irrevocably elects to exercise the Option and to pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Exercise Price directly to the Company; or                (f) by any combination of the foregoing.           8.2 Loan Guarantees. The Committee may help the Participant pay for Shares purchased under this Plan by authorizing a guarantee by the Company of a third-party loan to the Participant. 6 --------------------------------------------------------------------------------   Interwoven, Inc. 2000 Stock Incentive Plan      9. WITHHOLDING TAXES.           9.1 Withholding Generally. Whenever Shares are to be issued on exercise of Awards granted under this Plan, the Company may require the Participant to remit to the Company an amount sufficient to satisfy federal, state and local withholding tax requirements prior to the delivery of any certificate or certificates for such Shares. If a payment in satisfaction of an Award is to be made in cash, such payment will be net of an amount sufficient to satisfy federal, state, and local withholding tax requirements.           9.2 Stock Withholding. When, under applicable tax laws, a Participant incurs tax liability in connection with the exercise or vesting of any Award that is subject to tax withholding and the Participant is obligated to pay the Company the amount required to be withheld, the Committee may in its sole discretion allow the Participant to satisfy the minimum withholding tax obligation by electing to have the Company withhold from the Shares to be issued that number of Shares having a Fair Market Value equal to the minimum amount required to be withheld, determined on the date that the amount of tax to be withheld is to be determined. All elections by a Participant to have Shares withheld for this purpose will be made in accordance with the requirements established by the Committee and be in writing in a form acceptable to the Committee      10. PRIVILEGES OF STOCK OWNERSHIP.           10.1 Voting and Dividends. No Participant will have any of the rights of a stockholder with respect to any Shares until the Shares are issued to the Participant. After Shares are issued to the Participant, the Participant will be a stockholder and have all the rights of a stockholder with respect to such Shares, including the right to vote and receive all dividends or other distributions made or paid with respect to such Shares; provided, however, that if such Shares are Restricted Stock, any new, additional or different securities the Participant may become entitled to receive with respect to the Shares by virtue of a stock dividend, stock split or any other change in the corporate or capital structure of the Company will be subject to the same restrictions as the Restricted Stock; provided, further that the Participant will have no right to retain such dividends or distributions with respect to Shares that are repurchased at the Participant’s original Exercise Price pursuant to Section 12.           10.2 Financial Statements. The Company will provide financial statements to each Participant prior to such Participant’s purchase of Shares under this Plan, and to each Participant annually during the period such Participant has Awards outstanding; provided, however, that the Company will not be required to provide such financial statements to Participants whose services in connection with the Company assure them access to equivalent information.      11. TRANSFERABILITY.           11.1 Except as otherwise provided in this Section 11, Awards granted under this Plan, and any interest therein, will not be transferable or assignable by Participant, and may not be made subject to execution, attachment or similar process, otherwise than by will or by the laws 7 --------------------------------------------------------------------------------   Interwoven, Inc. 2000 Stock Incentive Plan of descent and distribution or as determined by the Committee and set forth in the Award Agreement.           11.2 Unless otherwise restricted by the Committee, an Option shall be exercisable: (i) during the Participant’s lifetime only by (A) the Participant, (B) the Participant’s guardian or legal representative, (C) a Family Member of the Participant who has acquired the Option by “permitted transfer;” and (ii) after Participant’s death, by the legal representative of the Participant’s heirs or legatees. “Permitted transfer” means, as authorized by this Plan and the Committee in an Option, any transfer effected by the Participant during the Participant’s lifetime of an interest in such Option but only such transfers which are by gift or domestic relations order. A permitted transfer does not include any transfer for value and neither of the following are transfers for value: (a) a transfer of under a domestic relations order in settlement of marital property rights or (b) a transfer to an entity in which more than fifty percent of the voting interests are owned by Family Members or the Participant in exchange for an interest in that entity.           11.3 Unless otherwise restricted by the Committee, a Restricted Stock may be transferred during the Participant’s lifetime, only to (A) the Participant, or (B) the Participant’s guardian or legal representative.      12. RESTRICTIONS ON SHARES. At the discretion of the Committee, the Company may reserve to itself and/or its assignee(s) in the Award Agreement a right to repurchase at the Participant’s Exercise Price a portion of or all Unvested Shares held by a Participant following such Participant’s Termination at any time within ninety (90) days after the later of Participant’s Termination Date and the date Participant purchases Shares under this Plan, for cash and/or cancellation of purchase money indebtedness, at the Participant’s Exercise Price or Purchase Price, as the case may be.      13. CERTIFICATES. All certificates for Shares or other securities delivered under this Plan will be subject to such stock transfer orders, legends and other restrictions as the Committee may deem necessary or advisable, including restrictions under any applicable federal, state or foreign securities law, or any rules, regulations and other requirements of the SEC or any stock exchange or automated quotation system upon which the Shares may be listed or quoted.      14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a Participant’s Shares, the Committee may require the Participant to deposit all certificates representing the Shares, together with stock powers or other instruments of transfer approved by the Committee, appropriately endorsed in blank, with the Company or an agent designated by the Company to hold in escrow until such restrictions have lapsed or terminated, and the Committee may cause a legend or legends referencing such restrictions to be placed on the certificates. Any Participant who is permitted to execute a promissory note as partial or full consideration for the purchase of Shares under this Plan will be required to pledge and deposit with the Company all or part of the Shares so purchased as collateral to secure the payment of Participant’s obligation to the Company under the promissory note; provided, however, that the Committee may require or accept other or additional forms of collateral to secure the payment of such obligation and, in any event, the Company will have full recourse against the Participant under the promissory note notwithstanding any pledge of the Participant’s Shares or other collateral. In connection with any 8 --------------------------------------------------------------------------------   Interwoven, Inc. 2000 Stock Incentive Plan pledge of the Shares, Participant will be required to execute and deliver a written pledge agreement in such form as the Committee will from time to time approve. The Shares purchased with the promissory note may be released from the pledge on a pro rata basis as the promissory note is paid.      15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or from time to time, authorize the Company, with the consent of the respective Participants, to issue new Awards in exchange for the surrender and cancellation of any or all outstanding Awards. The Committee may at any time buy from a Participant an Award previously granted with payment in cash, Shares (including Restricted Stock) or other consideration, based on such terms and conditions as the Committee and the Participant may agree.      16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award will not be effective unless such Award is in compliance with all applicable federal and state securities laws, rules and regulations of any governmental body, and the requirements of any stock exchange or automated quotation system upon which the Shares may then be listed or quoted, as they are in effect on the date of grant of the Award and also on the date of exercise or other issuance. Notwithstanding any other provision in this Plan, the Company will have no obligation to issue or deliver certificates for Shares under this Plan prior to: (a) obtaining any approvals from governmental agencies that the Company determines are necessary or advisable; and/or (b) completion of any registration or other qualification of such Shares under any state or federal law or ruling of any governmental body that the Company determines to be necessary or advisable. The Company will be under no obligation to register the Shares with the SEC or to effect compliance with the registration, qualification or listing requirements of any state securities laws, stock exchange or automated quotation system, and the Company will have no liability for any inability or failure to do so.      17. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award granted under this Plan will confer or be deemed to confer on any Participant any right to continue in the employ of, or to continue any other relationship with, the Company or any Parent or Subsidiary of the Company or limit in any way the right of the Company or any Parent or Subsidiary of the Company to terminate Participant’s employment or other relationship at any time, with or without cause.      18. CORPORATE TRANSACTIONS.           18.1 Assumption or Replacement of Awards by Successor. In the event of (a) a dissolution or liquidation of the Company, (b) a merger or consolidation in which the Company is not the surviving corporation (other than a merger or consolidation with a wholly-owned subsidiary, a reincorporation of the Company in a different jurisdiction, or other transaction in which there is no substantial change in the stockholders of the Company or their relative stock holdings and the Awards granted under this Plan are assumed, converted or replaced by the successor corporation, which assumption will be binding on all Participants), (c) a merger in which the Company is the surviving corporation but after which the stockholders of the Company immediately prior to such merger (other than any stockholder that merges, or which owns or controls another corporation that merges, with the Company in such merger) cease to own their shares or other equity interest in the Company, (d) the sale of substantially all of the assets of the 9 --------------------------------------------------------------------------------   Interwoven, Inc. 2000 Stock Incentive Plan Company, or (e) the acquisition, sale, or transfer of more than 50% of the outstanding shares of the Company by tender offer or similar transaction, any or all outstanding Awards may be assumed, converted or replaced by the successor corporation (if any), which assumption, conversion or replacement will be binding on all Participants. In the alternative, the successor corporation may substitute equivalent Awards or provide substantially similar consideration to Participants as was provided to stockholders (after taking into account the existing provisions of the Awards). The successor corporation may also issue, in place of outstanding Shares of the Company held by the Participant, substantially similar shares or other property subject to repurchase restrictions no less favorable to the Participant. In the event such successor corporation (if any) refuses to assume or substitute Awards, as provided above, pursuant to a transaction described in this Subsection 18.1, such Awards will expire on such transaction at such time and on such conditions as the Committee will determine; provided, however, that the Committee may, in its sole discretion, provide that the vesting of any or all Awards granted pursuant to this Plan will accelerate. If the Committee exercises such discretion with respect to Options, such Options will become exercisable in full prior to the consummation of such event at such time and on such conditions as the Committee determines, and if such Options are not exercised prior to the consummation of the corporate transaction, they shall terminate at such time as determined by the Committee.           18.2 Other Treatment of Awards. Subject to any greater rights granted to Participants under the foregoing provisions of this Section 18, in the event of the occurrence of any transaction described in Subsection 18.1, any outstanding Awards will be treated as provided in the applicable agreement or plan of merger, consolidation, dissolution, liquidation, or sale of assets.           18.3 Assumption of Awards by the Company. The Company, from time to time, also may substitute or assume outstanding awards granted by another company, whether in connection with an acquisition of such other company or otherwise, by either; (a) granting an Award under this Plan in substitution of such other company’s award; or (b) assuming such award as if it had been granted under this Plan if the terms of such assumed award could be applied to an Award granted under this Plan. Such substitution or assumption will be permissible if the holder of the substituted or assumed award would have been eligible to be granted an Award under this Plan if the other company had applied the rules of this Plan to such grant. In the event the Company assumes an award granted by another company, the terms and conditions of such award will remain unchanged (except that the exercise price and the number and nature of Shares issuable upon exercise of any such option will be adjusted appropriately pursuant to Section 424(a) of the Code). In the event the Company elects to grant a new Option rather than assuming an existing option, such new Option may be granted with a similarly adjusted Exercise Price.      19. ADOPTION. This Plan will become effective on the date that it is adopted by the Board (the “Effective Date”).      20. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided herein, this Plan will terminate ten (10) years from the Effective Date. This Plan and all agreements thereunder shall be governed by and construed in accordance with the laws of the State of California. 10 --------------------------------------------------------------------------------   Interwoven, Inc. 2000 Stock Incentive Plan      21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time terminate or amend this Plan in any respect, including without limitation amendment of any form of Award Agreement or instrument to be executed pursuant to this Plan.      22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the Board, nor any provision of this Plan will be construed as creating any limitations on the power of the Board to adopt such additional compensation arrangements as it may deem desirable, including, without limitation, the granting of stock option and bonues otherwise than under this Plan, and such arrangements may be either generally applicable or applicable only in specific cases.      23. DEFINITIONS. As used in this Plan, the following terms will have the following meanings:           “Award” means any award under this Plan, including any Option or Restricted Stock.           “Award Agreement” means, with respect to each Award, the signed written agreement between the Company and the Participant setting forth the terms and conditions of the Award.           “Board” means the Board of Directors of the Company.           “Cause” means the commission of an act of theft, embezzlement, fraud, dishonesty or a breach of fiduciary duty to the Company or a Parent or Subsidiary of the Company.           “Code” means the Internal Revenue Code of 1986, as amended.           “Committee” means the Compensation Committee of the Board.           “Company” means Interwoven, Inc. or any successor corporation.           “Disability” means a disability, whether temporary or permanent, partial or total, as determined by the Committee.           “Exercise Price” means the price at which a holder of an Option may purchase the Shares issuable upon exercise of the Option.           “Fair Market Value” means, as of any date, the value of a share of the Company’s Common Stock determined as follows:   (a)   if such Common Stock is then quoted on the Nasdaq National Market, its closing price on the Nasdaq National Market on the date of determination as reported in The Wall Street Journal; 11 --------------------------------------------------------------------------------   Interwoven, Inc. 2000 Stock Incentive Plan   (b)   if such Common Stock is publicly traded and is then listed on a national securities exchange, its closing price on the date of determination on the principal national securities exchange on which the Common Stock is listed or admitted to trading as reported in The Wall Street Journal; or     (c)   if such Common Stock is publicly traded but is not quoted on the Nasdaq National Market nor listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices on the date of determination as reported in The Wall Street Journal;     (d)   if none of the foregoing is applicable, by the Committee in good faith.           “Family Member” includes any of the following:   (a)   child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law of the Participant, including any such person with such relationship to the Participant by adoption;     (b)   any person (other than a tenant or employee) sharing the Participant’s household;     (c)   a trust in which the persons in (a) and (b) have more than fifty percent of the beneficial interest;     (d)   a foundation in which the persons in (a) and (b) or the Participant control the management of assets; or     (e)   any other entity in which the persons in (a) and (b) or the Participant own more than fifty percent of the voting interest.           “Option” means an award of an option to purchase Shares pursuant to Section 5.           “Parent” means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if each of such corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.           “Participant” means a person who receives an Award under this Plan.           “Plan” means this Interwoven, Inc. 2000 Stock Incentive Plan, as amended from time to time. 12 --------------------------------------------------------------------------------   Interwoven, Inc. 2000 Stock Incentive Plan           “Restricted Stock Award” means an award of Shares pursuant to Section 6.           “RSU” means an award granted pursuant to Section 7.           “SEC” means the Securities and Exchange Commission.           “Securities Act” means the Securities Act of 1933, as amended.           “Shares” means shares of the Company’s Common Stock reserved for issuance under this Plan, as adjusted pursuant to Sections 2 and 18, and any successor security.           “Stock Option Agreement” means, with respect to each Option, the signed written agreement between the Company and the Participant setting forth the terms and conditions of the Option.           “Subsidiary” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.           “Termination” or “Terminated” means, for purposes of this Plan with respect to a Participant, that the Participant has for any reason ceased to provide services as an employee, officer, consultant, independent contractor, or advisor to the Company or a Parent or Subsidiary of the Company. An employee will not be deemed to have ceased to provide services in the case of (i) sick leave, (ii) military leave, or (iii) any other leave of absence approved by the Committee, provided, that such leave is for a period of not more than 90 days, unless reemployment upon the expiration of such leave is guaranteed by contract or statute or unless provided otherwise pursuant to formal policy adopted from time to time by the Company and issued and promulgated to employees in writing. In the case of any employee on an approved leave of absence, the Committee may make such provisions respecting suspension of vesting of the Award while on leave from the employ of the Company or a Parent or Subsidiary of the Company as it may deem appropriate, except that in no event may an Award be exercised after the expiration of the term set forth in the Award Agreement. The Committee will have sole discretion to determine whether a Participant has ceased to provide services and the effective date on which the Participant ceased to provide services (the “Termination Date”).           “Unvested Shares” means “Unvested Shares” as defined in the Award Agreement.           “Vested Shares” means “Vested Shares” as defined in the Award Agreement. 13

-------------------------------------------------------------------------------- Exhibit 10.1   CREDIT AGREEMENT by and between KEY TECHNOLOGY, INC., an Oregon corporation and WELLS FARGO HSBC TRADE BANK, N.A. Dated as of July 27, 2006   Exhibit A - Addendum to Credit Agreement Exhibit B - Revolving Credit Facility Supplement Exhibit C - Collateral/Credit Support Document   -------------------------------------------------------------------------------- WELLS FARGO HSBC TRADE BANKCREDIT AGREEMENT                                                                                                                                                                           CREDIT AGREEMENT KEY TECHNOLOGY, INC., an Oregon corporation ("Borrower”), organized under the laws of the State of Oregon whose chief executive office is located at the address specified after its signature to this Agreement (“Borrower’s Address”) and WELLS FARGO HSBC TRADE BANK, N.A. (“Trade Bank”), whose address is specified after its signature to this Agreement, have entered into this CREDIT AGREEMENT as of July 27, 2006 ("Effective Date"). All references to this "Agreement" include those covenants included in the Addendum to Agreement ("Addendum") attached as Exhibit A hereto.   I. CREDIT FACILITY 1.1  The Facility. Subject to the terms and conditions of this Agreement, Trade Bank will make available to Borrower a Revolving Credit Facility (“Facility”) for which a Facility Supplement ("Supplement") is attached as Exhibit B hereto. Additional terms for the Facility (and each subfacility thereof ("Subfacility")) are set forth in the Supplement. The Facility will be available from the Closing Date up to and until June 30, 2008 (“Facility Termination Date”). Collateral and credit support required for the Facility is set forth in Exhibit C hereto. Definitions for those capitalized terms not otherwise defined are contained in Article 8 below. 1.2  Credit Extension Limit. The aggregate outstanding amount of all Credit Extensions may at no time exceed Ten Million Dollars ($10,000,000) ("Overall Credit Limit"). The aggregate outstanding amount of all Credit Extensions outstanding at any time under Revolving Credit Facility may not exceed that amount specified as the "Credit Limit" in the Supplement for the Facility, and the aggregate outstanding amount of all Credit Extensions outstanding at any time under each Subfacility (or any subcategory thereof) may not exceed that amount specified as the "Credit Sublimit" in the Supplement for the Facility. An amount equal to 100% of each unfunded Credit Extension shall be used in calculating the outstanding amount of Credit Extensions under this Agreement. The Subfacility(s) of the Revolving Credit Facility are as follows: (a)   Sight Commercial Letters of Credit (b)   Standby Letters of Credit 1.3  Overadvance. All Credit Extensions made hereunder shall be added to and deemed part of the Obligations when made. If, at any time and for any reason, the aggregate outstanding amount of all Credit Extensions made pursuant to this Agreement exceeds the dollar limitation in Section 1.2, then Borrower shall immediately pay to Trade Bank on demand, in cash, the amount of such excess. 1.4  Repayment; Interest and Fees. Each funded Credit Extension shall be repaid by Borrower, and shall bear interest from the date of disbursement at those per annum rates and such interest shall be paid, at the times specified in the Supplement, Note or Facility Document. Borrower agrees to pay to Trade Bank with respect to (a) the Revolving Credit Facility, interest at a per annum rate equal to (i) the Prime Rate minus 1.75% as specified in the Note, or (ii) Wells Fargo's LIBOR Rate plus 1% as specified in the Note, and (b) the Subfacilities, the fees specified in the Supplement as well as those fees specified in the relevant Facility Document(s). Interest and fees will be calculated on the basis of a 360 day year, actual days elapsed. Any overdue payments of principal (and interest to the extent permitted by law) shall bear interest at a per annum floating rate equal to the Prime Rate plus 5%. 1.5  Prepayments. Credit Extensions under any Facility may only be prepaid in accordance with the terms of the Supplement. At the time of any prepayment (including, but not limited to, any prepayment which is a result of the occurrence of an Event of Default and an acceleration of the Obligations) Borrower will pay to Trade Bank all interest accrued on the amount so prepaid to the date of such prepayment and all costs, expenses and fees specified in the Loan Documents.   Page 1 --------------------------------------------------------------------------------   II. REPRESENTATIONS AND WARRANTIES   Borrower represents and warrants to Trade Bank that the following representations and warranties are true and correct: 2.1  Legal Status. Borrower is duly organized and existing and in good standing under the laws of the jurisdiction indicated in this Agreement, and is qualified or licensed to do business in all jurisdictions in which such qualification or licensing is required and in which the failure to so qualify or to be so licensed could have a material adverse affect on Borrower. 2.2  Authorization and Validity. The execution, delivery and performance of this Agreement, and all other Loan Documents to which Borrower is a party, have been duly and validly authorized, executed and delivered by Borrower and constitute legal, valid and binding agreements of Borrower, and are enforceable against Borrower in accordance with their respective terms. 2.3  Borrower's Name. The name of Borrower set forth at the end of this Agreement is its correct name. If Borrower is conducting business under a fictitious business name, Borrower is in compliance with all laws relating to the conduct of such business under such name. 2.4  Financial Condition and Statements. All financial statements of Borrower delivered to Trade Bank have been prepared in conformity with GAAP, and completely and accurately reflect the financial condition of Borrower (and any consolidated Subsidiaries) at the times and for the periods stated in such financial statements. Neither Borrower nor any Subsidiary has any material contingent liability not reflected in the aforesaid financial statement. Since the date of the financial statements delivered to Trade Bank for the last fiscal period of Borrower to end before the Effective Date, there has been no material adverse change in the financial condition, business or prospects of Borrower. Borrower is solvent. 2.5  Litigation. Except as disclosed in writing to Trade Bank prior to the Effective Date, there is no action, claim, suit, litigation, proceeding or investigation pending or (to best of Borrower’s knowledge) threatened by or against or affecting Borrower or any Subsidiary in any court or before any governmental authority, administrator or agency which may result in (a) any material adverse change in the financial condition or business of Borrower’s, or (b) any material impairment of the ability of Borrower to carry on its business in substantially the same manner as it is now being conducted. 2.6  No Violation. The execution, delivery, and performance by Borrower of each of the Loan Documents do not violate any provision of any law or regulation, or contravene any provision of the Articles of Incorporation or By-Laws of Borrower, or result in a breach of or constitute a default under any contract, obligation, indenture, or other instrument to which Borrower is a party or by which Borrower may be bound. 2.7  Income Tax Returns. Borrower has no knowledge of any pending assessments or adjustments of its income tax payable with respect to any year. 2.8  No Subordination. There is no agreement, indenture, contract, or instrument to which Borrower is a party or by which Borrower may be bound that requires the subordination in right of payment of any of Borrower's obligations subject to this Agreement to any other obligation of Borrower. 2.9  ERISA. Borrower is in compliance in all material respects with all applicable provisions of the Employee Retirement Income Security Act of 1974, as amended or recodified from time to time ("ERISA"); Borrower has not violated any provision of any defined employee pension benefit plan (as defined in ERISA) maintained or contributed to by Borrower (each, a "Plan"); no Reportable Event, as defined in ERISA, has occurred and is continuing with respect to any Plan initiated by Borrower; Borrower has met its minimum funding requirements under ERISA with respect to each Plan; and each Plan will be able to fulfill its benefit obligations as they come due in accordance with the Plan documents and under GAAP. 2.10  Other Obligations. Except as disclosed in writing to Trade Bank prior to the Effective Date, neither Borrower nor any Subsidiary are in default of any obligation for borrowed money, any purchase money obligation or any material lease, commitment, contract, instrument or obligation.   Page 2 --------------------------------------------------------------------------------   2.11  No Defaults. No Event of Default, and event which with the giving of notice or the passage of time or both would constitute an Event of Default, has occurred and is continuing. 2.12  Information Provided to Trade Bank. The information provided to the Trade Bank concerning Borrower's business is true and correct. 2.13  Environmental Matters. Except as disclosed by Borrower to Trade Bank in writing prior to the Effective Date, Borrower (as well as any Subsidiary) is each in compliance in all material respects with all applicable Federal or state environmental, hazardous waste, health and safety statutes, and any rules or regulations adopted pursuant thereto, which govern or affect any Borrower's or any Subsidiary's operations and/or properties, including without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act of 1976, the Federal Toxic Substances Control Act and the California Health and Safety Code, as any of the same may be amended, modified or supplemented from time to time. None of the operations of Borrower or of any Subsidiary is the subject of any Federal or state investigation evaluating whether any remedial action involving a material expenditure is needed to respond to a release of any toxic or hazardous waste or substance into the environment. III. CONDITIONS TO EXTENDING FACILITIES   3.1  Conditions to Initial Credit Extension. The obligation of Trade Bank to make the first Credit Extension is subject to the fulfillment to Trade Bank's satisfaction of the following conditions: (a)   Approval of Trade Bank Counsel. All legal matters relating to making the Facility available to Borrower must be satisfactory to counsel for Trade Bank. (b)   Documentation. Trade Bank must have received, in form and substance satisfactory to Trade Bank, the following documents and instruments duly executed and in full force and effect: (1)   a corporate borrowing resolution and incumbency certificate if Borrower is a corporation, a partnership or joint venture borrowing certificate if Borrower is a partnership or joint venture, and a limited liability company borrowing certificate if Borrower is a limited liability company; (2)   the Facility Documents for the Facility, including, but not limited to, note(s) ("Notes") for the Revolving Credit Facility, Trade Bank's standard Commercial Letter of Credit Agreement or Standby Letter of Credit Agreement for any letter of credit Facility; (3)   those guarantees, security agreements, deeds of trust, subordination agreements, intercreditor agreements, factoring agreements, tax service contracts, and other Collateral Documents required by Trade Bank to evidence the collateral/credit support specified in the Supplement; (4)   if an audit or inspection of any books, records or property is specified in the Supplement for the Facility, an audit or inspection report from Wells Fargo or another auditor or inspector acceptable to Trade Bank reflecting values and property conditions satisfactory to Trade Bank; and (5)   if insurance is required in the Addendum, the insurance policies specified in the Addendum (or other satisfactory proof thereof) from insurers acceptable to Trade Bank. 3.2  Conditions to Making Each Credit Extension. The obligation of Trade Bank to make each Credit Extension is subject to the fulfillment to Trade Bank's satisfaction of the following conditions: (a)   Representations and Warranties. The representations and warranties contained in this Agreement, the Facility Documents and the Collateral Documents will be true and correct on and   Page 3 --------------------------------------------------------------------------------   as of the date of the Credit Extension with the same effect as though such representations and warranties had been made on and as of such date;   (b)   Documentation. Trade Bank must have received, in form and substance satisfactory to Trade Bank, the following documents and instruments duly executed and in full force and effect: (1)   if the Credit Extension is the issuance of a Commercial Letter of Credit, Trade Bank's standard Application For Commercial Letter of Credit or standard Application and Agreement For Commercial Letter of Credit; (2)   if the Credit Extension is the issuance of a Standby Letter of Credit, Trade Bank's standard Application For Standby Letter of Credit or standard Application and Agreement For Standby Letter of Credit; (3)   if a Borrowing Base Certificate is required for the Credit Extension, a Borrowing Base Certificate demonstrating compliance with the requirements for such Credit Extension. (c)   Fees. Trade Bank must have received any fees required by the Loan Documents to be paid at the time such Credit Extension is made. IV.   AFFIRMATIVE COVENANTS   Borrower covenants that so long as Trade Bank remains committed to make Credit Extensions to Borrower, and until payment of all Obligations and Credit Extensions, Borrower will comply with each of the following covenants: (For purposes of this Article IV, and Article V below, reference to "Borrower" may also extend to Borrower's subsidiaries, if so specified in the Addendum.) 4.1  Punctual Payments. Punctually pay all principal, interest, fees and other Obligations due under this Agreement or under any Loan Document at the time and place and in the manner specified herein or therein. 4.2  Notification to Trade Bank. Promptly, but in no event more than 5 calendar days after the occurrence of each such event, provide written notice in reasonable detail of each of the following: (a)   Occurrence of a Default. The occurrence of any Event of Default or any event which with the giving of notice or the passage of time or both would constitute an Event of Default; (b)   Borrower's Trade Names; Place of Business. Any change of Borrower's (or any Subsidiary's) name, trade name or place of business, or chief executive officer; (c)   Litigation. Any action, claim, proceeding, litigation or investigation threatened or instituted by or against or affecting Borrower (or any Subsidiary) in any court or before any government authority, administrator or agency which may materially and adversely affect Borrower's (or any Subsidiary's) financial condition or business or Borrower's ability to carry on its business in substantially the same manner as it is now being conducted; (d)   Uninsured or Partially Uninsured Loss. Any uninsured or partially uninsured loss through liability or property damage or through fire, theft or any other cause affecting Borrower's (or any Subsidiary's) property in excess of the aggregate amount required hereunder; (e)   Reports Made to Insurance Companies. Copies of all material reports made to insurance companies; and (f)   ERISA. The occurrence and nature of any Reportable Event or Prohibited Transaction, each as defined in ERISA, or any funding deficiency with respect to any Plan.   Page 4 --------------------------------------------------------------------------------   4.3  Books and Records. Maintain at Borrower's address books and records in accordance with GAAP, and permit any representative of Trade Bank, at any reasonable time, to inspect, audit and examine such books and records, to make copies of them, and to inspect the properties of Borrower. 4.4  Tax Returns and Payments. Timely file all tax returns and reports required by foreign, federal, state and local law, and timely pay all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower. Borrower may, however, defer payment of any contested taxes, provided that Borrower (i) in good faith contests Borrower's obligation to pay the taxes by appropriate proceedings promptly instituted and diligently conducted, (ii) notifies Trade Bank in writing of the commencement of, and any material development in, the proceedings, (iii) posts bonds or takes any other steps required to keep the contested taxes from becoming a lien upon any of the Collateral, and (iv) makes provision, to Trade Bank's satisfaction, for eventual payment of such taxes in the event Borrower is obligated to make such payment. 4.5  Compliance with Laws. Comply in all material respects with the provisions of all foreign, federal, state and local laws and regulations relating to Borrower, including, but not limited to, those relating to Borrower's ownership of real or personal property, the conduct and licensing of Borrower's business, and health and environmental matters. 4.6  Taxes and Other Liabilities. Pay and discharge when due any and all indebtedness, obligations, assessments and taxes, both real and personal, including without limitation federal and state income taxes and state and local property taxes and assessments, except (a) such as Borrower may in good faith contest or as to which a bona fide dispute may arise, and (b) for which Borrower has made provision, to Trade Bank's satisfaction, for eventual payment thereof in the event that Borrower is obligated to make such payment. 4.7  Insurance. Maintain and keep in force insurance of the types and in amounts customarily carried in lines of business similar to that of Borrower, including, but not limited to, fire, extended coverage, public liability, flood, property damage and workers' compensation, with all such insurance to be in amounts satisfactory to Trade Bank and to be carried with companies approved by Trade Bank before such companies are retained, and deliver to Trade Bank from time to time at Trade Bank's request schedules setting forth all insurance then in effect. All insurance policies shall name Trade Bank as an additional loss payee, and shall contain a lenders loss payee endorsement in form reasonably acceptable to Trade Bank. (Upon receipt of the proceeds of any such insurance, Trade Bank shall apply such proceeds in reduction of the outstanding funded Credit Extensions and shall hold any remaining proceeds as collateral for the outstanding unfunded Credit Extensions, as Trade Bank shall determine in its sole discretion, except that, provided no Event of Default has occurred, Trade Bank shall release to Borrower insurance proceeds with respect to equipment totaling less than $100,000, which shall be utilized by Borrower for the replacement of the equipment with respect to which the insurance proceeds were paid, if Trade Bank receives reasonable assurance that the insurance proceeds so released will be so used.) If Borrower fails to provide or pay for any insurance, Trade Bank may, but is not obligated to, obtain the insurance at Borrower's expense. 4.8  Further Assurances. At Trade Bank's request and in form and substance satisfactory to Trade Bank, execute all documents and take all such actions at Borrower's expense as Trade Bank may deem reasonably necessary or useful to perfect and maintain Trade Bank's perfected security interest in the Collateral and in order to fully consummate all of the transactions contemplated by the Loan Documents. V. NEGATIVE COVENANTS   Borrower covenants that so long as Trade Bank remains committed to make any Credit Extensions to Borrower and until all Obligations and Credit Extensions have been paid, Borrower will not without Trade Bank’s prior written consent: 5.1  Merge or Consolidation, Transfer of Assets. Merge into or consolidate with any other entity; make any substantial change in the nature of Borrower's business as conducted as of the date hereof; acquire all or substantially all of the assets of any other entity; nor sell, lease, transfer or otherwise dispose of all or a substantial or material portion of Borrower's assets except in the ordinary course of its business. 5.2  Use of Proceeds. Borrower will not use the proceeds of any Credit Extension except for the purposes, if any, specified for such Credit Extension in the Supplement covering the Facility under which such Credit Extension is made.   Page 5 --------------------------------------------------------------------------------   5.3  Liens. Mortgage, pledge, grant or permit to exist a security interest in, or lien upon, all or any portion of Borrower's assets now owned or hereafter acquired, except any of the foregoing in favor of Trade Bank or which is existing as of, and disclosed to Trade Bank in writing prior to, the date hereof, and except any, liens to secure indebtedness for borrowed money permitted under Section 5.6 hereunder. 5.4  Acquisitions of Assets. Borrower will not acquire any assets or enter into any other transaction outside the ordinary course of Borrower's business. 5.5  Loans and Investments. Borrower will not make any loans or advances to, or investments in, any person or entity except (a) for accounts receivable created in the ordinary course of Borrower's business and (b) loans to subsidiaries not to exceed an aggregate amount of $2,000,000. 5.6  Indebtedness For Borrowed Money. Borrower will not incur any indebtedness for borrowed money, except (a) to Trade Bank, (b) to ABN Amro not to exceed an aggregate of 2,500,000 Euro for existing Key Technology B.V. operating facility and (c) for indebtedness subordinated to the Obligations by an instrument or agreement in form acceptable to Trade Bank. 5.7  Guarantees. Borrower will not guarantee or otherwise become liable with respect to the obligations of any other person or entity, except for endorsement of instruments for deposit into Borrower's account in the ordinary course of Borrower's business. 5.8  Dividends and Distributions of Capital of C Corporation. If Borrower is a corporation, Borrower will not pay or declare any dividends or make any distribution of capital on Borrower's stock (except for dividends payable solely in stock of Borrower), nor redeem, retire, purchase or otherwise acquire, directly or indirectly, any shares of any class of Borrower's stock now or hereafter outstanding. 5.9  Investments in, or Acquisitions of, Subsidiaries. Borrower will not make any investments in, or form or acquire, any subsidiaries, other than previously approved creation of Key Technology (Shanghai) Trading Co. LTD and investment in that subsidiary in an amount not to exceed $1,500,000. 5.10  Capital Expenditures. Borrower shall not make any capital expenditures in any fiscal year in an aggregate amount in excess of $2,500,000. 5.11  Lease Expenditures. Borrower shall not make any lease expenditures in any fiscal year in an aggregate amount in excess of $2,000,000. VI. EVENTS OF DEFAULT AND REMEDIES   6.1  Events of Default. The occurrence of any of the following shall constitute an "Event of Default": (a)   Failure to Make Payments When Due. Borrower's failure to pay principal, interest, fees or other amounts when due under any Loan Document. (b)   Failure to Perform Obligations. Any failure by Borrower to comply with any covenant or obligation in this Agreement or in any Loan Document (other than those referred to in subsection (a)above), and such default shall continue for a period of twenty calendar days from the earlier of (i) Borrower's failure to notify Trade Bank of such Event of Default pursuant to Section 4.2(a) above, or (ii) Trade Bank's notice to Borrower of such Event of Default. (c)   Untrue or Misleading Warranty or Statement. Any warranty, representation, financial statement, report or certificate made or delivered by Borrower under any Loan Document is untrue or misleading in any material respect when made or delivered. (d)   Defaults Under Other Loan Documents. Any "Event of Default" occurs under any other Loan Document; any Guaranty is no longer in full force and effect (or any claim thereof made by Guarantor) or any failure of a Guarantor to comply with the provisions thereof; or any breach of   Page 6 --------------------------------------------------------------------------------      the provisions of any Subordination Agreement or Intercreditor Agreement by any party other than the Trade Bank.   (e)   Defaults Under Other Agreements or Instruments. Any default in the payment or performance of any obligation, or the occurrence of any event of default, under the terms of any other agreement or instrument pursuant to which Borrower, any Subsidiary or any Guarantor or general partner of Borrower has incurred any debt or other material liability to any person or entity. (f)   Concealing or Transferring Property. Borrower conceals, removes or transfers any part of its property with intent to hinder, delay or defraud its creditors, or makes or suffers any transfer of any of its property which may be fraudulent under any bankruptcy, fraudulent conveyance or similar law. (g)   Judgments and Levies Against Borrower. The filing of a notice of judgment lien against Borrower, or the recording of any abstract of judgment against Borrower, in any county in which Borrower has an interest in real property, or the service of a notice of levy and/or of a writ of attachment or execution, or other like process, against the assets of Borrower, or the entry of a judgment against Borrower. (h)   Event or Condition Impairing Payment or Performance. Any event occurs or condition arises which Trade Bank in good faith believes impairs or is substantially likely to impair the prospect of payment or performance by Borrower of the Obligations, including, but not limited to any material adverse change in Borrower's financial condition, business or prospects. (i)   Voluntary Insolvency. Borrower, any Subsidiary or any Guarantor (i) becomes insolvent, (ii) suffers or consents to or applies for the appointment of a receiver, trustee, custodian or liquidator of itself or any of its property, (iii) generally fails to pay its debts as they become due, (iv) makes a general assignment for the benefit of creditors, or (v) files a voluntary petition in bankruptcy, or seeks reorganization, in order to effect a plan or other arrangement with creditors or any other relief under the Bankruptcy Reform Act, Title 11 of the United States Code, as amended or recodified from time to time ("Bankruptcy Code"), or under any state or Federal law granting relief to debtors, whether now or hereafter in effect. (j)   Involuntary Insolvency. Any involuntary petition or proceeding pursuant to the Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization or other relief for debtors is filed or commenced against Borrower, any Subsidiary or Guarantor, or an order for relief is entered against it by any court of competent jurisdiction under the Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization or other relief for debtors. (k)   Change in Ownership. Any change in the ownership of Borrower, any general partner of Borrower or any Guarantor which the Trade Bank determines, in its sole discretion, may adversely affect the creditworthiness of Borrower or credit support for the Obligations. 6.2  Remedies. Upon the occurrence of any Event of Default, or at any time thereafter, Trade Bank, at its option, and without notice or demand of any kind (all of which are hereby expressly waived by Borrower), may do any one or more of the following: (a) terminate Trade Bank's obligation to make Credit Extensions or to make available to Borrower the Facility or other financial accommodations; (b) accelerate and declare all or any part of the Obligations to be immediately due, payable, and performable, notwithstanding any deferred or installment payments allowed by any instrument evidencing or relating to any Credit Extension; and/or (c) exercise all its rights, powers and remedies available under the Loan Documents, or accorded by law, including, but not limited to, the right to resort to any or all Collateral or other security for any of the Obligations and to exercise any or all of the rights of a beneficiary or secured party pursuant to applicable law. Notwithstanding the provisions in the foregoing sentence, if any Event of Default set out in subsections (i) and (j) of Section 6.1 above shall occur, then all the remedies specified in the preceding sentence shall automatically take effect without notice or demand of any kind (all of which are hereby expressly waived by Borrower) with respect to any and all Obligations. All rights, powers and remedies of Trade Bank may be exercised at any time by Trade Bank and   Page 7 --------------------------------------------------------------------------------    from time to time after the occurrence of an Event of Default, are cumulative and not exclusive, and shall be in addition to any other rights, powers or remedies provided by law or equity. VII. GENERAL PROVISIONS   7.1  Notices. All notices to be given under this Agreement shall be in writing and shall be given personally or by regular first-class mail, by certified mail return receipt requested, by a private delivery service which obtains a signed receipt, or by facsimile transmission addressed to Trade Bank or Borrower at the address indicated after their signature to this Agreement, or at any other address designated in writing by one party to the other party. Trade Bank is hereby authorized by Borrower to act on such instructions or notices sent by facsimile transmission or telecommunications device which Trade Bank believes come from Borrower. All notices shall be deemed to have been given upon delivery, in the case of notices personally delivered or delivered by private delivery service, upon the expiration of 3 calendar days following the deposit of the notices in the United States mail, in the case of notices deposited in the United States mail with postage prepaid, or upon receipt, in the case of notices sent by facsimile transmission. 7.2  Waivers. No delay or failure of Trade Bank in exercising any right, power or remedy under any of the Loan Documents shall affect or operate as a waiver of such right, power or remedy; nor shall any single or partial exercise of any such right, power or remedy preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right, power or remedy. Any waiver, consent or approval by Trade Bank under any of the Loan Documents must be in writing and shall be effective only to the extent set out in such writing. 7.3  Benefit of Agreement. The provisions of the Loan Documents shall be binding upon and inure to the benefit of the respective successors, assigns, heirs, executors, administrators, beneficiaries and legal representatives of Borrower and Trade Bank; provided, however, that Borrower may not assign or transfer any of its rights under any Loan Document without the prior written consent of Trade Bank, and any prohibited assignment shall be void. No consent by Trade Bank to any assignment shall release Borrower from its liability for the Obligations unless such release is specifically given by Trade Bank to Borrower in writing. Trade Bank reserves the right to sell, assign, transfer, negotiate or grant participations in all or any part of, or any interest in, Trade Bank's rights and benefits under each of the Loan Documents. In connection therewith, Trade Bank may disclose any information relating to the Facility, Borrower or its business, or any Guarantor or its business. 7.4  Joint and Several Liability. If Borrower consists of more than one person or entity, the liability of each of them shall be joint and several, and the compromise of any claim with, or the release of, any one such Borrower shall not constitute a compromise with, or a release of, any other such Borrower. 7.5  No Third Party Beneficiaries. This Agreement is made and entered into for the sole protection and benefit of Borrower and Trade Bank and their respective permitted successors and assigns, and no other person or entity shall be a third party beneficiary of, or have any direct or indirect cause of action or claim in connection with, any of the Loan Documents to which it is not a party. 7.6  Governing Law and Jurisdiction. This Agreement shall, unless provided differently in any Loan Document, be governed by, and be construed in accordance with, the internal laws of the State of California, except to the extent Trade Bank has greater rights or remedies under federal law whether as a national bank or otherwise. Borrower and Trade Bank (a) agree that all actions and proceedings relating directly or indirectly to this Agreement shall be litigated in courts located within California; (b) consent to the jurisdiction of any such court and consent to service of process in any such action or proceeding by personal delivery or any other method permitted by law; and (c) waive any and all rights Borrower may have to object to the jurisdiction of any such court or to transfer or change the venue of any such action or proceeding. 7.7  Mutual Waiver of Jury Trial. Borrower and Trade Bank each hereby waive the right to trial by jury in any action or proceeding based upon, arising out of, or in any way relating to, (a) any Loan Document, (b) any other present or future agreement, instrument or document between Trade Bank and Borrower, or (c) any conduct, act or omission of Trade Bank or Borrower or any of their directors, officers, employees, agents, attorneys or any other persons or entities affiliated with Trade Bank or Borrower, which waiver will apply in all of the mentioned cases whether the case is a contract or tort case or any other case. Borrower represents and warrants that no officer, representative or agent of Trade Bank has represented, expressly or otherwise, that Trade Bank would not seek to enforce this waiver of jury trial.   Page 8 --------------------------------------------------------------------------------   7.8  Severability. Should any provision of any Loan Document be prohibited by, or invalid under applicable law, or held by any court of competent jurisdiction to be void or unenforceable, such defect shall not affect, the validity of the other provisions of the Loan Documents. 7.9  Entire Agreement; Amendments. This Agreement and the other Loan Documents are the final, entire and complete agreement between Borrower and Trade Bank concerning the Credit Extensions and the Facility; supersede all prior and contemporaneous negotiations and oral representations and agreements. There are no oral understandings, representations or agreements between the parties concerning the Credit Extensions or the Facility which are not set forth in the Loan Documents. This Agreement and the Supplement may not be waived, amended or superseded except in a writing executed by Borrower and Trade Bank. 7.10  Collection of Payments. Unless otherwise specified in any Loan Document, other than this Agreement or any Note, all principal, interest and any fees due to Trade Bank by Borrower under this Agreement, the Addendum, any Supplement, any Facility Document, any Collateral Document or any Note, will be paid by Trade Bank having Wells Fargo debit any of Borrower’s accounts with Wells Fargo and forwarding such amount debited to Trade Bank, without presentment, protest, demand for reimbursement or payment, notice of dishonor or any other notice whatsoever, all of which are hereby expressly waived by Borrower. Such debit will be made at the time principal, interest or any fee is due to Trade Bank pursuant to this Agreement, the Addendum, any Supplement, any Facility Document, any Collateral Document or any Note. 7.11  Costs, Expenses and Attorneys' Fees. Borrower will reimburse Trade Bank for all costs and expenses, including, but not limited to, reasonable attorneys' fees and expenses (which counsel may be Trade Bank or Wells Fargo employees), expended or incurred by Trade Bank in the preparation and negotiation of this Agreement, the Notes, the Collateral Documents, the Addendum, and the Facility Documents, in amending this Agreement, the Collateral Documents, the Notes, the Addendum, or the Facility Documents, in collecting any sum which becomes due Trade Bank on the Notes, under this Agreement, the Collateral Documents, the Addendum, the Supplement, or any of the Facility Documents, in the protection, perfection, preservation and enforcement of any and all rights of Trade Bank in connection with this Agreement, the Notes, any of the Collateral Documents, the Supplement, any of the Addendum, or any of the Facility Documents, including, without limitation, the fees and costs incurred in any out-of-court work out or a bankruptcy or reorganization proceeding. VIII. DEFINITIONS   8.1  "Accounts Receivable" means all presently existing and hereafter arising "Rights to Payment" (as that term is defined in the "Continuing Security Agreement - Rights to Payment and Inventory" executed by Borrower in favor of Trade Bank) which arise from the sale, lease or other disposition of Inventory, or from performance of contracts for service, manufacture, construction or repair, together with all goods returned by Borrower's customers in connection with any of the foregoing. 8.2  "Agreement" means this Agreement and the Addendum attached hereto, as corrected or modified from time to time by Trade Bank and Borrower. 8.3  "Banking Day" means each day except Saturday, Sunday and a day specified as a holiday by federal or California statute. 8.4  "Closing Date" means the date on which the first Credit Extension is made. 8.5  "Collateral" means all property securing the Obligations. 8.6  "Collateral Documents" means those security agreement(s), deed(s) of trust, guarantee(s), subordination agreement(s), intercreditor agreement(s), and other credit support documents and instruments required by the Trade Bank to effect the collateral and credit support requirements set forth in the Supplement with respect to the Facility. 8.7  "Credit Extension" means each extension of credit under the Facility (whether funded or unfunded), including, but not limited to, (a) the issuance of sight or usance commercial letters of credit or commercial letters of credit supported by back-up letters of credit, (b) the issuance of standby letters of credit, (c) the issuance of shipping   Page 9 --------------------------------------------------------------------------------   guarantees, (d) the making of revolving credit working capital loans, (e) the making of loans against imports for letters of credit, (f) the making of clean import loans outside letters of credit, (g) the making of advances against export orders, (h) the making of advances against export letters of credit, (i) the making of advances against outgoing collections, (j) the making of term loans, and (k) the entry into foreign exchange contracts. 8.8  "Credit Limit" means, with respect to the any Facility, the amount specified under the column labeled "Credit Limit" in the Supplement for that related Facility. 8.9  "Credit Sublimit" means, with respect to any Subfacility, the amount specified after the name of that Subfacility under the column labeled "Credit Sublimit" in the Supplement for the related Facility. 8.10  "Dollars" and "$" means United States dollars. 8.11  "Facility Documents" means, with respect to the Facility, those documents specified in the Supplement for the Facility, and any other documents customarily required by Trade Bank for said Facility. 8.12  "GAAP" means generally accepted accounting principles, which are applicable to the circumstances, as of the date of determination, set out in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and in the statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession. 8.13  "Inventory" has the meaning assigned to such term in the “Continuing Security Agreement - Rights to Payment and Inventory” executed by Borrower in favor of Trade Bank. 8.14  "Loan Documents" means this Agreement, the Addendum, the Supplement, the Facility Documents and the Collateral Documents. 8.15  "Note" has the meaning specified in Section 3.1(b)(2) above. 8.16  "Obligations" means (a) the obligation of Borrower to pay principal, interest and fees on all funded Credit Extensions and fees on all unfunded Credit Extensions, and (b) the obligation of Borrower to pay and perform when due all other indebtedness, liabilities, obligations and covenants required under the Loan Documents. 8.17  "Person" means and includes natural persons, corporations, limited partnerships, general partnerships, joint stock companies, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, and governments and agencies and political subdivisions thereof. 8.18  "Prime Rate" means the rate most recently announced by Wells Fargo at its principal office in San Francisco, California as its "Prime Rate", with the understanding that the Prime Rate is one of Wells Fargo's base rates and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto, and is evidenced by the recording thereof after its announcement in such internal publication or publications as Wells Fargo may designate. Any change in an interest rate resulting from a change in the Prime Rate shall become effective as of 12:01 a.m. of the Banking Day on which each change in the Prime Rate is announced by Wells Fargo. 8.19  "Subsidiary" means (i) any corporation at least the majority of whose securities having ordinary voting power for the election of directors (other than securities having such power only by reason of the happening of a contingency) are at the time owned by Borrower and/or one or more Subsidiaries, and (ii) any joint venture or partnership in which Borrower and/or one or more Subsidiaries has a majority interest. 8.20  "Wells Fargo" means Wells Fargo Bank, N.A. IX. ARBITRATION   9.1  Arbitration. The parties hereto agree, upon demand by any party, to submit to binding arbitration all claims, disputes and controversies between or among them (and their respective employees, officers, directors, attorneys, and other agents), whether in tort, contract or otherwise arising out of or relating to in any way (i) the loan and related loan   Page 10 --------------------------------------------------------------------------------   and security documents which are the subject of this Agreement and its negotiation, execution, collateralization, administration, repayment, modification, extension, substitution, formation, inducement, enforcement, default or termination; or (ii) requests for additional credit. 9.2  Governing Rules. Any arbitration proceeding will (i) proceed in a location in California selected by the American Arbitration Association (“AAA”); (ii) be governed by the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law provision in any of the documents between the parties; and (iii) be conducted by the AAA, or such other administrator as the parties shall mutually agree upon, in accordance with the AAA’s commercial dispute resolution procedures, unless the claim or counterclaim is at least $1,000,000.00 exclusive of claimed interest, arbitration fees and costs in which case the arbitration shall be conducted in accordance with the AAA’s optional procedures for large, complex commercial disputes (the commercial dispute resolution procedures or the optional procedures for large, complex commercial disputes to be referred to, as applicable, as the “Rules”). If there is any inconsistency between the terms hereof and the Rules, the terms and procedures set forth herein shall control. Any party who fails or refuses to submit to arbitration following a demand by any other party shall bear all costs and expenses incurred by such other party in compelling arbitration of any dispute. Nothing contained herein shall be deemed to be a waiver by any party that is a bank of the protections afforded to it under 12 U.S.C. §91 or any similar applicable state law. 9.3  No Waiver of Provisional Remedies, Self-Help and Foreclosure. The arbitration requirement does not limit the right of any party to (i) foreclose against real or personal property collateral; (ii) exercise self-help remedies relating to collateral or proceeds of collateral such as setoff or repossession; or (iii) obtain provisional or ancillary remedies such as replevin, injunctive relief, attachment or the appointment of a receiver, before during or after the pendency of any arbitration proceeding. This exclusion does not constitute a waiver of the right or obligation of any party to submit any dispute to arbitration or reference hereunder, including those arising from the exercise of the actions detailed in sections (i), (ii) and (iii) of this paragraph. 9.4  Arbitrator Qualifications and Powers. Any arbitration proceeding in which the amount in controversy is $5,000,000.00 or less will be decided by a single arbitrator selected according to the Rules, and who shall not render an award of greater than $5,000,000.00. Any dispute in which the amount in controversy exceeds $5,000,000.00 shall be decided by majority vote of a panel of three arbitrators; provided however, that all three arbitrators must actively participate in all hearings and deliberations. The arbitrator will be a neutral attorney licensed in the State of California or a neutral retired judge of the state or federal judiciary of California, in either case with a minimum of ten years experience in the substantive law applicable to the subject matter of the dispute to be arbitrated. The arbitrator will determine whether or not an issue is arbitratable and will give effect to the statutes of limitation in determining any claim. In any arbitration proceeding the arbitrator will decide (by documents only or with a hearing at the arbitrator's discretion) any pre-hearing motions which are similar to motions to dismiss for failure to state a claim or motions for summary adjudication. The arbitrator shall resolve all disputes in accordance with the substantive law of California and may grant any remedy or relief that a court of such state could order or grant within the scope hereof and such ancillary relief as is necessary to make effective any award. The arbitrator shall also have the power to award recovery of all costs and fees, to impose sanctions and to take such other action as the arbitrator deems necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure, the California Rules of Civil Procedure or other applicable law. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. The institution and maintenance of an action for judicial relief or pursuit of a provisional or ancillary remedy shall not constitute a waiver of the right of any party, including the plaintiff, to submit the controversy or claim to arbitration if any other party contests such action for judicial relief. 9.5  Discovery. In any arbitration proceeding discovery will be permitted in accordance with the Rules. All discovery shall be expressly limited to matters directly relevant to the dispute being arbitrated and must be completed no later than 20 days before the hearing date and within 180 days of the filing of the dispute with the AAA. Any requests for an extension of the discovery periods, or any discovery disputes, will be subject to final determination by the arbitrator upon a showing that the request for discovery is essential for the party's presentation and that no alternative means for obtaining information is available. 9.6  Class Proceedings and Consolidations. The resolution of any dispute arising pursuant to the terms of this Agreement shall be determined by a separate arbitration proceeding and such dispute shall not be consolidated with other disputes or included in any class proceeding.   Page 11 --------------------------------------------------------------------------------   9.7  Payment Of Arbitration Costs And Fees. The arbitrator shall award all costs and expenses of the arbitration proceeding. 9.8  Real Property Collateral; Judicial Reference. Notwithstanding anything herein to the contrary, no dispute shall be submitted to arbitration if the dispute concerns indebtedness secured directly or indirectly, in whole or in part, by any real property unless (i) the holder of the mortgage, lien or security interest specifically elects in writing to proceed with the arbitration, or (ii) all parties to the arbitration waive any rights or benefits that might accrue to them by virtue of the single action rule statute of California, thereby agreeing that all indebtedness and obligations of the parties, and all mortgages, liens and security interests securing such indebtedness and obligations, shall remain fully valid and enforceable. If any such dispute is not submitted to arbitration, the dispute shall be referred to a referee in accordance with California Code of Civil Procedure Section 638 et seq., and this general reference agreement is intended to be specifically enforceable in accordance with said Section 638. A referee with the qualifications required herein for arbitrators shall be selected pursuant to the AAA’s selection procedures. Judgment upon the decision rendered by a referee shall be entered in the court in which such proceeding was commenced in accordance with California Code of Civil Procedure Sections 644 and 645. 9.9  Miscellaneous. To the maximum extent practicable, the AAA, the arbitrators and the parties shall take all action required to conclude any arbitration proceeding within 180 days of the filing of the dispute with the AAA. No arbitrator or other party to an arbitration proceeding may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary course of its business or by applicable law or regulation. If more than one agreement for arbitration by or between the parties potentially applies to a dispute, the arbitration provision most directly related to the documents between the parties or the subject matter of the dispute shall control. This Agreement may be amended or modified only in writing signed by each party hereto. If any provision of this Agreement shall be held to be prohibited by or invalid under applicable law such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or any remaining provisions of this Agreement. This arbitration provision shall survive termination, amendment or expiration of any of the documents or any relationship between the parties. Borrower and Trade Bank have caused this Agreement to be executed by their duly authorized officers or representatives on the date first written above. “BORROWER”   KEY TECHNOLOGY, INC.   By:/s/ Ronald W. Burgess   Title: Senior Vice President and Chief Financial Officer Borrower’s Address: 150 Avery Street Walla Walla, WA 99362 “LENDER”   WELLS FARGO HSBC TRADE BANK, NATIONAL ASSOCIATION   By: /s/ Jennifer Wallis Jennifer Wallis Vice President Lender’s Address: 999 Third Avenue, 11th Floor Seattle, WA 98104   Page 12 --------------------------------------------------------------------------------   EXHIBIT A WELLS FARGO HSBC TRADE BANK                                                                                                                                                                                     ADDENDUM TO CREDIT AGREEMENT   THIS ADDENDUM IS ATTACHED TO THE CREDIT AGREEMENT ("CREDIT AGREEMENT") BETWEEN WELLS FARGO HSBC TRADE BANK AND THE FOLLOWING BORROWER:   NAME OF BORROWER:  KEY TECHNOLOGY, INC.  ADDITIONAL AFFIRMATIVE COVENANTS The following covenants are part of Article IV of the Credit Agreement: REPORTS. Borrower will furnish the following information or deliver the following reports to Trade Bank at the times indicated below: ·   Annual Financial Statements: Not later than one hundred twenty (120) calendar days after and as of the end of each of Borrower's fiscal years, an annual unqualified audited consolidated financial statement of Borrower prepared by a certified public accountant acceptable to Trade Bank and prepared in accordance with GAAP, to include balance sheet, income statement and statement of cash flow and an annual Borrower prepared consolidating financial statement prepared in accordance with GAAP to include balance sheet and income statement. ·   Quarterly Financial Statements: Not later than forty-five (45) calendar days after and as of the end of each of Borrower's fiscal quarters, a consolidated and consolidating financial statement of Borrower prepared by Borrower, to include balance sheet and income statement. Certificate of Compliance: At the time each financial statement of Borrower required above is delivered to Trade Bank, a certificate of the chief financial officer of Borrower that said financial statements are accurate and that there exists no Event of Default under the Agreement nor any condition, act or event which with the giving of notice or the passage of time or both would constitute an Event of Default. ·   Insurance: Borrower will maintain in full force and effect insurance coverage on all Borrower's property, including, but not limited to, the following types of insurance coverage: policies of fire insurance business personal property insurance   All the insurance referred to in the preceding sentence must be in form, substance and amounts, and issued by companies, satisfactory to Trade Bank, and cover risks required by Trade Bank and contain loss payable endorsements in favor of Trade Bank. FINANCIAL COVENANTS. Borrower will maintain the following (if Borrower has any Subsidiaries which must be consolidated under GAAP, the following applies to borrower and the consolidated Subsidiaries): ·   Total Liabilities divided by Tangible Net Worth. Not at any time greater than 1.0 to 1.0. ("Tangible Net Worth" means the aggregate of total shareholders' equity determined in accordance with GAAP plus indebtedness which is subordinated to the Obligations to Trade Bank under a subordination agreement in form and substance acceptable to Trade Bank or by subordination language acceptable to Trade Bank in the instrument evidencing such indebtedness less (i) all assets which would be classified as intangible assets under GAAP, including, but not limited to, goodwill, licenses, patents, trademarks, trade names, copyrights, capitalized software and organizational costs, licenses and franchises, and (ii) assets which Trade Bank determines in its business judgment would not be available or would be of relatively small value in a liquidation of Borrower's business, including, but not limited to, loans to officers or affiliates and other items), and "Total Liabilities" excludes indebtedness which is subordinated to the Obligations to Trade Bank under a subordination agreement in form and substance acceptable to Trade Bank or by subordination language acceptable to Trade Bank in the instrument evidencing such indebtedness.)   Page 1of 2 --------------------------------------------------------------------------------   ·   Pre-Tax Profit. Not less than $1 on a rolling four-quarter basis determined as of each fiscal quarter end based on the sum of the results of four consecutive quarters consisting of the present quarter and the three preceding quarters. FINANCIAL COVENANTS. Borrower will maintain the following on unconsolidated quarterly basis (determined as of each fiscal quarter end): ·   Quick Asset Ratio. Not at any time less than 1.0 to 1.0. "Quick Asset Ratio" means "Quick Assets" divided by total current liabilities, and "Quick Assets" means cash on hand or on deposit in banks, readily marketable securities issued by the United States, readily marketable commercial paper rated “A-1” by Standard & Poor’s Corporation (or a similar rating by a similar rating organization), certificates of deposit and banker's acceptances, and accounts receivable (net of allowance for doubtful accounts), and with current liabilities to include the aggregate outstanding amount of all Credit Extensions, whether classified as a current or long-term liability per Borrower's financial statement.   BY SIGNING HERE BORROWER AGREES TO THE DESIGNATED PROVISIONS IN THIS ADDENDUM: KEY TECHNOLOGY, INC. By: /s/ Ronald W. Burgess Title: Senior Vice President and Chief Financial Officer   Page 2 of 2 -------------------------------------------------------------------------------- EXHIBIT B WELLS FARGO HSBC TRADE BANK                                                                                                                                                                     REVOLVING CREDIT FACILITY SUPPLEMENT THIS SUPPLEMENT IS AN INTEGRAL PART OF THE CREDIT AGREEMENT BETWEEN WELLS FARGO HSBC TRADE BANK AND THE FOLLOWING BORROWER: NAME OF BORROWER: KEY TECHNOLOGY, INC. CREDIT LIMIT FOR THIS REVOLVING CREDIT LOAN FACILITY AND SUBLIMITS: Credit Limit: $10,000,000 (subject to dollar limitations in Section 1.2 of Agreement) CREDIT SUBLIMITS: Subject to the Revolving Credit Facility Credit Limit, the Credit Sublimit for each Subfacility specified below refers to the aggregate amount which may be outstanding at any one time under each such Subfacility. ·  Sight Commercial Letters of Credit $3,000,000 ·  Standby Letters of Credit $3,000,000 FACILITY DESCRIPTION: Trade Bank will make the Revolving Credit Facility available to finance Borrower's working capital requirements. Subject to the credit sublimits specified above, the Revolving Credit Facility may be supported by (i) a standby letter of credit in favor of Trade Bank, (ii) a guarantee or (iii) accounts receivable, inventory or other collateral. Revolving Credit Loans cannot be used to repay outstanding Revolving Credit Loans or Term Loans that have matured or to repay amounts due under any other Facilities provided to Borrower. FACILITY DOCUMENTS: ·   Revolving Credit Loans Note: The term and prepayment conditions of the Loans under Revolving Credit Facility are set forth in Revolving Credit Loans Note. INTEREST RATES: ·   Loans under Revolving Credit Facility: All outstanding Loans under Revolving Credit Facility will bear interest at the following rate: Prime Rate: The Prime Rate minus 1.75% per annum. Other Rate: LIBOR plus 1% per annum. Interest Payment Dates: Interest on all outstanding Loans under Revolving Credit Facility will be paid at least once each month on the last day of the month. FEES: ·   Non-Utilization Fee: Borrower will pay the following Non-Utilization Fee payable in arrears on a fiscal quarter basis, computed at a rate per annum of 0.125% on the average daily amount of the unused portion of the Overall Credit Limit for each such year, commencing on July 31, 2006.   ·   Sight Commercial Credits:   Issuance Fees/Fees For Increasing Credit Amounts or Extending Expiration Dates: (Minimum $125) 1/8 of 1% per annum of the amount of each Sight Commercial Credit and of any increase in such amount. Payable: At the time each Sight Commercial Credit is issued or increased and at the time the expiration date of any Sight Commercial Credit is extended.   Page 1of 3 --------------------------------------------------------------------------------   Amendment Fees: (Minimum $100) $100 for each amendment, unless the amendment is an increase in the Sight Commercial Credit amount or an extension of the expiration date, in which case the Issuance Fee above will substitute for any Amendment Fee. Payable: At the time each amendment is issued. Negotiation/Payment/Examination Fees: (Minimum $125) 1/4 of 1% of the face amount of each drawing under each Sight Commercial Credit. Payable: At the time any draft or other documents are negotiated, paid or examined. ·   Standby Credits:   Commission Fees/Fees For Increasing Credit Amounts or Extending Expiration Dates: (Minimum $500) 1.15% of the amount of each Standby Credit and of any increase in such amount. Payable: At the time each Standby Credit is issued. Amendment Fees: (Minimum $130) $130 for each amendment, unless the amendment is an increase in the Standby Credit amount or an extension of the expiration date, in which case a fee of 1% at the amount of each increase and 1% of the face amount of each Standby Credit for each extension of the expiration date. Payable: At the time each amendment is issued. Negotiation/Payment/Examination Fees: (Minimum $250) 1/4 of 1% of the face amount of each drawing under each Standby Credit. Payable: At the time any draft or other documents are negotiated, paid or examined.   COLLATERAL: See Exhibit C - Collateral/Credit Support Document. SUBFACILITIES DESCRIPTION, PURPOSE, DOCUMENTS, TERM, AND PREPAYMENTS: ·   Sight Commercial Credits:   Description And Purpose: Trade Bank will issue sight commercial letters of credit (each a "Sight Commercial Credit") for the account of Borrower for the purpose or purposes stated below. Subject to the credit sublimits specified above, these Sight Commercial Credits will be transferable or not transferable and have the goods related to them consigned to or not consigned to, or controlled by or not controlled by, Trade Bank. The Sight Commercial Credit Sublimit specified above refers to the aggregate undrawn amount of all Sight Commercial Credits which may be at any one time outstanding under this Facility together with the aggregate amount of all drafts drawn under such Sight Commercial Credits which have not been reimbursed as provided below at such time. This Subfacility may only be used for the following purpose: for importation of goods. Documents: Before the first Sight Commercial Credit is issued: Trade Bank's standard form Commercial Letter of Credit Agreement; Before each Sight Commercial Credit is issued: Trade Bank's standard form Application For Commercial Letter of Credit; Before each Sight Commercial Credit is amended: Trade Bank's standard form Application For Amendment To Letter of Credit; Term: No Sight Commercial Credit may expire more than one hundred twenty (120) calendar days after the date it is issued.   Page 2of 3 --------------------------------------------------------------------------------   ·   Standby Credits:   Description And Purpose: Trade Bank will issue standby letters of credit (each a "Standby Credit") for the account of Borrower the purpose or purposes stated below. Subject to the credit sublimits specified above, these Standby Credits will be issued to support Borrower's open account trade terms, bid and performance bonds, industrial revenue bonds, worker's compensation obligations and or the moving of Borrower as a new customer from another bank to Trade Bank. The Standby Credit Sublimit specified above refers to the aggregate undrawn amount of all Standby Credits which may be at any one time outstanding under this Subfacility together with the aggregate amount of all drafts drawn under such Standby Credits which have not been reimbursed as provided below at such time. This Subfacility may only be used for the following purpose: to secure performance for workman’s compensation and to secure lease agreements. Documents: Before the first Standby Credit is issued: Trade Bank's standard form Continuing Standby Letter of Credit Agreement. Before each Standby Credit is issued: Trade Bank's standard form Application For Standby Letter of Credit. Before each Standby Credit is amended: Trade Bank's standard form Application For Amendment To Letter of Credit. Term: No Standby Credit will expire more than three hundred sixty-five (365) calendar days after the date it is issued. Standby Credits will be available by sight drafts only. REIMBURSEMENTS FOR SIGHT COMMERCIAL CREDITS AND STANDBY CREDITS:   The amount of each drawing paid by Trade Bank under a Sight Commercial Credit or Standby Credit will be reimbursed to Trade Bank as follows:      by Trade Bank having Wells Fargo Bank debit any of Borrower's accounts with Wells Fargo Bank and forwarding such amount debited to Trade Bank; or   immediately on demand of Trade Bank; or by treating such amount drawn as an advance to Borrower under Borrower's Revolving Credit Facility. DEFAULT INTEREST RATE ON UNREIMBURSED SIGHT COMMERCIAL CREDITS AND STANDBY CREDITS: Default interest will accrue at a per annum rate equal to the Prime Rate plus five percent (5%) ("Default Interest Rate") and be paid at least once each month as follows:   All drawings (i) under Sight Commercial Credits and (ii) under Standby Credits, not reimbursed on the day they are paid by Trade Bank, will bear interest at the Default Interest Rate from the date they are paid to the date such payment is fully reimbursed. BY INITIALING HERE BORROWER AGREES TO ALL THE TERMS OF THIS SUPPLEMENT: /s/ R.W.B   Page 3of 3 -------------------------------------------------------------------------------- EXHIBIT C WELLS FARGO HSBC TRADE BANK                                                                                                                                                                    COLLATERAL/CREDIT SUPPORT DOCUMENT ·   Personal Property Security From Borrower: First priority lien in the following assets of Borrower: accounts receivable inventory equipment   Collateral Documents: Security Agreement: Rights to Payment and Inventory Security Agreement: Equipment and Fixtures UCC-1 Financing Statement BY INITIALING HERE BORROWER AGREES TO ALL THE TERMS OF THIS EXHIBIT: /s/ R.W.B.   Page 1 of 1   --------------------------------------------------------------------------------  

  EXHIBIT 10.5 AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT      This Amended and Restated Executive Employment Agreement (the “Agreement”) is dated as of April 3, 2006, by and between Mylan Laboratories Inc. (the “Company”) and Robert J. Coury (the “Executive”). RECITALS:      WHEREAS, the Company and the Executive are parties to a certain Executive Employment Agreement dated as of July 22, 2002, as amended December 15, 2003 (the “Prior Agreement”).      WHEREAS, the parties wish to amend and restate the Prior Agreement effective as of the Effective Date (as hereinafter defined).      NOW, THEREFORE, in consideration of the promises and mutual obligations of the parties contained herein, and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Executive agree as follows:      1. Employment of Executive; Position and Duties. The Executive shall continue to serve as a member of the Board of Directors (the “Board”) of the Company and the Executive shall continue to be employed by the Company as Chief Executive Officer of the Company. In the role of Chief Executive Officer, the Executive shall have the duties, roles, and responsibilities traditionally assigned to the chief executive officer of a public company. Unless the Executive determines otherwise, the Executive’s principal office shall be in the Pittsburgh metropolitan area. The Executive agrees to devote his full business time and attention to his duties, provided, however, the Executive shall be permitted reasonable time to devote to personal investments, service on corporate, professional and charitable boards and other philanthropic activities and service as a fiduciary or administrator with respect to estates and trusts.      2. Effective Date; Term of Employment. This Agreement shall commence and be effective as of April 1, 2006 (the “Effective Date”), and shall terminate at the close of business on the third anniversary of the Effective Date unless sooner terminated in accordance with the terms of this Agreement or extended as hereinafter provided. The term of this Agreement shall be extended, without further action by the Company or the Executive, on the first anniversary of the Effective Date (the “Extension Effective Date”) and on each subsequent anniversary of the Effective Date (each also an “Extension Effective Date”), for successive periods of twelve months each, unless either party shall have given written notice to the other party, in the manner set forth in Section 12 below, prior to the Extension Effective Date in question, that the term of this Agreement that is in effect at the time such written notice is given is not to be extended or further extended, as the case may be (the period during which this Agreement is effective being referred to as the “Term of Employment”).      3. Executive’s Compensation. During the Term of Employment, the Executive’s “Compensation” shall include the following:   --------------------------------------------------------------------------------        (a) Annual Base Salary. The Executive’s annual base salary as of the Effective Date shall be equal to $1,500,000, payable in accordance with the Company’s normal payroll practices for its executive officers. The Executive’s base salary may be increased from time to time at the discretion of the Board (or any committee thereof having authority over executive compensation (the “Committee”)) and once increased may not be decreased. The base salary as in effect from time to time shall be referred to as the “Base Salary.”      (b) Annual Bonus. The Executive shall be eligible to participate in the Company’s annual executive incentive or bonus plan as in effect from time to time, with the opportunity to receive an annual award in respect of each fiscal year of the Company ending during the Term of Employment in accordance with the terms and conditions of such plan, with a minimum target equal to 100% of the highest Base Salary during such year (or such higher percentage as the Board or the Committee may prescribe).      (c) Fringe Benefits and Expense Reimbursement. The Executive shall receive such benefits and perquisites of employment as have been customarily provided to the Company’s Chief Executive Officer, including but not limited to, health insurance coverage, profit-sharing, participation in the Company’s 401(k) plan, short-term disability benefits, thirty (30) vacation days, expense reimbursement, and automobile usage in accordance with the plan documents or policies that govern such benefits. Because of heightened security concerns, the Executive shall also be entitled to personal usage of the Company’s aircraft for the Executive and the Executive’s family for vacations and other personal purposes. To the extent that any income or employment taxes (“Taxes”) are due with respect to the Executive’s use of an automobile or the Executive’s or his family’s personal use of the Company’s aircraft, the Company shall provide the Executive with a “gross up” of Taxes due on such use. The Company shall reimburse Executive for all ordinary and necessary business expenses in accordance with established Company policy and procedures.      (d) Long-Term Compensation. During the Term of Employment, the Executive shall be eligible to participate in long term incentive and equity plans of the Company as in effect from time to time, on a basis at least as favorable as other senior executives.      4. Confidentiality. The Executive recognizes and acknowledges that the business interests of the Company and its subsidiaries, parents and affiliates (collectively the “Affiliated Companies”) require a confidential relationship between the Company and the Executive and the fullest protection and confidential treatment of the financial data, customer information, supplier information, market information, marketing and/or promotional techniques and methods, pricing information, purchase information, sales policies, employee lists, policy and procedure information, records, advertising information, computer records, trade secrets, know-how, plans and programs, sources of supply, and other knowledge of the business of the Affiliated Companies (all of which are hereinafter jointly termed “Confidential Information”) which have or may in whole or in part be conceived, learned or obtained by the Executive in the course of the Executive’s employment with the Company. Accordingly, the Executive agrees to keep secret and treat as confidential all Confidential Information whether or not copyrightable or patentable, and agrees not to knowingly use or aid others in learning of or using any Confidential 2 --------------------------------------------------------------------------------   Information except in the ordinary course of business and in furtherance of the Company’s interests. During the Term of Employment and at all times thereafter, except insofar as is necessary disclosure consistent with the Company’s business interests:      (a) The Executive will not knowingly disclose any Confidential Information to anyone outside the Affiliated Companies;      (b) The Executive will not make copies of or otherwise knowingly disclose the contents of documents containing or constituting Confidential Information;      (c) As to documents which are delivered to the Executive or which are made available to him as a necessary part of the working relationships and duties of the Executive within the business of the Company, the Executive will treat such documents confidentially and will treat such documents as proprietary and confidential, not to be knowingly reproduced, disclosed or used without appropriate authority of the Company;      (d) The Executive will not knowingly advise others that the information and/or know-how included in Confidential Information is known to or used by the Company; and      (e) The Executive will not in any manner knowingly disclose or use Confidential Information for the Executive’s own account and will not knowingly aid, assist or abet others in the use of Confidential Information for their account or benefit, or for the account or benefit of any person or entity other than the Company. The obligations set forth in this paragraph are in addition to any other agreements the Executive may have with the Company and any and all rights the Company may have under state or federal statutes or common law.      5. Non-Competition and Non-Solicitation. The Executive agrees that during the Term of Employment and for a period ending two (2) years after the Executive ceases to be employed by the Affiliated Companies (a “Termination of Employment”) for any reason:      (a) The Executive shall not whether for himself or for any other person, company, corporation or other entity be or become associated in any way (including but not limited to the association set forth in (i)-(vii) of this subsection) with any business or organization which is directly or indirectly engaged in the research, development, manufacture, production, marketing, promotion or sale of any product the same as or similar to those of the Affiliated Companies, or which competes or has announced an intention to compete in any line of business with the Affiliated Companies within North America. Notwithstanding the foregoing, the Executive may during the period in which this paragraph is in effect own stock or other interests in corporations or other entities that engage in businesses the same or substantially similar to those engaged in by the Affiliated Companies, provided that the Executive does not, directly or indirectly (including without limitation as the result of ownership or control of another corporation or other entity), individually or as part of a group (as that term is defined in Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder) (i) control or have the ability to control the corporation or other entity, (ii) provide to 3 --------------------------------------------------------------------------------   the corporation or entity, whether as an Executive, consultant or otherwise, advice or consultation, (iii) provide to the corporation or entity any confidential or proprietary information regarding the Affiliated Companies or its businesses or regarding the conduct of businesses similar to those of the Affiliated Companies, (iv) hold or have the right by contract or arrangement or understanding with other parties to hold a position on the board of directors or other governing body of the corporation or entity or have the right by contract or arrangement or understanding with other parties to elect one or more persons to any such position, (v) hold a position as an officer of the corporation or entity, (vi) have the purpose to change or influence the control of the corporation or entity (other than solely by the voting of his shares or ownership interest) or (vii) have a business or other relationship, by contract or otherwise, with the corporation or entity other than as a passive investor in it; provided, however, that the Executive may vote his shares or ownership interest in such manner as he chooses provided that such action does not otherwise violate the prohibitions set forth in this sentence.      (b) The Executive will not either for himself or for any other person, partnership, firm, company, corporation or other entity, contact, solicit, divert, or take away any of the customers or suppliers of the Affiliated Companies.      (c) The Executive will not solicit, entice or otherwise induce any employee of the Affiliated Companies to leave the employ of the Affiliated Companies for any reason whatsoever; nor will the Executive knowingly aid, assist or abet any other person or entity in soliciting or hiring any employee of the Affiliated Companies, nor will the Executive otherwise interfere with any contractual or other business relationships between the Affiliated Companies and its employees.      6. Severabilityy. Should a court of competent jurisdiction determine that any section or sub-section of this Agreement is unenforceable because one or all of them are vague or overly broad, the parties agree that this Agreement may and shall be enforced to the maximum extent permitted by law. It is the intent of the parties that each section and sub-section of this Agreement be a separate and distinct promise and that unenforceability of any one subsection shall have no effect on the enforceability of another.      7. Injunctive Relief. The parties agree that in the event of the Executive’s material violation of sections 4 and/or 5 of this Agreement or any subsection thereunder, that the damage to the Company will be irreparable and that money damages will be difficult or impossible to ascertain. Accordingly, in addition to whatever other remedies the Company may have at law or in equity, the Executive recognizes and agrees that the Company shall be entitled to a temporary restraining order and a temporary and permanent injunction enjoining and prohibiting any acts not permissible pursuant to this Agreement.      8. Termination of Employment.      (a) Resignation. The Executive may resign from employment without Good Reason (as defined below) at any time upon thirty (30) days written notice to the Company. During the thirty (30)-day notice period, the Executive will continue to perform duties and abide by all other terms and conditions of this Agreement. Additionally, the Executive will use his best efforts to 4 --------------------------------------------------------------------------------   effect a smooth and effective transition to whoever will replace the Executive. The Company reserves the right to accelerate the effective date of the Executive’s resignation. The Company shall have no liability to the Executive under this subsection other than the Executive’s wages and benefits through the effective date of the Executive’s resignation and any vested benefits payable to the Executive under plans and agreements of the Company or any predecessor to the Company and any amounts payable to Executive under any agreement between the Executive and any of the Affiliated Companies, including but not limited to the Retirement Benefit Agreement entered into by and between the Executive and the Company, as amended from time to time (collectively the “Accrued Benefits”). The Executive will continue to be bound by all provisions of this Agreement that survive the Executive’s Termination of Employment.      (b) Termination for Cause. The Company may terminate the Executive’s employment for Cause. “Cause” shall mean: (1) the Executive’s willful and continued gross neglect of duties (other than resulting from incapacity due to physical or mental illness or following the Executive’s delivery of a Notice of Termination for Good Reason (as defined herein)), or (2) the willful engaging by the Executive in illegal conduct that is materially and demonstrably injurious to the Company or (3) the willful engaging by the Executive in gross misconduct that is materially and demonstrably injurious to the Company which, in the case of clauses (1) and (3), has not been cured within 30 days after a written demand for substantial performance is delivered to the Executive by the Board that specifically identifies the manner in which the Board believes that the Executive has grossly neglected his duties or has engaged in gross misconduct. No act, or failure to act, on the part of the Executive shall be considered “willful” unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive’s action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board (excluding the Executive, if the Executive is a member of the Board) at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel for the Executive, to be heard before the Board), finding that, in the good faith opinion of the Board, Cause exists and specifying the particulars thereof in detail. In the event of a dispute concerning the existence of “Cause,” any claim by the Executive that “Cause” does not exist shall be presumed correct unless the Company establishes by clear and convincing evidence that Cause exists. The Company shall have no liability to the Executive in the event of a Termination of Employment for Cause other than the Accrued Benefits.      (c) Termination of Employment With Good Reason or Without Cause. If the Executive experiences a Termination of Employment with Good Reason or the Executive experiences a Termination of Employment by the Company without Cause, then:      (i) the Executive shall be paid (a) the Accrued Benefits, (b) an amount (the “Severance Amount”) equal to three (3) times the Executive’s “Annual Cash Compensation,” as hereafter 5 --------------------------------------------------------------------------------   defined, and (c) a prorated annual bonus for the fiscal year in which the Executive’s Termination of Employment occurs (the “Pro Rata Bonus”), such Pro Rata Bonus to be determined by multiplying the target bonus for the year in which Termination of Employment occurs by a fraction the numerator of which shall be the number of days elapsed in such fiscal year through (and including) the date on which the Executive’s Termination of Employment occurs and the denominator of which shall be the number 365. The Severance Amount and the Pro-Rata Bonus shall be paid in a lump sum within ten days after the date of the Executive’s Termination of Employment (or, if required by Section 409A of the Internal Revenue Code (the “Code”) to avoid the imposition of additional taxes, on the date that is six (6) months following the date on which the Executive’s Termination of Employment occurs). For purposes of this section 8(c)(i), the Executive’s “Annual Cash Compensation” shall mean the sum of (I) the Employee’s Base Salary as in effect at the time of the Executive’s Termination of Employment, plus (II) the higher of (x) the average annual bonus awarded to the Employee with respect to the three fiscal years immediately preceding the Executive’s Termination of Employment (including, if applicable, fiscal years ending prior to the Effective Date) and (y) the Executive’s target bonus for the year in which the Termination of Employment occurs.      (ii) for the remainder of the calendar year in which the Termination of Employment occurs and during the two succeeding calendar years, the Company shall continue to provide benefits (other than the benefits specifically provided for in the following sentence) to the Executive and/or the Executive’s dependents at least equal to those that were provided to them (taking into account any required employee contributions, co-payments and similar costs imposed on the Executive and the Executive’s dependents and the tax treatment of participation in the plans, programs, practices and policies by the Executive and the Executive’s dependents) by or on behalf of the Company and/or any affiliate in accordance with the benefit plans, programs, practices and policies (including those provided under this Agreement) in effect immediately prior to the Executive’s Termination of Employment or, if more favorable to the Executive, as in effect any time thereafter with respect to the chief executive officer of the Company and his or her dependents; provided, however, that, if the Executive becomes reemployed with another employer and is eligible to receive such benefits under another employer provided plan, program, practice or policy, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan, program, practice or policy during such applicable period of eligibility (the “Welfare Benefit Continuation Payments”). For a period of three years after the Executive’s Termination of Employment, the Executive shall be entitled to access for the Executive to corporate aircraft comparable to that made available to the Executive immediately prior to the Executive’s Termination of Employment for his personal use for an aggregate of 70 hours per year (defined by wheels-up with the Executive and/or the Executive’s family on the aircraft), with each hour valued at $8,650 (such value to be increased by 8% per year (compounded) commencing in 2007), with such access in all other respects to be provided in accordance with Section 3(c) of the this Agreement and the Company’s practice immediately prior to the Executive’s Termination of Employment. As soon as practicable following the end of each anniversary of the date of the Executive’s Termination of Employment, the Company shall pay the Executive an amount equal to the excess, if any, of the value of the maximum aircraft benefits provided pursuant to the preceding sentence over the value of the actual benefits used by the Executive during the relevant twelve-month period, such value to be calculated consistent with the preceding sentence. 6 --------------------------------------------------------------------------------   Notwithstanding the foregoing, if the Company and the Executive agree that it is required by Section 409A of the Code to avoid the imposition of additional taxes, the provision of any benefits pursuant to this subsection (ii) shall not begin until the date that is six (6) months following the date on which the Executive’s Termination of Employment occurs and the Company shall reimburse the Executive for reasonable costs incurred by the Executive to independently obtain such benefits during the six (6) months following the date on which such Termination of Employment occurs (with the cost of airplane use described above being deemed reasonable for this purpose). The benefits and allowances referred to in this subsection (ii) (including the Welfare Benefit Continuation Payments) are collectively referred to as the “Employee Benefit Continuation Payments.” Upon publication of final treasury regulations under Section 409A of the Code, the Company and the Executive shall consider in good faith amendments to this Section 8(c)(ii) which are consistent with such final regulations and, if permitted, extend the period of coverage for all Employee Benefit Continuation Payments to a period of three years following Termination of Employment.      (iii) all then outstanding equity-based awards held by the Executive (other than stock options) shall become fully vested and free of restrictions, all then outstanding stock options held by the Executive shall become fully vested and exercisable and shall remain exercisable for the period of time prescribed under the terms of the applicable stock option grant.      (iv) the Executive will continue to be bound by all provisions of this Agreement that survive Termination of Employment.   “Good Reason” shall mean: (1) the assignment to the Executive of any duties inconsistent in any respect with the Executive’s position as Chief Executive Officer (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 1 of this Agreement, or any other diminution in such position (or removal from such position), authority, duties, responsibilities or conditions of employment (whether or not occurring solely as a result of the Company’s ceasing to be a publicly traded entity or becoming a subsidiary or a division of a publicly traded entity), or the Executive determines in good faith that a change in circumstances relating to his employment has rendered it substantially more difficult for him to perform his duties and responsibilities hereunder as Chief Executive Officer as compared to prior to such change in circumstances (other than by reason of Cause or his physical or mental incapacity), in each case excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and that is remedied by the Company promptly after receipt of notice thereof given by the Executive; (2) failure to nominate the Executive as a member of the Board or removal of the Executive from (or failure to re-elect the Executive to) his position as a member of the Board; (3) any failure by the Company to comply with any of the provisions of Section 3 of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and that is remedied by the Company promptly after receipt of notice thereof given by the Executive; (4) the Company’s requiring the Executive to be based at any office or location other than as provided in Section 1 of this Agreement; (5) any failure by the Company to comply with and satisfy Section 16 of this Agreement; (6) the Company’s giving written notice to the Executive that the term of this Agreement that is in effect at the time such written notice is given is not to be extended or further extended; (7) any other breach of this Agreement by the Company, excluding for this purpose an isolated, insubstantial and inadvertent 7 --------------------------------------------------------------------------------   breach that is not taken in bad faith and that is remedied by the Company promptly after receipt of notice thereof given by the Executive. The Executive’s continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. In connection with any dispute regarding the existence of Good Reason, any claim by the Executive that Good Reason exists shall be presumed to be correct unless the Company establishes by clear and convincing evidence that Good Reason does not exist.      (d) Death. The employment of the Executive shall automatically terminate upon the Executive’s death. Upon such Termination of Employment as a result of death, the Company shall pay or provide to the Executive’s estate or beneficiaries (i) the Accrued Benefits, (ii) the Pro Rata Bonus, (iii) the Severance Amount reduced (but not below zero) by any death benefits to which the Executive’s estate or beneficiaries are entitled pursuant to plans or arrangements of the Company (the “Modified Severance Amount”), and (iv) the Welfare Benefit Continuation Payments. Upon the Executive’s Termination of Employment as a result of the Executive’s death, the Pro Rata Bonus and the Modified Severance Amount shall be paid in a lump sum to the Executive’s estate or beneficiaries within ten (10) days after the Executive’s Termination of Employment.      (e) Disability. The employment of the Executive shall automatically terminate upon the Executive’s Disability. Upon such Termination of Employment as a result of Disability, the Company shall pay or provide to the Executive (i) the Accrued Benefits, (ii) the Pro Rata Bonus, (iii) the Severance Amount reduced (but not below zero) by any disability benefits to which the Executive is entitled pursuant to plans or arrangements of the Company (the “Disability Severance Amount”) and (iv) the Employee Benefit Continuation Payments. Upon the Executive’s Termination of Employment as a result of Disability, the Pro Rata Bonus shall be paid in a lump sum to the Executive within ten (10) days after the Executive’s Termination of Employment (or, if required by Section 409A of the Code to avoid the imposition of additional taxes, on the date that is six (6) months following the date on which the Executive’s Termination of Employment occurs). Upon the Executive’s Termination of Employment as a result of Disability, the Disability Severance Amount shall be paid over a period of three (3) years following such Termination of Employment in accordance with regular payroll practices or, if required by Section 409A of the Code to avoid the imposition of additional taxes, the Company shall pay to the Executive a lump sum payment on the date that is six (6) months following the date on which the Executive’s Termination of Employment occurs equal to one-sixth (1/6th) of the Disability Severance Amount and then, for a period of two and one-half years following such lump sum payment date, shall continue to pay to the Executive the remainder of the Disability Severance Amount in accordance with regular payroll practices. “Disability” shall mean the inability to perform normal functions of a member of the Board or as Chief Executive Officer due to mental, physical or emotional disability which is expected to last more than one year.      (f) Return of Company Property. Upon the Executive’s Termination of Employment for any reason, the Executive shall immediately return to the Company all records, memoranda, files, notes, papers, correspondence, reports, documents, books, diskettes, hard drives, electronic files, and all copies or abstracts thereof that the Executive has concerning the Company’s business. 8 --------------------------------------------------------------------------------   The Executive shall also immediately return all keys, identification cards or badges and other Company property.      (g) No Duty to Mitigate. There shall be no requirement on the part of the Executive to seek other employment or otherwise mitigate damages in order to be entitled to the full amount of any payments and benefits to which the Executive is otherwise entitled under the contract, and the amount of such payments and benefits shall not be reduced by any compensation or benefits received by the Executive from other employment.      (h) Cooperation. Upon the Executive’s Termination of Employment for any reason, the Company and the Executive shall mutually cooperate with each other in connection with the preparation of a press release or other public announcement relating to such Termination of Employment.      9. Indemnification. The Company shall maintain D&O liability coverage pursuant to which the Executive shall be a covered insured. The Executive shall receive indemnification in accordance with the Company’s Bylaws in effect as of the date of this Agreement. Such indemnification shall be contractual in nature and shall remain in effect notwithstanding any future change to the Company’s Bylaws.   To the extent not otherwise limited by the Company’s Bylaws in effect as of the date of this Agreement, in the event that the Executive is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, (including those brought by or in the right of the Company) whether civil, criminal, administrative or investigative (“proceeding”), by reason of the fact that he is or was an officer, employee or agent of, or is or was serving the Company or any subsidiary of the Company, or is or was serving at the request of the Company or another corporation, or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, the Executive shall be indemnified and held harmless by the Company to the fullest extent authorized by law against all expenses, liabilities and losses (including attorneys fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by the Executive in connection therewith. Such right shall be a contract right and shall include the right to be paid by the Company expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that the payment of such expenses incurred by the Executive in his capacity as a director or officer (and not in any other capacity in which service was or is rendered by the Executive while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of such proceeding will be made only upon delivery to the Company of an undertaking, by or on behalf of the Executive, to repay all amounts to Company so advanced if it should be determined ultimately that the Executive is not entitled to be indemnified under this section or otherwise.   Promptly after receipt by the Executive of notice of the commencement of any action, suit or proceeding for which the Executive may be entitled to be indemnified, the Executive shall notify the Company in writing of the commencement thereof (but the failure to notify the Company 9 --------------------------------------------------------------------------------   shall not relieve it from any liability which it may have under this Section 9 unless and to the extent that it has been prejudiced in a material respect by such failure or from the forfeiture of substantial rights and defenses). If any such action, suit or proceeding is brought against the Executive and he notifies the Company of the commencement thereof, the Company will be entitled to participate therein, and, to the extent it may elect by written notice delivered to the Executive promptly after receiving the aforesaid notice from the Executive, to assume the defense thereof with counsel reasonably satisfactory to the Executive, which may be the same counsel as counsel to the Company. Notwithstanding the foregoing, the Executive shall have the right to employ his own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of the Executive unless (i) the employment of such counsel shall have been authorized in writing by the Company, (ii) the Company shall not have employed counsel reasonably satisfactory to the Executive to take charge of the defense of such action within a reasonable time after notice of commencement of the action or (iii) the Executive shall have reasonably concluded, after consultation with counsel to the Executive, that a conflict of interest exists which makes representation by counsel chosen by the Company not advisable (in which case the Company shall not have the right to direct the defense of such action on behalf of the Executive), in any of which events such fees and expenses of one additional counsel shall be borne by the Company. Anything in this Section 9 to the contrary notwithstanding, the Company shall not be liable for any settlement of any claim or action effected without its written consent.      10. Legal Fees. Notwithstanding anything to the contrary in Section 9 of this Agreement, the Company shall reimburse the Executive for all costs (including but not limited to reasonable legal fees and expenses) incurred by the Executive in disputing in good faith any issue hereunder relating to the termination of the Executive’s employment, in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement, or, to the extent attributable to the application of Section 4999 of the Internal Revenue Code to any payment or benefit provided hereunder, in connection with any tax audit or proceeding. Such reimbursements shall be made promptly upon delivery of the Executive’s written request for payment accompanied by appropriate evidence of the costs so incurred.      11. Other Agreements. The rights and obligations contained in this Agreement are in addition to and not in place of any rights or obligations contained in any other agreements between the Executive and the Company.      12. Notices. All notices hereunder to the parties hereto shall be in writing sent by certified mail, return receipt requested, postage prepaid, and by fax (receipt confirmed), addressed to the respective parties at the following addresses: COMPANY: Mylan Laboratories Inc. 1500 Corporate Drive Canonsburg, PA 15317 Attention: Chief Legal Officer or General Counsel 10 --------------------------------------------------------------------------------   Fax: 724-514-1871 EXECUTIVE:      The Executive’s most recent home address or fax number on file with the Company. Either party may, by written notice complying with the requirements of this section, specify another or different person or address for the purpose of notification hereunder. All notices shall be deemed to have been given and received on the day a fax is sent or, if mailed only, on the third business day following such mailing.      13. Withholding. All payments required to be made by the Company hereunder to the Executive or his dependents, beneficiaries, or estate will be subject to the withholding of such amounts relating to tax and/or other payroll deductions as may be required by law.      14. Modification and Waiver. This Agreement may not be changed or terminated orally, nor shall any change, termination or attempted waiver of any of the provisions contained in this Agreement be binding unless in writing and signed by the party against whom the same is sought to be enforced, nor shall this section itself by waived verbally. This Agreement may be amended only by a written instrument duly executed by or on behalf of the parties hereto.      15. Construction of Agreement. This Agreement and all of its provisions were subject to negotiation and shall not be construed more strictly against one party than against another party regardless of which party drafted any particular provision.      16. Successors and Assigns. This Agreement and all of its provisions, rights and obligations shall be binding upon and inure to the benefit of the parties hereto and the Company’s successors and assigns. This Agreement may be assigned by the Company to any person, firm or corporation which shall become the owner of substantially all of the assets of the Company or which shall succeed to the business of the Company; provided, however, that in the event of any such assignment the Company shall obtain an instrument in writing from the assignee in which such assignee assumes the obligations of the Company hereunder and shall deliver an executed copy thereof to the Executive. No right or interest to or in any payments or benefits hereunder shall be assignable by the Executive; provided, however, that this provision shall not preclude him from designating one or more beneficiaries to receive any amount that may be payable after his death and shall not preclude the legal representative of his estate from assigning any right hereunder to the person or persons entitled thereto under his will or, in the case of intestacy, to the person or persons entitled thereto under the laws of intestacy applicable to his estate. The term “beneficiaries” as used in this Agreement shall mean a beneficiary or beneficiary or beneficiaries so designated to receive any such amount, or if no beneficiary has been so designated, the legal representative of the Executive’s estate. No right, benefit, or interest hereunder, shall be subject to anticipation, alienation, sale, assignment, encumbrance, charge, pledge, hypothecation, or set-off in respect of any claim, debt, or obligation, or to execution, attachment, levy, or similar process, or assignment by operation of law. Any attempt, voluntary or involuntary, to effect any action specified in the immediately preceding sentence shall, to the full extent permitted by law, be null, void, and of no effect. 11 --------------------------------------------------------------------------------        17. Choice of Law and Forum. This Agreement shall be construed and enforced according to, and the rights and obligations of the parties shall be governed in all respects by, the laws of the Commonwealth of Pennsylvania. The parties irrevocably submit to the jurisdiction of the state and federal courts located in the Commonwealth of Pennsylvania solely in respect of the interpretation and enforcement of the provisions of this Agreement and of the documents referred to in this Agreement, and in respect of the transactions contemplated by this Agreement and by those documents, and hereby waive, and agree not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement of this Agreement or of any such document, that it is not subject to this Agreement or that such action, suit or proceeding may not be brought or is not maintainable in said courts or that the venue thereof may not be appropriate or that this Agreement or any such document may not be enforced in or by such courts, and the parties hereto irrevocably agree that all claims with respect to such action or proceeding shall be heard and determined in such a court. The parties hereby consent to and grant any such court jurisdiction over the person of such parties and over the subject matter of such dispute and agree that mailing of process or other papers in connection with any such action or proceeding in the manner provided in Section 12 or in such other manner as may be permitted by law, shall be valid and sufficient service thereof.      18. Headings. The headings of the sections of this Agreement have been inserted for convenience of reference only and shall in no way affect the interpretation of any of the terms or conditions of this Agreement.      19. Execution in Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.      IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day and year first above mentioned.                   MYLAN LABORATORIES INC.                   By   /s/ Rod Piatt                       Name: Rod Piatt     Title: Chairman, Compensation Committee                   /s/ Robert J. Coury               Robert J. Coury 12

CHANGE OF CONTROL   EMPLOYMENT AGREEMENT   AGREEMENT by and between MDU Resources Group, Inc., a Delaware corporation (the "Company") and Doran N. Schwartz (the "Executive"), dated as of the 16th day of February, 2006.   The Board of Directors of the Company (the "Board"), has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:   1.  Certain Definitions. (a) The "Effective Date" shall mean the first date during the Change of Control Period (as defined in Section 1(b)) on which a Change of Control (as defined in Section 2) occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with or anticipation of a Change of Control, then for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination of employment.   (b)  The "Change of Control Period" shall mean the period commencing on the date hereof and ending on the third anniversary of the date hereof; provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as the "Renewal Date"), unless previously terminated, the Change of Control Period shall be automatically extended so as to terminate three years from such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Executive that the Change of Control Period shall not be so extended.   2.  Change of Control. For the purpose of this Agreement, a "Change of Control" shall mean:   (a)  The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or   (b)  Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or   (c)  Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or   (d)  Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.   3.  Employment Period. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the third anniversary of such date (the "Employment Period").   4.  Terms of Employment. (a) Position and Duties. (i) During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 120-day period immediately preceding the Effective Date and (B) the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office or location less than 35 miles from such location.   (ii)  During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company.   (b)  Compensation. (i) Base Salary. During the Employment Period, the Executive shall receive an annual base salary ("Annual Base Salary"), which shall be paid at a monthly rate, at least equal to twelve times the highest monthly base salary paid or payable, including any base salary which has been earned but deferred, to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date and thereafter at least annually. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term "affiliated companies" shall include any company controlled by, controlling or under common control with the Company.   (ii)  Annual Bonus. In addition to Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal to the Executive's highest bonus under the Company's Executive Incentive Compensation Plan, or any comparable bonus under any predecessor or successor plan, for the last three full fiscal years prior to the Effective Date (annualized in the event that the Executive was not employed by the Company for the whole of such fiscal year) (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus.   (iii)  Incentive, Savings and Retirement Plans. During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 120-day period immediately preceding the Effective Date or if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies.   (iv)  Welfare Benefit Plans. During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies.   (v)  Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.   (vi)  Fringe Benefits. During the Employment Period, the Executive shall be entitled to fringe benefits, including, without limitation, tax and financial planning services, payment of club dues, and, if applicable, use of an automobile and payment of related expenses, in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.   (vii)  Office and Support Staff. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.   (viii)  Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.   5.  Termination of Employment. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 12(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative.   (b)  Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean:   (i)  the willful and continued failure of the Executive to perform substantially the Executive's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of the Company which specifically identifies the manner in which the Board or Chief Executive Officer believes that the Executive has not substantially performed the Executive's duties, or   (ii)  the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail.   (c)  Good Reason. The Executive's employment may be terminated by the Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall mean:   (i)  the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 4(a) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive;   (ii)  any failure by the Company to comply with any of the provisions of Section 4(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive;   (iii)  the Company's requiring the Executive to be based at any office or location other than as provided in Section 4(a)(i)(B) hereof or the Company's requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date;   (iv)  any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or   (v)  any failure by the Company to comply with and satisfy Section 11(c) of this Agreement. For purposes of this Section 5(c), any good faith determination of "Good Reason" made by the Executive shall be conclusive. Anything in this Agreement to the contrary notwithstanding, a termination by the Executive for any reason during the 30-day period immediately following the first anniversary of the Effective Date shall be deemed to be a termination for Good Reason for all purposes of this Agreement.   (d)  Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder.   (e)  Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be.   6.  Obligations of the Company upon Termination. (a) Good Reason; Other Than for Cause, Death or Disability. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause or Disability or the Executive shall terminate employment for Good Reason:   (i)  the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts:   A.  the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the higher of (I) the Recent Annual Bonus and (II) the Annual Bonus paid or payable, including any bonus or portion thereof which has been earned but deferred (and annualized for any fiscal year consisting of less than twelve full months or during which the Executive was employed for less than twelve full months), for the most recently completed fiscal year during the Employment Period, if any (such higher amount being referred to as the "Highest Annual Bonus") and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (3) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2), and (3) shall be hereinafter referred to as the "Accrued Obligations"); and   B.  the amount equal to the product of (1) three and (2) the sum of (x) the Executive's Annual Base Salary and (y) the Highest Annual Bonus; and   C.  an amount equal to the excess of (a) the actuarial equivalent of the benefit under the Company's Pension Plan for Non-Bargaining Unit Employees and/or any other Company-sponsored qualified defined benefit retirement plan in which the Executive participates (collectively, the "Retirement Plan") (utilizing actuarial assumptions no less favorable to the Executive than those in effect under the Company's Retirement Plan immediately prior to the Effective Date), and the Company's Supplemental Income Security Plan and/or any other Company-sponsored excess or supplemental defined benefit retirement plan in which the Executive participates (collectively, the "SISP") which the Executive would receive if the Executive's employment continued for three years after the Date of Termination assuming for this purpose that all accrued benefits are fully vested, and, assuming that the Executive's compensation in each of the three years is that required by Section 4(b)(i) and Section 4(b)(ii), over (b) the actuarial equivalent of the Executive's actual benefit (paid or payable), if any, under the Retirement Plan and the SISP as of the Date of Termination;   (ii)  for three years after the Executive's Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 4(b)(iv) of this Agreement if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families, provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until three years after the Date of Termination and to have retired on the last day of such period;   (iii)  the Company shall, at its sole expense as incurred, provide the Executive with outplacement services the scope and provider of which shall be selected by the Executive in his sole discretion; and   (iv)  to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits").   (b)  Death. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall include, without limitation, and the Executive's estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and affiliated companies to the estates and beneficiaries of peer executives of the Company and such affiliated companies under such plans, programs, practices and policies relating to death benefits, if any, as in effect with respect to other peer executives and their beneficiaries at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive's estate and/or the Executive's beneficiaries, as in effect on the date of the Executive's death with respect to other peer executives of the Company and its affiliated companies and their beneficiaries.   (c)  Disability. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most favorable of those generally provided by the Company and its affiliated companies to disabled executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect at any time thereafter generally with respect to other peer executives of the Company and its affiliated companies and their families.   (d)  Cause; Other than for Good Reason. If the Executive's employment shall be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (x) his Annual Base Salary through the Date of Termination, (y) the amount of any compensation previously deferred by the Executive, and (z) Other Benefits, in each case to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination.   7.  Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor, subject to Section 12(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement.   8.  Full Settlement. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").   9.  Certain Additional Payments by the Company.   (a)  Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company or its affiliates to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 9(a), if it shall be determined that the Executive is entitled to a Gross-Up Payment, but that the Payments do not exceed 110% of the greatest amount (the "Reduced Amount") that could be paid to the Executive such that the receipt of Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive and the Payments, in the aggregate, shall be reduced to the Reduced Amount.   (b)  Subject to the provisions of Section 9(c), all determinations required to be made under this Section 9, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Ernst & Young or such other certified public accounting firm as may be designated by the Executive (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 9(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive.   (c)  The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall:   (i)  give the Company any information reasonably requested by the Company relating to such claim,   (ii)  take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company,   (iii)  cooperate with the Company in good faith in order effectively to contest such claim, and   (iv)  permit the Company to participate in any proceedings relating to such claim;   provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 9(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.   (d)  If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 9(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.   10.  Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement.   11.  Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives.   (b)  This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.   (c)  The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.   12.  Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.   (b)  All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:   If to the Executive:   Doran N. Schwartz 335 East Turnpike Bismarck, ND 58501 If to the Company: MDU Resources Group, Inc. 1200 West Century Avenue Mailing Address: P.O. Box 5650 Bismarck, ND 58506-5650 Attention: General Counsel   or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.   (c)  The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.   (d)  The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.   (e)  The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.   (f)  The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is "at will" and, subject to Section 1(a) hereof, prior to the Effective Date, the Executive's employment may be terminated by either the Executive or the Company at any time prior to the Effective Date, in which case the Executive shall have no further rights under this Agreement. From and after the Effective Date this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof.   IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written.     /s/ DORAN N. SCHWARTZ Doran N. Schwartz     MDU RESOURCES GROUP, INC.   Attest:     /s/ PAUL K. SANDNESS Paul K. Sandness Secretary   By: /s/ MARTIN A. WHITE Martin A. White Chairman of the Board and Chief Executive Officer      

Exhibit 10.3   AMENDMENT 2005-1   BECKMAN COULTER, INC. DEFERRED DIRECTORS’ FEE PROGRAM   WHEREAS, Beckman Coulter, Inc. (the “Corporation”) maintains the Beckman Coulter, Inc. Deferred Directors’ Fee Program (the “Plan”);   WHEREAS, compensation deferred by participants under the Plan that was not earned and vested as of December 31, 2004 is subject to the requirements of Section 409A of the Internal Revenue Code;   WHEREAS, it is advisable to amend the Plan to permit Plan participants to make certain elections with respect to compensation deferred under the Plan in accordance with the Section 409A transition relief afforded by IRS Notice 2005-1 and subsequent IRS guidance.   RESOLVED, that the Plan is hereby amended, effective as of January 1, 2005, by adding the following Appendix A:   “APPENDIX A   SECTION 409A TRANSITION RULES   A1.  As contemplated by IRS Notice 2005-1 and subsequent guidance from the IRS as to participant Plan deferrals that are subject to Section 409A of the Internal Revenue Code, a Plan participant may elect in writing on or before December 20, 2005 to cancel his or her Plan deferral elections (in whole or in part) for any 2005 fees, in which case the amount otherwise deferred by the participant to the Plan with respect to such a cancelled election, adjusted for deemed earnings and losses pursuant to the Plan for the period commencing with the date such deferred amount was credited to the Plan through the time such amount is paid to the participant, shall be paid to the participant (subject to required tax withholding and other authorized deductions) promptly after December 20, 2005 and in all cases no later than the later of December 31, 2005.   A2.  As contemplated by IRS Notice 2005-1, a Plan participant may elect in writing on or before March 15, 2005 to defer 2005 fees that relate all or in part to services performed on or before December 31, 2005, provided that such amounts have not been paid or become payable at the time of such election.   A3.  As contemplated by IRS Notice 2005-1 and subsequent guidance from the IRS, a Plan participant may elect in writing to change any distribution election such participant has made with respect to compensation deferred under the Plan, and any such election change need not comply with the requirements of Section 409A of the Code   1 --------------------------------------------------------------------------------   applicable to changes in distribution elections; provided, however, that any such change must be made on or before December 31, 2006, and provided, further, that to the extent that such change relates to distributions that would otherwise be made in 2006 or would result in any distributions being made in 2006, such change must be made on or before December 31, 2005.   A4.  Any election made by a Plan participant under this Appendix A must be irrevocable as of the date such election is required to be made pursuant to the terms hereof and must otherwise comply with the procedures for making distribution elections set forth in this Plan.”   IN WITNESS WHEREOF, the undersigned duly authorized officer of the Corporation has executed this Amendment on this 21st day of December, 2005.       BECKMAN COULTER, INC.           By:   /s/James Robert Hurley     James Robert Hurley       Title:   Vice President, Human Resources     2 --------------------------------------------------------------------------------

Exhibit 10.1   SECURITIES PURCHASE AGREEMENT   This Securities Purchase Agreement (this “Agreement”) is dated as of December 30, 2005 among Crdentia Corp., a Delaware corporation (the “Company”), and each purchaser identified on the signature pages hereto (each, including its successors and assigns, a “Purchaser” and collectively the “Purchasers”).  Notwithstanding any references herein or in any other Transaction Document to more than one Purchaser, MedCap Partners, L.P. (“MedCap”) is the only Purchaser hereunder.   WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”) and Rule 506 promulgated thereunder, the Company desires to issue and sell to each Purchaser, and each Purchaser, severally and not jointly, desires to purchase from the Company, securities of the Company as more fully described in this Agreement.   NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and each Purchaser agree as follows:   ARTICLE I. DEFINITIONS   1.1                                 DEFINITIONS.  IN ADDITION TO THE TERMS DEFINED ELSEWHERE IN THIS AGREEMENT, THE FOLLOWING TERMS HAVE THE MEANINGS INDICATED IN THIS SECTION 1.1:   “Action” shall have the meaning ascribed to such term in Section 3.1(j).   “Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 144 under the Securities Act.  With respect to a Purchaser, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as such Purchaser will be deemed to be an Affiliate of such Purchaser.   “Closing” means the closing of the purchase and sale of the Shares pursuant to Section 2.1.   “Closing Date” means the Trading Day when all of the Transaction Documents have been executed and delivered by the applicable parties thereto, and all conditions precedent to (i) the Purchasers’ obligations to pay the Subscription Amount and (ii) the Company’s obligations to deliver the Shares have been satisfied or waived.    “Commission” means the Securities and Exchange Commission.   --------------------------------------------------------------------------------   “Common Stock” means the common stock of the Company, par value $.0001 per share, and any other class of securities into which such securities may hereafter have been reclassified or changed into.   “Common Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.   “Company Counsel” means Morrison & Foerster LLP.    “Disclosure Schedules” shall have the meaning ascribed to such term in Section 3.1.   “Effective Date” means the date that the initial Registration Statement filed by the Company pursuant to the Registration Rights Agreement is first declared effective by the Commission.   “Evaluation Date” shall have the meaning ascribed to such term in Section 3.1(r).   “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.   “FW” means Feldman Weinstein LLP with offices located at 420 Lexington Avenue, Suite 2620, New York, New York 10170-0002.   “GAAP” shall have the meaning ascribed to such term in Section 3.1(h).   “Intellectual Property Rights” shall have the meaning ascribed to such term in Section 3.1(o).   “Legend Removal Date” shall have the meaning ascribed to such term in Section 4.1(c).   “Liens” means a lien, charge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.   “Material Adverse Effect” shall have the meaning assigned to such term in Section 3.1(b).   “Material Permits” shall have the meaning ascribed to such term in Section 3.1(m).   “Participation Maximum” shall have the meaning ascribed to such term in Section 4.13.   2 --------------------------------------------------------------------------------   “Per Share Purchase Price” equals $0.60, subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement.    “Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.   “Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.   “Purchaser Party” shall have the meaning ascribed to such term in Section 4.11.   “Registration Rights Agreement” means the Registration Rights Agreement, dated the date hereof, among the Company and the Purchasers, in the form of Exhibit B attached hereto.   “Registration Statement” means a registration statement meeting the requirements set forth in the Registration Rights Agreement and covering the resale of the Shares by each Purchaser as provided for in the Registration Rights Agreement.   “Required Approvals” shall have the meaning ascribed to such term in Section 3.1(e).    “Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.   “SEC Reports” shall have the meaning ascribed to such term in Section 3.1(h).   “Securities Act” means the Securities Act of 1933, as amended.   “Shares” means the shares of Common Stock issued or issuable to each Purchaser pursuant to this Agreement.   “Short Sales” shall include all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall not be deemed to include the location and/or reservation of borrowable shares of Common Stock) and all types of direct and indirect stock pledges, forward sale contracts, options, puts, calls, swaps and similar arrangements (including on a total return basis), and sales and other transactions through non-US broker dealers or foreign regulated brokers.     “Subscription Amount” means, as to each Purchaser, the aggregate amount to be paid for Shares purchased hereunder as specified below such Purchaser’s name on the signature page of this Agreement and next to the heading “Subscription Amount”, in   3 --------------------------------------------------------------------------------   United States Dollars and through the cancellation of indebtedness of the Company owed to such Purchaser.   “Subsidiary” means any subsidiary of the Company as set forth on Schedule 3.1(a).   “Trading Day” means a day on which the Common Stock is traded on a Trading Market.   “Trading Market” means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the Nasdaq Capital Market, the American Stock Exchange, the New York Stock Exchange, the Nasdaq National Market or the OTC Bulletin Board.   “Transaction Documents” means this Agreement, the Registration Rights Agreement and any other documents or agreements executed in connection with the transactions contemplated hereunder.   “VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg Financial L.P. (based on a Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (b)  if the Common Stock is not then listed or quoted on a Trading Market and if prices for the Common Stock are then quoted on the OTC Bulletin Board, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then listed or quoted on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets” published by the Pink Sheets, LLC (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported; or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers and reasonably acceptable to the Company.   ARTICLE II. PURCHASE AND SALE   2.1                                 CLOSING.  ON THE CLOSING DATE, UPON THE TERMS AND SUBJECT TO THE CONDITIONS SET FORTH HEREIN, CONCURRENT WITH THE EXECUTION AND DELIVERY OF THIS AGREEMENT BY THE PARTIES HERETO, THE COMPANY AGREES TO SELL, AND EACH PURCHASER AGREES TO PURCHASE IN THE AGGREGATE, SEVERALLY AND NOT JOINTLY, UP TO $2,000,000 OF THE SHARES.  EACH PURCHASER SHALL DELIVER TO THE COMPANY VIA THE SURRENDER OF EVIDENCE OF INDEBTEDNESS OF THE COMPANY FOR CANCELLATION EQUAL TO THEIR SUBSCRIPTION AMOUNT AND THE COMPANY SHALL DELIVER TO EACH PURCHASER THEIR RESPECTIVE SHARES AS DETERMINED PURSUANT TO SECTION 2.2(A) AND THE OTHER ITEMS SET FORTH IN SECTION 2.2 ISSUABLE AT THE CLOSING.  UPON SATISFACTION OF THE CONDITIONS SET FORTH IN SECTIONS 2.2 AND 2.3, THE CLOSING SHALL   4 --------------------------------------------------------------------------------   OCCUR AT THE OFFICES OF FW, OR SUCH OTHER LOCATION AS THE PARTIES SHALL MUTUALLY AGREE.   2.2                                 Deliveries.   (A)                                  ON THE CLOSING DATE, THE COMPANY SHALL DELIVER OR CAUSE TO BE DELIVERED TO EACH PURCHASER THE FOLLOWING:   (I)                                     THIS AGREEMENT DULY EXECUTED BY THE COMPANY;   (II)                                  A COPY OF THE IRREVOCABLE INSTRUCTIONS TO THE COMPANY’S TRANSFER AGENT INSTRUCTING THE TRANSFER AGENT TO DELIVER, ON AN EXPEDITED BASIS, A CERTIFICATE EVIDENCING A NUMBER OF SHARES EQUAL TO SUCH PURCHASER’S SUBSCRIPTION AMOUNT DIVIDED BY THE PER SHARE PURCHASE PRICE, REGISTERED IN THE NAME OF SUCH PURCHASER; AND   (III)                               THE REGISTRATION RIGHTS AGREEMENT DULY EXECUTED BY THE COMPANY.   (B)                                 ON THE CLOSING DATE, EACH PURCHASER SHALL DELIVER OR CAUSE TO BE DELIVERED TO THE COMPANY THE FOLLOWING:   (I)                                     THIS AGREEMENT DULY EXECUTED BY SUCH PURCHASER;   (II)                                  THE SURRENDER FOR CANCELLATION OF THOSE CERTAIN PROMISSORY NOTES OF THE COMPANY ISSUED TO MEDCAP ON NOVEMBER 18, 2005 IN THE AGGREGATE PRINCIPAL AMOUNT OF $2,000,000 AS PAYMENT FOR MEDCAP’S SUBSCRIPTION AMOUNT HEREUNDER; AND   (III)                               THE REGISTRATION RIGHTS AGREEMENT DULY EXECUTED BY SUCH PURCHASER.   2.3                                 CLOSING CONDITIONS.   (A)                                        THE OBLIGATIONS OF THE COMPANY HEREUNDER IN CONNECTION WITH THE CLOSING ARE SUBJECT TO THE FOLLOWING CONDITIONS BEING MET:   (I)                                     THE ACCURACY IN ALL MATERIAL RESPECTS WHEN MADE AND ON THE CLOSING DATE OF THE REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS CONTAINED HEREIN;   (II)                                  ALL OBLIGATIONS, COVENANTS AND AGREEMENTS OF THE PURCHASERS REQUIRED TO BE PERFORMED AT OR PRIOR TO THE CLOSING DATE SHALL HAVE BEEN PERFORMED; AND   (III)                               THE DELIVERY BY THE PURCHASERS OF THE ITEMS SET FORTH IN SECTION 2.2(B) OF THIS AGREEMENT.   (B)                                       THE RESPECTIVE OBLIGATIONS OF THE PURCHASERS HEREUNDER IN CONNECTION WITH THE CLOSING ARE SUBJECT TO THE FOLLOWING CONDITIONS BEING MET:   5 --------------------------------------------------------------------------------   (I)                                     THE ACCURACY IN ALL MATERIAL RESPECTS ON THE CLOSING DATE OF THE REPRESENTATIONS AND WARRANTIES OF THE COMPANY CONTAINED HEREIN;   (II)                                  ALL OBLIGATIONS, COVENANTS AND AGREEMENTS OF THE COMPANY REQUIRED TO BE PERFORMED AT OR PRIOR TO THE CLOSING DATE SHALL HAVE BEEN PERFORMED;   (III)                               THE DELIVERY BY THE COMPANY OF THE ITEMS SET FORTH IN SECTION 2.2(A) OF THIS AGREEMENT;   (IV)                              THERE SHALL HAVE BEEN NO MATERIAL ADVERSE EFFECT WITH RESPECT TO THE COMPANY SINCE THE DATE HEREOF;   (V)                                 THE SALE OF UP TO $6,000,000 OF DEBENTURES AND WARRANTS OF THE COMPANY SHALL HAVE BEEN CONSUMMATED CONTEMPORANEOUS WITH THE CLOSING HEREUNDER ON TERMS AND CONDITIONS REASONABLY SATISFACTORY TO THE PURCHASERS; AND   (VI)                              FROM THE DATE HEREOF TO THE CLOSING DATE, TRADING IN THE COMMON STOCK SHALL NOT HAVE BEEN SUSPENDED BY THE COMMISSION OR THE COMPANY’S PRINCIPAL TRADING MARKET (EXCEPT FOR ANY SUSPENSION OF TRADING OF LIMITED DURATION AGREED TO BY THE COMPANY, WHICH SUSPENSION SHALL BE TERMINATED PRIOR TO THE CLOSING), AND, AT ANY TIME PRIOR TO THE CLOSING DATE, TRADING IN SECURITIES GENERALLY AS REPORTED BY BLOOMBERG FINANCIAL MARKETS SHALL NOT HAVE BEEN SUSPENDED OR LIMITED, OR MINIMUM PRICES SHALL NOT HAVE BEEN ESTABLISHED ON SECURITIES WHOSE TRADES ARE REPORTED BY SUCH SERVICE, OR ON ANY TRADING MARKET, NOR SHALL A BANKING MORATORIUM HAVE BEEN DECLARED EITHER BY THE UNITED STATES OR NEW YORK STATE AUTHORITIES NOR SHALL THERE HAVE OCCURRED ANY MATERIAL OUTBREAK OR ESCALATION OF HOSTILITIES OR OTHER NATIONAL OR INTERNATIONAL CALAMITY OF SUCH MAGNITUDE IN ITS EFFECT ON, OR ANY MATERIAL ADVERSE CHANGE IN, ANY FINANCIAL MARKET WHICH, IN EACH CASE, IN THE REASONABLE JUDGMENT OF EACH PURCHASER, MAKES IT IMPRACTICABLE OR INADVISABLE TO PURCHASE THE SHARES AT THE CLOSING.   ARTICLE III. REPRESENTATIONS AND WARRANTIES   3.1                                 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.  EXCEPT AS SET FORTH UNDER THE CORRESPONDING SECTION OF THE DISCLOSURE SCHEDULES DELIVERED TO THE PURCHASERS CONCURRENTLY HEREWITH (THE “DISCLOSURE SCHEDULES”) WHICH DISCLOSURE SCHEDULES SHALL BE DEEMED A PART HEREOF, THE COMPANY HEREBY MAKES THE REPRESENTATIONS AND WARRANTIES SET FORTH BELOW TO EACH PURCHASER.   (A)                                  SUBSIDIARIES.  ALL OF THE DIRECT AND INDIRECT SUBSIDIARIES OF THE COMPANY ARE SET FORTH ON SCHEDULE 3.1(A).  THE COMPANY OWNS, DIRECTLY OR INDIRECTLY, ALL OF THE CAPITAL STOCK OR OTHER EQUITY INTERESTS OF EACH SUBSIDIARY FREE AND CLEAR OF ANY LIENS, AND ALL THE ISSUED AND OUTSTANDING SHARES OF CAPITAL STOCK OF EACH SUBSIDIARY ARE VALIDLY ISSUED AND ARE FULLY PAID, NON-ASSESSABLE AND FREE OF PREEMPTIVE AND SIMILAR RIGHTS TO SUBSCRIBE   6 --------------------------------------------------------------------------------   FOR OR PURCHASE SECURITIES.  IF THE COMPANY HAS NO SUBSIDIARIES, THEN REFERENCES IN THE TRANSACTION DOCUMENTS TO THE SUBSIDIARIES WILL BE DISREGARDED.   (B)                                 ORGANIZATION AND QUALIFICATION.  THE COMPANY AND EACH OF THE SUBSIDIARIES IS AN ENTITY DULY INCORPORATED OR OTHERWISE ORGANIZED, VALIDLY EXISTING AND IN GOOD STANDING UNDER THE LAWS OF THE JURISDICTION OF ITS INCORPORATION OR ORGANIZATION (AS APPLICABLE), WITH THE REQUISITE POWER AND AUTHORITY TO OWN AND USE ITS PROPERTIES AND ASSETS AND TO CARRY ON ITS BUSINESS AS CURRENTLY CONDUCTED.  NEITHER THE COMPANY NOR ANY SUBSIDIARY IS IN VIOLATION OR DEFAULT OF ANY OF THE PROVISIONS OF ITS RESPECTIVE CERTIFICATE OR ARTICLES OF INCORPORATION, BYLAWS OR OTHER ORGANIZATIONAL OR CHARTER DOCUMENTS.  EACH OF THE COMPANY AND THE SUBSIDIARIES IS DULY QUALIFIED TO CONDUCT BUSINESS AND IS IN GOOD STANDING AS A FOREIGN CORPORATION OR OTHER ENTITY IN EACH JURISDICTION IN WHICH THE NATURE OF THE BUSINESS CONDUCTED OR PROPERTY OWNED BY IT MAKES SUCH QUALIFICATION NECESSARY, EXCEPT WHERE THE FAILURE TO BE SO QUALIFIED OR IN GOOD STANDING, AS THE CASE MAY BE, COULD NOT HAVE OR REASONABLY BE EXPECTED TO RESULT IN (I) A MATERIAL ADVERSE EFFECT ON THE LEGALITY, VALIDITY OR ENFORCEABILITY OF ANY TRANSACTION DOCUMENT, (II) A MATERIAL ADVERSE EFFECT ON THE RESULTS OF OPERATIONS, ASSETS, BUSINESS, PROSPECTS OR CONDITION (FINANCIAL OR OTHERWISE) OF THE COMPANY AND THE SUBSIDIARIES, TAKEN AS A WHOLE, OR (III) A MATERIAL ADVERSE EFFECT ON THE COMPANY’S ABILITY TO PERFORM IN ANY MATERIAL RESPECT ON A TIMELY BASIS ITS OBLIGATIONS UNDER ANY TRANSACTION DOCUMENT (ANY OF (I), (II) OR (III), A “MATERIAL ADVERSE EFFECT”) AND NO PROCEEDING HAS BEEN INSTITUTED IN ANY SUCH JURISDICTION REVOKING, LIMITING OR CURTAILING OR SEEKING TO REVOKE, LIMIT OR CURTAIL SUCH POWER AND AUTHORITY OR QUALIFICATION.   (C)                                  AUTHORIZATION; ENFORCEMENT.  THE COMPANY HAS THE REQUISITE CORPORATE POWER AND AUTHORITY TO ENTER INTO AND TO CONSUMMATE THE TRANSACTIONS CONTEMPLATED BY EACH OF THE TRANSACTION DOCUMENTS AND OTHERWISE TO CARRY OUT ITS OBLIGATIONS HEREUNDER AND THEREUNDER.  THE EXECUTION AND DELIVERY OF EACH OF THE TRANSACTION DOCUMENTS BY THE COMPANY AND THE CONSUMMATION BY IT OF THE TRANSACTIONS CONTEMPLATED THEREBY HAVE BEEN DULY AUTHORIZED BY ALL NECESSARY ACTION ON THE PART OF THE COMPANY AND NO FURTHER ACTION IS REQUIRED BY THE COMPANY, ITS BOARD OF DIRECTORS OR ITS STOCKHOLDERS IN CONNECTION THEREWITH OTHER THAN IN CONNECTION WITH THE REQUIRED APPROVALS.  EACH TRANSACTION DOCUMENT HAS BEEN (OR UPON DELIVERY WILL HAVE BEEN) DULY EXECUTED BY THE COMPANY AND, WHEN DELIVERED IN ACCORDANCE WITH THE TERMS HEREOF AND THEREOF, WILL CONSTITUTE THE VALID AND BINDING OBLIGATION OF THE COMPANY ENFORCEABLE AGAINST THE COMPANY IN ACCORDANCE WITH ITS TERMS EXCEPT (I) AS LIMITED BY APPLICABLE BANKRUPTCY, INSOLVENCY, REORGANIZATION, MORATORIUM AND OTHER LAWS OF GENERAL APPLICATION AFFECTING ENFORCEMENT OF CREDITORS’ RIGHTS GENERALLY AND (II) AS LIMITED BY LAWS RELATING TO THE AVAILABILITY OF SPECIFIC PERFORMANCE, INJUNCTIVE RELIEF OR OTHER EQUITABLE REMEDIES.   (D)                                 NO CONFLICTS.  THE EXECUTION, DELIVERY AND PERFORMANCE OF THE TRANSACTION DOCUMENTS BY THE COMPANY AND THE CONSUMMATION BY THE COMPANY OF THE OTHER TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY DO NOT AND WILL NOT: (I) CONFLICT WITH OR VIOLATE ANY PROVISION OF THE COMPANY’S OR ANY SUBSIDIARY’S CERTIFICATE OR ARTICLES OF INCORPORATION, BYLAWS OR OTHER ORGANIZATIONAL OR CHARTER DOCUMENTS, OR (II) CONFLICT WITH, OR CONSTITUTE A DEFAULT (OR AN EVENT THAT WITH NOTICE OR LAPSE OF TIME OR BOTH WOULD BECOME   7 --------------------------------------------------------------------------------   A DEFAULT) UNDER, RESULT IN THE CREATION OF ANY LIEN UPON ANY OF THE PROPERTIES OR ASSETS OF THE COMPANY OR ANY SUBSIDIARY, OR GIVE TO OTHERS ANY RIGHTS OF TERMINATION, AMENDMENT, ACCELERATION OR CANCELLATION (WITH OR WITHOUT NOTICE, LAPSE OF TIME OR BOTH) OF, ANY AGREEMENT, CREDIT FACILITY, DEBT OR OTHER INSTRUMENT (EVIDENCING A COMPANY OR SUBSIDIARY DEBT OR OTHERWISE) OR OTHER UNDERSTANDING TO WHICH THE COMPANY OR ANY SUBSIDIARY IS A PARTY OR BY WHICH ANY PROPERTY OR ASSET OF THE COMPANY OR ANY SUBSIDIARY IS BOUND OR AFFECTED, OR (III) SUBJECT TO THE REQUIRED APPROVALS, CONFLICT WITH OR RESULT IN A VIOLATION OF ANY LAW, RULE, REGULATION, ORDER, JUDGMENT, INJUNCTION, DECREE OR OTHER RESTRICTION OF ANY COURT OR GOVERNMENTAL AUTHORITY TO WHICH THE COMPANY OR A SUBSIDIARY IS SUBJECT (INCLUDING FEDERAL AND STATE SECURITIES LAWS AND REGULATIONS), OR BY WHICH ANY PROPERTY OR ASSET OF THE COMPANY OR A SUBSIDIARY IS BOUND OR AFFECTED; EXCEPT IN THE CASE OF EACH OF CLAUSES (II) AND (III), SUCH AS COULD NOT HAVE OR REASONABLY BE EXPECTED TO RESULT IN A MATERIAL ADVERSE EFFECT.   (E)                                  FILINGS, CONSENTS AND APPROVALS.  THE COMPANY IS NOT REQUIRED TO OBTAIN ANY CONSENT, WAIVER, AUTHORIZATION OR ORDER OF, GIVE ANY NOTICE TO, OR MAKE ANY FILING OR REGISTRATION WITH, ANY COURT OR OTHER FEDERAL, STATE, LOCAL OR OTHER GOVERNMENTAL AUTHORITY OR OTHER PERSON IN CONNECTION WITH THE EXECUTION, DELIVERY AND PERFORMANCE BY THE COMPANY OF THE TRANSACTION DOCUMENTS, OTHER THAN (I) FILINGS REQUIRED PURSUANT TO SECTION 4.6, (II) THE FILING WITH THE COMMISSION OF THE REGISTRATION STATEMENT, (III) THE NOTICE AND/OR APPLICATION(S) TO EACH APPLICABLE TRADING MARKET FOR THE ISSUANCE AND SALE OF THE SHARES AND THE LISTING OF THE SHARES FOR TRADING THEREON IN THE TIME AND MANNER REQUIRED THEREBY AND (IV) THE FILING OF FORM D WITH THE COMMISSION AND SUCH FILINGS AS ARE REQUIRED TO BE MADE UNDER APPLICABLE STATE SECURITIES LAWS (COLLECTIVELY, THE “REQUIRED APPROVALS”).   (F)                                    ISSUANCE OF THE SHARES.  THE SHARES ARE DULY AUTHORIZED AND, WHEN ISSUED AND PAID FOR IN ACCORDANCE WITH THE APPLICABLE TRANSACTION DOCUMENTS, WILL BE DULY AND VALIDLY ISSUED, FULLY PAID AND NONASSESSABLE, FREE AND CLEAR OF ALL LIENS IMPOSED BY THE COMPANY OTHER THAN RESTRICTIONS ON TRANSFER PROVIDED FOR IN THE TRANSACTION DOCUMENTS.   (G)                                 CAPITALIZATION.  THE CAPITALIZATION OF THE COMPANY IS AS SET FORTH ON SCHEDULE 3.1(G).  THE COMPANY HAS NOT ISSUED ANY CAPITAL STOCK SINCE ITS MOST RECENTLY FILED PERIODIC REPORT UNDER THE EXCHANGE ACT, OTHER THAN PURSUANT TO THE EXERCISE OF EMPLOYEE STOCK OPTIONS UNDER THE COMPANY’S STOCK OPTION PLANS, THE ISSUANCE OF SHARES OF COMMON STOCK TO EMPLOYEES PURSUANT TO THE COMPANY’S EMPLOYEE STOCK PURCHASE PLAN AND PURSUANT TO THE CONVERSION OR EXERCISE OF OUTSTANDING COMMON STOCK EQUIVALENTS.  NO PERSON HAS ANY RIGHT OF FIRST REFUSAL, PREEMPTIVE RIGHT, RIGHT OF PARTICIPATION, OR ANY SIMILAR RIGHT TO PARTICIPATE IN THE TRANSACTIONS CONTEMPLATED BY THE TRANSACTION DOCUMENTS.  EXCEPT AS A RESULT OF THE PURCHASE AND SALE OF THE SECURITIES, THERE ARE NO OUTSTANDING OPTIONS, WARRANTS, SCRIPT RIGHTS TO SUBSCRIBE TO, CALLS OR COMMITMENTS OF ANY CHARACTER WHATSOEVER RELATING TO, OR SECURITIES, RIGHTS OR OBLIGATIONS CONVERTIBLE INTO OR EXERCISABLE OR EXCHANGEABLE FOR, OR GIVING ANY PERSON ANY RIGHT TO SUBSCRIBE FOR OR ACQUIRE, ANY SHARES OF COMMON STOCK, OR CONTRACTS, COMMITMENTS, UNDERSTANDINGS OR ARRANGEMENTS BY WHICH THE COMPANY OR ANY SUBSIDIARY IS OR MAY BECOME BOUND TO ISSUE ADDITIONAL SHARES OF COMMON STOCK OR COMMON STOCK   8 --------------------------------------------------------------------------------   EQUIVALENTS. THE ISSUANCE AND SALE OF THE SHARES WILL NOT OBLIGATE THE COMPANY TO ISSUE SHARES OF COMMON STOCK OR OTHER SECURITIES TO ANY PERSON (OTHER THAN THE PURCHASERS) AND WILL NOT RESULT IN A RIGHT OF ANY HOLDER OF COMPANY SECURITIES TO ADJUST THE EXERCISE, CONVERSION, EXCHANGE OR RESET PRICE UNDER SUCH SECURITIES. ALL OF THE OUTSTANDING SHARES OF CAPITAL STOCK OF THE COMPANY ARE VALIDLY ISSUED, FULLY PAID AND NONASSESSABLE, HAVE BEEN ISSUED IN COMPLIANCE WITH ALL FEDERAL AND STATE SECURITIES LAWS, AND NONE OF SUCH OUTSTANDING SHARES WAS ISSUED IN VIOLATION OF ANY PREEMPTIVE RIGHTS OR SIMILAR RIGHTS TO SUBSCRIBE FOR OR PURCHASE SECURITIES.  NO FURTHER APPROVAL OR AUTHORIZATION OF ANY STOCKHOLDER, THE BOARD OF DIRECTORS OF THE COMPANY OR OTHERS IS REQUIRED FOR THE ISSUANCE AND SALE OF THE SHARES.  THERE ARE NO STOCKHOLDERS AGREEMENTS, VOTING AGREEMENTS OR OTHER SIMILAR AGREEMENTS WITH RESPECT TO THE COMPANY’S CAPITAL STOCK TO WHICH THE COMPANY IS A PARTY OR, TO THE KNOWLEDGE OF THE COMPANY, BETWEEN OR AMONG ANY OF THE COMPANY’S STOCKHOLDERS.   (H)                                 SEC REPORTS; FINANCIAL STATEMENTS.  THE COMPANY HAS FILED ALL REPORTS, SCHEDULES, FORMS, STATEMENTS AND OTHER DOCUMENTS REQUIRED TO BE FILED BY IT UNDER THE SECURITIES ACT AND THE EXCHANGE ACT, INCLUDING PURSUANT TO SECTION 13(A) OR 15(D) THEREOF, FOR THE TWO YEARS PRECEDING THE DATE HEREOF (OR SUCH SHORTER PERIOD AS THE COMPANY WAS REQUIRED BY LAW TO FILE SUCH MATERIAL) (THE FOREGOING MATERIALS, INCLUDING THE EXHIBITS THERETO AND DOCUMENTS INCORPORATED BY REFERENCE THEREIN, BEING COLLECTIVELY REFERRED TO HEREIN AS THE “SEC REPORTS”) ON A TIMELY BASIS OR HAS RECEIVED A VALID EXTENSION OF SUCH TIME OF FILING AND HAS FILED ANY SUCH SEC REPORTS PRIOR TO THE EXPIRATION OF ANY SUCH EXTENSION.  AS OF THEIR RESPECTIVE DATES, THE SEC REPORTS COMPLIED IN ALL MATERIAL RESPECTS WITH THE REQUIREMENTS OF THE SECURITIES ACT AND THE EXCHANGE ACT AND THE RULES AND REGULATIONS OF THE COMMISSION PROMULGATED THEREUNDER, AND NONE OF THE SEC REPORTS, WHEN FILED, CONTAINED ANY UNTRUE STATEMENT OF A MATERIAL FACT OR OMITTED TO STATE A MATERIAL FACT REQUIRED TO BE STATED THEREIN OR NECESSARY IN ORDER TO MAKE THE STATEMENTS THEREIN, IN THE LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING.  THE FINANCIAL STATEMENTS OF THE COMPANY INCLUDED IN THE SEC REPORTS COMPLY IN ALL MATERIAL RESPECTS WITH APPLICABLE ACCOUNTING REQUIREMENTS AND THE RULES AND REGULATIONS OF THE COMMISSION WITH RESPECT THERETO AS IN EFFECT AT THE TIME OF FILING.  SUCH FINANCIAL STATEMENTS HAVE BEEN PREPARED IN ACCORDANCE WITH UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES APPLIED ON A CONSISTENT BASIS DURING THE PERIODS INVOLVED (“GAAP”), EXCEPT AS MAY BE OTHERWISE SPECIFIED IN SUCH FINANCIAL STATEMENTS OR THE NOTES THERETO AND EXCEPT THAT UNAUDITED FINANCIAL STATEMENTS MAY NOT CONTAIN ALL FOOTNOTES REQUIRED BY GAAP, AND FAIRLY PRESENT IN ALL MATERIAL RESPECTS THE FINANCIAL POSITION OF THE COMPANY AND ITS CONSOLIDATED SUBSIDIARIES AS OF AND FOR THE DATES THEREOF AND THE RESULTS OF OPERATIONS AND CASH FLOWS FOR THE PERIODS THEN ENDED, SUBJECT, IN THE CASE OF UNAUDITED STATEMENTS, TO NORMAL, IMMATERIAL, YEAR-END AUDIT ADJUSTMENTS.   (I)                                     MATERIAL CHANGES.  SINCE THE DATE OF THE LATEST AUDITED FINANCIAL STATEMENTS INCLUDED WITHIN THE SEC REPORTS, EXCEPT AS SPECIFICALLY DISCLOSED IN THE SEC REPORTS, (I) THERE HAS BEEN NO EVENT, OCCURRENCE OR DEVELOPMENT THAT HAS HAD OR THAT COULD REASONABLY BE EXPECTED TO RESULT IN A MATERIAL ADVERSE EFFECT, (II) THE COMPANY HAS NOT INCURRED ANY LIABILITIES (CONTINGENT OR OTHERWISE) OTHER THAN (A) TRADE PAYABLES AND ACCRUED EXPENSES INCURRED IN THE ORDINARY COURSE OF BUSINESS CONSISTENT WITH PAST PRACTICE AND (B) LIABILITIES   9 --------------------------------------------------------------------------------   NOT REQUIRED TO BE REFLECTED IN THE COMPANY’S FINANCIAL STATEMENTS PURSUANT TO GAAP OR REQUIRED TO BE DISCLOSED IN FILINGS MADE WITH THE COMMISSION, (III) THE COMPANY HAS NOT ALTERED ITS METHOD OF ACCOUNTING, (IV) THE COMPANY HAS NOT DECLARED OR MADE ANY DIVIDEND OR DISTRIBUTION OF CASH OR OTHER PROPERTY TO ITS STOCKHOLDERS OR PURCHASED, REDEEMED OR MADE ANY AGREEMENTS TO PURCHASE OR REDEEM ANY SHARES OF ITS CAPITAL STOCK AND (V) THE COMPANY HAS NOT ISSUED ANY EQUITY SECURITIES TO ANY OFFICER, DIRECTOR OR AFFILIATE, EXCEPT PURSUANT TO EXISTING COMPANY STOCK OPTION PLANS. THE COMPANY DOES NOT HAVE PENDING BEFORE THE COMMISSION ANY REQUEST FOR CONFIDENTIAL TREATMENT OF INFORMATION.  EXCEPT FOR THE ISSUANCE OF THE SHARES CONTEMPLATED BY THIS AGREEMENT OR AS SET FORTH ON SCHEDULE 3.1(I), NO EVENT, LIABILITY OR DEVELOPMENT HAS OCCURRED OR EXISTS WITH RESPECT TO THE COMPANY OR ITS SUBSIDIARIES OR THEIR RESPECTIVE BUSINESS, PROPERTIES, OPERATIONS OR FINANCIAL CONDITION, THAT WOULD BE REQUIRED TO BE DISCLOSED BY THE COMPANY UNDER APPLICABLE SECURITIES LAWS AT THE TIME THIS REPRESENTATION IS MADE THAT HAS NOT BEEN PUBLICLY DISCLOSED 1 TRADING DAY PRIOR TO THE DATE THAT THIS REPRESENTATION IS MADE.   (J)                                     LITIGATION.  THERE IS NO ACTION, SUIT, INQUIRY, NOTICE OF VIOLATION, PROCEEDING OR INVESTIGATION PENDING OR, TO THE KNOWLEDGE OF THE COMPANY, THREATENED AGAINST OR AFFECTING THE COMPANY, ANY SUBSIDIARY OR ANY OF THEIR RESPECTIVE PROPERTIES BEFORE OR BY ANY COURT, ARBITRATOR, GOVERNMENTAL OR ADMINISTRATIVE AGENCY OR REGULATORY AUTHORITY (FEDERAL, STATE, COUNTY, LOCAL OR FOREIGN) (COLLECTIVELY, AN “ACTION”) WHICH (I) ADVERSELY AFFECTS OR CHALLENGES THE LEGALITY, VALIDITY OR ENFORCEABILITY OF ANY OF THE TRANSACTION DOCUMENTS OR (II) COULD, IF THERE WERE AN UNFAVORABLE DECISION, HAVE OR REASONABLY BE EXPECTED TO RESULT IN A MATERIAL ADVERSE EFFECT.  NEITHER THE COMPANY NOR ANY SUBSIDIARY, NOR ANY DIRECTOR OR OFFICER THEREOF, IS OR HAS BEEN THE SUBJECT OF ANY ACTION INVOLVING A CLAIM OF VIOLATION OF OR LIABILITY UNDER FEDERAL OR STATE SECURITIES LAWS OR A CLAIM OF BREACH OF FIDUCIARY DUTY.  THERE HAS NOT BEEN, AND TO THE KNOWLEDGE OF THE COMPANY, THERE IS NOT PENDING OR CONTEMPLATED, ANY INVESTIGATION BY THE COMMISSION INVOLVING THE COMPANY OR ANY CURRENT OR FORMER DIRECTOR OR OFFICER OF THE COMPANY.  THE COMMISSION HAS NOT ISSUED ANY STOP ORDER OR OTHER ORDER SUSPENDING THE EFFECTIVENESS OF ANY REGISTRATION STATEMENT FILED BY THE COMPANY OR ANY SUBSIDIARY UNDER THE EXCHANGE ACT OR THE SECURITIES ACT.  NONE OF THE COMPANY’S OR ITS SUBSIDIARIES’ EMPLOYEES IS A MEMBER OF A UNION THAT RELATES TO SUCH EMPLOYEE’S RELATIONSHIP WITH THE COMPANY, AND NEITHER THE COMPANY OR ANY OF ITS SUBSIDIARIES IS A PARTY TO A COLLECTIVE BARGAINING AGREEMENT, AND THE COMPANY AND ITS SUBSIDIARIES BELIEVE THAT THEIR RELATIONSHIPS WITH THEIR EMPLOYEES ARE GOOD.  NO EXECUTIVE OFFICER, TO THE KNOWLEDGE OF THE COMPANY, IS, OR IS NOW EXPECTED TO BE, IN VIOLATION OF ANY MATERIAL TERM OF ANY EMPLOYMENT CONTRACT, CONFIDENTIALITY, DISCLOSURE OR PROPRIETARY INFORMATION AGREEMENT OR NON-COMPETITION AGREEMENT, OR ANY OTHER CONTRACT OR AGREEMENT OR ANY RESTRICTIVE COVENANT, AND THE CONTINUED EMPLOYMENT OF EACH SUCH EXECUTIVE OFFICER DOES NOT SUBJECT THE COMPANY OR ANY OF ITS SUBSIDIARIES TO ANY LIABILITY WITH RESPECT TO ANY OF THE FOREGOING MATTERS.  THE COMPANY AND ITS SUBSIDIARIES ARE IN COMPLIANCE WITH ALL U.S. FEDERAL, STATE, LOCAL AND FOREIGN LAWS AND REGULATIONS RELATING TO EMPLOYMENT AND EMPLOYMENT PRACTICES, TERMS AND CONDITIONS OF EMPLOYMENT AND WAGES AND HOURS, EXCEPT WHERE THE FAILURE TO BE IN COMPLIANCE COULD NOT, INDIVIDUALLY OR IN THE AGGREGATE, REASONABLY BE EXPECTED TO HAVE A MATERIAL ADVERSE EFFECT.   10 --------------------------------------------------------------------------------   (K)                                  LABOR RELATIONS.  NO MATERIAL LABOR DISPUTE EXISTS OR, TO THE KNOWLEDGE OF THE COMPANY, IS IMMINENT WITH RESPECT TO ANY OF THE EMPLOYEES OF THE COMPANY WHICH COULD REASONABLY BE EXPECTED TO RESULT IN A MATERIAL ADVERSE EFFECT.   (L)                                     COMPLIANCE.  NEITHER THE COMPANY NOR ANY SUBSIDIARY (I) IS IN DEFAULT UNDER OR IN VIOLATION OF (AND NO EVENT HAS OCCURRED THAT HAS NOT BEEN WAIVED THAT, WITH NOTICE OR LAPSE OF TIME OR BOTH, WOULD RESULT IN A DEFAULT BY THE COMPANY OR ANY SUBSIDIARY UNDER), NOR HAS THE COMPANY OR ANY SUBSIDIARY RECEIVED NOTICE OF A CLAIM THAT IT IS IN DEFAULT UNDER OR THAT IT IS IN VIOLATION OF, ANY INDENTURE, LOAN OR CREDIT AGREEMENT OR ANY OTHER AGREEMENT OR INSTRUMENT TO WHICH IT IS A PARTY OR BY WHICH IT OR ANY OF ITS PROPERTIES IS BOUND (WHETHER OR NOT SUCH DEFAULT OR VIOLATION HAS BEEN WAIVED), (II) IS IN VIOLATION OF ANY ORDER OF ANY COURT, ARBITRATOR OR GOVERNMENTAL BODY, OR (III) IS OR HAS BEEN IN VIOLATION OF ANY STATUTE, RULE OR REGULATION OF ANY GOVERNMENTAL AUTHORITY, INCLUDING WITHOUT LIMITATION ALL FOREIGN, FEDERAL, STATE AND LOCAL LAWS APPLICABLE TO ITS BUSINESS AND ALL SUCH LAWS THAT AFFECT THE ENVIRONMENT, EXCEPT IN EACH CASE AS COULD NOT HAVE A MATERIAL ADVERSE EFFECT.   (M)                               REGULATORY PERMITS.  THE COMPANY AND THE SUBSIDIARIES POSSESS ALL CERTIFICATES, AUTHORIZATIONS AND PERMITS ISSUED BY THE APPROPRIATE FEDERAL, STATE, LOCAL OR FOREIGN REGULATORY AUTHORITIES NECESSARY TO CONDUCT THEIR RESPECTIVE BUSINESSES AS DESCRIBED IN THE SEC REPORTS, EXCEPT WHERE THE FAILURE TO POSSESS SUCH PERMITS COULD NOT HAVE OR REASONABLY BE EXPECTED TO RESULT IN A MATERIAL ADVERSE EFFECT (“MATERIAL PERMITS”), AND NEITHER THE COMPANY NOR ANY SUBSIDIARY HAS RECEIVED ANY NOTICE OF PROCEEDINGS RELATING TO THE REVOCATION OR MODIFICATION OF ANY MATERIAL PERMIT.   (N)                                 TITLE TO ASSETS.  THE COMPANY AND THE SUBSIDIARIES HAVE GOOD AND MARKETABLE TITLE IN FEE SIMPLE TO ALL REAL PROPERTY OWNED BY THEM THAT IS MATERIAL TO THE BUSINESS OF THE COMPANY AND THE SUBSIDIARIES AND GOOD AND MARKETABLE TITLE IN ALL PERSONAL PROPERTY OWNED BY THEM THAT IS MATERIAL TO THE BUSINESS OF THE COMPANY AND THE SUBSIDIARIES, IN EACH CASE FREE AND CLEAR OF ALL LIENS, EXCEPT FOR LIENS AS DO NOT MATERIALLY AFFECT THE VALUE OF SUCH PROPERTY AND DO NOT MATERIALLY INTERFERE WITH THE USE MADE AND PROPOSED TO BE MADE OF SUCH PROPERTY BY THE COMPANY AND THE SUBSIDIARIES AND LIENS FOR THE PAYMENT OF FEDERAL, STATE OR OTHER TAXES, THE PAYMENT OF WHICH IS NEITHER DELINQUENT NOR SUBJECT TO PENALTIES.  ANY REAL PROPERTY AND FACILITIES HELD UNDER LEASE BY THE COMPANY AND THE SUBSIDIARIES ARE HELD BY THEM UNDER VALID, SUBSISTING AND ENFORCEABLE LEASES OF WHICH THE COMPANY AND THE SUBSIDIARIES ARE IN COMPLIANCE.   (O)                                 PATENTS AND TRADEMARKS.  THE COMPANY AND THE SUBSIDIARIES HAVE, OR HAVE RIGHTS TO USE, ALL PATENTS, PATENT APPLICATIONS, TRADEMARKS, TRADEMARK APPLICATIONS, SERVICE MARKS, TRADE NAMES, TRADE SECRETS, INVENTIONS, COPYRIGHTS, LICENSES AND OTHER INTELLECTUAL PROPERTY RIGHTS SIMILAR RIGHTS NECESSARY OR MATERIAL FOR USE IN CONNECTION WITH THEIR RESPECTIVE BUSINESSES AS DESCRIBED IN THE SEC REPORTS AND WHICH THE FAILURE TO SO HAVE COULD HAVE A MATERIAL ADVERSE EFFECT (COLLECTIVELY, THE “INTELLECTUAL PROPERTY RIGHTS”).  NEITHER THE COMPANY NOR ANY SUBSIDIARY HAS RECEIVED A NOTICE (WRITTEN OR OTHERWISE) THAT THE INTELLECTUAL PROPERTY RIGHTS USED BY THE COMPANY OR ANY SUBSIDIARY VIOLATES OR INFRINGES UPON THE RIGHTS OF ANY PERSON. TO THE KNOWLEDGE OF THE COMPANY, ALL SUCH   11 --------------------------------------------------------------------------------   INTELLECTUAL PROPERTY RIGHTS ARE ENFORCEABLE AND THERE IS NO EXISTING INFRINGEMENT BY ANOTHER PERSON OF ANY OF THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS.  THE COMPANY AND ITS SUBSIDIARIES HAVE TAKEN REASONABLE SECURITY MEASURES TO PROTECT THE SECRECY, CONFIDENTIALITY AND VALUE OF ALL OF THEIR INTELLECTUAL PROPERTIES, EXCEPT WHERE FAILURE TO DO SO COULD NOT, INDIVIDUALLY OR IN THE AGGREGATE, REASONABLY BE EXPECT TO HAVE A MATERIAL ADVERSE EFFECT.   (P)                                 INSURANCE.  THE COMPANY AND THE SUBSIDIARIES ARE INSURED BY INSURERS OF RECOGNIZED FINANCIAL RESPONSIBILITY AGAINST SUCH LOSSES AND RISKS AND IN SUCH AMOUNTS AS ARE PRUDENT AND CUSTOMARY IN THE BUSINESSES IN WHICH THE COMPANY AND THE SUBSIDIARIES ARE ENGAGED, INCLUDING, BUT NOT LIMITED TO, DIRECTORS AND OFFICERS INSURANCE COVERAGE AT LEAST EQUAL TO THE AGGREGATE SUBSCRIPTION AMOUNT.  TO THE BEST KNOWLEDGE OF THE COMPANY, SUCH INSURANCE CONTRACTS AND POLICIES ARE ACCURATE AND COMPLETE.  NEITHER THE COMPANY NOR ANY SUBSIDIARY HAS ANY 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 WITHOUT A SIGNIFICANT INCREASE IN COST.   (Q)                                 TRANSACTIONS WITH AFFILIATES AND EMPLOYEES.  EXCEPT AS SET FORTH IN THE SEC REPORTS, NONE OF THE OFFICERS OR DIRECTORS OF THE COMPANY AND, TO THE KNOWLEDGE OF THE COMPANY, NONE OF THE EMPLOYEES OF THE COMPANY IS PRESENTLY A PARTY TO ANY TRANSACTION WITH THE COMPANY OR ANY SUBSIDIARY (OTHER THAN FOR SERVICES AS EMPLOYEES, OFFICERS AND DIRECTORS), INCLUDING ANY CONTRACT, AGREEMENT OR OTHER ARRANGEMENT PROVIDING FOR THE FURNISHING OF SERVICES TO OR BY, PROVIDING FOR RENTAL OF REAL OR PERSONAL PROPERTY TO OR FROM, OR OTHERWISE REQUIRING PAYMENTS TO OR FROM ANY OFFICER, DIRECTOR OR SUCH EMPLOYEE OR, TO THE KNOWLEDGE OF THE COMPANY, ANY ENTITY IN WHICH ANY OFFICER, DIRECTOR, OR ANY SUCH EMPLOYEE HAS A SUBSTANTIAL INTEREST OR IS AN OFFICER, DIRECTOR, TRUSTEE OR PARTNER, IN EACH CASE IN EXCESS OF $60,000 OTHER THAN (I) FOR PAYMENT OF SALARY OR CONSULTING FEES FOR SERVICES RENDERED, (II) REIMBURSEMENT FOR EXPENSES INCURRED ON BEHALF OF THE COMPANY AND (III) FOR OTHER EMPLOYEE BENEFITS, INCLUDING STOCK OPTION AGREEMENTS UNDER ANY STOCK OPTION PLAN OF THE COMPANY.   (R)                                    SARBANES-OXLEY; INTERNAL ACCOUNTING CONTROLS.  THE COMPANY IS IN MATERIAL COMPLIANCE WITH ALL PROVISIONS OF THE SARBANES-OXLEY ACT OF 2002 WHICH ARE APPLICABLE TO IT AS OF THE CLOSING DATE.  THE COMPANY AND THE SUBSIDIARIES MAINTAIN A SYSTEM OF INTERNAL ACCOUNTING CONTROLS SUFFICIENT TO PROVIDE REASONABLE ASSURANCE 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 CONFORMITY 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. THE COMPANY HAS ESTABLISHED DISCLOSURE CONTROLS AND PROCEDURES (AS DEFINED IN EXCHANGE ACT RULES 13A-15(E) AND 15D-15(E)) FOR THE COMPANY AND DESIGNED SUCH DISCLOSURE CONTROLS AND PROCEDURES TO ENSURE THAT MATERIAL INFORMATION RELATING TO THE COMPANY, INCLUDING ITS SUBSIDIARIES, IS MADE KNOWN TO THE CERTIFYING OFFICERS BY OTHERS   12 --------------------------------------------------------------------------------   WITHIN THOSE ENTITIES, PARTICULARLY DURING THE PERIOD IN WHICH THE COMPANY’S MOST RECENTLY FILED PERIODIC REPORT UNDER THE EXCHANGE ACT, AS THE CASE MAY BE, IS BEING PREPARED.  THE COMPANY’S CERTIFYING OFFICERS HAVE EVALUATED THE EFFECTIVENESS OF THE COMPANY’S CONTROLS AND PROCEDURES AS OF THE DATE PRIOR TO THE FILING DATE OF THE MOST RECENTLY FILED PERIODIC REPORT UNDER THE EXCHANGE ACT (SUCH DATE, THE “EVALUATION DATE”).  THE COMPANY PRESENTED IN ITS MOST RECENTLY FILED PERIODIC REPORT UNDER THE EXCHANGE ACT THE CONCLUSIONS OF THE CERTIFYING OFFICERS ABOUT THE EFFECTIVENESS OF THE DISCLOSURE CONTROLS AND PROCEDURES BASED ON THEIR EVALUATIONS AS OF THE EVALUATION DATE.  SINCE THE EVALUATION DATE, THERE HAVE BEEN NO SIGNIFICANT CHANGES IN THE COMPANY’S INTERNAL CONTROLS (AS SUCH TERM IS DEFINED IN ITEM 307(B) OF REGULATION S-K UNDER THE EXCHANGE ACT) OR, TO THE KNOWLEDGE OF THE COMPANY, IN OTHER FACTORS THAT COULD SIGNIFICANTLY AFFECT THE COMPANY’S INTERNAL CONTROLS.   (S)                                  CERTAIN FEES.  OTHER THAN FEES OR COMMISSIONS PAYABLE TO DAWSON JAMES SECURITIES, NO BROKERAGE OR FINDER’S FEES OR COMMISSIONS ARE OR WILL BE PAYABLE BY THE COMPANY TO ANY BROKER, FINANCIAL ADVISOR OR CONSULTANT, FINDER, PLACEMENT AGENT, INVESTMENT BANKER, BANK OR OTHER PERSON WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED BY THE TRANSACTION DOCUMENTS.  THE PURCHASERS SHALL HAVE NO OBLIGATION WITH RESPECT TO ANY FEES OR WITH RESPECT TO ANY CLAIMS MADE BY OR ON BEHALF OF OTHER PERSONS FOR FEES OF A TYPE CONTEMPLATED IN THIS SECTION THAT MAY BE DUE IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THE TRANSACTION DOCUMENTS.   (T)                                    PRIVATE PLACEMENT.  ASSUMING THE ACCURACY OF THE PURCHASERS REPRESENTATIONS AND WARRANTIES SET FORTH IN SECTION 3.2, NO REGISTRATION UNDER THE SECURITIES ACT IS REQUIRED FOR THE OFFER AND SALE OF THE SHARES BY THE COMPANY TO THE PURCHASERS AS CONTEMPLATED HEREBY. THE ISSUANCE AND SALE OF THE SHARES HEREUNDER DOES NOT CONTRAVENE THE RULES AND REGULATIONS OF THE TRADING MARKET.   (U)                                 INVESTMENT COMPANY. THE COMPANY IS NOT, AND IS NOT AN AFFILIATE OF, AND IMMEDIATELY AFTER RECEIPT OF PAYMENT FOR THE SECURITIES, WILL NOT BE OR BE AN AFFILIATE OF, AN “INVESTMENT COMPANY” WITHIN THE MEANING OF THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED.  THE COMPANY SHALL CONDUCT ITS BUSINESS IN A MANNER SO THAT IT WILL NOT BECOME SUBJECT TO THE INVESTMENT COMPANY ACT.   (V)                                 REGISTRATION RIGHTS.  EXCEPT AS SET FORTH ON SCHEDULE 3.1(V), OTHER THAN EACH OF THE PURCHASERS, NO PERSON HAS ANY RIGHT TO CAUSE THE COMPANY TO EFFECT THE REGISTRATION UNDER THE SECURITIES ACT OF ANY SECURITIES OF THE COMPANY.   (W)                               LISTING AND MAINTENANCE REQUIREMENTS.  THE COMPANY’S COMMON STOCK IS REGISTERED PURSUANT TO SECTION 12(G) OF THE EXCHANGE ACT, AND THE COMPANY HAS TAKEN NO ACTION DESIGNED TO, OR WHICH TO ITS KNOWLEDGE IS LIKELY TO HAVE THE EFFECT OF, TERMINATING THE REGISTRATION OF THE COMMON STOCK UNDER THE EXCHANGE ACT NOR HAS THE COMPANY RECEIVED ANY NOTIFICATION THAT THE COMMISSION IS CONTEMPLATING TERMINATING SUCH REGISTRATION.  THE COMPANY HAS NOT, IN THE 12 MONTHS PRECEDING THE DATE HEREOF, RECEIVED NOTICE FROM ANY TRADING MARKET ON WHICH THE COMMON STOCK IS OR HAS BEEN LISTED OR QUOTED TO THE EFFECT THAT THE COMPANY IS NOT IN COMPLIANCE WITH THE LISTING OR   13 --------------------------------------------------------------------------------   MAINTENANCE REQUIREMENTS OF SUCH TRADING MARKET. THE COMPANY IS, AND HAS NO REASON TO BELIEVE THAT IT WILL NOT IN THE FORESEEABLE FUTURE CONTINUE TO BE, IN COMPLIANCE WITH ALL SUCH LISTING AND MAINTENANCE REQUIREMENTS.   (X)                                   APPLICATION OF TAKEOVER PROTECTIONS.  THE COMPANY AND ITS BOARD OF DIRECTORS HAVE TAKEN ALL NECESSARY ACTION, IF ANY, IN ORDER TO RENDER INAPPLICABLE ANY CONTROL SHARE ACQUISITION, BUSINESS COMBINATION, POISON PILL (INCLUDING ANY DISTRIBUTION UNDER A RIGHTS AGREEMENT) OR OTHER SIMILAR ANTI-TAKEOVER PROVISION UNDER THE COMPANY’S CERTIFICATE OF INCORPORATION (OR SIMILAR CHARTER DOCUMENTS) OR THE LAWS OF ITS STATE OF INCORPORATION THAT IS OR COULD BECOME APPLICABLE TO THE PURCHASERS AS A RESULT OF THE PURCHASERS AND THE COMPANY FULFILLING THEIR OBLIGATIONS OR EXERCISING THEIR RIGHTS UNDER THE TRANSACTION DOCUMENTS, INCLUDING WITHOUT LIMITATION AS A RESULT OF THE COMPANY’S ISSUANCE OF THE SHARES AND THE PURCHASERS’ OWNERSHIP OF THE SHARES.   (Y)                                 DISCLOSURE.  THE COMPANY CONFIRMS THAT NEITHER IT NOR ANY OTHER PERSON ACTING ON ITS BEHALF HAS PROVIDED ANY OF THE PURCHASERS OR THEIR AGENTS OR COUNSEL WITH ANY INFORMATION THAT CONSTITUTES OR MIGHT CONSTITUTE MATERIAL, NONPUBLIC INFORMATION.  THE COMPANY UNDERSTANDS AND CONFIRMS THAT THE PURCHASERS WILL RELY ON THE FOREGOING REPRESENTATIONS AND COVENANTS IN EFFECTING TRANSACTIONS IN SECURITIES OF THE COMPANY.  ALL DISCLOSURE PROVIDED TO THE PURCHASERS REGARDING THE COMPANY, ITS BUSINESS AND THE TRANSACTIONS CONTEMPLATED HEREBY, INCLUDING THE DISCLOSURE SCHEDULES TO THIS AGREEMENT, FURNISHED BY OR ON BEHALF OF THE COMPANY WITH RESPECT TO THE REPRESENTATIONS AND WARRANTIES MADE HEREIN ARE TRUE AND CORRECT WITH RESPECT TO SUCH REPRESENTATIONS AND WARRANTIES AND DO NOT CONTAIN ANY UNTRUE STATEMENT OF A MATERIAL FACT OR OMIT TO STATE ANY MATERIAL FACT NECESSARY IN ORDER TO MAKE THE STATEMENTS MADE THEREIN, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING. THE COMPANY ACKNOWLEDGES AND AGREES THAT NO PURCHASER MAKES OR HAS MADE ANY REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREBY OTHER THAN THOSE SPECIFICALLY SET FORTH IN SECTION 3.2 HEREOF.   (Z)                                   NO INTEGRATED OFFERING. ASSUMING THE ACCURACY OF THE PURCHASERS’ REPRESENTATIONS AND WARRANTIES SET FORTH IN SECTION 3.2, NEITHER THE COMPANY, NOR ANY OF ITS AFFILIATES, NOR ANY PERSON ACTING ON ITS OR THEIR BEHALF HAS, DIRECTLY OR INDIRECTLY, MADE ANY OFFERS OR SALES OF ANY SECURITY OR SOLICITED ANY OFFERS TO BUY ANY SECURITY, UNDER CIRCUMSTANCES THAT WOULD CAUSE THIS OFFERING OF THE SHARES TO BE INTEGRATED WITH PRIOR OFFERINGS BY THE COMPANY FOR PURPOSES OF THE SECURITIES ACT OR ANY APPLICABLE SHAREHOLDER APPROVAL PROVISIONS, INCLUDING, WITHOUT LIMITATION, UNDER THE RULES AND REGULATIONS OF ANY TRADING MARKET ON WHICH ANY OF THE SECURITIES OF THE COMPANY ARE LISTED OR DESIGNATED.   (AA)                            SOLVENCY.  BASED ON THE FINANCIAL CONDITION OF THE COMPANY AS OF THE CLOSING DATE AFTER GIVING EFFECT TO THE RECEIPT BY THE COMPANY OF THE PROCEEDS FROM THE SALE OF THE SHARES HEREUNDER, (I) THE COMPANY’S FAIR SALEABLE VALUE OF ITS ASSETS EXCEEDS THE AMOUNT THAT WILL BE REQUIRED TO BE PAID ON OR IN RESPECT OF THE COMPANY’S EXISTING DEBTS AND OTHER LIABILITIES (INCLUDING KNOWN CONTINGENT LIABILITIES) AS THEY MATURE; (II) THE COMPANY’S ASSETS DO NOT CONSTITUTE UNREASONABLY SMALL CAPITAL TO CARRY ON ITS BUSINESS FOR   14 --------------------------------------------------------------------------------   THE CURRENT FISCAL YEAR AS NOW CONDUCTED AND AS PROPOSED TO BE CONDUCTED INCLUDING ITS CAPITAL NEEDS TAKING INTO ACCOUNT THE PARTICULAR CAPITAL REQUIREMENTS OF THE BUSINESS CONDUCTED BY THE COMPANY, AND PROJECTED CAPITAL REQUIREMENTS AND CAPITAL AVAILABILITY THEREOF; AND (III) THE CURRENT CASH FLOW OF THE COMPANY, TOGETHER WITH THE PROCEEDS THE COMPANY WOULD RECEIVE, WERE IT TO LIQUIDATE ALL OF ITS ASSETS, AFTER TAKING INTO ACCOUNT ALL ANTICIPATED USES OF THE CASH, WOULD BE SUFFICIENT TO PAY ALL AMOUNTS ON OR IN RESPECT OF ITS DEBT WHEN SUCH AMOUNTS ARE REQUIRED TO BE PAID.  THE COMPANY DOES NOT INTEND TO INCUR DEBTS BEYOND ITS ABILITY TO PAY SUCH DEBTS AS THEY MATURE (TAKING INTO ACCOUNT THE TIMING AND AMOUNTS OF CASH TO BE PAYABLE ON OR IN RESPECT OF ITS DEBT).  THE COMPANY HAS NO KNOWLEDGE OF ANY FACTS OR CIRCUMSTANCES WHICH LEAD IT TO BELIEVE THAT IT WILL FILE FOR REORGANIZATION OR LIQUIDATION UNDER THE BANKRUPTCY OR REORGANIZATION LAWS OF ANY JURISDICTION WITHIN ONE YEAR FROM THE CLOSING DATE.  THE SEC REPORTS SET FORTH AS OF THE DATES THEREOF ALL OUTSTANDING SECURED AND UNSECURED INDEBTEDNESS OF THE COMPANY OR ANY SUBSIDIARY, OR FOR WHICH THE COMPANY OR ANY SUBSIDIARY HAS COMMITMENTS.  FOR THE PURPOSES OF THIS AGREEMENT, “INDEBTEDNESS” SHALL MEAN (A) ANY LIABILITIES FOR BORROWED MONEY OR AMOUNTS OWED IN EXCESS OF $50,000 (OTHER THAN TRADE ACCOUNTS PAYABLE INCURRED IN THE ORDINARY COURSE OF BUSINESS), (B) ALL GUARANTIES, ENDORSEMENTS AND OTHER CONTINGENT OBLIGATIONS IN RESPECT OF INDEBTEDNESS OF OTHERS, WHETHER OR NOT THE SAME ARE OR SHOULD BE REFLECTED IN THE COMPANY’S BALANCE SHEET (OR THE NOTES THERETO), EXCEPT GUARANTIES BY ENDORSEMENT OF NEGOTIABLE INSTRUMENTS FOR DEPOSIT OR COLLECTION OR SIMILAR TRANSACTIONS IN THE ORDINARY COURSE OF BUSINESS; AND (C) THE PRESENT VALUE OF ANY LEASE PAYMENTS IN EXCESS OF $50,000 DUE UNDER LEASES REQUIRED TO BE CAPITALIZED IN ACCORDANCE WITH GAAP.  NEITHER THE COMPANY NOR ANY SUBSIDIARY IS IN DEFAULT WITH RESPECT TO ANY INDEBTEDNESS.   (BB)                          FORM SB-2 ELIGIBILITY.                                 THE COMPANY IS ELIGIBLE TO REGISTER THE RESALE OF THE SHARES FOR RESALE BY THE PURCHASER ON FORM SB-2 PROMULGATED UNDER THE SECURITIES ACT.   (CC)                            TAX STATUS.                                    EXCEPT FOR MATTERS THAT WOULD NOT, INDIVIDUALLY OR IN THE AGGREGATE, HAVE OR REASONABLY BE EXPECTED TO RESULT IN A MATERIAL ADVERSE EFFECT, THE COMPANY AND EACH SUBSIDIARY HAS FILED ALL NECESSARY FEDERAL, STATE AND FOREIGN INCOME AND FRANCHISE TAX RETURNS AND HAS PAID OR ACCRUED ALL TAXES SHOWN AS DUE THEREON, AND THE COMPANY HAS NO KNOWLEDGE OF A TAX DEFICIENCY WHICH HAS BEEN ASSERTED OR THREATENED AGAINST THE COMPANY OR ANY SUBSIDIARY.   (DD)                          NO GENERAL SOLICITATION. NEITHER THE COMPANY NOR ANY PERSON ACTING ON BEHALF OF THE COMPANY HAS OFFERED OR SOLD ANY OF THE SHARES BY ANY FORM OF GENERAL SOLICITATION OR GENERAL ADVERTISING.  THE COMPANY HAS OFFERED THE SHARES FOR SALE ONLY TO THE PURCHASERS AND CERTAIN OTHER “ACCREDITED INVESTORS” WITHIN THE MEANING OF RULE 501 UNDER THE SECURITIES ACT.   (EE)                            FOREIGN CORRUPT PRACTICES.  NEITHER THE COMPANY, NOR TO THE KNOWLEDGE OF THE COMPANY, ANY AGENT OR OTHER PERSON ACTING ON BEHALF OF THE COMPANY, HAS (I) DIRECTLY OR INDIRECTLY, USED ANY FUNDS FOR UNLAWFUL CONTRIBUTIONS, GIFTS, ENTERTAINMENT OR OTHER UNLAWFUL EXPENSES RELATED TO FOREIGN OR DOMESTIC POLITICAL ACTIVITY, (II) MADE ANY UNLAWFUL PAYMENT TO FOREIGN OR DOMESTIC GOVERNMENT OFFICIALS OR EMPLOYEES OR TO ANY FOREIGN OR   15 --------------------------------------------------------------------------------   DOMESTIC POLITICAL PARTIES OR CAMPAIGNS FROM CORPORATE FUNDS, (III) FAILED TO DISCLOSE FULLY ANY CONTRIBUTION MADE BY THE COMPANY (OR MADE BY ANY PERSON ACTING ON ITS BEHALF OF WHICH THE COMPANY IS AWARE) WHICH IS IN VIOLATION OF LAW, OR (IV) VIOLATED IN ANY MATERIAL RESPECT ANY PROVISION OF THE FOREIGN CORRUPT PRACTICES ACT OF 1977, AS AMENDED.   (FF)                                ACCOUNTANTS.  THE COMPANY’S ACCOUNTANTS ARE SET FORTH ON SCHEDULE 3.1(FF) OF THE DISCLOSURE SCHEDULE.  TO THE KNOWLEDGE OF THE COMPANY, SUCH ACCOUNTANTS, WHO THE COMPANY EXPECTS WILL EXPRESS THEIR OPINION WITH RESPECT TO THE FINANCIAL STATEMENTS TO BE INCLUDED IN THE COMPANY’S ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDING DECEMBER 31, 2005 ARE A REGISTERED PUBLIC ACCOUNTING FIRM AS REQUIRED BY THE SECURITIES ACT.   (GG)                          [RESERVED].   (HH)                          NO DISAGREEMENTS WITH ACCOUNTANTS AND LAWYERS.  THERE ARE NO DISAGREEMENTS OF ANY KIND PRESENTLY EXISTING, OR REASONABLY ANTICIPATED BY THE COMPANY TO ARISE, BETWEEN THE ACCOUNTANTS AND LAWYERS FORMERLY OR PRESENTLY EMPLOYED BY THE COMPANY AND THE COMPANY IS CURRENT WITH RESPECT TO ANY FEES OWED TO ITS ACCOUNTANTS AND LAWYERS.   (II)                                  ACKNOWLEDGMENT REGARDING PURCHASERS’ PURCHASE OF SHARES.  THE COMPANY ACKNOWLEDGES AND AGREES THAT EACH OF THE PURCHASERS IS ACTING SOLELY IN THE CAPACITY OF AN ARM’S LENGTH PURCHASER WITH RESPECT TO THE TRANSACTION DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY.  THE COMPANY FURTHER ACKNOWLEDGES THAT NO PURCHASER IS ACTING AS A FINANCIAL ADVISOR OR FIDUCIARY OF THE COMPANY (OR IN ANY SIMILAR CAPACITY) WITH RESPECT TO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY AND ANY ADVICE GIVEN BY ANY PURCHASER OR ANY OF THEIR RESPECTIVE REPRESENTATIVES OR AGENTS IN CONNECTION WITH THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY IS MERELY INCIDENTAL TO THE PURCHASERS’ PURCHASE OF THE SHARES.  THE COMPANY FURTHER REPRESENTS TO EACH PURCHASER THAT THE COMPANY’S DECISION TO ENTER INTO THIS AGREEMENT HAS BEEN BASED SOLELY ON THE INDEPENDENT EVALUATION OF THE TRANSACTIONS CONTEMPLATED HEREBY BY THE COMPANY AND ITS REPRESENTATIVES.   (JJ)                                  ACKNOWLEDGEMENT REGARDING PURCHASERS’ TRADING ACTIVITY.  ANYTHING IN THIS AGREEMENT OR ELSEWHERE HEREIN TO THE CONTRARY NOTWITHSTANDING (EXCEPT FOR SECTION 4.14 AND SECTION 3.2(F) HEREOF), IT IS UNDERSTOOD AND AGREED BY THE COMPANY (I) THAT NONE OF THE PURCHASERS HAVE BEEN ASKED TO AGREE, NOR HAS ANY PURCHASER AGREED, TO DESIST FROM PURCHASING OR SELLING, LONG AND/OR SHORT, SECURITIES OF THE COMPANY, OR “DERIVATIVE” SECURITIES BASED ON SECURITIES ISSUED BY THE COMPANY OR TO HOLD THE SHARES FOR ANY SPECIFIED TERM; (II) THAT PAST OR FUTURE OPEN MARKET OR OTHER TRANSACTIONS BY ANY PURCHASER, INCLUDING SHORT SALES, AND SPECIFICALLY INCLUDING, WITHOUT LIMITATION, SHORT SALES OR “DERIVATIVE” TRANSACTIONS, BEFORE OR AFTER THE CLOSING OF THIS OR FUTURE PRIVATE PLACEMENT TRANSACTIONS, MAY NEGATIVELY IMPACT THE MARKET PRICE OF THE COMPANY’S PUBLICLY-TRADED SECURITIES; (III) THAT ANY PURCHASER, AND COUNTER PARTIES IN “DERIVATIVE” TRANSACTIONS TO WHICH ANY SUCH PURCHASER IS A PARTY, DIRECTLY OR INDIRECTLY, PRESENTLY MAY HAVE A “SHORT” POSITION IN THE COMMON STOCK, AND (IV) THAT EACH PURCHASER SHALL NOT BE DEEMED TO HAVE   16 --------------------------------------------------------------------------------   ANY AFFILIATION WITH OR CONTROL OVER ANY ARM’S LENGTH COUNTER-PARTY IN ANY “DERIVATIVE” TRANSACTION.  THE COMPANY FURTHER UNDERSTANDS AND ACKNOWLEDGES THAT (A) ONE OR MORE PURCHASERS MAY ENGAGE IN HEDGING ACTIVITIES AT VARIOUS TIMES DURING THE PERIOD THAT THE SHARES ARE OUTSTANDING AND (B) SUCH HEDGING ACTIVITIES (IF ANY) COULD REDUCE THE VALUE OF THE EXISTING STOCKHOLDERS’ EQUITY INTERESTS IN THE COMPANY AT AND AFTER THE TIME THAT THE HEDGING ACTIVITIES ARE BEING CONDUCTED.  THE COMPANY ACKNOWLEDGES THAT SUCH AFOREMENTIONED HEDGING ACTIVITIES DO NOT CONSTITUTE A BREACH OF ANY OF THE TRANSACTION DOCUMENTS.   (KK)                            MANIPULATION OF PRICE.  THE COMPANY HAS NOT, AND TO ITS KNOWLEDGE NO ONE ACTING ON ITS BEHALF HAS, (I) TAKEN, DIRECTLY OR INDIRECTLY, ANY ACTION DESIGNED TO CAUSE OR TO RESULT IN THE STABILIZATION OR MANIPULATION OF THE PRICE OF ANY SECURITY OF THE COMPANY TO FACILITATE THE SALE OR RESALE OF ANY OF THE SECURITIES, (II) SOLD, BID FOR, PURCHASED, OR, PAID ANY COMPENSATION FOR SOLICITING PURCHASES OF, ANY OF THE SHARES (OTHER THAN FOR THE PLACEMENT AGENT’S PLACEMENT OF THE SECURITIES), OR (III) PAID OR AGREED TO PAY TO ANY PERSON ANY COMPENSATION FOR SOLICITING ANOTHER TO PURCHASE ANY OTHER SECURITIES OF THE COMPANY.   3.2                                 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.    EACH PURCHASER HEREBY, FOR ITSELF AND FOR NO OTHER PURCHASER, REPRESENTS AND WARRANTS AS OF THE DATE HEREOF AND AS OF THE CLOSING DATE TO THE COMPANY AS FOLLOWS:   (A)                                  ORGANIZATION; AUTHORITY.  SUCH PURCHASER IS AN ENTITY DULY ORGANIZED, VALIDLY EXISTING AND IN GOOD STANDING UNDER THE LAWS OF THE JURISDICTION OF ITS ORGANIZATION WITH FULL RIGHT, CORPORATE OR PARTNERSHIP POWER AND AUTHORITY TO ENTER INTO AND TO CONSUMMATE THE TRANSACTIONS CONTEMPLATED BY THE TRANSACTION DOCUMENTS AND OTHERWISE TO CARRY OUT ITS OBLIGATIONS HEREUNDER AND THEREUNDER. THE EXECUTION, DELIVERY AND PERFORMANCE BY SUCH PURCHASER OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT HAVE BEEN DULY AUTHORIZED BY ALL NECESSARY CORPORATE OR SIMILAR ACTION ON THE PART OF SUCH PURCHASER.  EACH TRANSACTION DOCUMENT TO WHICH IT IS A PARTY HAS BEEN DULY EXECUTED BY SUCH PURCHASER, AND WHEN DELIVERED BY SUCH PURCHASER IN ACCORDANCE WITH THE TERMS HEREOF, WILL CONSTITUTE THE VALID AND LEGALLY BINDING OBLIGATION OF SUCH PURCHASER, ENFORCEABLE AGAINST IT IN ACCORDANCE WITH ITS TERMS, EXCEPT (I) AS LIMITED BY GENERAL EQUITABLE PRINCIPLES AND APPLICABLE BANKRUPTCY, INSOLVENCY, REORGANIZATION, MORATORIUM AND OTHER LAWS OF GENERAL APPLICATION AFFECTING ENFORCEMENT OF CREDITORS’ RIGHTS GENERALLY, (II) AS LIMITED BY LAWS RELATING TO THE AVAILABILITY OF SPECIFIC PERFORMANCE, INJUNCTIVE RELIEF OR OTHER EQUITABLE REMEDIES AND (III) INSOFAR AS INDEMNIFICATION AND CONTRIBUTION PROVISIONS MAY BE LIMITED BY APPLICABLE LAW.   (B)                                 OWN ACCOUNT.  SUCH PURCHASER UNDERSTANDS THAT THE SHARES ARE “RESTRICTED SECURITIES” AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAW AND IS ACQUIRING THE SHARES AS PRINCIPAL FOR ITS OWN ACCOUNT AND NOT WITH A VIEW TO OR FOR DISTRIBUTING OR RESELLING SUCH SHARES OR ANY PART THEREOF IN VIOLATION OF THE SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAW, HAS NO PRESENT INTENTION OF DISTRIBUTING ANY OF SUCH SHARES IN VIOLATION OF THE SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAW AND HAS NO ARRANGEMENT OR UNDERSTANDING WITH ANY OTHER PERSONS REGARDING   17 --------------------------------------------------------------------------------   THE DISTRIBUTION OF SUCH SHARES (THIS REPRESENTATION AND WARRANTY NOT LIMITING SUCH PURCHASER’S RIGHT TO SELL THE SHARES PURSUANT TO THE REGISTRATION STATEMENT OR OTHERWISE IN COMPLIANCE WITH APPLICABLE FEDERAL AND STATE SECURITIES LAWS) IN VIOLATION OF THE SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAW.  SUCH PURCHASER IS ACQUIRING THE SHARES HEREUNDER IN THE ORDINARY COURSE OF ITS BUSINESS. SUCH PURCHASER DOES NOT HAVE ANY AGREEMENT OR UNDERSTANDING, DIRECTLY OR INDIRECTLY, WITH ANY PERSON TO DISTRIBUTE ANY OF THE SHARES.   (C)                                  PURCHASER STATUS.  AT THE TIME SUCH PURCHASER WAS OFFERED THE SHARES, IT WAS, AND AT THE DATE HEREOF IT IS, EITHER: (I) AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(A)(1), (A)(2), (A)(3), (A)(7) OR (A)(8) UNDER THE SECURITIES ACT OR (II) A “QUALIFIED INSTITUTIONAL BUYER” AS DEFINED IN RULE 144A(A) UNDER THE SECURITIES ACT.  SUCH PURCHASER IS NOT REQUIRED TO BE REGISTERED AS A BROKER-DEALER UNDER SECTION 15 OF THE EXCHANGE ACT.   (D)                                 EXPERIENCE OF SUCH PURCHASER.  SUCH PURCHASER, EITHER ALONE OR TOGETHER WITH ITS REPRESENTATIVES, HAS SUCH KNOWLEDGE, SOPHISTICATION AND EXPERIENCE IN BUSINESS AND FINANCIAL MATTERS SO AS TO BE CAPABLE OF EVALUATING THE MERITS AND RISKS OF THE PROSPECTIVE INVESTMENT IN THE SECURITIES, AND HAS SO EVALUATED THE MERITS AND RISKS OF SUCH INVESTMENT.  SUCH PURCHASER IS ABLE TO BEAR THE ECONOMIC RISK OF AN INVESTMENT IN THE SHARES AND, AT THE PRESENT TIME, IS ABLE TO AFFORD A COMPLETE LOSS OF SUCH INVESTMENT.   (E)                                  GENERAL SOLICITATION.  SUCH PURCHASER IS NOT PURCHASING THE SHARES AS A RESULT OF ANY ADVERTISEMENT, ARTICLE, NOTICE OR OTHER COMMUNICATION REGARDING THE SHARES PUBLISHED IN ANY NEWSPAPER, MAGAZINE OR SIMILAR MEDIA OR BROADCAST OVER TELEVISION OR RADIO OR PRESENTED AT ANY SEMINAR OR ANY OTHER GENERAL SOLICITATION OR GENERAL ADVERTISEMENT.   (F)                                    SHORT SALES AND CONFIDENTIALITY PRIOR TO THE DATE HEREOF.  OTHER THAN THE TRANSACTION CONTEMPLATED HEREUNDER, SUCH PURCHASER HAS NOT DIRECTLY OR INDIRECTLY, NOR HAS ANY PERSON ACTING ON BEHALF OF OR PURSUANT TO ANY UNDERSTANDING WITH SUCH PURCHASER, EXECUTED ANY DISPOSITION, INCLUDING SHORT SALES, IN THE SECURITIES OF THE COMPANY DURING THE PERIOD COMMENCING FROM THE TIME THAT SUCH PURCHASER FIRST RECEIVED A TERM SHEET FROM THE COMPANY OR ANY OTHER PERSON SETTING FORTH THE MATERIAL TERMS OF THE TRANSACTIONS CONTEMPLATED HEREUNDER UNTIL THE DATE HEREOF (“DISCUSSION TIME”).  NOTWITHSTANDING THE FOREGOING, IN THE CASE OF A PURCHASER THAT IS A MULTI-MANAGED INVESTMENT VEHICLE WHEREBY SEPARATE PORTFOLIO MANAGERS MANAGE SEPARATE PORTIONS OF SUCH PURCHASER’S ASSETS AND THE PORTFOLIO MANAGERS HAVE NO DIRECT KNOWLEDGE OF THE INVESTMENT DECISIONS MADE BY THE PORTFOLIO MANAGERS MANAGING OTHER PORTIONS OF SUCH PURCHASER’S ASSETS, THE REPRESENTATION SET FORTH ABOVE SHALL ONLY APPLY WITH RESPECT TO THE PORTION OF ASSETS MANAGED BY THE PORTFOLIO MANAGER THAT MADE THE INVESTMENT DECISION TO PURCHASE THE SHARES COVERED BY THIS AGREEMENT.  OTHER THAN TO OTHER PERSONS PARTY TO THIS AGREEMENT, SUCH PURCHASER HAS MAINTAINED THE CONFIDENTIALITY OF ALL DISCLOSURES MADE TO IT IN CONNECTION WITH THIS TRANSACTION (INCLUDING THE EXISTENCE AND TERMS OF THIS TRANSACTION).   18 --------------------------------------------------------------------------------   The Company acknowledges and agrees that each Purchaser does not make or has not made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in this Section 3.2.   ARTICLE IV. OTHER AGREEMENTS OF THE PARTIES   4.1                                 TRANSFER RESTRICTIONS.   (A)                                  THE SHARES MAY ONLY BE DISPOSED OF IN COMPLIANCE WITH STATE AND FEDERAL SECURITIES LAWS.  IN CONNECTION WITH ANY TRANSFER OF SHARES OTHER THAN PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR RULE 144, TO THE COMPANY OR TO AN AFFILIATE OF A PURCHASER OR IN CONNECTION WITH A PLEDGE AS CONTEMPLATED IN SECTION 4.1(B), THE COMPANY MAY REQUIRE THE TRANSFEROR THEREOF TO PROVIDE TO THE COMPANY AN OPINION OF COUNSEL SELECTED BY THE TRANSFEROR AND REASONABLY ACCEPTABLE TO THE COMPANY, THE FORM AND SUBSTANCE OF WHICH OPINION SHALL BE REASONABLY SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT SUCH TRANSFER DOES NOT REQUIRE REGISTRATION OF SUCH TRANSFERRED SHARES UNDER THE SECURITIES ACT.  AS A CONDITION OF TRANSFER, ANY SUCH TRANSFEREE SHALL AGREE IN WRITING TO BE BOUND BY THE TERMS OF THIS AGREEMENT AND SHALL HAVE THE RIGHTS OF A PURCHASER UNDER THIS AGREEMENT AND THE REGISTRATION RIGHTS AGREEMENT.   (B)                                 THE PURCHASERS AGREE TO THE IMPRINTING, SO LONG AS IS REQUIRED BY THIS SECTION 4.1(B), OF A LEGEND ON ANY OF THE SHARES IN THE FOLLOWING FORM:   [NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE [EXERCISABLE] [CONVERTIBLE]] HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.  THESE SECURITIES AND THE SECURITIES ISSUABLE UPON [EXERCISE] [CONVERSION] OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.   The Company acknowledges and agrees that a Purchaser may from time to time pledge pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security interest in some or all of the Shares to a financial institution that is an “accredited investor” as defined in Rule 501(a) under the Securities Act and who agrees   19 --------------------------------------------------------------------------------   to be bound by the provisions of this Agreement and the Registration Rights Agreement and, if required under the terms of such arrangement, such Purchaser may transfer pledged or secured Shares to the pledgees or secured parties.  Such a pledge or transfer would not be subject to approval of the Company and no legal opinion of legal counsel of the pledgee, secured party or pledgor shall be required in connection therewith.  Further, no notice shall be required of such pledge.  At the appropriate Purchaser’s expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Shares may reasonably request in connection with a pledge or transfer of the Securities, including, if the Shares are subject to registration pursuant to the Registration Rights Agreement, the preparation and filing of any required prospectus supplement under Rule 424(b)(3) under the Securities Act or other applicable provision of the Securities Act to appropriately amend the list of Selling Stockholders thereunder.   (C)          CERTIFICATES EVIDENCING THE SHARES SHALL NOT CONTAIN ANY LEGEND (INCLUDING THE LEGEND SET FORTH IN SECTION 4.1(B) HEREOF): (I) WHILE A REGISTRATION STATEMENT (INCLUDING THE REGISTRATION STATEMENT) COVERING THE RESALE OF SUCH SECURITY IS EFFECTIVE UNDER THE SECURITIES ACT, OR (II) FOLLOWING ANY SALE OF SUCH SHARES PURSUANT TO RULE 144, OR (III) IF SUCH SHARES ARE ELIGIBLE FOR SALE UNDER RULE 144(K), OR (IV) IF SUCH LEGEND IS NOT REQUIRED UNDER APPLICABLE REQUIREMENTS OF THE SECURITIES ACT (INCLUDING JUDICIAL INTERPRETATIONS AND PRONOUNCEMENTS ISSUED BY THE STAFF OF THE COMMISSION). THE COMPANY SHALL CAUSE ITS COUNSEL TO ISSUE A LEGAL OPINION TO THE COMPANY’S TRANSFER AGENT PROMPTLY AFTER THE EFFECTIVE DATE IF REQUIRED BY THE COMPANY’S TRANSFER AGENT TO EFFECT THE REMOVAL OF THE LEGEND HEREUNDER.  THE COMPANY AGREES THAT FOLLOWING THE EFFECTIVE DATE OR AT SUCH TIME AS SUCH LEGEND IS NO LONGER REQUIRED UNDER THIS SECTION 4.1(C), IT WILL, NO LATER THAN THREE TRADING DAYS FOLLOWING THE DELIVERY BY A PURCHASER TO THE COMPANY OR THE COMPANY’S TRANSFER AGENT OF A CERTIFICATE REPRESENTING SHARES, AS APPLICABLE, ISSUED WITH A RESTRICTIVE LEGEND (SUCH THIRD TRADING DAY, THE “LEGEND REMOVAL DATE”), DELIVER OR CAUSE TO BE DELIVERED TO SUCH PURCHASER A CERTIFICATE REPRESENTING SUCH SHARES THAT IS FREE FROM ALL RESTRICTIVE AND OTHER LEGENDS.  THE COMPANY MAY NOT MAKE ANY NOTATION ON ITS RECORDS OR GIVE INSTRUCTIONS TO ANY TRANSFER AGENT OF THE COMPANY THAT ENLARGE THE RESTRICTIONS ON TRANSFER SET FORTH IN THIS SECTION.  CERTIFICATES FOR SHARES SUBJECT TO LEGEND REMOVAL HEREUNDER SHALL BE TRANSMITTED BY THE TRANSFER AGENT OF THE COMPANY TO THE PURCHASERS BY CREDITING THE ACCOUNT OF THE PURCHASER’S PRIME BROKER WITH THE DEPOSITORY TRUST COMPANY SYSTEM.   (D)                                 IN ADDITION TO SUCH PURCHASER’S OTHER AVAILABLE REMEDIES, THE COMPANY SHALL PAY TO A PURCHASER, IN CASH, AS PARTIAL LIQUIDATED DAMAGES AND NOT AS A PENALTY, FOR EACH $1,000 OF SHARES (BASED ON THE VWAP OF THE COMMON STOCK ON THE DATE SUCH SHARES ARE SUBMITTED TO THE COMPANY’S TRANSFER AGENT) DELIVERED FOR REMOVAL OF THE RESTRICTIVE LEGEND AND SUBJECT TO SECTION 4.1(C), $10 PER TRADING DAY (INCREASING TO $20 PER TRADING DAY 5 TRADING DAYS AFTER SUCH DAMAGES HAVE BEGUN TO ACCRUE) FOR EACH TRADING DAY AFTER THE LEGEND REMOVAL DATE UNTIL SUCH CERTIFICATE IS DELIVERED WITHOUT A LEGEND.  NOTHING HEREIN SHALL LIMIT SUCH PURCHASER’S RIGHT TO PURSUE ACTUAL DAMAGES FOR THE COMPANY’S FAILURE TO DELIVER CERTIFICATES REPRESENTING ANY SHARES AS REQUIRED BY THE TRANSACTION DOCUMENTS, AND SUCH PURCHASER SHALL HAVE THE RIGHT TO PURSUE ALL REMEDIES   20 --------------------------------------------------------------------------------   AVAILABLE TO IT AT LAW OR IN EQUITY INCLUDING, WITHOUT LIMITATION, A DECREE OF SPECIFIC PERFORMANCE AND/OR INJUNCTIVE RELIEF.   (E)                                  EACH PURCHASER, SEVERALLY AND NOT JOINTLY WITH THE OTHER PURCHASERS, AGREES THAT THE REMOVAL OF THE RESTRICTIVE LEGEND FROM CERTIFICATES REPRESENTING SHARES AS SET FORTH IN THIS SECTION 4.1 IS PREDICATED UPON THE COMPANY’S RELIANCE THAT THE PURCHASER WILL SELL ANY SHARES PURSUANT TO EITHER THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, INCLUDING ANY APPLICABLE PROSPECTUS DELIVERY REQUIREMENTS, OR AN EXEMPTION THEREFROM.   (F)                                    UNTIL THE ONE YEAR ANNIVERSARY OF THE EFFECTIVE DATE, THE COMPANY SHALL NOT UNDERTAKE A REVERSE OR FORWARD STOCK SPLIT OR RECLASSIFICATION OF THE COMMON STOCK WITHOUT THE PRIOR WRITTEN CONSENT OF THE PURCHASERS HOLDING A MAJORITY OF THE SHARES THEN OUTSTANDING, UNLESS THE BOARD OF DIRECTORS DETERMINES THAT A PARTICULAR REVERSE SPLIT IS NECESSARY IN ORDER TO SECURE THE INCLUSION OR LISTING OF THE COMMON STOCK ON THE NASDAQ STOCK MARKET OR A NATIONAL SECURITIES EXCHANGE.   4.2                                 ACKNOWLEDGMENT OF DILUTION.  THE COMPANY ACKNOWLEDGES THAT THE ISSUANCE OF THE SHARES MAY RESULT IN DILUTION OF THE OUTSTANDING SHARES OF COMMON STOCK, WHICH DILUTION MAY BE SUBSTANTIAL UNDER CERTAIN MARKET CONDITIONS.   4.3                                 FURNISHING OF INFORMATION.  AS LONG AS ANY PURCHASER OWNS SECURITIES, THE COMPANY COVENANTS TO TIMELY FILE (OR OBTAIN EXTENSIONS IN RESPECT THEREOF AND FILE WITHIN THE APPLICABLE GRACE PERIOD) ALL REPORTS REQUIRED TO BE FILED BY THE COMPANY AFTER THE DATE HEREOF PURSUANT TO THE EXCHANGE ACT.  AS LONG AS ANY PURCHASER OWNS SECURITIES, IF THE COMPANY IS NOT REQUIRED TO FILE REPORTS PURSUANT TO THE EXCHANGE ACT, IT WILL PREPARE AND FURNISH TO THE PURCHASERS AND MAKE PUBLICLY AVAILABLE IN ACCORDANCE WITH RULE 144(C) SUCH INFORMATION AS IS REQUIRED FOR THE PURCHASERS TO SELL THE SHARES UNDER RULE 144.  THE COMPANY FURTHER COVENANTS THAT IT WILL TAKE SUCH FURTHER ACTION AS ANY HOLDER OF SHARES MAY REASONABLY REQUEST, ALL TO THE EXTENT REQUIRED FROM TIME TO TIME TO ENABLE SUCH PERSON TO SELL SUCH SHARES WITHOUT REGISTRATION UNDER THE SECURITIES ACT WITHIN THE LIMITATION OF THE EXEMPTIONS PROVIDED BY RULE 144.   4.4                                 INTEGRATION.  THE COMPANY SHALL NOT SELL, OFFER FOR SALE OR SOLICIT OFFERS TO BUY OR OTHERWISE NEGOTIATE IN RESPECT OF ANY SECURITY (AS DEFINED IN SECTION 2 OF THE SECURITIES ACT) THAT WOULD BE INTEGRATED WITH THE OFFER OR SALE OF THE SHARES IN A MANNER THAT WOULD REQUIRE THE REGISTRATION UNDER THE SECURITIES ACT OF THE SALE OF THE SHARES TO THE PURCHASERS OR THAT WOULD BE INTEGRATED WITH THE OFFER OR SALE OF THE SHARES FOR PURPOSES OF THE RULES AND REGULATIONS OF ANY TRADING MARKET.   4.5                                 [RESERVED].   4.6                                 SECURITIES LAWS DISCLOSURE; PUBLICITY.  THE COMPANY SHALL, BY 8:30 A.M. EASTERN TIME ON THE TRADING DAY FOLLOWING THE DATE HEREOF, ISSUE A CURRENT REPORT ON FORM 8-K, REASONABLY ACCEPTABLE TO EACH PURCHASER DISCLOSING THE MATERIAL TERMS OF THE TRANSACTIONS CONTEMPLATED HEREBY, AND SHALL ATTACH THE TRANSACTION DOCUMENTS THERETO.  THE COMPANY AND EACH PURCHASER SHALL CONSULT WITH EACH OTHER IN ISSUING ANY OTHER PRESS RELEASES WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREBY, AND NEITHER THE COMPANY NOR ANY PURCHASER SHALL ISSUE ANY   21 --------------------------------------------------------------------------------   SUCH PRESS RELEASE OR OTHERWISE MAKE ANY SUCH PUBLIC STATEMENT WITHOUT THE PRIOR CONSENT OF THE COMPANY, WITH RESPECT TO ANY PRESS RELEASE OF ANY PURCHASER, OR WITHOUT THE PRIOR CONSENT OF EACH PURCHASER, WITH RESPECT TO ANY PRESS RELEASE OF THE COMPANY, WHICH CONSENT SHALL NOT UNREASONABLY BE WITHHELD, EXCEPT IF SUCH DISCLOSURE IS REQUIRED BY LAW, IN WHICH CASE THE DISCLOSING PARTY SHALL PROMPTLY PROVIDE THE OTHER PARTY WITH PRIOR NOTICE OF SUCH PUBLIC STATEMENT OR COMMUNICATION.  NOTWITHSTANDING THE FOREGOING, THE COMPANY SHALL NOT PUBLICLY DISCLOSE THE NAME OF ANY PURCHASER, OR INCLUDE THE NAME OF ANY PURCHASER IN ANY FILING WITH THE COMMISSION OR ANY REGULATORY AGENCY OR TRADING MARKET, WITHOUT THE PRIOR WRITTEN CONSENT OF SUCH PURCHASER, EXCEPT (I) AS REQUIRED BY FEDERAL SECURITIES LAW IN CONNECTION WITH THE REGISTRATION STATEMENT CONTEMPLATED BY THE REGISTRATION RIGHTS AGREEMENT AND (II) TO THE EXTENT SUCH DISCLOSURE IS REQUIRED BY LAW OR TRADING MARKET REGULATIONS, IN WHICH CASE THE COMPANY SHALL PROVIDE THE PURCHASERS WITH PRIOR NOTICE OF SUCH DISCLOSURE PERMITTED UNDER SUBCLAUSE (I) OR (II).   4.7                                 SHAREHOLDER RIGHTS PLAN.  NO CLAIM WILL BE MADE OR ENFORCED BY THE COMPANY OR, TO THE KNOWLEDGE OF THE COMPANY, ANY OTHER PERSON THAT ANY PURCHASER IS AN “ACQUIRING PERSON” UNDER ANY SHAREHOLDER RIGHTS PLAN OR SIMILAR PLAN OR ARRANGEMENT IN EFFECT OR HEREAFTER ADOPTED BY THE COMPANY, OR THAT ANY PURCHASER COULD BE DEEMED TO TRIGGER THE PROVISIONS OF ANY SUCH PLAN OR ARRANGEMENT, BY VIRTUE OF RECEIVING SHARES UNDER THE TRANSACTION DOCUMENTS OR UNDER ANY OTHER AGREEMENT BETWEEN THE COMPANY AND THE PURCHASERS. THE COMPANY SHALL CONDUCT ITS BUSINESS IN A MANNER SO THAT IT WILL NOT BECOME SUBJECT TO THE INVESTMENT COMPANY ACT.   4.8                                 NON-PUBLIC INFORMATION.  THE COMPANY COVENANTS AND AGREES THAT NEITHER IT NOR ANY OTHER PERSON ACTING ON ITS BEHALF WILL PROVIDE ANY PURCHASER OR ITS AGENTS OR COUNSEL WITH ANY INFORMATION THAT THE COMPANY BELIEVES CONSTITUTES MATERIAL NON-PUBLIC INFORMATION, UNLESS PRIOR THERETO SUCH PURCHASER SHALL HAVE EXECUTED A WRITTEN AGREEMENT REGARDING THE CONFIDENTIALITY AND USE OF SUCH INFORMATION.  THE COMPANY UNDERSTANDS AND CONFIRMS THAT EACH PURCHASER SHALL BE RELYING ON THE FOREGOING REPRESENTATIONS IN EFFECTING TRANSACTIONS IN SECURITIES OF THE COMPANY.   4.9                                 USE OF PROCEEDS.  EXCEPT AS SET FORTH ON SCHEDULE 4.9 ATTACHED HERETO, THE COMPANY SHALL USE THE NET PROCEEDS FROM THE SALE OF THE SECURITIES HEREUNDER FOR WORKING CAPITAL PURPOSES AND NOT FOR THE SATISFACTION OF ANY PORTION OF THE COMPANY’S DEBT (OTHER THAN PAYMENT OF TRADE PAYABLES IN THE ORDINARY COURSE OF THE COMPANY’S BUSINESS AND PRIOR PRACTICES), TO REDEEM ANY COMMON STOCK OR COMMON STOCK EQUIVALENTS OR TO SETTLE ANY OUTSTANDING LITIGATION.   4.10                           REIMBURSEMENT.  IF ANY PURCHASER BECOMES INVOLVED IN ANY CAPACITY IN ANY PROCEEDING BY OR AGAINST ANY PERSON WHO IS A STOCKHOLDER OF THE COMPANY (EXCEPT AS A RESULT OF SALES, PLEDGES, MARGIN SALES AND SIMILAR TRANSACTIONS BY SUCH PURCHASER TO OR WITH ANY CURRENT STOCKHOLDER), SOLELY AS A RESULT OF SUCH PURCHASER’S ACQUISITION OF THE SHARES UNDER THIS AGREEMENT, THE COMPANY WILL REIMBURSE SUCH PURCHASER FOR ITS REASONABLE LEGAL AND OTHER EXPENSES (INCLUDING THE COST OF ANY INVESTIGATION PREPARATION AND TRAVEL IN CONNECTION THEREWITH) INCURRED IN CONNECTION THEREWITH, AS SUCH EXPENSES ARE INCURRED.  THE REIMBURSEMENT OBLIGATIONS OF THE COMPANY UNDER THIS PARAGRAPH SHALL BE IN ADDITION TO ANY LIABILITY WHICH THE COMPANY MAY OTHERWISE HAVE, SHALL EXTEND UPON THE SAME TERMS AND CONDITIONS TO ANY AFFILIATES OF THE PURCHASERS WHO ARE ACTUALLY NAMED IN SUCH ACTION, PROCEEDING OR INVESTIGATION, AND PARTNERS, DIRECTORS, AGENTS, EMPLOYEES AND CONTROLLING PERSONS (IF ANY), AS THE CASE MAY BE, OF THE PURCHASERS AND ANY SUCH AFFILIATE, AND SHALL BE BINDING UPON AND INURE TO THE BENEFIT OF ANY   22 --------------------------------------------------------------------------------   SUCCESSORS, ASSIGNS, HEIRS AND PERSONAL REPRESENTATIVES OF THE COMPANY, THE PURCHASERS AND ANY SUCH AFFILIATE AND ANY SUCH PERSON.  THE COMPANY ALSO AGREES THAT NEITHER THE PURCHASERS NOR ANY SUCH AFFILIATES, PARTNERS, DIRECTORS, AGENTS, EMPLOYEES OR CONTROLLING PERSONS SHALL HAVE ANY LIABILITY TO THE COMPANY OR ANY PERSON ASSERTING CLAIMS ON BEHALF OF OR IN RIGHT OF THE COMPANY SOLELY AS A RESULT OF ACQUIRING THE SHARES UNDER THIS AGREEMENT.   4.11                           INDEMNIFICATION OF PURCHASERS.   SUBJECT TO THE PROVISIONS OF THIS SECTION 4.11, THE COMPANY WILL INDEMNIFY AND HOLD EACH PURCHASER AND ITS DIRECTORS, OFFICERS, SHAREHOLDERS, MEMBERS, PARTNERS, EMPLOYEES AND AGENTS (AND ANY OTHER PERSONS WITH A FUNCTIONALLY EQUIVALENT ROLE OF A PERSON HOLDING SUCH TITLES NOTWITHSTANDING A LACK OF SUCH TITLE OR ANY OTHER TITLE), EACH PERSON WHO CONTROLS SUCH PURCHASER (WITHIN THE MEANING OF SECTION 15 OF THE SECURITIES ACT AND SECTION 20 OF THE EXCHANGE ACT), AND THE DIRECTORS, OFFICERS, AGENTS, MEMBERS, PARTNERS OR EMPLOYEES (AND ANY OTHER PERSONS WITH A FUNCTIONALLY EQUIVALENT ROLE OF A PERSON HOLDING SUCH TITLES NOTWITHSTANDING A LACK OF SUCH TITLE OR ANY OTHER TITLE) OF SUCH CONTROLLING PERSON (EACH, A “PURCHASER PARTY”) HARMLESS FROM ANY AND ALL LOSSES, LIABILITIES, OBLIGATIONS, CLAIMS, CONTINGENCIES, DAMAGES, COSTS AND EXPENSES, INCLUDING ALL JUDGMENTS, AMOUNTS PAID IN SETTLEMENTS, COURT COSTS AND REASONABLE ATTORNEYS’ FEES AND COSTS OF INVESTIGATION THAT ANY SUCH PURCHASER PARTY MAY SUFFER OR INCUR AS A RESULT OF OR RELATING TO (A) ANY BREACH OF ANY OF THE REPRESENTATIONS, WARRANTIES, COVENANTS OR AGREEMENTS MADE BY THE COMPANY IN THIS AGREEMENT OR IN THE OTHER TRANSACTION DOCUMENTS OR (B) ANY ACTION INSTITUTED AGAINST A PURCHASER, OR ANY OF THEM OR THEIR RESPECTIVE AFFILIATES, BY ANY STOCKHOLDER OF THE COMPANY WHO IS NOT AN AFFILIATE OF SUCH PURCHASER, WITH RESPECT TO ANY OF THE TRANSACTIONS CONTEMPLATED BY THE TRANSACTION DOCUMENTS (UNLESS SUCH ACTION IS BASED UPON A BREACH OF SUCH PURCHASER’S REPRESENTATIONS, WARRANTIES OR COVENANTS UNDER THE TRANSACTION DOCUMENTS OR ANY AGREEMENTS OR UNDERSTANDINGS SUCH PURCHASER MAY HAVE WITH ANY SUCH STOCKHOLDER OR ANY VIOLATIONS BY THE PURCHASER OF STATE OR FEDERAL SECURITIES LAWS OR ANY CONDUCT BY SUCH PURCHASER WHICH CONSTITUTES FRAUD, GROSS NEGLIGENCE, WILLFUL MISCONDUCT OR MALFEASANCE).  IF ANY ACTION SHALL BE BROUGHT AGAINST ANY PURCHASER PARTY IN RESPECT OF WHICH INDEMNITY MAY BE SOUGHT PURSUANT TO THIS AGREEMENT, SUCH PURCHASER PARTY SHALL PROMPTLY NOTIFY THE COMPANY IN WRITING, AND THE COMPANY SHALL HAVE THE RIGHT TO ASSUME THE DEFENSE THEREOF WITH COUNSEL OF ITS OWN CHOOSING.  ANY PURCHASER PARTY SHALL HAVE THE RIGHT TO EMPLOY SEPARATE COUNSEL IN ANY SUCH ACTION AND PARTICIPATE IN THE DEFENSE THEREOF, BUT THE FEES AND EXPENSES OF SUCH COUNSEL SHALL BE AT THE EXPENSE OF SUCH PURCHASER PARTY EXCEPT TO THE EXTENT THAT (I) THE EMPLOYMENT THEREOF HAS BEEN SPECIFICALLY AUTHORIZED BY THE COMPANY IN WRITING, (II) THE COMPANY HAS FAILED AFTER A REASONABLE PERIOD OF TIME TO ASSUME SUCH DEFENSE AND TO EMPLOY COUNSEL OR (III) IN SUCH ACTION THERE IS, IN THE REASONABLE OPINION OF SUCH SEPARATE COUNSEL, A MATERIAL CONFLICT ON ANY MATERIAL ISSUE BETWEEN THE POSITION OF THE COMPANY AND THE POSITION OF SUCH PURCHASER PARTY.  THE COMPANY WILL NOT BE LIABLE TO ANY PURCHASER PARTY UNDER THIS AGREEMENT (I) FOR ANY SETTLEMENT BY A PURCHASER PARTY EFFECTED WITHOUT THE COMPANY’S PRIOR WRITTEN CONSENT, WHICH SHALL NOT BE UNREASONABLY WITHHELD OR DELAYED; OR (II) TO THE EXTENT, BUT ONLY TO THE EXTENT THAT A LOSS, CLAIM, DAMAGE OR LIABILITY IS ATTRIBUTABLE TO ANY PURCHASER PARTY’S BREACH OF ANY OF THE REPRESENTATIONS, WARRANTIES, COVENANTS OR AGREEMENTS MADE BY THE PURCHASERS IN THIS AGREEMENT OR IN THE OTHER TRANSACTION DOCUMENTS.   4.12                           RESERVATION AND LISTING OF SHARES.   (A)                                  THE COMPANY HEREBY AGREES TO USE BEST EFFORTS TO MAINTAIN THE LISTING OF   23 --------------------------------------------------------------------------------   THE COMMON STOCK ON A TRADING MARKET, AND AS SOON AS REASONABLY PRACTICABLE FOLLOWING THE CLOSING (BUT NOT LATER THAN THE EARLIER OF THE EFFECTIVE DATE AND THE FIRST ANNIVERSARY OF THE CLOSING DATE) TO LIST ALL OF THE SHARES ON SUCH TRADING MARKET. THE COMPANY FURTHER AGREES, IF THE COMPANY APPLIES TO HAVE THE COMMON STOCK TRADED ON ANY OTHER TRADING MARKET, IT WILL INCLUDE IN SUCH APPLICATION ALL OF THE SHARES, AND WILL TAKE SUCH OTHER ACTION AS IS NECESSARY TO CAUSE ALL OF THE SHARES TO BE LISTED ON SUCH OTHER TRADING MARKET AS PROMPTLY AS POSSIBLE.  THE COMPANY WILL TAKE ALL ACTION REASONABLY NECESSARY TO CONTINUE THE LISTING AND TRADING OF ITS COMMON STOCK ON A TRADING MARKET AND WILL COMPLY IN ALL RESPECTS WITH THE COMPANY’S REPORTING, FILING AND OTHER OBLIGATIONS UNDER THE BYLAWS OR RULES OF THE TRADING MARKET.   4.13                           EQUAL TREATMENT OF PURCHASERS.  NO CONSIDERATION SHALL BE OFFERED OR PAID TO ANY PERSON TO AMEND OR CONSENT TO A WAIVER OR MODIFICATION OF ANY PROVISION OF ANY OF THE TRANSACTION DOCUMENTS UNLESS THE SAME CONSIDERATION IS ALSO OFFERED TO ALL OF THE PARTIES TO THE TRANSACTION DOCUMENTS. FURTHER, THE COMPANY SHALL NOT MAKE ANY PAYMENT OF PRINCIPAL OR INTEREST ON THE DEBENTURES IN AMOUNTS WHICH ARE DISPROPORTIONATE TO THE RESPECTIVE PRINCIPAL AMOUNTS OUTSTANDING ON THE DEBENTURES AT ANY APPLICABLE TIME.  FOR CLARIFICATION PURPOSES, THIS PROVISION CONSTITUTES A SEPARATE RIGHT GRANTED TO EACH PURCHASER BY THE COMPANY AND NEGOTIATED SEPARATELY BY EACH PURCHASER, AND IS INTENDED FOR THE COMPANY TO TREAT THE PURCHASERS AS A CLASS AND SHALL NOT IN ANY WAY BE CONSTRUED AS THE PURCHASERS ACTING IN CONCERT OR AS A GROUP WITH RESPECT TO THE PURCHASE, DISPOSITION OR VOTING OF SHARES OR OTHERWISE.   4.14                           SHORT SALES AND CONFIDENTIALITY AFTER THE DATE HEREOF. EACH PURCHASER SEVERALLY AND NOT JOINTLY WITH THE OTHER PURCHASERS COVENANTS THAT NEITHER IT NOR ANY AFFILIATES ACTING ON ITS BEHALF OR PURSUANT TO ANY UNDERSTANDING WITH IT WILL EXECUTE ANY SHORT SALES DURING THE PERIOD AFTER THE DISCUSSION TIME AND ENDING AT THE TIME THAT THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT ARE FIRST PUBLICLY ANNOUNCED AS DESCRIBED IN SECTION 4.6.  EACH PURCHASER, SEVERALLY AND NOT JOINTLY WITH THE OTHER PURCHASERS, COVENANTS THAT UNTIL SUCH TIME AS THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT ARE PUBLICLY DISCLOSED BY THE COMPANY AS DESCRIBED IN SECTION 4.6, SUCH PURCHASER WILL MAINTAIN, THE CONFIDENTIALITY OF ALL DISCLOSURES MADE TO IT IN CONNECTION WITH THIS TRANSACTION (INCLUDING THE EXISTENCE AND TERMS OF THIS TRANSACTION).  EACH PURCHASER UNDERSTANDS AND ACKNOWLEDGES, SEVERALLY AND NOT JOINTLY WITH ANY OTHER PURCHASER, THAT THE COMMISSION CURRENTLY TAKES THE POSITION THAT COVERAGE OF SHORT SALES OF SHARES OF THE COMMON STOCK “AGAINST THE BOX” PRIOR TO THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT WITH THE SHARES IS A VIOLATION OF SECTION 5 OF THE SECURITIES ACT, AS SET FORTH IN ITEM 65, SECTION 5 UNDER SECTION A, OF THE MANUAL OF PUBLICLY AVAILABLE TELEPHONE INTERPRETATIONS, DATED JULY 1997, COMPILED BY THE OFFICE OF CHIEF COUNSEL, DIVISION OF CORPORATION FINANCE.  NOTWITHSTANDING THE FOREGOING, NO PURCHASER MAKES ANY REPRESENTATION, WARRANTY OR COVENANT HEREBY THAT IT WILL NOT ENGAGE IN SHORT SALES IN THE SECURITIES OF THE COMPANY AFTER THE TIME THAT THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT ARE FIRST PUBLICLY ANNOUNCED AS DESCRIBED IN SECTION 4.6.  NOTWITHSTANDING THE FOREGOING, IN THE CASE OF A PURCHASER THAT IS A MULTI-MANAGED INVESTMENT VEHICLE WHEREBY SEPARATE PORTFOLIO MANAGERS MANAGE SEPARATE PORTIONS OF SUCH PURCHASER’S ASSETS AND THE PORTFOLIO MANAGERS HAVE NO DIRECT KNOWLEDGE OF THE INVESTMENT DECISIONS MADE BY THE PORTFOLIO MANAGERS MANAGING OTHER PORTIONS OF SUCH PURCHASER’S ASSETS, THE COVENANT SET FORTH ABOVE SHALL ONLY APPLY WITH RESPECT TO THE PORTION OF ASSETS MANAGED BY THE PORTFOLIO MANAGER THAT MADE THE INVESTMENT DECISION TO PURCHASE THE SHARES COVERED BY THIS AGREEMENT.   24 --------------------------------------------------------------------------------   4.15                           DELIVERY OF SECURITIES AFTER CLOSING.  THE COMPANY SHALL DELIVER, OR CAUSE TO BE DELIVERED, THE RESPECTIVE SHARES PURCHASED BY EACH PURCHASER TO SUCH PURCHASER WITHIN 3 TRADING DAYS OF THE CLOSING DATE.   4.16                           FORM D; BLUE SKY FILINGS.         THE COMPANY AGREES TO TIMELY FILE A FORM D WITH RESPECT TO THE SECURITIES AS REQUIRED UNDER REGULATION D AND TO PROVIDE A COPY THEREOF, PROMPTLY UPON REQUEST OF ANY PURCHASER. THE COMPANY SHALL, ON OR BEFORE OR AFTER THE CLOSING DATE, TAKE SUCH ACTION AS THE COMPANY SHALL REASONABLY DETERMINE IS NECESSARY IN ORDER TO OBTAIN AN EXEMPTION FOR, OR TO QUALIFY THE SECURITIES FOR, SALE TO THE PURCHASERS AT THE CLOSING UNDER APPLICABLE SECURITIES OR “BLUE SKY” LAWS OF THE STATES OF THE UNITED STATES, AND SHALL PROVIDE EVIDENCE OF SUCH ACTIONS PROMPTLY UPON REQUEST OF ANY PURCHASER.   ARTICLE V. MISCELLANEOUS   5.1                                 TERMINATION.  THIS AGREEMENT MAY BE TERMINATED BY ANY PURCHASER, AS TO SUCH PURCHASER’S OBLIGATIONS HEREUNDER ONLY AND WITHOUT ANY EFFECT WHATSOEVER ON THE OBLIGATIONS BETWEEN THE COMPANY AND THE OTHER PURCHASERS, BY WRITTEN NOTICE TO THE OTHER PARTIES, IF THE CLOSING HAS NOT BEEN CONSUMMATED ON OR BEFORE DECEMBER 31, 2005; PROVIDED, HOWEVER, THAT NO SUCH TERMINATION WILL AFFECT THE RIGHT OF ANY PARTY TO SUE FOR ANY BREACH BY THE OTHER PARTY (OR PARTIES).   5.2                                 FEES AND EXPENSES.  EXCEPT AS EXPRESSLY SET FORTH IN THE TRANSACTION DOCUMENTS TO THE CONTRARY, EACH PARTY SHALL PAY THE FEES AND EXPENSES OF ITS ADVISERS, COUNSEL, ACCOUNTANTS AND OTHER EXPERTS, IF ANY, AND ALL OTHER EXPENSES INCURRED BY SUCH PARTY INCIDENT TO THE NEGOTIATION, PREPARATION, EXECUTION, DELIVERY AND PERFORMANCE OF THIS AGREEMENT.  THE COMPANY SHALL PAY ALL TRANSFER AGENT FEES, STAMP TAXES AND OTHER TAXES AND DUTIES LEVIED IN CONNECTION WITH THE DELIVERY OF ANY SHARES.   5.3                                 ENTIRE AGREEMENT.  THE TRANSACTION DOCUMENTS, TOGETHER WITH THE EXHIBITS AND SCHEDULES THERETO, CONTAIN THE ENTIRE UNDERSTANDING OF THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ALL PRIOR AGREEMENTS AND UNDERSTANDINGS, ORAL OR WRITTEN, WITH RESPECT TO SUCH MATTERS, WHICH THE PARTIES ACKNOWLEDGE HAVE BEEN MERGED INTO SUCH DOCUMENTS, EXHIBITS AND SCHEDULES.   5.4                                 NOTICES.  ANY AND ALL NOTICES OR OTHER COMMUNICATIONS OR DELIVERIES REQUIRED OR PERMITTED TO BE PROVIDED HEREUNDER SHALL BE IN WRITING AND SHALL BE DEEMED GIVEN AND EFFECTIVE ON THE EARLIEST OF (A) THE DATE OF TRANSMISSION, IF SUCH NOTICE OR COMMUNICATION IS DELIVERED VIA FACSIMILE AT THE FACSIMILE NUMBER SET FORTH ON THE SIGNATURE PAGES ATTACHED HERETO PRIOR TO 5:30 P.M. (NEW YORK CITY TIME) ON A TRADING DAY, (B) THE NEXT TRADING DAY AFTER THE DATE OF TRANSMISSION, IF SUCH NOTICE OR COMMUNICATION IS DELIVERED VIA FACSIMILE AT THE FACSIMILE NUMBER SET FORTH ON THE SIGNATURE PAGES ATTACHED HERETO ON A DAY THAT IS NOT A TRADING DAY OR LATER THAN 5:30 P.M. (NEW YORK CITY TIME) ON ANY TRADING DAY, (C) THE 2ND TRADING DAY FOLLOWING THE DATE OF MAILING, IF SENT BY U.S. NATIONALLY RECOGNIZED OVERNIGHT COURIER SERVICE, OR (D) UPON ACTUAL   25 --------------------------------------------------------------------------------   RECEIPT BY THE PARTY TO WHOM SUCH NOTICE IS REQUIRED TO BE GIVEN.  THE ADDRESS FOR SUCH NOTICES AND COMMUNICATIONS SHALL BE AS SET FORTH ON THE SIGNATURE PAGES ATTACHED HERETO.   5.5                                 AMENDMENTS; WAIVERS.  NO PROVISION OF THIS AGREEMENT MAY BE WAIVED, MODIFIED, SUPPLEMENTED OR AMENDED EXCEPT IN A WRITTEN INSTRUMENT SIGNED, IN THE CASE OF AN AMENDMENT, BY THE COMPANY AND EACH PURCHASER OR, IN THE CASE OF A WAIVER, BY THE PARTY AGAINST WHOM ENFORCEMENT OF ANY SUCH WAIVER IS SOUGHT.  NO WAIVER OF ANY DEFAULT WITH RESPECT TO ANY PROVISION, CONDITION OR REQUIREMENT OF THIS AGREEMENT SHALL BE DEEMED TO BE A CONTINUING WAIVER IN THE FUTURE OR A WAIVER OF ANY SUBSEQUENT DEFAULT OR A WAIVER OF ANY OTHER PROVISION, CONDITION OR REQUIREMENT HEREOF, NOR SHALL ANY DELAY OR OMISSION OF EITHER PARTY TO EXERCISE ANY RIGHT HEREUNDER IN ANY MANNER IMPAIR THE EXERCISE OF ANY SUCH RIGHT.   5.6                                 HEADINGS.  THE HEADINGS HEREIN ARE FOR CONVENIENCE ONLY, DO NOT CONSTITUTE A PART OF THIS AGREEMENT AND SHALL NOT BE DEEMED TO LIMIT OR AFFECT ANY OF THE PROVISIONS HEREOF.  THE LANGUAGE USED IN THIS AGREEMENT WILL BE DEEMED TO BE THE LANGUAGE CHOSEN BY THE PARTIES TO EXPRESS THEIR MUTUAL INTENT, AND NO RULES OF STRICT CONSTRUCTION WILL BE APPLIED AGAINST ANY PARTY.   5.7                                 SUCCESSORS AND ASSIGNS.  THIS AGREEMENT SHALL BE BINDING UPON AND INURE TO THE BENEFIT OF THE PARTIES AND THEIR SUCCESSORS AND PERMITTED ASSIGNS.  THE COMPANY MAY NOT ASSIGN THIS AGREEMENT OR ANY RIGHTS OR OBLIGATIONS HEREUNDER WITHOUT THE PRIOR WRITTEN CONSENT OF EACH PURCHASER.  ANY PURCHASER MAY ASSIGN ANY OR ALL OF ITS RIGHTS UNDER THIS AGREEMENT TO ANY PERSON TO WHOM SUCH PURCHASER ASSIGNS OR TRANSFERS ANY SECURITIES, PROVIDED SUCH TRANSFEREE AGREES IN WRITING TO BE BOUND, WITH RESPECT TO THE TRANSFERRED SECURITIES, BY THE PROVISIONS HEREOF THAT APPLY TO THE “PURCHASERS”.   5.8                                 NO THIRD-PARTY BENEFICIARIES.  THIS AGREEMENT IS INTENDED FOR THE BENEFIT OF THE PARTIES HERETO AND THEIR RESPECTIVE SUCCESSORS AND PERMITTED ASSIGNS AND IS NOT FOR THE BENEFIT OF, NOR MAY ANY PROVISION HEREOF BE ENFORCED BY, ANY OTHER PERSON, EXCEPT AS OTHERWISE SET FORTH IN SECTION 4.11.   5.9                                 GOVERNING LAW.  ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THE TRANSACTION DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF.  EACH PARTY AGREES THAT ALL LEGAL PROCEEDINGS CONCERNING THE INTERPRETATIONS, ENFORCEMENT AND DEFENSE OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT AND ANY OTHER TRANSACTION DOCUMENTS (WHETHER BROUGHT AGAINST A PARTY HERETO OR ITS RESPECTIVE AFFILIATES, DIRECTORS, OFFICERS, SHAREHOLDERS, EMPLOYEES OR AGENTS) SHALL BE COMMENCED EXCLUSIVELY IN THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK.  EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN (INCLUDING WITH RESPECT TO THE ENFORCEMENT OF ANY OF THE TRANSACTION DOCUMENTS), AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER OR INCONVENIENT VENUE FOR SUCH PROCEEDING.  EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY MAILING   26 --------------------------------------------------------------------------------   A COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF.  NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW.  THE PARTIES HEREBY WAIVE ALL RIGHTS TO A TRIAL BY JURY.  IF EITHER PARTY SHALL COMMENCE AN ACTION OR PROCEEDING TO ENFORCE ANY PROVISIONS OF THE TRANSACTION DOCUMENTS, THEN THE PREVAILING PARTY IN SUCH ACTION OR PROCEEDING SHALL BE REIMBURSED BY THE OTHER PARTY FOR ITS ATTORNEYS’ FEES AND OTHER COSTS AND EXPENSES INCURRED WITH THE INVESTIGATION, PREPARATION AND PROSECUTION OF SUCH ACTION OR PROCEEDING.   5.10                           SURVIVAL.  THE COVENANTS AND OTHER AGREEMENTS CONTAINED HEREIN SHALL SURVIVE THE CLOSING AND THE DELIVERY, EXERCISE AND/OR CONVERSION OF THE SECURITIES, AS APPLICABLE. THE REPRESENTATIONS AND WARRANTIES CONTAINED HEREIN SHALL SURVIVE THE CLOSING AND THE DELIVERY, EXERCISE AND/OR CONVERSION OF THE SECURITIES, AS APPLICABLE UNTIL THE THIRD ANNIVERSARY OF THE CLOSING.   5.11                           EXECUTION.  THIS AGREEMENT MAY BE EXECUTED IN TWO OR MORE COUNTERPARTS, ALL OF WHICH WHEN TAKEN TOGETHER SHALL BE CONSIDERED ONE AND THE SAME AGREEMENT AND SHALL BECOME EFFECTIVE WHEN COUNTERPARTS HAVE BEEN SIGNED BY EACH PARTY AND DELIVERED TO THE OTHER PARTY, IT BEING UNDERSTOOD THAT BOTH PARTIES NEED NOT SIGN THE SAME COUNTERPART.  IN THE EVENT THAT ANY SIGNATURE IS DELIVERED BY FACSIMILE TRANSMISSION, SUCH SIGNATURE SHALL CREATE A VALID AND BINDING OBLIGATION OF THE PARTY EXECUTING (OR ON WHOSE BEHALF SUCH SIGNATURE IS EXECUTED) WITH THE SAME FORCE AND EFFECT AS IF SUCH FACSIMILE SIGNATURE PAGE WERE AN ORIGINAL THEREOF.   5.12                           SEVERABILITY.  IF ANY PROVISION OF THIS AGREEMENT IS HELD TO BE INVALID OR UNENFORCEABLE IN ANY RESPECT, THE VALIDITY AND ENFORCEABILITY OF THE REMAINING TERMS AND PROVISIONS OF THIS AGREEMENT SHALL NOT IN ANY WAY BE AFFECTED OR IMPAIRED THEREBY AND THE PARTIES WILL ATTEMPT TO AGREE UPON A VALID AND ENFORCEABLE PROVISION THAT IS A REASONABLE SUBSTITUTE THEREFOR, AND UPON SO AGREEING, SHALL INCORPORATE SUCH SUBSTITUTE PROVISION IN THIS AGREEMENT.   5.13                           RESCISSION AND WITHDRAWAL RIGHT.  NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN (AND WITHOUT LIMITING ANY SIMILAR PROVISIONS OF) THE TRANSACTION DOCUMENTS, WHENEVER ANY PURCHASER EXERCISES A RIGHT, ELECTION, DEMAND OR OPTION UNDER A TRANSACTION DOCUMENT AND THE COMPANY DOES NOT TIMELY PERFORM ITS RELATED OBLIGATIONS WITHIN THE PERIODS THEREIN PROVIDED, THEN SUCH PURCHASER MAY RESCIND OR WITHDRAW, IN ITS SOLE DISCRETION FROM TIME TO TIME UPON WRITTEN NOTICE TO THE COMPANY, ANY RELEVANT NOTICE, DEMAND OR ELECTION IN WHOLE OR IN PART WITHOUT PREJUDICE TO ITS FUTURE ACTIONS AND RIGHTS.   5.14                           REPLACEMENT OF SHARES.  IF ANY CERTIFICATE OR INSTRUMENT EVIDENCING ANY SHARES IS MUTILATED, LOST, STOLEN OR DESTROYED, THE COMPANY SHALL ISSUE OR CAUSE TO BE ISSUED IN EXCHANGE AND SUBSTITUTION FOR AND UPON CANCELLATION THEREOF, OR IN LIEU OF AND SUBSTITUTION THEREFOR, A NEW CERTIFICATE OR INSTRUMENT, BUT ONLY UPON RECEIPT OF EVIDENCE REASONABLY SATISFACTORY TO THE COMPANY OF SUCH LOSS, THEFT OR DESTRUCTION AND CUSTOMARY AND REASONABLE INDEMNITY, IF REQUESTED.  THE APPLICANTS FOR A NEW CERTIFICATE OR INSTRUMENT UNDER SUCH CIRCUMSTANCES SHALL ALSO PAY ANY REASONABLE THIRD-PARTY COSTS ASSOCIATED WITH THE ISSUANCE OF SUCH REPLACEMENT SHARES.   27 --------------------------------------------------------------------------------   5.15                           REMEDIES.  IN ADDITION TO BEING ENTITLED TO EXERCISE ALL RIGHTS PROVIDED HEREIN OR GRANTED BY LAW, INCLUDING RECOVERY OF DAMAGES, EACH OF THE PURCHASERS AND THE COMPANY WILL BE ENTITLED TO SPECIFIC PERFORMANCE UNDER THE TRANSACTION DOCUMENTS.  THE PARTIES AGREE THAT MONETARY DAMAGES MAY NOT BE ADEQUATE COMPENSATION FOR ANY LOSS INCURRED BY REASON OF ANY BREACH OF OBLIGATIONS DESCRIBED IN THE FOREGOING SENTENCE AND HEREBY AGREES TO WAIVE IN ANY ACTION FOR SPECIFIC PERFORMANCE OF ANY SUCH OBLIGATION THE DEFENSE THAT A REMEDY AT LAW WOULD BE ADEQUATE.   5.16                           PAYMENT SET ASIDE. TO THE EXTENT THAT THE COMPANY MAKES A PAYMENT OR PAYMENTS TO ANY PURCHASER PURSUANT TO ANY TRANSACTION DOCUMENT OR A PURCHASER ENFORCES OR EXERCISES ITS RIGHTS THEREUNDER, AND SUCH PAYMENT OR PAYMENTS OR THE PROCEEDS OF SUCH ENFORCEMENT OR EXERCISE OR ANY PART THEREOF ARE SUBSEQUENTLY INVALIDATED, DECLARED TO BE FRAUDULENT OR PREFERENTIAL, SET ASIDE, RECOVERED FROM, DISGORGED BY OR ARE REQUIRED TO BE REFUNDED, REPAID OR OTHERWISE RESTORED TO THE COMPANY, A TRUSTEE, RECEIVER OR ANY OTHER PERSON UNDER ANY LAW (INCLUDING, WITHOUT LIMITATION, ANY BANKRUPTCY LAW, STATE OR FEDERAL LAW, COMMON LAW OR EQUITABLE CAUSE OF ACTION), THEN TO THE EXTENT OF ANY SUCH RESTORATION THE OBLIGATION OR PART THEREOF ORIGINALLY INTENDED TO BE SATISFIED SHALL BE REVIVED AND CONTINUED IN FULL FORCE AND EFFECT AS IF SUCH PAYMENT HAD NOT BEEN MADE OR SUCH ENFORCEMENT OR SETOFF HAD NOT OCCURRED.   5.17                           INDEPENDENT NATURE OF PURCHASERS’ OBLIGATIONS AND RIGHTS.  THE OBLIGATIONS OF EACH PURCHASER UNDER ANY TRANSACTION DOCUMENT ARE SEVERAL AND NOT JOINT WITH THE OBLIGATIONS OF ANY OTHER PURCHASER, AND NO PURCHASER SHALL BE RESPONSIBLE IN ANY WAY FOR THE PERFORMANCE OF THE OBLIGATIONS OF ANY OTHER PURCHASER UNDER ANY TRANSACTION DOCUMENT.  NOTHING CONTAINED HEREIN OR IN ANY TRANSACTION DOCUMENT, AND NO ACTION TAKEN BY ANY PURCHASER PURSUANT THERETO, SHALL BE DEEMED TO CONSTITUTE THE PURCHASERS AS A PARTNERSHIP, AN ASSOCIATION, A JOINT VENTURE OR ANY OTHER KIND OF ENTITY, OR CREATE A PRESUMPTION THAT THE PURCHASERS ARE IN ANY WAY ACTING IN CONCERT OR AS A GROUP WITH RESPECT TO SUCH OBLIGATIONS OR THE TRANSACTIONS CONTEMPLATED BY THE TRANSACTION DOCUMENTS.  EACH PURCHASER SHALL BE ENTITLED TO INDEPENDENTLY PROTECT AND ENFORCE ITS RIGHTS, INCLUDING WITHOUT LIMITATION THE RIGHTS ARISING OUT OF THIS AGREEMENT OR OUT OF THE OTHER TRANSACTION DOCUMENTS, AND IT SHALL NOT BE NECESSARY FOR ANY OTHER PURCHASER TO BE JOINED AS AN ADDITIONAL PARTY IN ANY PROCEEDING FOR SUCH PURPOSE.  EACH PURCHASER HAS BEEN REPRESENTED BY ITS OWN SEPARATE LEGAL COUNSEL IN THEIR REVIEW AND NEGOTIATION OF THE TRANSACTION DOCUMENTS.  FOR REASONS OF ADMINISTRATIVE CONVENIENCE ONLY, PURCHASERS AND THEIR RESPECTIVE COUNSEL HAVE CHOSEN TO COMMUNICATE WITH THE COMPANY THROUGH FW.  FW DOES NOT REPRESENT ALL OF THE PURCHASERS BUT ONLY DAWSON JAMES SECURITIES, THE PLACEMENT AGENT FOR THE TRANSACTION.  THE COMPANY HAS ELECTED TO PROVIDE ALL PURCHASERS WITH THE SAME TERMS AND TRANSACTION DOCUMENTS FOR THE CONVENIENCE OF THE COMPANY AND NOT BECAUSE IT WAS REQUIRED OR REQUESTED TO DO SO BY THE PURCHASERS.   5.18                           LIQUIDATED DAMAGES.  THE COMPANY’S OBLIGATIONS TO PAY ANY PARTIAL LIQUIDATED DAMAGES OR OTHER AMOUNTS OWING UNDER THE TRANSACTION DOCUMENTS IS A CONTINUING OBLIGATION OF THE COMPANY AND SHALL NOT TERMINATE UNTIL ALL UNPAID PARTIAL LIQUIDATED DAMAGES AND OTHER AMOUNTS HAVE BEEN PAID NOTWITHSTANDING THE FACT THAT THE INSTRUMENT OR SECURITY PURSUANT TO WHICH SUCH PARTIAL LIQUIDATED DAMAGES OR OTHER AMOUNTS ARE DUE AND PAYABLE SHALL HAVE BEEN CANCELED.   28 --------------------------------------------------------------------------------   5.19                           CONSTRUCTION. THE PARTIES AGREE THAT EACH OF THEM AND/OR THEIR RESPECTIVE COUNSEL HAS REVIEWED AND HAD AN OPPORTUNITY TO REVISE THE TRANSACTION DOCUMENTS AND, THEREFORE, THE NORMAL RULE OF CONSTRUCTION TO THE EFFECT THAT ANY AMBIGUITIES ARE TO BE RESOLVED AGAINST THE DRAFTING PARTY SHALL NOT BE EMPLOYED IN THE INTERPRETATION OF THE TRANSACTION DOCUMENTS OR ANY AMENDMENTS HERETO.   (SIGNATURE PAGES FOLLOW)   29 --------------------------------------------------------------------------------   IN WITNESS WHEREOF, THE PARTIES HERETO HAVE CAUSED THIS SECURITIES PURCHASE AGREEMENT TO BE DULY EXECUTED BY THEIR RESPECTIVE AUTHORIZED SIGNATORIES AS OF THE DATE FIRST INDICATED ABOVE.   CRDENTIA CORP. Address for Notice:         By: /s/ James D. Durham   14114 Dallas Pkwy, Suite 600   Name: James D. Durham Dallas, TX 75254   Title: Chairman and Chief Executive Officer         With a copy to (which shall not constitute notice):       Morrison & Foerster LLP   12531 High Bluff Drive   San Diego, CA 92130   Fax: (858) 720-5125   Attn: Steven G. Rowles, Esq.       [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK SIGNATURE PAGE FOR PURCHASER FOLLOWS]   30 --------------------------------------------------------------------------------   [PURCHASER SIGNATURE PAGES TO CRDE SECURITIES PURCHASE AGREEMENT]   IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.     Name of Purchaser: MedCap Partners LP Signature of Authorized Signatory of Purchaser: /s/ C. Fred Toney   Name of Authorized Signatory: C. Fred Toney Title of Authorized Signatory: Managing Member of MedCap Management & Research LLC, the general partner of MedCap Partners LP   Email Address of Purchaser:   Address for Notice of Purchaser:       Address for Delivery of Securities for Purchaser (if not same as above):       Subscription Amount: EIN Number:  [PROVIDE THIS UNDER SEPARATE COVER]   [SIGNATURE PAGES CONTINUE]   31 --------------------------------------------------------------------------------

Exhibit 10.1 September 7, 2006 Kathryn Olson LeapFrog Enterprises, Inc. 6401 Hollis Street, Suite 100 Emeryville, CA 94608 Dear Kathryn: This letter sets forth the terms and conditions of the separation agreement (the “Agreement”) LeapFrog Enterprises, Inc. (“LeapFrog” or the “Company”) is offering to you. 1. Separation From Employment Service. (a) Separation Date. You will resign as the Company’s Chief Marketing Officer and as an employee of the Company effective as of September 7, 2006 (the “Separation Date”). Except as expressly provided herein, you will not hold any employment or other positions with the Company after the Separation Date. (b) Final Pay. On the Separation Date, the Company will pay you all remaining earned but unpaid salary, and all accrued but unused vacation earned through the Separation Date, less applicable deductions and withholdings. You are entitled to this payment regardless of whether or not you sign this Agreement. (c) Expense Reimbursements. Within thirty (30) days after the Separation Date, you will submit your final documented expense reimbursement statement reflecting all business expenses you incurred through the Separation Date, if any, for which you seek reimbursement. The Company will reimburse you for these expenses pursuant to its regular business practices and procedures. (d) Health Insurance. To the extent provided by the federal COBRA law or, if applicable, state insurance laws, and by the Company’s current group health insurance policies, you will be eligible to continue your group health insurance benefits after the Separation Date at your own expense. Later, you may be able to convert to an individual policy through the provider of the Company’s health insurance, if you wish. You will be provided with a separate notice describing your rights and obligations under COBRA on or after the Separation Date. 2. Severance Benefits. In exchange for entering into and abiding by the terms of this Agreement, the Company will provide you with the severance benefits (the “Severance Benefits”) described below. (a) Salary Continuation Benefits. The Company shall make continuing base salary payments to you (at the base salary rate in effect as of the Separation Date, i.e., $24,666.67 per month) for twelve (12) months (the “Salary Continuation Payments”). The Salary -------------------------------------------------------------------------------- Continuation Payments shall be paid, subject to applicable withholdings and deductions, on the Company’s customary payroll pay dates starting on the first payroll date after the Effective Date (as defined herein) of this Agreement. (b) COBRA Reimbursement. Provided you timely elect to continue your health insurance coverage after the Separation Date pursuant to the federal COBRA law or applicable state law, and the terms and conditions of the applicable group health insurance plans, the Company will reimburse you for all premiums necessary to maintain your health insurance coverage as of the Separation Date (for yourself, spouse and any covered dependents) in effect through the twelve (12) month anniversary of the Separation Date or until such earlier date as you become eligible for group health insurance through a subsequent employer (the “COBRA Reimbursement”). You agree to immediately notify the Company in writing as soon as you become eligible for health insurance coverage through a subsequent employer. The monthly COBRA Reimbursement amount will be paid simultaneously with the Salary Continuation Payments. (c) Reimbursement for Outplacement Services. For the six (6) month period after the Separation Date, the Company will pay for outplacement services provided to you by a firm reasonably approved by the Company, up to a maximum amount of $10,000, with such amount to be paid to you in the form of reimbursement after presentation by you to the Company of an invoice for bona fide outplacement services rendered to you. If you choose not to use such outplacement services, no compensation will be paid to you in lieu thereof. (d) Accelerated Vesting of Restricted Stock. The installment of 7,500 shares of the Company’s Restricted Stock (representing 30% of the 25,000-share award granted to you on November 10, 2004), that would otherwise vest on November 10, 2006, will vest on an accelerated basis on the Effective Date, notwithstanding anything to the contrary in your restricted stock award. The remaining shares of the November 10, 2004 restricted stock award, as well as any other equity awards you may hold, will be governed by their terms and the terms of any applicable plan and are not modified in any way by this Agreement. (e) No Other Severance Benefits. The benefits provided to you under this Agreement shall entirely supersede and replace any and all severance benefits available to you under any applicable employment agreement, any other agreement between you and the Company, or pursuant to any other Company plan, policy or practice. 3. Other Compensation Or Benefits. You acknowledge that, except as expressly provided in this Agreement, you will not receive any additional compensation, bonuses, severance or other benefits from the Company after the Separation Date. 4. Return Of Company Property. (a) General Obligations. On the Separation Date and excluding only the materials described in subsection 4(b) below, you agree to immediately return to the Company all Company documents (and all copies thereof) and other Company property in your possession or control, including, but not limited to, Company files, notes, correspondence, memoranda, notebooks, drawings, records, reports, lists, compilations of data, proposals, agreements, drafts,   2 -------------------------------------------------------------------------------- minutes, studies, plans, forecasts, purchase orders, financial and operational information, product and training information, research and development information, customer information and contact lists, sales and marketing information, personnel and compensation information, vendor information, promotional literature and instructions, product specifications and manufacturing information, computer-recorded information, electronic information (including e-mail and correspondence), other tangible property and equipment (including, but not limited to, computer equipment, facsimile machines, and cellular telephones), credit cards, entry cards, identification badges and keys; and any materials of any kind that contain or embody any proprietary or confidential information of the Company (and all reproductions thereof in whole or in part). You agree that you will make a diligent search to locate any such documents, property and information. In addition, if you have used any personally owned computer, server, or e-mail system to receive, store, review, prepare or transmit any Company confidential or proprietary data, materials or information, you agree to immediately provide the Company with a computer-useable copy of all such information and then permanently delete and expunge such Company confidential or proprietary information from those systems; and you agree to provide the Company access to your system as requested to verify that the necessary copying and/or deletion is done. The Company will make one of its IT specialists available to work with you directly to ensure your compliance with the foregoing duplication and expungement processes. Your timely return of all such Company documents and other property is a precondition to your receipt of the Severance Benefits under this Agreement. (b) Retained Materials. Notwithstanding the foregoing, after the Separation Date, you shall be entitled to retain a copy of: (i) all documents which you executed in connection with your employment with the Company, including but not limited to the any applicable employment agreement and Employee Proprietary Information and Inventions Agreement; (ii) all wage statements and other payroll records issued to you by the Company and well as documents issued to you with regard to your employee benefits with the Company; and (iii) all Company documents and information which the Company issued to you in your capacity as a Company option holder and/or shareholder and which was otherwise made available or issued to other Company option holders and/or stockholders generally. 5. Proprietary Information Obligations. You hereby acknowledge and agree to abide by all of your continuing obligations under your Employee Proprietary Information and Inventions Agreement (the “Proprietary Information Agreement”), a copy of which is attached as Exhibit A. 6. Confidentiality. The provisions of this Agreement will be held in strictest confidence by you and the Company and will not be publicized or disclosed in any manner whatsoever; provided, however, that: (a) you may disclose this Agreement in confidence to your immediate family; (b) the parties may disclose this Agreement in confidence to their respective attorneys, accountants, auditors, tax preparers, and financial advisors; (c) the Company may disclose this Agreement as reasonably necessary or advisable to fulfill standard or legally required reporting or disclosure requirements or to fulfill fiduciary duties; and (d) the parties may disclose this Agreement insofar as such disclosure is necessary to enforce its terms or as otherwise required by law. In particular, and without limitation, you agree not to disclose the terms of this Agreement to any current or former Company employee, consultant or independent contractor.   3 -------------------------------------------------------------------------------- 7. Nondisparagement. You and the Company (through its officers and directors) each agree not to disparage the other in any manner likely to be harmful to the other’s business, business reputation, or personal reputation; provided, however, that both you and the Company may respond accurately and fully to any request for information to the extent required by legal process. 8. No Voluntary Adverse Action. You agree that you will not voluntarily (except in response to legal compulsion) assist any person in bringing or pursuing any proposed or pending litigation, arbitration, administrative claim or other formal proceeding against the Company, its parent or subsidiary entities, affiliates, officers, directors, employees or agents. 9. Cooperation. You agree to cooperate fully with the Company in connection with its actual or contemplated defense, prosecution, or investigation of any claims or demands by or against third parties, or other matters arising from events, acts, or failures to act that occurred during the period of your employment by the Company. Such cooperation includes, without limitation, making yourself available to the Company upon reasonable notice, without subpoena, to provide truthful and accurate information in witness interviews and deposition and trial testimony. The Company will reimburse you for reasonable out-of-pocket expenses you incur in connection with any such cooperation (excluding forgone wages, salary, or other compensation) and will make reasonable efforts to accommodate your scheduling needs. In addition, you agree to execute all documents (if any) necessary to carry out the terms of this Agreement. 10. No Admissions. Nothing contained in this Agreement shall be construed as an admission by you or the Company of any liability, obligation, wrongdoing or violation of law. 11. Release of Claims. In exchange for the consideration under this Agreement to which you would not otherwise be entitled, including but not limited to the Severance Benefits, you hereby generally and completely release the Company and its parent or subsidiary entities, successors, predecessors and affiliates, and its and their directors, officers, employees, shareholders, agents, attorneys, insurers, affiliates and assigns, from any and all claims, liabilities and obligations, both known and unknown, that arise from or are in any way related to events, acts, conduct, or omissions occurring at any time prior to and including the date you sign this Agreement. This general release includes, but is not limited to: (a) all claims arising out of or in any way related to your employment with the Company or the termination of that employment; (b) all claims related to your compensation or benefits from the Company, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance payments, fringe benefits, stock, stock options, or any other ownership or equity interests in the Company; (c) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (d) all tort claims, including but not limited to claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (e) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990 (as amended), the federal Age Discrimination in Employment Act of 1967 (as amended) (the “ADEA”), and the California Fair Employment and Housing Act (as amended). You represent that you have no lawsuits, claims or actions pending in your name, or on behalf of any other person or entity, against the Company or any other person or entity subject to the release granted in this paragraph. Notwithstanding   4 -------------------------------------------------------------------------------- anything in this paragraph, you are not hereby releasing the Company from any obligation it may otherwise have to indemnify you for your acts within the course and scope of your employment with the Company, nor from any obligations undertaken by the Company in this Agreement. 12. ADEA Waiver. You acknowledge that you are knowingly and voluntarily waiving and releasing any rights you have under the ADEA, and that the consideration given for the waiver and releases you have given in this Agreement is in addition to anything of value to which you were already entitled. You further acknowledge that you have been advised, as required by the ADEA, that: (a) your waiver and release does not apply to any rights or claims that arise after the date you sign this Agreement; (b) you should consult with an attorney prior to signing this Agreement (although you may choose voluntarily not to do so); (c) you have twenty-one (21) days to consider this Agreement (although you may choose voluntarily to sign it sooner); (d) you have seven (7) days following the date you sign this Agreement to revoke this Agreement (in a written revocation sent to the Company’s General Counsel); and (e) this Agreement will not be effective until the date upon which the revocation period has expired, which will be the eighth day after you sign this Agreement (the “Effective Date”). 13. Section 1542 Waiver. In giving the releases set forth in this Agreement, which include claims which may be unknown to you at present, you acknowledge that you have read and understand Section 1542 of the California Civil Code which reads as follows: “A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.” You hereby expressly waive and relinquish all rights and benefits under that section and any law or legal principle of similar effect in any jurisdiction with respect to the releases granted herein, including but not limited to the release of unknown and unsuspected claims granted in this Agreement. 14. Voluntary Agreement. By signing this Agreement, you acknowledge that you have carefully read and understand this Agreement; you understand that this Agreement is legally binding and by signing it you give up certain rights. 15. Dispute Resolution. To aid in the rapid and economical resolution of any disputes which may arise under this Agreement, you and the Company agree that any and all claims, disputes or controversies of any nature whatsoever arising from or regarding the interpretation, performance, negotiation, execution, enforcement or breach of this Agreement shall be resolved by confidential, final and binding arbitration conducted before a single arbitrator with Judicial Arbitration and Mediation Services, Inc. (“JAMS”) in San Francisco, California, in accordance with JAMS’ then-applicable arbitration rules. The parties acknowledge that by agreeing to this arbitration procedure, they waive the right to resolve any such dispute through a trial by jury, judge or administrative proceeding. You will have the right to be represented by legal counsel at any arbitration proceeding. The arbitrator shall: (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be available under applicable law in a court proceeding; and (b) issue a written statement signed by the arbitrator regarding the disposition of each claim and the relief, if any, awarded as to each claim, the reasons for the award, and the arbitrator’s essential findings and conclusions on which the award is based. The Company shall bear JAMS’ arbitration fees and administrative costs. Nothing in this Agreement shall prevent either you or the Company from   5 -------------------------------------------------------------------------------- obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration. Any awards or orders in such arbitrations may be entered and enforced as judgments in the federal and state courts of any competent jurisdiction. The arbitrator, and not a court, shall be authorized to determine whether the provisions of this paragraph apply to a dispute, controversy or claim sought to be resolved in accordance with these arbitration procedures. 16. Miscellaneous. This Agreement constitutes the complete, final and exclusive embodiment of the entire agreement between you and the Company with regard to its subject matter. It is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein, and it supersedes any other such promises, warranties or representations. This Agreement may not be modified or amended except in a writing signed by both you and the Chief Executive Officer of the Company. This Agreement will bind the heirs, personal representatives, successors and assigns of both you and the Company, and inure to the benefit of both you and the Company, and their respective heirs, successors and assigns. If any provision of this Agreement is determined to be invalid or unenforceable, in whole or in part, this determination will not affect any other provision of this Agreement and the provision in question shall be deemed modified so as to be rendered enforceable in a manner consistent with the intent of the parties insofar as possible under applicable law. This Agreement shall be deemed to have been entered into, and construed and enforced in accordance with, the laws of the State of California without regard to conflicts of law principles. Any ambiguity in this Agreement shall not be construed against either party as the drafter. Any waiver of a breach of this Agreement, or rights hereunder, shall be in writing and shall not be deemed to be a waiver of any successive breach or rights hereunder. This Agreement may be executed in counterparts which shall be deemed to be part of one original, and facsimile signatures will suffice as original signatures.   6 -------------------------------------------------------------------------------- If this Agreement is acceptable to you, please sign below and return the original to me. You have twenty-one (21) calendar days to decide whether you would like to accept this Agreement, and the Company’s offer of severance contained herein will automatically expire if you do not accept it within that time frame. We wish you all the best in your future endeavors.   Sincerely, LEAPFROG ENTERPRISES, INC. By:   /s/ Jeffrey G. Katz   Exhibit A –Proprietary Information Agreement   UNDERSTOOD AND AGREED: /s/ Kathryn C. Olson Kathryn Olson September 25, 2006 Date   7 -------------------------------------------------------------------------------- EXHIBIT A PROPRIETARY INFORMATION AGREEMENT   1 -------------------------------------------------------------------------------- LEAPFROG ENTERPRISES, INC. EMPLOYEE PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT In consideration of my employment or continued employment by LEAPFROG ENTERPRISES, INC. (the “Company”), and the compensation now and hereafter paid to me, I hereby agree as follows: 1. NONDISCLOSURE. 1.1 Recognition of Company’s Rights; Nondisclosure. At all times during my employment and thereafter, I will hold in strictest confidence and will not disclose, use, lecture upon or publish any of the Company’s Proprietary Information (defined below), except as such disclosure, use or publication may be required in connection with my work for the Company, or unless an officer of the Company expressly authorizes such in writing. I will obtain Company’s written approval before publishing or submitting for publication any material (written, verbal, or otherwise) that relates to my work at Company and/or incorporates any Proprietary Information. I hereby assign to the Company any rights I may have or acquire in such Proprietary Information and recognize that all Proprietary Information shall be the sole property of the Company and its assigns. 1.2 Proprietary Information. The term “Proprietary Information” shall mean any and all confidential and/or proprietary knowledge, data or information of the Company. By way of illustration but not limitation, “Proprietary Information” includes (a) trade secrets, inventions, mask works, ideas, processes, formulas, source and object codes, data, programs, other works of authorship, know-how, improvements, discoveries, developments, designs and techniques (hereinafter collectively referred to as “Inventions”); and (b) information regarding plans for research, development, new products, training, marketing and selling, business plans, budgets and unpublished financial statements, licenses, prices and costs, suppliers and customers; and (c) information regarding the skills and compensation of other employees of the Company. 1.3 Third Party Information. I understand, in addition, that the Company has received and in the future will receive from third parties confidential or proprietary information (“Third Party Information”) subject to a duty on the Company’s part to maintain the confidentiality of such information and to use it only for certain limited purposes. During the term of my employment and thereafter, I will hold Third Party Information in the strictest confidence and will not disclose to anyone (other than Company personnel who need to know such information in connection with their work for the Company) or use, except in connection with my work for the Company, Third Party Information unless expressly authorized by an officer of the Company in writing. 1.4 No Improper Use of Information of Prior Employers and Others. During my employment by the Company I will not improperly use or disclose any confidential information or trade secrets, if any, of any former employer or any other third party to whom I have an obligation of confidentiality, and I will not bring onto the premises of the Company any unpublished documents or any property belonging to any former employer or any other third party to whom I have an obligation of confidentiality unless consented to in writing by that former employer or person. I will use in the performance of my duties only information which is generally known and used by persons with training and experience comparable to my own, which is common knowledge in the industry or otherwise legally in the public domain, or which is otherwise provided or developed by the Company. 2. ASSIGNMENT OF INVENTIONS. 2.1 Proprietary Rights. The term “Proprietary Rights” shall mean all trade secret, patent, copyright, mask work and other intellectual property rights throughout the world. 2.2 Prior Inventions. Inventions, if any, patented or unpatented, which I made prior to the commencement of my employment with the Company are excluded from the scope of this Agreement. To preclude any possible uncertainty, I have set forth on Exhibit B (Previous Inventions) attached hereto a complete list of all Inventions that I have, alone or jointly with others, conceived, developed or reduced to practice or caused to be conceived, developed or reduced to practice prior to the commencement of my employment with the Company, that I consider to be my property or the property of third parties and that I wish to have excluded from the scope of this Agreement (collectively referred to as “Prior Inventions”). If disclosure of any such Prior Invention would cause me to violate any prior confidentiality agreement, I understand that I am not to list such Prior Inventions in Exhibit B but am only to disclose a cursory name for each such invention, a listing of the party(ies) to   1. -------------------------------------------------------------------------------- whom it belongs and the fact that full disclosure as to such inventions has not been made for that reason. A space is provided on Exhibit B for such purpose. If no such disclosure is attached, I represent that there are no Prior Inventions. If, in the course of my employment with the Company, I incorporate a Prior Invention into a Company product, process or machine, the Company is hereby granted and shall have a nonexclusive, royalty-free, irrevocable, perpetual, worldwide license (with rights to sublicense through multiple tiers of sublicensees) to make, have made, modify, use and sell such Prior Invention. Notwithstanding the foregoing, I agree that I will not incorporate, or permit to be incorporated, Prior Inventions in any Company Inventions without the Company’s prior written consent. 2.3 Assignment of Inventions. Subject to Sections 2.4, and 2.6, I hereby assign and agree to assign in the future (when any such Inventions or Proprietary Rights are first reduced to practice or first fixed in a tangible medium, as applicable) to the Company all my right, title and interest in and to any and all Inventions (and all Proprietary Rights with respect thereto) whether or not patentable or registrable under copyright or similar statutes, made or conceived or reduced to practice or learned by me, either alone or jointly with others, during the period of my employment with the Company. Inventions assigned to the Company, or to a third party as directed by the Company pursuant to this Section 2, are hereinafter referred to as “Company Inventions.” 2.4 Nonassignable Inventions. This Agreement does not apply to an Invention which qualifies fully as a nonassignable Invention under Section 2870 of the California Labor Code (hereinafter “Section 2870”). I have reviewed the notification on Exhibit A (Limited Exclusion Notification) and agree that my signature acknowledges receipt of the notification. 2.5 Obligation to Keep Company Informed. During the period of my employment and for six (6) months after termination of my employment with the Company, I will promptly disclose to the Company fully and in writing all Inventions authored, conceived or reduced to practice by me, either alone or jointly with others. In addition, I will promptly disclose to the Company all patent applications filed by me or on my behalf within a year after termination of employment. At the time of each such disclosure, I will advise the Company in writing of any Inventions that I believe fully qualify for protection under Section 2870; and I will at that time provide to the Company in writing all evidence necessary to substantiate that belief. The Company will keep in confidence and will not use for any purpose or disclose to third parties without my consent any confidential information disclosed in writing to the Company pursuant to this Agreement relating to Inventions that qualify fully for protection under the provisions of Section 2870. I will preserve the confidentiality of any Invention that does not fully qualify for protection under Section 2870. 2.6 Government or Third Party. I also agree to assign all my right, title and interest in and to any particular Company Invention to a third party, including without limitation the United States, as directed by the Company. 2.7 Works for Hire. I acknowledge that all original works of authorship which are made by me (solely or jointly with others) within the scope of my employment and which are protectable by copyright are “works made for hire,” pursuant to United States Copyright Act (17 U.S.C., Section 101). 2.8 Enforcement of Proprietary Rights. I will assist the Company in every proper way to obtain, and from time to time enforce, United States and foreign Proprietary Rights relating to Company Inventions in any and all countries. To that end I will execute, verify and deliver such documents and perform such other acts (including appearances as a witness) as the Company may reasonably request for use in applying for, obtaining, perfecting, evidencing, sustaining and enforcing such Proprietary Rights and the assignment thereof. In addition, I will execute, verify and deliver assignments of such Proprietary Rights to the Company or its designee. My obligation to assist the Company with respect to Proprietary Rights relating to such Company Inventions in any and all countries shall continue beyond the termination of my employment, but the Company shall compensate me at a reasonable rate after my termination for the time actually spent by me at the Company’s request on such assistance. In the event the Company is unable for any reason, after reasonable effort, to secure my signature on any document needed in connection with the actions specified in the preceding paragraph, I hereby irrevocably designate and appoint the Company and its duly authorized officers and agents as my agent and attorney in fact, which appointment is coupled with an interest, to act for and in my behalf to execute, verify and file any such documents and to do all other lawfully permitted acts to further the purposes of the preceding paragraph with the same legal force and effect as if executed by me. I hereby waive and quitclaim to the Company any and all claims, of any nature whatsoever, which I now or may hereafter have for infringement of any Proprietary Rights assigned hereunder to the Company. 3. RECORDS. I agree to keep and maintain adequate and current records (in the form of notes, sketches,   2. -------------------------------------------------------------------------------- drawings and in any other form that may be required by the Company) of all Proprietary Information developed by me and all Inventions made by me during the period of my employment at the Company, which records shall be available to and remain the sole property of the Company at all times. 4. ADDITIONAL ACTIVITIES. I agree that during the period of my employment by the Company I will not, without the Company’s express written consent, engage in any employment or business activity which is competitive with, or would otherwise conflict with, my employment by the Company. I agree further that for the period of my employment by the Company and for one (l) year after the date of termination of my employment by the Company I will not, either directly or through others, solicit or attempt to solicit any employee, independent contractor or consultant of the company to terminate his or her relationship with the Company in order to become an employee, consultant or independent contractor to or for any other person or entity. I agree further that for the period of my employment with the Company and for one (1) year after the date of termination of my employment with the Company I will not in any manner discourage any client or customer of the Company from continuing its business relationship with the Company. 5. NO CONFLICTING OBLIGATION. I represent that my performance of all the terms of this Agreement and as an employee of the Company does not and will not breach any agreement to keep in confidence information acquired by me in confidence or in trust prior to my employment by the Company. I have not entered into, and I agree I will not enter into, any agreement either written or oral in conflict herewith. 6. RETURN OF COMPANY DOCUMENTS. When I leave the employ of the Company, I will deliver to the Company any and all drawings, notes, memoranda, specifications, devices, formulas, and documents, together with all copies thereof, and any other material containing or disclosing any Company Inventions, Third Party Information or Proprietary Information of the Company. I further agree that any property situated on the Company’s premises and owned by the Company, including disks and other storage media, filing cabinets or other work areas, is subject to inspection by Company personnel at any time with or without notice. 7. LEGAL AND EQUITABLE REMEDIES. Because my services are personal and unique and because I may have access to and become acquainted with the Proprietary Information of the Company, the Company shall have the right to enforce this Agreement and any of its provisions by injunction, specific performance or other equitable relief, without bond and without prejudice to any other rights and remedies that the Company may have for a breach of this Agreement. 8. NOTICES. Any notices required or permitted hereunder shall be given to the appropriate party at the address specified below or at such other address as the party shall specify in writing. Such notice shall be deemed given upon personal delivery, or express mail (e.g., Federal Express) delivery, to the appropriate address or if sent by certified or registered mail, three (3) days after the date of mailing. 9. NOTIFICATION OF NEW EMPLOYER. In the event that I leave the employ of the Company, I hereby consent to the notification of my new employer of my rights and obligations under this Agreement. 10. GENERAL PROVISIONS. 10.1 Governing Law; Consent to Personal Jurisdiction. This Agreement will be governed by and construed according to the laws of the State of California, as such laws are applied to agreements entered into and to be performed entirely within California between California residents. I hereby expressly consent to the personal jurisdiction of the state and federal courts located in Alameda County, California for any lawsuit filed there against me by Company arising from or related to this Agreement. 10.2 Severability. In case any one or more of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect the other provisions of this Agreement; this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein; and such provision shall be construed and modified so as to render it valid, lawful, and enforceable in a manner consistent with the intent of the parties to the extent compatible with the applicable law as it shall then appear. 10.3 Successors and Assigns. This Agreement will be binding upon my heirs, executors, administrators and other legal representatives and will be for the benefit of the Company, its successors, and its assigns. 10.4 Survival. The provisions of this Agreement shall survive the termination of my employment and the assignment of this Agreement by the Company to any successor in interest or other assignee. 10.5 Employment. I agree and understand that nothing in this Agreement shall confer any right with respect to continuation of employment by the Company,   3. -------------------------------------------------------------------------------- nor shall it interfere in any way with my right or the Company’s right to terminate my employment at any time, with or without cause or advance notice, which rights are hereby expressly reserved. 10.6 Waiver. No waiver by the Company of any breach of this Agreement shall be a waiver of any preceding or succeeding breach. No waiver by the Company of any right under this Agreement shall be construed as a waiver of any other right. The Company shall not be required to give notice to enforce strict adherence to all terms of this Agreement. 10.7 Entire Agreement. The obligations pursuant to Sections 1 and 2 (except Section 2.7) of this Agreement shall apply to any time during which I was previously engaged, or am in the future engaged, by the Company as a consultant if no other agreement governs nondisclosure and assignment of inventions during such period. This Agreement is the final, complete and exclusive agreement of the parties with respect to the subject matter hereof and supersedes and merges all prior discussions between us. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, will be effective unless in writing and signed by the party to be charged. Any subsequent change or changes in my duties, salary or compensation will not affect the validity or scope of this Agreement. This Agreement shall be effective as of the first day of my employment with the Company. I HAVE READ THIS AGREEMENT CAREFULLY, UNDERSTAND ITS TERMS, AND AGREE THERETO. I HAVE COMPLETELY FILLED OUT EXHIBIT B TO THIS AGREEMENT. Dated: 11-04-04   /s/ Kathryn Olson (Signature) Kathryn Olson (Printed Name) ACCEPTED AND AGREED TO: LEAPFROG ENTERPRISES, INC.   By:   /s/ Laura Dillard Title:   VP, Human Resources 6401 Hollis Street, Suite 100 Emeryville, CA 94608 (Address) Dated: May 26, 2004   4. -------------------------------------------------------------------------------- EXHIBIT A LIMITED EXCLUSION NOTIFICATION THIS IS TO NOTIFY you in accordance with Section 2872 of the California Labor Code that the foregoing Agreement between you and the Company does not require you to assign or offer to assign to the Company any invention that you developed entirely on your own time without using the Company’s equipment, supplies, facilities or trade secret information except for those inventions that either: 1. Relate at the time of conception or reduction to practice of the invention to the Company’s business, or actual or demonstrably anticipated research or development of the Company; or 2. Result from any work performed by you for the Company. To the extent a provision in the foregoing Agreement purports to require you to assign an invention otherwise excluded from the preceding paragraph, the provision is against the public policy of this state and is unenforceable. This limited exclusion does not apply to any patent or invention covered by a contract between the Company and the United States or any of its agencies requiring full title to such patent or invention to be in the United States. I ACKNOWLEDGE RECEIPT of a copy of this notification.   A-1. -------------------------------------------------------------------------------- EXHIBIT B   TO:    LEAPFROG ENTERPRISES, INC.       FROM:         (Employee Name)       DATE:               SUBJECT:    Previous Inventions          1. Prior to my engagement by LeapFrog Enterprises, Inc. (the “Company”), I have ¨ have not x made, conceived or reduced to practice, either alone or jointly with others, inventions or improvements relevant to the subject matter of my employment by the Company. (If you checked “have not,” you should not complete any other portion of this memorandum. If you checked “have,” please complete the remaining sections of this memorandum.) 2. Except as listed in Section 3 below, the following is a complete list of all inventions or improvements relevant to the subject matter of my employment by the Company that have been made or conceived or first reduced to practice by me alone or jointly with others prior to my engagement by the Company:                          ¨ Additional sheets attached. 3. Due to a prior confidentiality agreement, I cannot complete the disclosure under Section 2 above with respect to inventions or improvements generally listed below, the proprietary rights and duty of confidentiality with respect to which I owe to the following party(ies):        Invention or Improvement    Party(ies)    Relationship 1.                      2.                      3.                        ¨ Additional sheets attached.   By:   /s/ Kathryn Olson   (Employee Signature) Printed Name:   Kathryn Olson Date: 11-04-04   B-1.

Exhibit 10.138 CONSENT AGREEMENT Reference is made to those certain Subordinated Secured Promissory Notes, dated January 31, 2005 in favor of each of the undersigned (as amended, the “Subordinated Notes”), pursuant to which Halo Technology Holdings, Inc., a Nevada corporation formerly known as Warp Technology Holdings, Inc. (“Halo” or the “Company”) has agreed to pay to each of the undersigned the amount set forth opposite the signature for each of the undersigned. In connection with those certain Subscription Agreements (collectively, the “Subscription Agreement”), being entered into as early as the date hereof and on subsequent dates, between the Investors named therein and Halo, the undersigned and Halo hereby agree as follows:   1.   Subject to Section 3 hereof, The undersigned consent to Halo’s offering (the “Offering”) of Notes (as defined in the Subscription Agreement) in the aggregate principal amount of up to $5,000,000 (or such higher amount as may be agreed to by the Company, but in no event more than a maximum of $6,000,000), and in connection therewith the issuance of the Notes and the Warrants (as defined in the Subscription Agreement), and such additional warrants (the “Additional Warrants”) and other covenants and consideration, all pursuant to the terms of the Subscription Agreement substantially in the form attached hereto as Exhibit A, the Term Sheet substantially in the form attached hereto as Exhibit B (the “Term Sheet”), and the letter agreement with Vision Opportunity Master Fund, Ltd. (the “Vision Agreement”) substantially in the form attached hereto as Exhibit C.   2.   Subject to Section 3 hereof, without limiting the foregoing, the undersigned consent to the issuance of a promissory note in the principal amount of $1,250,000 to Vision (the “Vision Note”) in exchange for Vision’s transfer of 1,000,000 shares of Halo common stock to Halo, such note to have the same terms as, and to be considered as, a Note issued under the Subscription Agreement (provided that such principal amount of such note does not reduce the amount of the Offering).   3.   Any Notes issued pursuant to the Subscription Agreement, and the Vision Note, shall be subject to the holder thereof entering into a Subordination Agreement substantially in the form attached hereto as Exhibit D, which shall provide for the subordination of such notes to the Subordinated Notes.   4.   The undersigned (i) consent in all respects to the transactions contemplated by the Subscription Agreement, the Notes, the Warrants, the Term Sheet, the Additional Warrants, the Vision Agreement, and the Vision Note (collectively, the “Transaction Documents”) (ii) acknowledge and agree that the transactions contemplated by the Transaction Documents do not trigger the anti-dilution provisions of the Subordinated Notes or of any warrants issued in connection therewith, and (iii) waive any and all breaches and/or defaults of the Company under the Subordinated Notes, the warrants issued in connection therewith or otherwise, directly related to the Transaction Documents and the transactions contemplated thereby. The Company represents that the transactions contemplated by the Transaction Documents do not trigger the anti-dilution provisions of its existing Series D Preferred Stock or its existing warrants.   5.   In consideration hereof, the Company agrees with each of the undersigned, as follows: (i) the “Conversion Price” set forth in the Subordinated Notes is hereby modified from $1.00 to $0.68, and (ii) the “Warrant Price” set forth in the existing warrants held by the undersigned is hereby modified from $1.25 to $0.68. All prices are subject to adjustment for reverse and forward stock splits and the like. The Company has raised $500,000 in connection with the sale of Gupta Technologies, LLC. In the event that the Company does not raise gross proceeds from the Offering, from other debt or equity transactions, and/or from asset sales, in an aggregate gross amount not less than $2,500,000 on or before November 3, 2006, then: (i) the “Conversion Price” set forth in the Subordinated Notes will be further modified from $0.68 to $0.55, and (ii) the “Warrant Price” set forth in the existing warrants held by the undersigned will be further modified from $0.68 to $0.55. The Company agrees to include in the Registration Statement registering the shares issuable under the Offering such number of shares necessary to make all of the shares underlying the Subordinated Notes and the shares underlying the existing $1.25 warrants held by the undersigned freely tradable.   6.   Except as expressly set forth above, all of the terms and conditions of the Subordinated Notes shall continue in full force and effect after the execution of this Agreement and shall not be in any way changed, modified, waived or superseded by the terms set forth herein, including but not limited to, any other obligations the Company may have to the undersigned under the Subordinated Notes. Any future material amendments or material modifications to the Transaction Documents would require a separate waiver agreement from the undersigned.   7.   The obligations of each of the undersigned hereunder are several and not joint with the obligations of the other undersigned party, and neither of the undersigned parties shall be responsible in any way for the performance of the obligations of the other hereunder to the Company. This document may be executed by one or more of the parties on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. [The remainder of this page is blank. The signature page follows.] 1 IN WITNESS WHEREOF, the parties hereto have executed this Consent Agreement as of this      day of      , 2006.           CRESTVIEW CAPITAL MASTER, LLC   $ 2,000,000   By:_____________________________ Its:_____________________________         CAMOFI MASTER, LDC   $ 500,000   By:_____________________________ Its:_____________________________         HALO TECHNOLOGY HOLDINGS, INC.         By:      Its:      2

Exhibit 10.9   OPTION AGREEMENT by and among BEHRINGER HARVARD ALEXAN NEVADA, LLC and SW 108 WAGON WHEEL JM LLC September 29, 2006   -------------------------------------------------------------------------------- TABLE OF CONTENTS   Page       ARTICLE I. PURCHASE OF THE WAGON WHEEL MEMBERSHIP INTEREST 2 1.1 Exercise of Purchase Option or Put Option. 2 1.2 Purchase Price. 3 1.3 Closing Prorations and Purchase Price Adjustments. 4 1.4 Conditions to the Closing. 5 1.5 Closing Deliveries of Seller. 6 1.6 Closing Deliveries of Purchaser. 7 1.7 Actions of the Parties Pending Closing. 7 1.8 Termination Prior to Closing. 10 1.9 Casualty. 11       ARTICLE II. REPRESENTATIONS AND WARRANTIES OF SELLER 12 2.1 Existence; Good Standing. 12 2.2 Title to Membership Interest. 12 2.3 Power and Authority. 13 2.4 No Violation. 13 2.5 Capitalization. 13 2.6 Consents. 14 2.7 Subsidiaries. 14 2.8 Legal Proceedings. 14 2.9 Brokers and Finders Fees. 15 2.10 Tax Representations. 15 2.11 Liabilities and Obligations. 16 2.12 Licenses and Permits. 16 2.13 Property. 16 2.14 Employees; Benefit Plans. 17 2.15 Conduct of Business. 18 2.16 Books and Records. 18 2.17 Compliance with Laws. 18 2.18 Environmental Matters. 19 2.19 No Bankruptcy. 20 2.20 Bank Accounts. 20 2.21 Terrorism. 20 2.22 Brokers and Finders Fees. 21 2.23 Full Disclosure. 21       ARTICLE III. REPRESENTATIONS AND WARRANTIES OF PURCHASER 22 3.1 Existence. 22 3.2 Power and Authority. 22 3.3 No Violation. 22 3.4 Brokers and Finders Fees. 22 3.5 Investment Representations. 23   ii --------------------------------------------------------------------------------   3.6 Consents. 23 3.7 Terrorism. 23       ARTICLE IV. POST-CLOSING AGREEMENTS 23 4.1 Further Action. 23 4.2 Receipt of Payments and Correspondence. 24 4.3 Inspection of Records. 24 4.4 Transfer Taxes. 24 4.5 Tax Covenants. 24 4.6 Audit. 26       ARTICLE V. REMEDIES 27 5.1 Purchaser’s Remedies. 27 5.2 Seller’s Remedies. 28 5.3 Indemnity Limits. 28 5.4 Arbitration. 29       ARTICLE VI. GENERAL 29 6.1 Entirety and Modification. 29 6.2 Assignment; Successors and Assigns. 29 6.3 Expenses. 30 6.4 Notices. 30 6.5 Severability; Reformation. 31 6.6 No Waiver. 31 6.7 Headings. 31 6.8 Counterparts; Facsimiles. 31 6.9 Governing Law. 32   Exhibits           Exhibit A – Defined Terms Exhibit B – Land Exhibit C – Plans Exhibit D – Permitted Exceptions Exhibit E – Project Budget Exhibit F – List of Service and Maintenance Contracts Exhibit G – Form of Limited Guaranty   iii -------------------------------------------------------------------------------- OPTION AGREEMENT This OPTION AGREEMENT (this “Agreement”) is entered into as of September 29, 2006, by and among (i) BEHRINGER HARVARD ALEXAN NEVADA, LLC,  a Delaware limited liability company (“Purchaser”), and (ii) SW 108 WAGON WHEEL JM LLC, a Delaware limited liability company (“108 Wagon Wheel” or the “Seller”). RECITALS: WHEREAS, SW 109 Wagon Wheel SM LLC, a Delaware limited liability company (“109 Wagon Wheel”), owns, directly, 100% of the membership interest (the “106 Membership Interest”) of SW 106 Wagon Wheel Holdings LLC, a Delaware limited liability company (the “Project Owner”), which 106 Membership Interest constitutes all of the issued and outstanding equity interests in the Project Owner; and WHEREAS,  108 Wagon Wheel owns, directly, 100% of the membership interest  (the “109 Membership Interest”) of 109 Wagon Wheel, which 109 Membership Interest constitutes all of the issued and outstanding equity interests in 109 Wagon Wheel (the 106 Membership Interest and the 109 Membership Interest are sometimes collectively referenced as the “Wagon Wheel Membership Interest”); and WHEREAS, Purchaser has made a loan to 109 Wagon Wheel in the amount of Six Million Nine Hundred Thousand and No/100 Dollars ($ 6,900,000) secured, in part, by the 106 Membership Interest (“Senior Mezzanine Loan”); and WHEREAS, Purchaser has made a loan to 108 Wagon Wheel in the amount of Two Million Seven Hundred Seventy-Five Thousand Eight Hundred Seventy-Two and No/100 Dollars ($2,775,872) secured, in part, by 100% of the 109 Membership Interest (“Junior Mezzanine Loan”); and WHEREAS, the Project Owner owns that certain parcel of real property located in Clark County, Nevada more particularly described on Exhibit B attached hereto and made a part hereof for all purposes (“Land”); and WHEREAS, prior to the Closing Date, the Project Owner will construct and own the Project to be located on the Land; and WHEREAS, in connection with the construction of the Project, Project Owner has entered into a Construction Loan Agreement with Comerica Bank (the “Senior Lender”), providing for a loan in the amount of Twenty Nine Million and No/100 Dollars ($29,000,000) secured, in part, by a first lien deed of trust on the Project ( such loan and the documents evidencing and securing such loan being collectively referenced as the “Construction Loan”); and WHEREAS, Seller wishes to grant to Purchaser the option to purchase the Wagon Wheel Membership Interest from Seller (the “Purchase Option”) and Purchaser wishes to grant to Seller the option to sell the Wagon Wheel Membership Interest to Purchaser (the “Put Option”) upon the terms and conditions, and for the consideration, hereinafter set forth; and 1 -------------------------------------------------------------------------------- WHEREAS, on or about the date of this Agreement, the Limited Guarantors have delivered the Limited Guaranty; and WHEREAS, the capitalized terms used in these Recitals and the other Sections in this Agreement are defined in Exhibit A. NOW, THEREFORE, in consideration of the foregoing and Purchaser’s extension of the Mezzanine Loans, the parties hereto agree as follows: ARTICLE I. PURCHASE OF THE WAGON WHEEL MEMBERSHIP INTEREST 1.1          EXERCISE OF PURCHASE OPTION OR PUT OPTION. (A)           COMPLETION NOTICE.  PROMPTLY FOLLOWING THE COMPLETION DATE, SELLER SHALL DELIVER TO PURCHASER A WRITTEN NOTICE (THE “COMPLETION NOTICE”) CERTIFYING (1) THE COMPLETION DATE HAS OCCURRED; AND (2) THE AMOUNT OF THE PROJECT COSTS AS OF THE COMPLETION DATE. (B)           PROJECT COST.  FROM THE TIME OF DELIVERY OF THE COMPLETION NOTICE UNTIL THE CLOSING, SELLER SHALL MAKE AVAILABLE (AND CAUSE THE PROJECT OWNER TO MAKE AVAILABLE) TO PURCHASER AND ITS EMPLOYEES, AGENTS AND CONTRACT PARTIES (COLLECTIVELY, “REPRESENTATIVES”) DURING NORMAL BUSINESS HOURS, THE INVOICES, DRAW REQUESTS, BOOKS, RECORDS AND OTHER INFORMATION RELATING TO THE PROJECT, 109 WAGON WHEEL OR THE PROJECT OWNER IN ORDER THAT PURCHASER AND ITS REPRESENTATIVES MAY AUDIT SELLER’S CALCULATION OF PROJECT COST. (C)           EXERCISE OF PURCHASE OPTION.  PURCHASER AT ITS SOLE OPTION, MAY ELECT TO EXERCISE THE PURCHASE OPTION AND TO PURCHASE THE WAGON WHEEL MEMBERSHIP INTEREST PURSUANT TO THE TERMS OF THIS AGREEMENT BY DELIVERING A WRITTEN NOTICE (THE “PURCHASE NOTICE”) TO SELLER WITHIN 90 CALENDAR DAYS AFTER THE DATE OF DELIVERY OF THE COMPLETION NOTICE.  THE PURCHASE OPTION WILL EXPIRE IF THE PURCHASE NOTICE IS NOT TIMELY DELIVERED OR IF A WAIVER NOTICE IS DELIVERED.  IF THE PURCHASER TIMELY DELIVERS THE PURCHASE NOTICE, THEN THE CLOSING OF THE SALE OF THE WAGON WHEEL MEMBERSHIP INTEREST (THE “CLOSING”) SHALL TAKE PLACE WITHIN 60 CALENDAR DAYS AFTER DELIVERY OF THE PURCHASE NOTICE.  PURCHASER AT ITS SOLE OPTION, MAY ELECT TO DELIVER A WRITTEN NOTICE (THE “WAIVER NOTICE”) TO SELLER PRIOR TO THE DATE WHICH IS 90 CALENDAR DAYS FOLLOWING DELIVERY OF THE COMPLETION NOTICE INDICATING THAT PURCHASER WAIVES ITS RIGHT TO EXERCISE THE PURCHASE OPTION. (D)           EXERCISE OF PUT OPTION.  IF PURCHASER DOES NOT TIMELY EXERCISE THE PURCHASE OPTION AS PROVIDED ABOVE, THEN SELLER AT ITS SOLE OPTION, MAY ELECT TO EXERCISE THE PUT OPTION AND TO CAUSE PURCHASER TO PURCHASE THE WAGON WHEEL MEMBERSHIP INTEREST PURSUANT TO THE TERMS OF THIS AGREEMENT BY DELIVERING A WRITTEN NOTICE (THE “PUT NOTICE”) TO PURCHASER WITHIN 120 CALENDAR DAYS AFTER THE EARLIER OF THE DATE OF DELIVERY OF THE WAIVER NOTICE OR THE EXPIRATION OF THE PURCHASE OPTION.  IF THE SELLER EXERCISES THE PUT OPTION, THEN THE CLOSING SHALL TAKE PLACE WITHIN 60 CALENDAR DAYS AFTER DELIVERY OF THE PUT NOTICE.  THE PUT OPTION WILL EXPIRE IF THE PUT NOTICE IS NOT TIMELY DELIVERED TO PURCHASER. (E)           BUSINESS DAY.  NOTWITHSTANDING THE FOREGOING SECTIONS 1.1(C) AND 1.1(D), IF THE CLOSING DATE WOULD OCCUR ON A DAY WHICH IS NOT A BUSINESS DAY, THEN THE CLOSING DATE SHALL BE DELAYED UNTIL THE SECOND BUSINESS DAY THEREAFTER. 2 -------------------------------------------------------------------------------- (F)            CLOSING.  BASED UPON THE REPRESENTATIONS, WARRANTIES AND COVENANTS, AND SUBJECT TO THE TERMS, PROVISIONS AND CONDITIONS CONTAINED IN THIS AGREEMENT, AT THE CLOSING, SELLER SHALL, AND SHALL CAUSE 109 WAGON WHEEL TO, SELL AND ASSIGN TO PURCHASER THE WAGON WHEEL MEMBERSHIP INTEREST, AND PURCHASER SHALL PURCHASE THE WAGON WHEEL MEMBERSHIP INTEREST FROM SELLER AND 109 WAGON WHEEL, FREE AND CLEAR OF ALL LIENS FOR THE CONSIDERATION HEREINAFTER SET FORTH.  AT THE CLOSING, THE PROJECT OWNER AND 109 WAGON WHEEL SHALL HOLD ONLY THOSE ASSETS, AND SHALL BE SUBJECT TO ONLY THOSE LIABILITIES AND OBLIGATIONS, SPECIFIED IN SECTION 1.7(C) BELOW.  THE ABOVE-DESCRIBED PURCHASE AND SALE OF THE WAGON WHEEL MEMBERSHIP INTEREST IS REFERRED TO IN THIS AGREEMENT AS THE “MEMBERSHIP INTEREST PURCHASE.” THE CLOSING SHALL TAKE PLACE AT THE OFFICES OF HAYNES AND BOONE, LLP, COUNSEL TO PURCHASER, 2505 N. PLANO ROAD, SUITE 4000, RICHARDSON, TEXAS 75082, ON A DATE SPECIFIED BY PURCHASER IN ACCORDANCE WITH SECTION 1.1(C) OR 1.1(D) (AS MODIFIED BY SECTION 1.1(E)), AT 10:00 A.M. LOCAL TIME, OR AT SUCH OTHER DATE, TIME AND PLACE AS SELLER AND PURCHASER MAY AGREE.  PURCHASER SHALL GIVE SELLER NOT LESS THAN FIVE (5) BUSINESS DAYS WRITTEN NOTICE OF THE CLOSING DATE.  NOTWITHSTANDING THE FOREGOING, IF A MECHANICS LIEN(S) IS FILED AGAINST THE PROPERTY, AND PROJECT OWNER IS ACTIVELY CONTESTING SUCH MECHANICS LIEN(S), THE CLOSING DATE MAY BE EXTENDED BY EITHER PURCHASER OR SELLER FOR UP TO 60 ADDITIONAL CALENDAR DAYS TO PERMIT PROJECT OWNER TO REMOVE SUCH MECHANICS LIEN(S) AS A LIEN AGAINST THE PROPERTY. (G)           FEE TITLE PURCHASE OPTION.  AT PURCHASER’S OPTION, EXERCISABLE ANY TIME PRIOR TO THE CLOSING, PURCHASER MAY ELECT TO PURCHASE FROM THE PROJECT OWNER FEE SIMPLE TITLE TO THE PROPERTY IN LIEU OF THE MEMBERSHIP INTEREST PURCHASE (“FEE TITLE PURCHASE”). THE FEE TITLE PURCHASE WILL BE AT THE SAME PURCHASE PRICE AND ON THE SAME ECONOMIC TERMS AND PROVISIONS AS THE MEMBERSHIP INTEREST PURCHASE.  THE SELLER AND PURCHASER AGREE TO NEGOTIATE IN GOOD FAITH A PURCHASE CONTRACT (INCLUDING APPROPRIATE CONVEYANCING DOCUMENTS) TO BE UTILIZED IN THE EVENT PURCHASER ELECTS TO PROCEED WITH THE FEE TITLE PURCHASE.  PURCHASER SHALL PROVIDE A FULL RELEASE OF THIS AGREEMENT AND THE LIMITED GUARANTY AT THE TIME OF CLOSING OF THE FEE TITLE PURCHASE OR EXECUTION OF A PURCHASE CONTRACT THEREFORE AND AS A CONDITION TO SELLER’S OBLIGATION TO COMPLETE EITHER SUCH EVENT. 1.2          PURCHASE PRICE. Subject to the terms and conditions of this Agreement, the total purchase price Purchaser shall pay to Seller for the Wagon Wheel Membership Interest (the “Purchase Price”) shall be: (A)           PURCHASE OPTION.  IN THE CASE OF PURCHASER’S EXERCISE OF THE PURCHASE OPTION, AN AMOUNT EQUAL TO THE SUM OF (1) THE LOWER OF (A) THE PROJECT COST PLUS INTEREST CHARGES OR (B) $38,875,872  PLUS INTEREST CHARGES, PLUS (2) $13,125 PER APARTMENT UNIT CONTAINED IN THE PROJECT. (B)           PUT OPTION.  IN THE CASE OF SELLER’S EXERCISE OF THE PUT OPTION, AN AMOUNT EQUAL TO THE LOWER OF (A) PROJECT COST PLUS INTEREST CHARGES OR (B) THE $38,875,872 PLUS INTEREST CHARGES. SUBJECT TO THE CREDITS AND ADJUSTMENTS PROVIDED IN THIS AGREEMENT, PURCHASER SHALL PAY THE PURCHASE PRICE TO SELLER AT THE CLOSING BY WIRE TRANSFER OF IMMEDIATELY AVAILABLE FUNDS TO AN ACCOUNT SELLER DESIGNATES. 3 -------------------------------------------------------------------------------- 1.3          CLOSING PRORATIONS AND PURCHASE PRICE ADJUSTMENTS. (A)           AT THE CLOSING, THE PURCHASER SHALL RECEIVE A CREDIT AGAINST THE PURCHASE PRICE IN AN AMOUNT EQUAL TO THE OUTSTANDING BALANCE OF THE MEZZANINE LOANS (INCLUDING ALL ACCRUED BUT UNPAID INTEREST CHARGES) AND THE MEZZANINE LOANS SHALL BE CONSIDERED “PAID IN FULL” AT THE COMPLETION OF THE CLOSING. (B)           ALL RENTS AND OTHER INCOME FROM THE PROPERTY, REAL ESTATE AND PERSONAL PROPERTY AD VALOREM TAXES AND OTHER OPERATING EXPENSES OF THE PROPERTY SHALL BE PRORATED ON THE BASIS OF ACTUAL DAYS ELAPSED AS OF 11:59 P.M. ON THE DAY IMMEDIATELY PRECEDING THE CLOSING DATE.  INCOME AND EXPENSES FOR WHICH ACTUAL BILLS ARE AVAILABLE AT CLOSING SHALL BE PRORATED BASED ON SUCH ACTUAL BILLS.  THOSE ITEMS FOR WHICH ACTUAL BILLS ARE NOT AVAILABLE AT CLOSING SHALL BE PRORATED BASED UPON GOOD FAITH ESTIMATES, IN THE CASE OF AD VALOREM TAXES, USING THE MOST RECENT TAX RATE AND ASSESSED VALUE.  PRELIMINARY ESTIMATED CLOSING PRORATIONS SHALL BE AGREED BETWEEN PURCHASER AND SELLER FOR PURPOSES OF MAKING THE PRELIMINARY PRORATION ADJUSTMENT AT CLOSING SUBJECT TO THE FINAL CASH SETTLEMENT PROVIDED FOR ABOVE.  NO PRORATIONS WILL BE MADE IN RELATION TO INSURANCE PREMIUMS, AND PROJECT OWNER’S INSURANCE COVERAGE WILL BE CANCELED AND RELEASED AT CLOSING.  ALL UTILITIES SHALL REMAIN IN THE NAME OF THE PROJECT OWNER AND SELLER SHALL AT CLOSING BE CREDITED AN AMOUNT EQUAL TO ANY CASH UTILITY DEPOSIT. (C)           PURCHASER SHALL RECEIVE A CREDIT AT CLOSING IN AN AMOUNT EQUAL TO THE SUM OF ALL UNAPPLIED REFUNDABLE DEPOSITS OR FEES, PAID TO PROJECT OWNER UNDER THE TENANT LEASES AND ALL RENT PAID IN ADVANCE (TO THE EXTENT NOT PRORATED AS SET FORTH ABOVE). (D)           ALL LEASING COMMISSIONS, REFERRAL FEES AND LOCATOR FEES APPLICABLE TO ANY TENANT LEASES WHERE THE TENANT HAS TAKEN OCCUPANCY PRIOR TO CLOSING SHALL BE PAID IN FULL PRIOR TO CLOSING OR, TO THE EXTENT NOT PAID ON OR PRIOR TO CLOSING, SHALL BE CREDITED TO PURCHASER AT CLOSING. (E)           TO THE EXTENT POSSIBLE, SELLER SHALL PAY AND FULLY DISCHARGE ANY AND ALL STATE INCOME OR FRANCHISE TAXES WHICH ARE DUE AND PAYABLE BY THE PROJECT OWNER OR 109 WAGON WHEEL.  WITH REGARD TO ANY AND ALL ANY AND ALL STATE INCOME OR FRANCHISE TAXES ATTRIBUTABLE TO THE YEAR OF CLOSING, SUCH TAXES SHALL BE PRORATED AS OF THE CLOSING DATE ONCE THE AMOUNT OF SUCH TAXES IS KNOWN AND SELLER SHALL PAY TO PURCHASER THE AMOUNT OF SUCH TAXES ATTRIBUTABLE TO THE PERIOD PRIOR TO CLOSING. (F)            EXCEPT AS PROVIDED IN SECTION 1.3(G) WITH REGARD TO APPLICATION FEES, PURCHASER SHALL RECEIVE A CREDIT AT CLOSING IN AN AMOUNT EQUAL TO 50% OF ALL NON-REFUNDABLE DEPOSITS AND FEES (INCLUDING PET FEES) PAID TO PROJECT OWNER UNDER THE TENANT LEASES. (G)           PURCHASER SHALL NOT BE ENTITLED TO ANY CREDIT AT CLOSING FOR APPLICATION FEES PAID BY POTENTIAL TENANTS OF THE PROJECT WHEN PROJECT OWNER HAS OBTAINED THE CREDIT CHECK OF SUCH POTENTIAL TENANT; ANY APPLICATION FEE FOR A POTENTIAL TENANT OF THE PROJECT WHERE PROJECT OWNER HAS NOT OBTAINED THE CREDIT CHECK FOR SUCH POTENTIAL TENANT SHALL BE FULLY CREDITED TO PURCHASER AT CLOSING. (H)           AT OR PRIOR TO THE CLOSING, SELLER SHALL CAUSE THE CONSTRUCTION LOAN TO BE PAID IN FULL AND OBTAIN A RELEASE OF ANY LIENS SECURING THE CONSTRUCTION LOAN. 4 -------------------------------------------------------------------------------- (I)            THE PROVISIONS OF THIS SECTION 1.3 SHALL SURVIVE CLOSING. 1.4          CONDITIONS TO THE CLOSING. (A)           JOINT CONDITION.  THE OBLIGATIONS OF EACH PARTY TO CONSUMMATE THE TRANSACTIONS PROVIDED FOR IN THIS AGREEMENT ARE SUBJECT TO THE CONDITION THAT ON THE CLOSING DATE THERE SHALL BE NO ACTION, SUIT OR PROCEEDING (OTHER THAN SUCH AN ACTION, SUIT OR PROCEEDING DIRECTLY OR INDIRECTLY INSTITUTED BY A PARTY TO THIS AGREEMENT) SHALL BE THREATENED OR PENDING, AND NO INJUNCTION, ORDER, DECREE OR RULING SHALL BE IN EFFECT, SEEKING TO RESTRAIN OR PROHIBIT, OR TO OBTAIN DAMAGES OR OTHER RELIEF IN CONNECTION WITH, THE EXECUTION AND DELIVERY OF THIS AGREEMENT OR THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. (B)           PURCHASER’S CONDITIONS TO CLOSING.  THE OBLIGATIONS OF PURCHASER TO CONSUMMATE THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT ARE SUBJECT TO THE SATISFACTION, AT OR PRIOR TO THE CLOSING DATE, OF THE FOLLOWING CONDITIONS: (1)           SELLER’S REPRESENTATIONS TRUE.  SELLER’S REPRESENTATIONS AND WARRANTIES MADE IN THIS AGREEMENT SHALL BE TRUE AND CORRECT IN ALL MATERIAL RESPECTS AS OF THE CLOSING DATE, EXCEPT AS AFFECTED BY THE TRANSACTIONS CONTEMPLATED HEREBY, AND SELLER SHALL HAVE DELIVERED TO PURCHASER A CLOSING CERTIFICATE TO THAT EFFECT. (2)           SELLER’S COMPLIANCE WITH AGREEMENT.  SELLER, IN ALL MATERIAL RESPECTS, SHALL HAVE PERFORMED EACH AGREEMENT, AND SHALL HAVE COMPLIED WITH EACH COVENANT, TO BE PERFORMED OR COMPLIED WITH BY IT ON OR PRIOR TO THE CLOSING DATE UNDER THIS AGREEMENT, AND SELLER SHALL HAVE DELIVERED TO PURCHASER A CLOSING CERTIFICATE TO THAT EFFECT. THE CLOSING CERTIFICATES TO BE DELIVERED BY SELLER REFERRED TO IN SECTIONS 1.4(B)(1) AND (2) ARE REFERRED TO HEREIN COLLECTIVELY AS THE “SELLER CLOSING CERTIFICATE.”  THE SELLER CLOSING CERTIFICATE MAY INCLUDE LIMITATIONS ON SURVIVAL SET FORTH IN SECTION 5.1(A). (C)           SELLER’S CONDITIONS TO CLOSING.  THE OBLIGATIONS OF SELLER TO CONSUMMATE THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT ARE SUBJECT TO THE SATISFACTION, AT OR PRIOR TO THE CLOSING DATE, OF THE FOLLOWING CONDITIONS: (1)           PURCHASER’S REPRESENTATIONS TRUE.  PURCHASER’S REPRESENTATIONS AND WARRANTIES MADE IN THIS AGREEMENT SHALL BE TRUE AND CORRECT IN ALL MATERIAL RESPECTS AS OF THE CLOSING DATE, EXCEPT AS AFFECTED BY THE TRANSACTIONS CONTEMPLATED HEREBY, AND PURCHASER SHALL HAVE DELIVERED TO SELLER A CLOSING CERTIFICATE TO THAT EFFECT. (2)           PURCHASER’S COMPLIANCE WITH AGREEMENT.  PURCHASER, IN ALL MATERIAL RESPECTS, SHALL HAVE PERFORMED EACH AGREEMENT, AND COMPLIED WITH EACH COVENANT TO BE PERFORMED OR COMPLIED WITH BY IT ON OR PRIOR TO THE CLOSING DATE UNDER THIS AGREEMENT, AND PURCHASER SHALL HAVE DELIVERED TO SELLER A CLOSING CERTIFICATE TO THAT EFFECT. THE CLOSING CERTIFICATES TO BE DELIVERED BY PURCHASER REFERRED TO IN SECTIONS 1.4(C)(1) AND (2) ARE REFERRED TO HEREIN COLLECTIVELY AS THE “PURCHASER CLOSING CERTIFICATE.”  THE PURCHASER CLOSING CERTIFICATE SHALL CONTAIN AN ACKNOWLEDGMENT THAT THE WAGON WHEEL MEMBERSHIP INTERESTS 5 -------------------------------------------------------------------------------- ARE BEING CONVEYED SUBJECT TO THE PROVISIONS AND LIMITATIONS CONTAINED IN THE LAST PARAGRAPH OF ARTICLE II. 1.5          CLOSING DELIVERIES OF SELLER.  AT THE CLOSING, SELLER SHALL DELIVER TO PURCHASER THE FOLLOWING, ALL OF WHICH SHALL BE IN A FORM REASONABLY SATISFACTORY TO PURCHASER: (A)           THE SELLER CLOSING CERTIFICATE. (B)           A CERTIFICATE OF THE SECRETARY OF SELLER CERTIFYING TRUE AND CORRECT COPIES OF (I) THE REQUIRED RESOLUTIONS OF THE SELLER DULY AUTHORIZING THE EXECUTION, DELIVERY AND PERFORMANCE OF THIS AGREEMENT AND ALL RELATED DOCUMENTS AND AGREEMENTS, SUCH RESOLUTIONS BEING IN FULL FORCE AND EFFECT AS OF THE CLOSING DATE, (II) THE CERTIFICATE OF FORMATION OF THE PROJECT OWNER, AS AMENDED AND IN EFFECT AS OF THE CLOSING DATE, CERTIFIED BY THE SECRETARY OF STATE OF THE STATE OF DELAWARE WITHIN TEN (10) DAYS OF THE CLOSING DATE, (III) THE OPERATING AGREEMENT OF THE PROJECT OWNER, AS AMENDED AND IN EFFECT AS OF THE CLOSING DATE, (IV) THE CERTIFICATE OF FORMATION OF 109 WAGON WHEEL, AS AMENDED AND IN EFFECT AS OF THE CLOSING DATE, CERTIFIED BY THE SECRETARY OF STATE OF THE STATE OF DELAWARE WITHIN TEN (10) DAYS OF THE CLOSING DATE, (V) THE OPERATING AGREEMENT OF 109 WAGON WHEEL, AS AMENDED AND IN EFFECT AS OF THE CLOSING DATE, AND (VI) ANY OTHER ORGANIZATIONAL DOCUMENTS OF THE PROJECT OWNER OR 109 WAGON WHEEL. (C)           AN INSTRUMENT OF ASSIGNMENT OF THE 106 MEMBERSHIP INTEREST EXECUTED BY 109 WAGON WHEEL. (D)           AN INSTRUMENT OF ASSIGNMENT OF THE 109 MEMBERSHIP INTEREST EXECUTED BY 108 WAGON WHEEL. (E)           A CERTIFICATE DATED WITHIN TEN (10) DAYS OF THE CLOSING DATE, OF THE SECRETARY OF THE STATE OF THE STATE OF DELAWARE ESTABLISHING THAT THE PROJECT OWNER IS IN EXISTENCE AND IS IN GOOD STANDING TO TRANSACT BUSINESS IN SUCH STATE. (F)            A CERTIFICATE DATED WITHIN TEN (10) DAYS OF THE CLOSING DATE, OF THE SECRETARY OF THE STATE OF THE STATE OF NEVADA ESTABLISHING THAT THE PROJECT OWNER IS AUTHORIZED TO TRANSACT BUSINESS IN THE STATE OF NEVADA. (G)           A CERTIFICATE DATED WITHIN TEN (10) DAYS OF THE CLOSING DATE, OF THE SECRETARY OF THE STATE OF THE STATE OF DELAWARE ESTABLISHING THAT 109 WAGON WHEEL IS IN EXISTENCE AND IS IN GOOD STANDING TO TRANSACT BUSINESS IN SUCH STATE. (H)           A CERTIFIED STATEMENT STATING: (A) THE AMOUNT OF SECURITY DEPOSITS UNDER THE TENANT LEASES WHICH ARE HELD BY THE PROJECT OWNER AND NOT APPLIED IN ACCORDANCE WITH THE TERMS OF THE APPLICABLE TENANT LEASES; AND (B) A DELINQUENCY REPORT WITH REGARD TO THE TENANT LEASES. (I)            A NON-FOREIGN AFFIDAVIT AS REQUIRED BY SECTION 1445 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, AND THE REGULATIONS PROMULGATED THEREUNDER FROM SELLER AND 109 WAGON WHEEL. 6 -------------------------------------------------------------------------------- (J)            CERTIFICATES FROM THE TAXING AUTHORITIES OF THE STATE OF DELAWARE, DATED WITHIN TEN (10) DAYS PRIOR TO THE CLOSING DATE, EVIDENCING THAT THE PROJECT OWNER HAS PAID ALL FRANCHISE, SALES AND OTHER STATE TAXES DUE AND OWING IN SUCH STATE. (K)           CERTIFICATES FROM THE TAXING AUTHORITIES OF THE STATE OF DELAWARE, DATED WITHIN TEN (10) DAYS PRIOR TO THE CLOSING DATE, EVIDENCING THAT 109 WAGON WHEEL HAS PAID ALL FRANCHISE, SALES AND OTHER STATE TAXES DUE AND OWING IN SUCH STATE. (L)            IF AVAILABLE UNDER LOCAL PRACTICE, CERTIFICATES FROM THE TAXING AUTHORITIES OF THE STATE OF NEVADA AND FROM CLARK COUNTY, NEVADA, OR OTHER EVIDENCE DATED WITHIN TEN (10) DAYS PRIOR TO THE CLOSING DATE, EVIDENCING THAT PROJECT OWNER HAS PAID ALL PROPERTY AND OTHER STATE AND LOCAL TAXES DUE AND OWING. (M)          LETTERS OF RESIGNATION AND A WAIVER OF, AND COVENANT NOT TO SUE FOR, ANY AND ALL PRESENT OR FUTURE CLAIMS AGAINST SUCH COMPANY, FOR INDEMNITY OR OTHERWISE, SIGNED BY EACH OFFICER AND MANAGER OF THE PROJECT OWNER, TO BE EFFECTIVE AS OF THE CLOSING DATE. (N)           LETTERS OF RESIGNATION AND A WAIVER OF, AND COVENANT NOT TO SUE FOR, ANY AND ALL PRESENT OR FUTURE CLAIMS AGAINST SUCH COMPANY, FOR INDEMNITY OR OTHERWISE, SIGNED BY EACH OFFICER AND MANAGER OF 109 WAGON WHEEL, TO BE EFFECTIVE AS OF THE CLOSING DATE. (O)           AT THE REQUEST AND OPTION OF PURCHASER, EVIDENCE OF THE TERMINATION OF ANY PROPERTY MANAGEMENT AGREEMENTS AFFECTING THE PROPERTY. (P)           UCC-3 TERMINATION STATEMENTS WITH RESPECT TO ANY RECORDED LIENS WITH RESPECT TO THE WAGON WHEEL MEMBERSHIP INTEREST AND ANY OF THE ASSETS OF THE PROJECT OWNER OR 109 WAGON WHEEL. (Q)           A CERTIFICATE EXECUTED BY SELLER LISTING THE CONTRACTS. (R)            SUCH OTHER INSTRUMENTS AND DOCUMENTS AS ARE REASONABLY REQUESTED BY PURCHASER TO CARRY OUT AND EFFECT THE PURPOSE AND INTENT OF THIS AGREEMENT. 1.6          Closing Deliveries of Purchaser. In addition to the Purchase Price, at the Closing, Purchaser shall deliver to Seller the following, which shall be in a form reasonably satisfactory to Seller: (A)           THE PURCHASER CLOSING CERTIFICATE. (B)           SUCH OTHER INSTRUMENTS AND DOCUMENTS AS ARE REASONABLY REQUESTED BY SELLER TO CARRY OUT AND EFFECT THE PURPOSE AND INTENT OF THIS AGREEMENT. 1.7          ACTIONS OF THE PARTIES PENDING CLOSING. (A)           REASONABLE BEST EFFORTS.  EACH OF THE PARTIES WILL USE THEIR REASONABLE BEST EFFORTS TO OBTAIN ALL NECESSARY CONSENTS AND APPROVALS AND TO CAUSE THE CONDITIONS TO THE OBLIGATIONS OF THE PARTIES HEREUNDER TO BE SATISFIED AND, UPON EXERCISE OF THE PURCHASE OPTION OR THE PUT OPTION, 7 -------------------------------------------------------------------------------- TO CAUSE THE CLOSING TO BE CONSUMMATED AS PROMPTLY AS PRACTICABLE, AND WILL COOPERATE WITH ONE ANOTHER IN CONNECTION WITH THE FOREGOING. (B)           CONDUCT OF BUSINESS.  THE SELLER SHALL, AT ITS EXPENSE (TAKING INTO ACCOUNT THE USE BY THE PROJECT OWNER OF THE PROCEEDS OF THE CONSTRUCTION LOAN TO FUND SUCH CONSTRUCTION), CAUSE THE PROJECT OWNER TO CONSTRUCT THE PROJECT ON THE LAND, IN SUBSTANTIAL ACCORDANCE WITH THE PLANS AND IN ACCORDANCE WITH THE REQUIREMENTS OF THE MEZZANINE LOANS.  FROM THE EXECUTION OF THIS AGREEMENT UNTIL THE CLOSING, SELLER WILL CAUSE THE PROJECT OWNER AND 109 WAGON WHEEL TO OPERATE IN THE ORDINARY COURSE OF BUSINESS CONSISTENT WITH THE PRUDENT CONSTRUCTION AND OPERATION OF THE PROJECT AND IN ACCORDANCE THE REQUIREMENTS OF THE MEZZANINE LOANS. WITHOUT LIMITATION, NEITHER THE PROJECT OWNER NOR 109 WAGON WHEEL SHALL TAKE ANY ACTION, OR FAIL TO TAKE ANY ACTION, AS A RESULT OF WHICH ANY OF THE CHANGES OR EVENTS LISTED IN SECTION 2.15(A) (CHANGES) WOULD OCCUR.  SELLER SHALL MAINTAIN AND PRESERVE THE PROJECT OWNER AND 109 WAGON WHEEL, AND THEIR RESPECTIVE BUSINESS, FRANCHISES AND AUTHORIZATIONS, AND USE COMMERCIALLY REASONABLE EFFORTS TO MAINTAIN AND PRESERVE THEIR RESPECTIVE PROSPECTS, GOODWILL AND ADVANTAGEOUS BUSINESS RELATIONSHIPS.  SELLER WILL CAUSE PROJECT OWNER TO (I) MAINTAIN AND OPERATE THE PROPERTY IN ACCORDANCE WITH TRAMMELL CROW RESIDENTIAL’S CUSTOMARY MANNER, REASONABLE WEAR AND TEAR AND DAMAGE FROM CASUALTY EXCEPTED, (II) CONTINUE ALL INSURANCE POLICIES RELATIVE TO THE PROPERTY (OR IF SUCH INSURANCE IS CANCELED OR EXPIRES, COMPARABLE INSURANCE CONSISTENT WITH SIMILAR PROJECTS IN THE CLARK COUNTY METROPOLITAN AREA) IN FULL FORCE AND EFFECT, (III) AFTER THE COMPLETION DATE NOT REMOVE ANY ITEM OF PERSONAL PROPERTY FROM THE LAND OR IMPROVEMENTS UNLESS REPLACED BY A COMPARABLE ITEM OF PERSONAL PROPERTY, (IV) MAINTAIN ALL PERMITS, LICENSES AND OCCUPANCY CERTIFICATES, INCLUDING, WITHOUT LIMITATION, ALL DEVELOPMENT, BUILDING AND USE PERMITS AND CERTIFICATES OF OCCUPANCY AND (V) PERFORM, WHEN DUE, ALL MATERIAL OBLIGATIONS UNDER ANY AND ALL MATERIAL AGREEMENTS RELATING TO THE PROPERTY AND OTHERWISE IN ACCORDANCE WITH APPLICABLE LAWS, ORDINANCES, RULES, AND REGULATIONS; AND (VI) PROMPTLY FORWARD TO PURCHASER ANY MATERIAL NOTICES OF VIOLATIONS GOVERNMENTAL REQUIREMENTS OR RESTRICTIONS WHICH SELLER RECEIVES OR BECOMES AWARE.  SELLER WILL NOT PERMIT EITHER PROJECT OWNER OR 109 WAGON WHEEL TO HAVE ANY EMPLOYEES.  IN ADDITION, SELLER WILL NOT PERMIT 109 WAGON WHEEL TO ENGAGE IN ANY TRADE OR BUSINESS ACTIVITY OTHER THAN THE OWNERSHIP OF THE 106 MEMBERSHIP INTEREST AND ANCILLARY ACTIVITIES.  IN ADDITION, SELLER WILL CAUSE 109 WAGON WHEEL AND 108 WAGON WHEEL TO COMPLY WITH ALL TERMS AND PROVISIONS OF THE MEZZANINE LOANS. (C)           ASSETS AND OBLIGATIONS. (1)           SELLER COVENANTS THAT: (I)          UPON TRANSFER OF THE WAGON WHEEL MEMBERSHIP INTEREST TO PURCHASER AT THE CLOSING, (A) THE PROJECT OWNER SHALL HOLD ONLY THE PROPERTY; (B) 109 WAGON WHEEL SHALL HOLD ONLY THE 106 MEMBERSHIP INTEREST; AND (C) THE PROJECT OWNER AND 109 WAGON WHEEL SHALL HOLD NO OTHER ASSETS OF ANY NATURE WHATSOEVER. (II)         UPON TRANSFER OF THE WAGON WHEEL MEMBERSHIP INTEREST TO PURCHASER AT THE CLOSING, (A) THE PROJECT OWNER SHALL HAVE NO LIABILITIES, OBLIGATIONS OR COMMITMENTS OF ANY NATURE, WHETHER ABSOLUTE, ACCRUED, UNACCRUED, EXPRESS OR IMPLIED, UNMATURED, KNOWN OR UNKNOWN, CONTINGENT OR OTHERWISE, OR ANY UNSATISFIED JUDGMENTS, EXCEPT THE PERMITTED OBLIGATIONS, AND (B) 109 WAGON WHEEL SHALL HAVE NO LIABILITIES, OBLIGATIONS OR COMMITMENTS OF ANY NATURE, WHETHER ABSOLUTE, ACCRUED, 8 -------------------------------------------------------------------------------- UNACCRUED, EXPRESS OR IMPLIED, UNMATURED, KNOWN OR UNKNOWN, CONTINGENT OR OTHERWISE, OR ANY UNSATISFIED JUDGMENTS EXCEPT THE PERMITTED OBLIGATIONS. (III)        UPON TRANSFER OF THE WAGON WHEEL MEMBERSHIP INTEREST TO PURCHASER AT THE CLOSING, SELLER SHALL AND HEREBY DOES (EFFECTIVE AS OF THE CLOSING DATE) WAIVE, AND COVENANT NOT TO SUE FOR, ANY AND ALL PRESENT OR FUTURE CLAIMS OR LIABILITIES AGAINST THE PROJECT OWNER OR 109 WAGON WHEEL WHETHER (I) PURSUANT TO THIS AGREEMENT, (II) FOR INDEMNITY, OR (III) OTHERWISE. (2)           PRIOR TO CLOSING, SELLER MAY CAUSE THE PROJECT OWNER AND 109 WAGON WHEEL TO TRANSFER TO SELLER OR TO ANY OTHER PERSON DESIGNATED BY SELLER OR, IF SELLER PREFERS, TO TERMINATE, RELEASE OR ABANDON ANY PROPERTY, RIGHTS, TITLE, INTEREST, CONTRACT OR CLAIM HELD BY THE PROJECT OWNER OR 109 WAGON WHEEL THAT ARE NOT PART OF THE PROPERTY, INCLUDING SPECIFICALLY (A) ALL RIGHT, TITLE AND INTEREST, IF ANY, OF THE PROJECT OWNER OR 109 WAGON WHEEL IN RESPECT OF THE NAME “ALEXAN” OR ANY OTHER NAMES, TRADEMARKS, TRADE NAMES, TRADE DRESS OR LOGOS OF 109 WAGON WHEEL, THE PROJECT OWNER OR SELLER OR ANY OF THEIR RESPECTIVE AFFILIATES (EVEN IF USED IN CONNECTION WITH THE PROPERTY), AS WELL AS ALL GOODWILL ASSOCIATED WITH ANY OF SUCH NAMES, TRADEMARKS, TRADE NAMES, TRADE DRESS OR LOGOS, (B) SUBJECT TO SECTION 1.3, ALL CASH BALANCES OF THE PROJECT OWNER OR 109 WAGON WHEEL AND (C) ANY CLAIM OF THE PROJECT OWNER OR 109 WAGON WHEEL AGAINST SELLER OR ANY OF ITS AFFILIATES, EXCEPT CLAIMS AGAINST THE GENERAL CONTRACTOR IF IT IS AN AFFILIATE OF SELLER. (D)           ACCESS.  DURING THE TERM OF THIS AGREEMENT, PURCHASER AND ITS AGENTS, CONSULTANTS AND DESIGNEES SHALL HAVE REASONABLE ACCESS TO THE PROJECT FOR PURPOSES OF OBSERVING, TESTING AND INSPECTING THE WORK.  NO SUCH OBSERVATION, TEST OR INSPECTION OR FAILURE TO DO SO SHALL RELIEVE SELLER FROM ITS OBLIGATIONS UNDER THIS AGREEMENT.  IN EXERCISING ITS ACCESS RIGHTS, PURCHASER SHALL EXERCISE AND SHALL CAUSE ITS DESIGNEES TO EXERCISE DUE CARE TO NOT MATERIALLY INCREASE THE COST OF THE GENERAL CONTRACTOR’S PERFORMANCE OR TO DELAY TO ANY MATERIAL EXTENT THE WORK ON THE CONSTRUCTION CONTRACT.  PURCHASER SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS SELLER AND PROJECT OWNER FROM AND AGAINST ALL LIABILITY, LOSS, COST OR EXPENSE (INCLUDING REASONABLE ATTORNEYS’ FEES AND EXPENSES OF LITIGATION) ARISING FROM ANY WRONGFUL ACTS COMMITTED BY PURCHASER OR ITS DESIGNEES, AGENTS OR CONSULTANTS WHILE ON THE LAND. (E)           RENT READY CONDITION.  IF ANY APARTMENT UNIT IS VACATED SEVEN (7) DAYS OR MORE PRIOR TO CLOSING, THEN, PRIOR TO CLOSING, SELLER SHALL USE COMMERCIALLY REASONABLE DILIGENCE TO CAUSE THE PROJECT OWNER TO RETURN SUCH UNIT TO RENTABLE CONDITION IN ACCORDANCE WITH TRAMMEL CROW RESIDENTIAL’S CUSTOMARY CLEANING, PAINTING, AND REPAIR STANDARDS FOR VACANT UNITS (THE CONDITION OF SUCH AN APARTMENT UNIT AFTER CLEANING, PAINTING AND REPAIRING IS REFERRED TO HEREIN AS A “RENT READY CONDITION”).  TO THE EXTENT ANY SUCH UNITS ARE NOT IN A RENT READY CONDITION, THE PURCHASE PRICE SHALL BE CREDITED IN AN AMOUNT EQUAL TO $750 FOR EACH UNIT THAT IS NOT IN A RENT READY CONDITION. (F)            OWNERSHIP OF THE PROJECT.  UNTIL SUCH TIME AS THE PURCHASE OPTION HAS EXPIRED SELLER’S SHALL NOT PERMIT PROJECT OWNER TO SELL OR DISPOSE OF THE PROJECT OR ANY PORTION THEREOF EXCEPT FOR PERMITTED DISPOSITIONS.  FOLLOWING THE EXPIRATION OF THE PURCHASE OPTION, PROJECT OWNER WILL BE PERMITTED TO SELL THE PROJECT (IN WHOLE BUT NOT IN PART) TO AN ARMS LENGTH PURCHASER WHO IS NOT AN AFFILIATE OF SELLER OR TRAMMEL CROW RESIDENTIAL.  UNTIL SUCH TIME AS THE PURCHASE OPTION HAS EXPIRED AND THE PUT OPTION HAS EXPIRED, SELLER WILL NOT PERMIT ANY LIENS, ENCUMBRANCES OR OTHER TITLE 9 -------------------------------------------------------------------------------- EXCEPTIONS (OTHER THAN THE PERMITTED EXCEPTIONS AND NORMAL UTILITY EASEMENTS, SOLELY FOR BENEFIT OF THE PROJECT, INCIDENT TO THE DEVELOPMENT AND OPERATION OF THE PROJECT) TO ENCUMBER THE LAND OR THE PROJECT. (G)           SERVICE CONTRACTS.  SELLER WILL NOT PERMIT PROJECT OWNER TO ENTER INTO ANY SERVICE CONTRACTS OTHER THAN THOSE DESCRIBED ON EXHIBIT F UNLESS EITHER (I) SUCH SERVICE CONTRACT IS TERMINABLE ON NOT MORE THAN 30 DAYS NOTICE WITHOUT THE PAYMENT OF ANY TERMINATION FEE OR PENALTY OR (II) SUCH SERVICE CONTRACT HAS BEEN APPROVED IN WRITING BY PURCHASER. (H)           UTILITY CONTRACTS.  SELLER WILL NOT PERMIT PROJECT OWNER TO ENTER INTO ANY AGREEMENT WITH ANY UTILITY COMPANY (PUBLIC OR PRIVATE) TO PROVIDE UTILITY SERVICES TO THE PROJECT UNLESS EITHER (I) SUCH UTILITY CONTRACT IS TERMINABLE ON NOT MORE THAN 30 DAYS NOTICE WITHOUT THE PAYMENT OF ANY TERMINATION FEE OR PENALTY OR (II) SUCH UTILITY CONTRACT HAS BEEN APPROVED IN WRITING BY PURCHASER. 1.8          TERMINATION PRIOR TO CLOSING. (A)           REASONS FOR TERMINATION.  THIS AGREEMENT MAY BE TERMINATED BEFORE THE CLOSING, NOTWITHSTANDING ANY EXERCISE OF THE PURCHASE OPTION OR THE PUT OPTION: (1)           BY MUTUAL CONSENT.  BY THE MUTUAL CONSENT OF PURCHASER AND SELLER. (2)           BY PURCHASER.  BY PURCHASER AFTER COMPLIANCE WITH THE PROCEDURE SET FORTH IN THIS SECTION, IF (I) ANY OF SELLER’S REPRESENTATIONS OR WARRANTIES CONTAINED IN THIS AGREEMENT IS OR BECOMES UNTRUE IN ANY MATERIAL RESPECT, (II) SELLER FAILS TO PERFORM ANY OF ITS COVENANTS OR AGREEMENTS CONTAINED IN THIS AGREEMENT IN ANY MATERIAL RESPECT, OR (III) ANY OF PURCHASER’S CONDITIONS TO THE CONSUMMATION OF THE TRANSACTIONS PROVIDED FOR IN THIS AGREEMENT SHALL HAVE BECOME IMPOSSIBLE TO SATISFY. (3)           BY SELLER.  BY SELLER AFTER COMPLIANCE WITH THE PROCEDURE SET FORTH IN THIS SECTION, IF (I) ANY OF PURCHASER’S REPRESENTATIONS OR WARRANTIES CONTAINED IN THIS AGREEMENT IS OR BECOMES UNTRUE, IN ANY MATERIAL RESPECT, (II) PURCHASER FAILS TO PERFORM ITS COVENANTS OR AGREEMENTS CONTAINED IN THIS AGREEMENT IN ANY MATERIAL RESPECT, OR (III) ANY OF SELLER’S CONDITIONS TO THE CONSUMMATION OF THE TRANSACTIONS PROVIDED FOR IN THIS AGREEMENT SHALL BECOME IMPOSSIBLE TO SATISFY. (4)           OUTSIDE DATE.  BY PURCHASER IF THE COMPLETION DATE SHALL NOT HAVE OCCURRED ON OR BEFORE MAY 31, 2008. (5)           MEZZANINE LOANS.  BY PURCHASER IF THERE IS ANY DEFAULT BY 109 WAGON WHEEL OR 108 WAGON WHEEL PURSUANT TO THE DOCUMENTS EVIDENCING OR SECURING THE MEZZANINE LOANS; PROVIDED PURCHASER SHALL STILL BE ENTITLED TO PURSUE ANY RIGHTS AND REMEDIES PURSUANT TO THE MEZZANINE LOANS. (B)           NOTICE OF PROBLEMS; TERMINATION.  PURCHASER OR SELLER (THE “NOTIFYING PARTY”) WILL PROMPTLY GIVE WRITTEN NOTICE TO THE OTHER (THE “RECEIVING PARTY”) IF IT BECOMES AWARE OF THE OCCURRENCE OR FAILURE TO OCCUR, OR THE IMPENDING OR THREATENED OCCURRENCE OR FAILURE TO OCCUR, OF ANY FACT OR EVENT THAT WOULD CAUSE OR CONSTITUTE, OR WOULD BE LIKELY TO CAUSE OR CONSTITUTE (I) ANY OF ITS 10 -------------------------------------------------------------------------------- REPRESENTATIONS OR WARRANTIES CONTAINED IN THIS AGREEMENT BEING OR BECOMING UNTRUE IN ANY MATERIAL RESPECT, (II) ITS FAILURE TO PERFORM IN ANY MATERIAL RESPECT ANY COVENANTS OR AGREEMENTS CONTAINED IN THIS AGREEMENT, OR (III) ANY CONDITION TO THE OBLIGATIONS OF THE RECEIVING PARTY TO CONSUMMATE THE TRANSACTIONS PROVIDED FOR IN THIS AGREEMENT BEING OR BECOMING IMPOSSIBLE TO SATISFY.  NO SUCH NOTICE SHALL AFFECT THE REPRESENTATIONS, WARRANTIES, COVENANTS, AGREEMENTS OR CONDITIONS OF THE PARTIES HEREUNDER, OR PREVENT ANY PARTY FROM RELYING ON THE REPRESENTATIONS AND WARRANTIES CONTAINED HEREIN. THE NOTIFYING PARTY SHALL HAVE 20 DAYS FROM THE DATE OF SAID NOTICE TO CURE ANY MATTER REFERRED TO IN SECTIONS 1.8(B)(I) OR (II); PROVIDED, HOWEVER, IF SUCH A MATTER IS NOT SUSCEPTIBLE TO CURE WITHIN SUCH 20 DAY PERIOD AND THE NOTIFYING PARTY HAS PROMPTLY COMMENCED, AND IS DILIGENTLY AND CONTINUOUSLY PURSUING, SUCH CURE THEN THE 20 DAY PERIOD SPECIFIED ABOVE SHALL BE EXTENDED ON A DAY-BY-DAY BASIS AS NEEDED TO EFFECT SUCH CURE, BUT NOT BEYOND 120 DAYS FROM THE ORIGINAL DATE OF SAID NOTICE.  UPON RECEIPT OF A NOTICE REFERRED TO IN SECTION 1.8(B)(III), OR THE FAILURE OF THE NOTIFYING PARTY SO TO CURE A MATTER REFERRED TO IN SECTIONS 1.8(B) (I) OR (II), THE RECEIVING PARTY MAY TERMINATE THIS AGREEMENT BY WRITTEN NOTICE TO THE NOTIFYING PARTY. (C)           EFFECT OF TERMINATION.  UPON TERMINATION OF THIS AGREEMENT PURSUANT TO THIS ARTICLE, NO PARTY SHALL HAVE ANY CONTINUING OBLIGATION TO THE OTHER PARTY ARISING OUT OF THIS AGREEMENT, OR OUT OF ACTIONS TAKEN IN CONNECTION WITH THIS AGREEMENT; PROVIDED, HOWEVER, THAT (I) NO SUCH TERMINATION SHALL RELIEVE A PARTY OF LIABILITY FOR BREACH OF, OR MISREPRESENTATION UNDER, OR NONPERFORMANCE OF THIS AGREEMENT PRIOR TO SUCH TERMINATION (II) NO SUCH TERMINATION SHALL AFFECT THE RIGHTS AND OBLIGATIONS UNDER THE MEZZANINE LOANS, AND (III) ARTICLE V AND ARTICLE VI OF THIS AGREEMENT AND THE INDEMNIFICATION OBLIGATIONS UNDER THIS AGREEMENT SHALL SURVIVE TERMINATION OF THIS AGREEMENT. 1.9          CASUALTY. (A)           SELLER SHALL GIVE PURCHASER PROMPT NOTICE OF ANY FIRE OR OTHER CASUALTY AFFECTING THE PROPERTY.  PURCHASER OR ITS DESIGNATED AGENTS MAY ENTER UPON THE PROPERTY FROM TIME TO TIME DURING NORMAL BUSINESS HOURS AND UPON ADVANCE NOTICE TO SELLER IN ACCORDANCE WITH THIS AGREEMENT FOR THE PURPOSE OF INSPECTING ANY SUCH CASUALTY. (B)           IF PRIOR TO THE APPLICABLE CLOSING THERE OCCURS DAMAGE TO THE PROPERTY CAUSED BY FIRE OR OTHER INSURED CASUALTY, THEN IN ANY SUCH EVENT, PURCHASER WILL HAVE NO RIGHT TO TERMINATE THIS AGREEMENT, BUT SELLER SHALL WORK WITH PURCHASER TO ASSIST IN THE REALIZATION BY PROJECT OWNER OF ANY CASUALTY INSURANCE PROCEEDS WHICH MAY BE PAYABLE TO PROJECT OWNER, AS THE OWNER OF THE PROPERTY, ON ACCOUNT OF ANY SUCH OCCURRENCE (EXCLUDING AMOUNTS ATTRIBUTABLE TO ANY DAMAGE THAT HAS BEEN REPAIRED PRIOR TO CLOSING), SPECIFICALLY INCLUDING THE PROCEEDS OF ANY BUSINESS INTERRUPTION OR LOSS OF RENTAL INSURANCE ATTRIBUTABLE TO THE PERIOD AFTER CLOSING.  IN ADDITION, SELLER SHALL CREDIT THE PURCHASE PRICE WITH THE AMOUNT OF ANY DEDUCTIBLE UNDER ANY OF PROJECT OWNER’S INSURANCE POLICY(IES). (C)           IF PRIOR TO THE CLOSING THERE OCCURS DAMAGE TO THE PROPERTY CAUSED BY FIRE OR OTHER CASUALTY AND SUCH DAMAGE IS EITHER UNINSURED OR UNDER INSURED, AS REASONABLY DETERMINED BY PURCHASER, AND SELLER ELECTS NOT TO PAY TO REPAIR SUCH DAMAGE, THEN IN ANY SUCH EVENT, PURCHASER MAY, AT ITS OPTION ELECT TO TERMINATE THIS AGREEMENT, BY WRITTEN NOTICE TO SELLER WITHIN 30 DAYS AFTER THE DATE OF SELLER’S NOTICE TO PURCHASER OF THE UNINSURED OR UNDER INSURED CASUALTY.  IF PURCHASER FAILS TO 11 -------------------------------------------------------------------------------- TERMINATE THIS AGREEMENT, THEN THE CLOSING WILL TAKE PLACE AS PROVIDED HEREIN WITHOUT REDUCTION OF THE PURCHASE PRICE, AND, IN THE CASE OF AN UNDER INSURED CASUALTY, SELLER SHALL WORK WITH PURCHASER TO ASSIST IN THE REALIZATION BY PROJECT OWNER OF ANY CASUALTY INSURANCE PROCEEDS WHICH MAY BE PAYABLE TO PROJECT OWNER, AS THE OWNER OF THE PROPERTY, ON ACCOUNT OF ANY SUCH OCCURRENCE (EXCLUDING AMOUNTS ATTRIBUTABLE TO ANY DAMAGE THAT HAS BEEN REPAIRED PRIOR TO CLOSING), SPECIFICALLY INCLUDING THE PROCEEDS OF ANY BUSINESS INTERRUPTION OR LOSS OF RENTAL INSURANCE ATTRIBUTABLE TO THE PERIOD AFTER CLOSING.  IN ADDITION, SELLER SHALL CREDIT THE PURCHASE PRICE WITH THE AMOUNT OF ANY DEDUCTIBLE UNDER ANY OF PROJECT OWNER’S INSURANCE POLICY(IES) (EXCLUDING AMOUNTS ATTRIBUTABLE TO ANY DAMAGE THAT HAS BEEN REPAIRED PRIOR TO CLOSING).  DAMAGE SHALL BE DEEMED TO BE UNDER INSURED IF THE INSURANCE PROCEEDS ARE NOT SUFFICIENT TO FULLY REPAIR OR RESTORE THE DAMAGE TO SUBSTANTIALLY THE SAME CONDITION THAT EXISTED IMMEDIATELY PRIOR TO SUCH FIRE OR OTHER CASUALTY OR IF THE INSURANCE PROCEEDS (AFTER TAKING INTO ACCOUNT ANY DEDUCTIBLE PROVIDED FOR IN SUCH INSURANCE POLICY(IES)) ARE NOT MADE AVAILABLE TO THE SELLER OR THE PROJECT OWNER (FOR EXAMPLE, IF THE SENIOR LENDER REQUIRES SUCH PROCEEDS TO BE APPLIED AGAINST THE OUTSTANDING BALANCE OF THE CONSTRUCTION LOAN). ARTICLE II. REPRESENTATIONS AND WARRANTIES OF SELLER Seller hereby represents and warrants to Purchaser, except as set forth on the schedules Seller has delivered herewith referencing a particular section of this Article II (collectively, the “Disclosure Schedules”), as set forth below. 2.1          EXISTENCE; GOOD STANDING. (A)           109 WAGON WHEEL IS A DELAWARE LIMITED LIABILITY COMPANY DULY ORGANIZED, VALIDLY EXISTING AND IN GOOD STANDING UNDER THE LAWS OF ITS STATE OF ORGANIZATION, AND HAS THE REQUISITE POWER AND AUTHORITY TO CARRY ON ITS BUSINESS AS CONDUCTED SINCE THE DATE OF ITS FORMATION. (B)           108 WAGON WHEEL IS A DELAWARE LIMITED LIABILITY COMPANY DULY ORGANIZED, VALIDLY EXISTING AND IN GOOD STANDING UNDER THE LAWS OF ITS STATE OF ORGANIZATION, AND HAS THE REQUISITE POWER AND AUTHORITY TO CARRY ON ITS BUSINESS AS CONDUCTED SINCE THE DATE OF ITS FORMATION. (C)           PROJECT OWNER IS A DELAWARE LIMITED LIABILITY COMPANY DULY ORGANIZED, VALIDLY EXISTING AND IN GOOD STANDING UNDER THE LAWS OF ITS STATE OF ORGANIZATION, AND HAS THE REQUISITE POWER AND AUTHORITY TO CARRY ON ITS BUSINESS AS CONDUCTED SINCE THE DATE OF ITS FORMATION.  THE PROJECT OWNER IS DULY QUALIFIED TO DO BUSINESS AS A FOREIGN ENTITY AND IS IN GOOD STANDING IN THE STATE OF NEVADA, THE ONLY JURISDICTION IN WHICH IT IS REQUIRED TO BE SO QUALIFIED OR OTHERWISE CONDUCTS OPERATIONS. 2.2          TITLE TO MEMBERSHIP INTEREST. (A)           109 WAGON WHEEL (I) IS THE RECORD AND BENEFICIAL OWNER AND (II) HAS GOOD AND VALID TITLE TO THE 106 MEMBERSHIP INTEREST, FREE AND CLEAR OF ANY AND ALL LIENS.  THE PROJECT OWNER HAS COMPLIED WITH ALL APPLICABLE LAWS IN CONNECTION WITH THE ISSUANCE OF THE 106 MEMBERSHIP INTEREST.  THE 106 MEMBERSHIP INTEREST WAS NOT ISSUED IN VIOLATION OF ANY CONTRACT OR AGREEMENT BINDING UPON SELLER, 109 WAGON WHEEL OR THE PROJECT OWNER. 12 -------------------------------------------------------------------------------- (B)           108 WAGON WHEEL (I) IS THE RECORD AND BENEFICIAL OWNER AND (II) HAS GOOD AND VALID TITLE TO THE 109 MEMBERSHIP INTEREST, FREE AND CLEAR OF ANY AND ALL LIENS.  109 WAGON WHEEL HAS COMPLIED WITH ALL APPLICABLE LAWS IN CONNECTION WITH THE ISSUANCE OF THE 109 MEMBERSHIP INTEREST.  THE 109 MEMBERSHIP INTEREST WAS NOT ISSUED IN VIOLATION OF ANY CONTRACT OR AGREEMENT BINDING UPON SELLER OR 109 WAGON WHEEL. (C)           THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED HEREBY WILL TRANSFER TO PURCHASER GOOD AND VALID TITLE TO THE WAGON WHEEL MEMBERSHIP INTEREST, FREE AND CLEAR OF ANY AND ALL LIENS. 2.3          POWER AND AUTHORITY. (A)           SELLER HAS THE FULL LEGAL RIGHT, POWER AND AUTHORITY TO ENTER INTO THIS AGREEMENT AND ALL AGREEMENTS AND OTHER DOCUMENTS EXECUTED AND DELIVERED BY IT PURSUANT TO THIS AGREEMENT AND TO CONSUMMATE THE MEMBERSHIP INTEREST PURCHASE AND THE OTHER TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. (B)           SELLER HAS DULY AND PROPERLY TAKEN ALL ACTION REQUIRED BY LAW AND BY ITS CERTIFICATE OF FORMATION AND OPERATING AGREEMENT OR COMPARABLE ORGANIZATIONAL DOCUMENTS (“ORGANIZATIONAL DOCUMENTS”) TO AUTHORIZE THE EXECUTION, DELIVERY AND PERFORMANCE OF THIS AGREEMENT AND ANY RELATED DOCUMENTS AND THE CONSUMMATION OF THE MEMBERSHIP INTEREST PURCHASE AND THE OTHER TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY. (C)           THIS AGREEMENT AND ALL AGREEMENTS AND DOCUMENTS EXECUTED BY SELLER AND DELIVERED TO PURCHASER IN CONNECTION HEREWITH HAVE BEEN DULY EXECUTED AND DELIVERED BY SELLER AND CONSTITUTE THE LEGAL, VALID AND BINDING OBLIGATIONS OF SELLER, ENFORCEABLE AGAINST SELLER IN ACCORDANCE WITH THEIR RESPECTIVE TERMS. 2.4          NO VIOLATION. The execution and delivery of this Agreement, and the agreements executed and delivered by Seller in connection herewith, do not, and the consummation of the actions contemplated hereby or thereby will not, (a) violate, contravene or conflict with any provision of the Organizational Documents of the Project Owner, 109 Wagon Wheel or Seller, (b) violate, contravene or conflict with any provisions of, result in the acceleration of any obligation under, constitute a default or breach under, or give any right of termination or cancellation under, any mortgage, Lien, lease, agreement, note, instrument, debenture, license, order, arbitration award, judgment or decree to which any of the Project Owner, 109 Wagon Wheel or Seller is a party or by which any of the Project Owner, 109 Wagon Wheel or Seller is bound, (c) violate, contravene or conflict with any law, rule or regulation applicable to any of the Project Owner, 109 Wagon Wheel or Seller, or (d) result in any Lien, other than pursuant to the Construction Loan or Mezzanine Loans, on any of the Project Owner’s, 109 Wagon Wheel’s or Seller’s assets. 2.5          CAPITALIZATION. (A)           PROJECT OWNER’S AUTHORIZED EQUITY SECURITIES CONSIST OF THE 106 MEMBERSHIP INTEREST, WHICH IS ISSUED AND OUTSTANDING.  THE 106 MEMBERSHIP INTEREST HAS BEEN DULY AUTHORIZED AND VALIDLY ISSUED, IS FULLY PAID AND NONASSESSABLE AND IS OWNED BENEFICIALLY AND OF RECORD BY 109 13 -------------------------------------------------------------------------------- WAGON WHEEL.  THE 106 MEMBERSHIP INTEREST CONSTITUTES ALL OF THE ISSUED AND OUTSTANDING EQUITY SECURITIES OF THE PROJECT OWNER.  THERE ARE NO AUTHORIZED OR OUTSTANDING PREEMPTIVE, CONVERSION OR EXCHANGE RIGHTS, SUBSCRIPTIONS, OPTIONS, WARRANTS, RIGHTS, CONTRACTS, CALLS, PUTS OR OTHER ARRANGEMENTS, AGREEMENTS OR COMMITMENTS OBLIGATING THE PROJECT OWNER OR SELLER TO ISSUE, TRANSFER, DISPOSE OF OR ACQUIRE ALL OR ANY PORTION OF THE 106 MEMBERSHIP INTEREST OR ANY OTHER SECURITIES OR EQUITY INTEREST IN THE PROJECT OWNER, AND THERE ARE NO MEMBER AGREEMENTS, VOTING AGREEMENTS OR OTHER AGREEMENTS, WRITTEN OR ORAL, RELATING TO THE 106 MEMBERSHIP INTEREST, EXCEPT AS DETAILED IN ITS ORGANIZATIONAL DOCUMENTS. (B)           109 WAGON WHEEL’S AUTHORIZED EQUITY SECURITIES CONSIST OF THE 109 MEMBERSHIP INTEREST, WHICH IS ISSUED AND OUTSTANDING.  THE 109 MEMBERSHIP INTEREST HAS BEEN DULY AUTHORIZED AND VALIDLY ISSUED, IS FULLY PAID AND NONASSESSABLE AND IS OWNED BENEFICIALLY AND OF RECORD BY 108 WAGON WHEEL.  THE 109 MEMBERSHIP INTEREST CONSTITUTES ALL OF THE ISSUED AND OUTSTANDING EQUITY SECURITIES OF 109 WAGON WHEEL.  THERE ARE NO AUTHORIZED OR OUTSTANDING PREEMPTIVE, CONVERSION OR EXCHANGE RIGHTS, SUBSCRIPTIONS, OPTIONS, WARRANTS, RIGHTS, CONTRACTS, CALLS, PUTS OR OTHER ARRANGEMENTS, AGREEMENTS OR COMMITMENTS OBLIGATING THE 109 WAGON WHEEL OR SELLER TO ISSUE, TRANSFER, DISPOSE OF OR ACQUIRE ALL OR ANY PORTION OF THE 109 MEMBERSHIP INTEREST OR ANY OTHER SECURITIES OR EQUITY INTEREST IN THE PROJECT OWNER, AND THERE ARE NO MEMBER AGREEMENTS, VOTING AGREEMENTS OR OTHER AGREEMENTS, WRITTEN OR ORAL, RELATING TO THE 109 MEMBERSHIP INTEREST. 2.6          Consents. No consent, authorization, permit, license or filing with any governmental authority, lender, lessor, landlord, manufacturer, supplier or other person or entity is required to authorize, or is required in connection with, the execution and delivery by Seller of this Agreement and the agreements and documents contemplated hereunder to be entered into by the Seller or the transfer of the Wagon Wheel Membership Interest. 2.7          SUBSIDIARIES. (A)           THE PROJECT OWNER HAS NO SUBSIDIARIES AND OWNS NO EQUITY INTEREST IN ANY ENTITY. (B)           109 WAGON WHEEL HAS NO SUBSIDIARIES AND OWNS NO EQUITY INTEREST IN ANY ENTITY OTHER THAN THE PROJECT OWNER. 2.8          Legal Proceedings. None of the Project Owner, nor any of its assets, 109 Wagon Wheel nor any of its assets, or the Wagon Wheel Membership Interest are subject to any pending, nor do Seller, 109 Wagon Wheel or the Project Owner have knowledge of any threatened, action, suit, litigation, governmental investigation, condemnation or other proceeding against or relating to or affecting the Project Owner or 109 Wagon Wheel or any of their respective assets, or the Wagon Wheel Membership Interest or the transactions contemplated by this Agreement (excluding immaterial tort litigation which is fully insured by Project Owner’s liability insurance and routine litigation regarding enforcement of Tenant Leases).  No basis for any such action, suit, litigation, governmental investigation, condemnation or other proceeding exists. 14 -------------------------------------------------------------------------------- 2.9          Brokers and Finders Fees. No person is entitled to any fee from either the Project Owner or Seller as a broker or finder in connection with the sale and purchase of the Wagon Wheel Membership Interest. 2.10        TAX REPRESENTATIONS. (A)           AS USED HEREIN, THE TERM “TAXES” MEANS ALL FEDERAL, STATE, LOCAL, FOREIGN AND OTHER GOVERNMENTAL NET INCOME, GROSS INCOME, GROSS RECEIPTS, SALES, USE, AD VALOREM, TRANSFER, FRANCHISE, PROFITS, LICENSE, LEASE, SERVICE, SERVICE USE, WITHHOLDING, PAYROLL, EMPLOYMENT, UNEMPLOYMENT, EXCISE, SEVERANCE, STAMP, ESCHEAT, OCCUPATION, PREMIUM, PROPERTY, WINDFALL PROFITS, CUSTOMS, DUTIES OR OTHER TAXES, FEES, ASSESSMENTS OR CHARGES IN THE NATURE OF TAXES, TOGETHER WITH ANY INTEREST AND ANY PENALTIES, ADDITIONS TO TAX OR ADDITIONAL AMOUNTS WITH RESPECT THERETO, AND THE TERM “TAX” MEANS ANY ONE OF THE FOREGOING TAXES; THE TERM “TAX RETURNS” MEANS ALL RETURNS, INFORMATION RETURNS, DECLARATIONS, REPORTS, STATEMENTS AND OTHER DOCUMENTS REQUIRED TO BE FILED IN RESPECT OF TAXES; THE TERM “CODE” MEANS THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (ALL CITATIONS TO THE CODE, OR TO THE TREASURY REGULATIONS PROMULGATED THEREUNDER, SHALL INCLUDE ANY AMENDMENTS OR ANY SUBSTITUTE OR SUCCESSOR PROVISIONS THERETO); THE TERM “GOVERNMENTAL ENTITIES” MEANS ANY COURT, TRIBUNAL, GOVERNMENTAL OR REGULATORY AUTHORITY, AGENCY, DEPARTMENT, COMMISSION, INSTRUMENTALITY, BODY OR OTHER GOVERNMENTAL ENTITY OF THE UNITED STATES OF AMERICA OR ANY STATE OR POLITICAL SUBDIVISION THEREOF OR ANY COURT OR ARBITRATOR, AND THE TERM “GOVERNMENTAL ENTITY” MEANS ANY ONE OF THE FOREGOING GOVERNMENTAL ENTITIES. (B)           ALL TAX RETURNS REQUIRED TO BE FILED PRIOR TO THE CLOSING DATE BY OR ON BEHALF OF THE PROJECT OWNER OR 109 WAGON WHEEL, INCLUDING, BUT NOT LIMITED TO ALL TAX RETURNS FILED BY SELLER OR ANY AFFILIATE OF SELLER ON BEHALF OF THE PROJECT OWNER OR 109 WAGON WHEEL, HAVE BEEN DULY AND TIMELY FILED IN ACCORDANCE WITH APPLICABLE LAWS, AND ARE TRUE, CORRECT AND COMPLETE IN ALL MATERIAL RESPECTS.  BOTH THE PROJECT OWNER AND 109 WAGON WHEEL HAVE TIMELY PAID IN FULL ALL TAXES REFLECTED ON THEIR RESPECTIVE TAX RETURNS OR OTHERWISE REQUIRED TO HAVE BEEN PAID, AS APPLICABLE, BY PROJECT OWNER OR 109 WAGON WHEEL, OR ALL SUCH TAXES HAVE BEEN PAID ON PROJECT OWNER’S OR 109 WAGON WHEEL’S BEHALF.  NEITHER THE PROJECT OWNER NOR 109 WAGON WHEEL IS THE BENEFICIARY OF ANY EXTENSION OF TIME WITHIN WHICH TO FILE ANY TAX RETURNS THAT REMAIN OUTSTANDING.  NEITHER THE PROJECT OWNER NOR 109 WAGON WHEEL HAS EVER HAD ANY TAX DEFICIENCY PROPOSED OR ASSESSED AGAINST IT NOR HAS THE PROJECT OWNER OR 109 WAGON WHEEL EVER EXECUTED ANY WAIVER OF ANY STATUTE OF LIMITATIONS ON THE ASSESSMENT OR COLLECTION OF ANY TAX.  IN THE CASE OF TAXES FOR THE CURRENT PERIOD NOT YET DUE, BOTH PROJECT OWNER AND 109 WAGON WHEEL HAVE MADE ADEQUATE PROVISION UNDER SECTION 1.3 FOR THE PAYMENT OF ALL TAXES FOR WHICH THE PROJECT OWNER OR 109 WAGON WHEEL, AS APPLICABLE, IS OR MAY BECOME LIABLE FOR PAYMENT.  BOTH THE PROJECT OWNER AND 109 WAGON WHEEL HAVE WITHHELD AND PAID OVER TO APPROPRIATE GOVERNMENTAL ENTITIES ANY TAXES DUE WITH RESPECT TO AMOUNTS PAID OR OWING TO EMPLOYEES (WHICH NEITHER PROJECT OWNER NOR 109 WAGON WHEEL IS PERMITTED TO HAVE PURSUANT TO THE TERMS OF THIS AGREEMENT), INDEPENDENT CONTRACTORS, CREDITORS, MEMBERS OR OTHER THIRD PARTIES IN ACCORDANCE WITH APPLICABLE LAW. (C)           (I) NO FEDERAL, STATE, LOCAL OR FOREIGN AUDITS OR OTHER ADMINISTRATIVE PROCEEDINGS OR COURT PROCEEDINGS ARE PRESENTLY PENDING WITH REGARD TO ANY TAXES OR TAX RETURNS OF THE PROJECT OWNER OR 109 WAGON WHEEL, AND NONE OF THE PROJECT OWNER, 109 WAGON WHEEL OR SELLER WITH RESPECT TO THE PROJECT OWNER, 109 WAGON WHEEL OR THE PROJECT HAS RECEIVED ANY WRITTEN NOTICE OF ANY 15 -------------------------------------------------------------------------------- PENDING OR PROPOSED CLAIMS, AUDITS OR PROCEEDINGS WITH RESPECT TO TAXES, (II) NONE OF THE PROJECT OWNER, 109 WAGON WHEEL OR SELLER WITH RESPECT TO THE PROJECT OWNER, 109 WAGON WHEEL OR THE PROJECT HAS RECEIVED ANY NOTICE OF DEFICIENCY OR ASSESSMENT FROM ANY GOVERNMENTAL ENTITY FOR ANY AMOUNT OF TAX THAT HAS NOT BEEN FULLY SETTLED OR SATISFIED, AND NO SUCH DEFICIENCY OR ASSESSMENT IS PROPOSED, (III) THE PROJECT OWNER AND 109 WAGON WHEEL HAVE DISCLOSED ON THEIR TAX RETURNS ALL POSITIONS TAKEN THEREIN THAT COULD GIVE RISE TO A SUBSTANTIAL UNDERSTATEMENT OF TAXES WITHIN THE MEANING OF CODE SECTION 6662 OR ANY SIMILAR STATUTE OR REGULATION UNDER STATE, LOCAL AND FOREIGN LAW, AND (IV) NONE OF THE PROJECT OWNER, 109 WAGON WHEEL OR SELLER WITH RESPECT TO THE PROJECT OWNER, 109 WAGON WHEEL OR THE PROJECT HAS EXECUTED ANY WAIVER OF ANY STATUTE OF LIMITATIONS ON THE ASSESSMENT OR COLLECTION OF ANY TAX. (D)           THERE ARE NO TAX LIENS UPON ANY ASSETS OR PROPERTY OF THE PROJECT OWNER OR 109 WAGON WHEEL EXCEPT FOR STATUTORY LIENS FOR CURRENT TAXES NOT YET DUE AND PAYABLE. (E)           THE PROJECT OWNER AND 109 WAGON WHEEL ARE AND ALWAYS HAVE BEEN TREATED AS DISREGARDED ENTITIES FOR FEDERAL INCOME TAX PURPOSES. (F)            NEITHER THE PROJECT OWNER NOR 109 WAGON WHEEL IS, NOR HAS EITHER ONE EVER BEEN, A PARTY TO ANY TAX-SHARING AGREEMENT WITH ANY PERSON. 2.11        Liabilities and Obligations. Except for Permitted Obligations, neither the Project Owner nor 109 Wagon Wheel has any liabilities, obligations or commitments of any nature, whether absolute, accrued, unaccrued, express or implied, unmatured, known or unknown, contingent or otherwise, or any unsatisfied judgments. 2.12        Licenses and Permits. The Project Owner possesses all discretionary approvals from Governmental Entities to permit development of the Project and will, as part of the development of the Project, obtain all additional Governmental Authorizations necessary or appropriate for the development and construction of the Project.  The Project Owner is not in default, nor has it received any written notice of, nor is there, to the knowledge of Seller or the Project Owner, any threat to revoke or challenge any such Governmental Authorizations.  None of the Project Owner, 109 Wagon Wheel, or the Seller with respect to the Project Owner, 109 Wagon Wheel or the Project has been notified by any person or authority that such person or authority has rescinded, restricted, or not renewed, or intends to rescind, restrict or not renew, any Governmental Authorizations or that penalties or other disciplinary action has been, is threatened to, or will be assessed or taken against the Project Owner, 109 Wagon Wheel or the Property. 2.13        PROPERTY. (A)           PARTIES IN POSSESSION.  THERE ARE NO PARTIES IN POSSESSION OF ANY PORTION OF THE PROPERTY EXCEPT PROJECT OWNER AND TENANTS UNDER THE TENANT LEASES. (B)           SERVICE CONTRACTS.  THE SERVICE CONTRACTS DELIVERED TO PURCHASER ARE TRUE, CORRECT AND COMPLETE COPIES OF ALL MATERIAL CONTRACTS AND AGREEMENTS RELATING TO THE OWNERSHIP, OPERATION OR LEASING OF THE PROPERTY ENTERED INTO BY PROJECT OWNER (EXCEPT TENANT LEASES, THE 16 -------------------------------------------------------------------------------- DOCUMENTS EVIDENCING THE CONSTRUCTION LOAN, THE DOCUMENTS OR AGREEMENTS DESCRIBED OR LISTED ON THE PERMITTED EXCEPTIONS). (C)           ROLLBACK TAXES.  NO PART OR PORTION OF THE PROPERTY HAS BEEN ASSESSED AS HAVING AN AGRICULTURAL USE UNDER NRS CHAPTER 361A; AND THEREFORE THE PROPERTY WILL NOT BE SUBJECT TO AGRICULTURAL TAX LIENS, REGARDLESS OF FUTURE USES OF THE PROPERTY. (D)           UTILITIES.  ALL UTILITIES REQUIRED FOR THE CONSTRUCTION AND OPERATION PROJECT, INCLUDING, WITHOUT LIMITATION, STORM SEWER, SANITARY SEWER, NATURAL GAS, WATER, ELECTRICITY AND TELEPHONE ARE AVAILABLE IN ADEQUATE CAPACITY TO THE LAND. (E)           EQUIPMENT.  EXCEPT AS SET FORTH ON SCHEDULE 2.13(D), ALL MACHINERY, EQUIPMENT, COMPUTER HARDWARE AND SOFTWARE, VEHICLES OR OTHER PERSONAL PROPERTY OWNED BY THE PROJECT OWNER FOR THE CONDUCT OF THE BUSINESSES OF THE PROJECT OWNER (I) HAVE BEEN MAINTAINED BY SELLER OR THE PROJECT OWNER IN ACCORDANCE WITH MAINTENANCE PRACTICES THAT ARE STANDARD FOR TRAMMELL CROW RESIDENTIAL AND (II) ARE IN GOOD CONDITION AND REPAIR. (F)            CONTRACTS.  ON THE CLOSING DATE, THE ONLY WRITTEN AGREEMENTS, CONTRACTS, NOTES, BONDS, DEBENTURES, INDENTURES, MORTGAGES, PROMISES AND UNDERSTANDINGS TO WHICH THE PROJECT OWNER OR 109 WAGON WHEEL IS A PARTY OR ASSIGNEE (THE “CONTRACTS”) WILL BE ONLY OF THE TYPE THAT ARE PERMITTED OBLIGATIONS.  THE PROJECT OWNER IS NOT IN BREACH OR DEFAULT OF ANY MATERIAL PROVISION OF ANY CONTRACT, NOR HAS SELLER, THE PROJECT OWNER OR 109 WAGON WHEEL RECEIVED ANY NOTICE OR OTHER COMMUNICATION ALLEGING SUCH A BREACH OR DEFAULT.  NONE OF THE SELLER, THE PROJECT OWNER NOR 109 WAGON WHEEL HAS RECEIVED ANY NOTICE OF TERMINATION OR OTHER INDICATION THAT ANY PARTY TO ANY CONTRACT WILL TERMINATE, FAIL TO RENEW, FAIL TO RECOGNIZE THE VALIDITY OF, ANY MATERIAL CONTRACT.   ALL RIGHTS OF THE PROJECT OWNER UNDER THE CONTRACTS WILL BE ENFORCEABLE BY THE PROJECT OWNER AFTER THE CLOSING WITHOUT THE CONSENT OR AGREEMENT OF ANY OTHER PARTY. 2.14        Employees; Benefit Plans. Neither the Project Owner nor 109 Wagon Wheel has any employees, and neither entity has ever had any employees.  Neither the Project Owner nor 109 Wagon Wheel has ever maintained, sponsored, participated in or contributed to, or been required to contribute to, nor will the Project Owner or 109 Wagon Wheel be subject to any obligation, responsibility or liability with respect to, any Employee Benefit Plan or Seller/ERISA Affiliate Benefit Plan (as defined below). “Employee Benefit Plans” means collectively any “employee benefit plan” as defined by Section 3(3) of ERISA, “multiemployer plan,” as defined in Section 4001 of ERISA, “employee pension benefit plan” (as defined in Section 3(2) of ERISA) that is subject to Title IV of ERISA or Section 412 of the Code, specified fringe benefit plan as defined in Section 6039D of the Code, or other bonus, incentive compensation, deferred compensation, profit sharing, stock option, stock appreciation right, stock bonus, stock purchase, employee stock ownership, savings, severance, supplemental unemployment, layoff, salary continuation, retirement, pension, health, life insurance, dental, disability, accident, group insurance, vacation, holiday, sick leave, fringe benefit or welfare plan, and any other employee compensation or benefit plan (whether qualified or nonqualified, currently effective or terminated, written or unwritten), or any trust, escrow or other agreement related thereto. “Seller/ERISA Affiliate Benefit Plan” means any Employee Benefit Plan which any trade or business (whether or not incorporated) which is or at any time within the six (6) year period preceding the date of this Agreement would have been treated as a “single employer” with the Project Owner under Section 414(b), (c), (m), or (o) of the Code (“ERISA Affiliate”) maintains, 17 -------------------------------------------------------------------------------- sponsors, participates in, contributes to, or is required to contribute to, or with respect to which the Project Owner, 109 Wagon Wheel or any ERISA Affiliate has any obligation or liability (contingent or otherwise). 2.15        CONDUCT OF BUSINESS. (A)           CHANGES.  SINCE THEIR DATE OF FORMATION NEITHER OF THE PROJECT OWNER NOR 109 WAGON WHEEL HAS (I) AUTHORIZED OR ISSUED ANY EQUITY SECURITIES; GRANTED ANY OPTION OR RIGHT TO PURCHASE ANY EQUITY SECURITIES; ISSUED ANY SECURITY CONVERTIBLE INTO EQUITY SECURITIES; GRANTED ANY REGISTRATION RIGHTS; OR PURCHASED, REDEEMED, RETIRED, OR OTHERWISE ACQUIRED ANY EQUITY SECURITIES; (II) AMENDED ITS ORGANIZATIONAL DOCUMENTS OTHER THAN TO CHANGE ITS NAME; (III) SOLD OR TRANSFERRED ANY ASSETS EXCEPT IN THE ORDINARY COURSE OF BUSINESS CONSISTENT WITH THE CONSTRUCTION AND OPERATION OF THE PROJECT; (IV) MORTGAGED OR PLEDGED ANY ASSETS OR BEEN SUBJECTED TO ANY LIEN OR OTHER ENCUMBRANCE OTHER THAN PURSUANT TO THE CONSTRUCTION LOAN, THE MEZZANINE LOANS AND THE PERMITTED EXCEPTIONS; (V) INCURRED OR BECOME SUBJECT TO ANY DEBT, LIABILITY OR LEASE OBLIGATION, OTHER THAN PURSUANT TO THE CONSTRUCTION LOAN OR THE MEZZANINE LOANS, OR, WITH RESPECT TO THE PROJECT OWNER, THE PERMITTED OBLIGATIONS; (VI) INCURRED OBLIGATIONS OR ENTERED INTO CONTRACTS OTHER THAN THE CONSTRUCTION LOAN, THE MEZZANINE LOANS OR THE PERMITTED OBLIGATIONS OR CONSTRUCTION CONTRACTS FOR THE PROJECT; (VII) SUFFERED ANY DAMAGE, DESTRUCTION OR LOSS OF ANY ASSETS; (VIII) WAIVED OR RELINQUISHED ANY MATERIAL RIGHTS OR CANCELED OR COMPROMISED ANY MATERIAL DEBT OR CLAIM OWING TO IT, IN EITHER CASE, WITHOUT ADEQUATE CONSIDERATION OR NOT IN THE ORDINARY COURSE OF BUSINESS CONSISTENT WITH THE CONSTRUCTION AND OPERATION OF THE PROJECT; OR (IX) AGREED TO DO ANY OF THE FOREGOING. (B)           NO ADVERSE CHANGE.  SINCE THE DATE OF FORMATION OF THE PROJECT OWNER, THE PROJECT OWNER HAS CONDUCTED ITS BUSINESS ONLY IN THE ORDINARY COURSE FOR THE ACQUISITION OF THE LAND AND THE CONSTRUCTION AND OPERATION OF THE PROJECT CONSISTENT WITH PREVAILING INDUSTRY PRACTICES.  SINCE THE DATE OF FORMATION OF 109 WAGON WHEEL, 109 WAGON WHEEL HAS CONDUCTED ITS BUSINESS ONLY IN THE ORDINARY COURSE. 2.16        Books and Records. The Project Owner’s and 109 Wagon Wheel’s books and records, including without limitation all financial records, business records, minute books and equity transfer records, (a) are complete and correct in all material respects and all transactions to which the Project Owner is or has been a party are accurately reflected therein, (b) have been maintained in accordance with customary and sound business practices in the Project Owner’s industry, and (c) accurately reflect the assets, liabilities, financial position and results of operations of the Project Owner in all material respects.  All computer-generated reports and other computer data included in such books and records are complete and correct in all material respects and were prepared in accordance with sound business practices based upon authentic data. 2.17        Compliance with Laws. None of the Project Owner, 109 Wagon Wheel, or the Seller with respect to the Project Owner, 109 Wagon Wheel or the Project has violated any judgment, writ, decree, order, law, statute, rule or regulation to which it is subject or a party, or by which the businesses or assets of the Project Owner are bound or affected (collectively, “Legal Requirements”), other than any Legal Requirement the 18 -------------------------------------------------------------------------------- violation of which would not have a materially adverse effect on the Project Owner.  None of the Project Owner, 109 Wagon Wheel, or the Seller with respect to the Project Owner, 109 Wagon Wheel or the Project has received notice of any actual, alleged or potential violation of a Legal Requirement by the Project Owner, 109 Wagon Wheel or the Seller with respect to the Project Owner, 109 Wagon Wheel or the Project other than violations that have been corrected and for which no legal action is pending or threatened.  None of the Project Owner, 109 Wagon Wheel, or the Seller with respect to the Project Owner, 109 Wagon Wheel or the Project, nor any of their former or current officers, directors, employees (which neither Project Owner nor 109 Wagon Wheel is permitted to have pursuant to the terms of this Agreement), agents or representatives (acting on behalf of the Project, the Project Owner or 109 Wagon Wheel) has made or agreed to make, directly or indirectly, any (i) bribes or kickbacks, illegal political contributions, payments from funds not recorded on books and records, or funds to governmental officials (or any such official’s family members or affiliates) for the purpose of affecting their action or the action of the government they represent, to obtain favorable treatment in securing business or licenses or to obtain special concessions, (ii) illegal payments from corporate funds to obtain or retain business or (iii) payments from corporate funds to governmental officials for the purpose of affecting their action or the action of the government they represent, to obtain favorable treatment in securing business or licenses or to obtain special concessions. 2.18        ENVIRONMENTAL MATTERS. (A)           109 WAGON WHEEL, THE PROJECT OWNER AND THE PROJECT ARE, AND SINCE THEIR FORMATION OR COMMENCEMENT, AS APPLICABLE, HAVE BEEN IN COMPLIANCE WITH ALL APPLICABLE ENVIRONMENTAL LAWS (DEFINED BELOW).  NONE OF 109 WAGON WHEEL, THE PROJECT OWNER, NOR THE SELLER WITH RESPECT TO THE 109 WAGON WHEEL, THE PROJECT OR THE PROJECT OWNER, HAS RECEIVED NOTICE OF ANY OBLIGATION, LIABILITY, ORDER, SETTLEMENT, JUDGMENT, INJUNCTION OR DECREE RELATING TO OR ARISING UNDER ENVIRONMENTAL LAWS WHICH HAS NOT BEEN RESOLVED TO THE SATISFACTION OF THE APPROPRIATE GOVERNMENTAL ENTITIES.  NO FACTS, CIRCUMSTANCES OR CONDITIONS EXIST WITH RESPECT TO THE PROJECT OWNER OR THE PROJECT THAT COULD GIVE RISE TO ENVIRONMENTAL LIABILITIES APPLICABLE TO THE PROJECT OR THE WAGON WHEEL MEMBERSHIP INTEREST. (B)           THE 109 WAGON WHEEL’S AND THE PROJECT OWNER’S USE, HANDLING, MANUFACTURE, TREATMENT, PROCESSING, STORAGE, GENERATION, RELEASE, DISCHARGE AND DISPOSAL OF HAZARDOUS MATERIALS IN CONNECTION WITH PAST AND CURRENT OPERATIONS COMPLIED AND COMPLIES WITH APPLICABLE ENVIRONMENTAL LAWS THEN IN EFFECT. (C)           FOR PURPOSES OF THIS AGREEMENT: (1)           “ENVIRONMENTAL LAWS” COLLECTIVELY SHALL MEAN ALL PRESENT AND FUTURE LAWS (WHETHER COMMON LAW, STATUTE, RULE, ORDER, REGULATION OR OTHERWISE), PERMITS, AND OTHER REQUIREMENTS OR GUIDELINES OF GOVERNMENTAL AUTHORITIES APPLICABLE TO THE PROPERTY AND RELATING TO THE ENVIRONMENT AND ENVIRONMENTAL CONDITIONS OR TO ANY HAZARDOUS MATERIALS OR HAZARDOUS MATERIALS ACTIVITY (INCLUDING THE COMPREHENSIVE ENVIRONMENTAL RESPONSE COMPENSATION, AND LIABILITY ACT OF 1980, 42 U.S.C. §§ 9601 ET SEQ., THE FEDERAL RESOURCE CONSERVATION AND RECOVERY ACT OF 1976, 42 U.S.C. §§ 6901 ET SEQ., THE HAZARDOUS MATERIALS TRANSPORTATION ACT, 49 U.S.C. §§ 6901 ET SEQ., THE FEDERAL WATER POLLUTION CONTROL ACT, 33 U.S.C. §§ 1251 ET SEQ., THE CLEAN AIR ACT, 33 U.S.C. §§ 7401 ET SEQ., THE CLEAN AIR ACT, 42 19 -------------------------------------------------------------------------------- U.S.C. §§ 7401 ET SEQ., THE TOXIC SUBSTANCES CONTROL ACT, 15 U.S.C. §§ 2601-2629, THE SAFE DRINKING WATER ACT, 42 U.S.C. §§ 300F-300J, THE EMERGENCY PLANNING AND COMMUNITY RIGHT-TO-KNOW ACT, 42 U.S.C. §§ 1101 ET SEQ., THE CLEAN WATER ACT, 33 U.S.C. § 1251 ET SEQ. AND ANY SO-CALLED “SUPER FUND” OR “SUPER LIEN” LAW, ENVIRONMENTAL LAWS ADMINISTERED BY THE ENVIRONMENTAL PROTECTION AGENCY, OR ANY SIMILAR STATE AND LOCAL LAWS AND REGULATIONS, AS WELL AS ALL AMENDMENTS THERETO AND ALL REGULATIONS, ORDERS, DECISIONS, AND DECREES NOW OR HEREAFTER PROMULGATED THEREUNDER). (2)           “ENVIRONMENTAL LIABILITIES” MEANS, ALL LIABILITIES, OBLIGATIONS, RESPONSIBILITIES, REMEDIAL ACTIONS, LOSSES, DAMAGES, COSTS AND EXPENSES (INCLUDING ALL REASONABLE FEES, DISBURSEMENTS AND EXPENSES OF COUNSEL, EXPERTS AND CONSULTANTS AND COSTS OF INVESTIGATION AND FEASIBILITY STUDIES), FINES, PENALTIES, SANCTIONS AND INTEREST INCURRED AS A RESULT OF ANY CLAIM OR DEMAND BY ANY OTHER PERSON ARISING UNDER ANY ENVIRONMENTAL LAW. (3)           “RELEASE” MEANS ANY SPILLING, LEAKING, PUMPING, POURING, EMITTING, EMPTYING, DISCHARGING, INJECTING, ESCAPING, LEACHING, DUMPING, DISPOSING OR MIGRATING INTO OR THROUGH THE ENVIRONMENT OR ANY NATURAL OR MAN-MADE STRUCTURE. 2.19        No Bankruptcy. No bankruptcy, insolvency, rearrangement or similar action involving the Project Owner or 109 Wagon Wheel, whether voluntary or involuntary, is pending or threatened, and neither the Project Owner nor 109 Wagon Wheel has ever: (i) filed a voluntary petition in bankruptcy; (ii) been adjudicated a bankrupt or insolvent or filed a petition or action seeking any reorganization, arrangement, recapitalization, readjustment, liquidation, dissolution or similar relief under any federal bankruptcy act or any other laws; (iii) sought or acquiesced in the appointment of any trustee, receiver or liquidator of all or any substantial part of its properties, the Property or any portion thereof; or (iv) made an assignment for the benefit of creditors or admitted in writing its or his inability to pay its or his debts generally as the same become due. 2.20        Bank Accounts.  Except as disclosed in writing to Purchaser, neither Project Owner nor 109 Wagon Wheel has any account or safe deposit box at any bank or financial institution. 2.21        Terrorism. None of Seller, Project Owner or 109 Wagon Wheel, nor any of their respective partners, members, shareholders or other equity owners, and none of their respective employees, officers, directors, representatives or agents, (i) is a person or entity with whom U.S. persons or entities are restricted from doing business under regulations of the Office of Foreign Asset Control (“OFAC”) of the Department of the Treasury (including those named on OFAC’s Specially Designated and Blocked Persons List) or under any statute, executive order (including the September 24, 2001, Executive Order Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism), or other governmental action relating to terrorist activities or money laundering and (ii) is engaged in any dealings or transactions or be otherwise associated with such persons or entities. 20 -------------------------------------------------------------------------------- 2.22        BROKERS AND FINDERS FEES. No person is entitled to any fee from Seller or Project Owner as a broker or finder as a result of the sale of the Wagon Wheel Membership Interest. 2.23        FULL DISCLOSURE. The representations and warranties of the Seller contained in this Agreement and the instruments, documents, certificates and schedules delivered herewith contain no untrue statement of a material fact and, when taken together as a whole, do not omit to state a material fact necessary in order to make the statements contained herein or therein not misleading. Conditions Disclaimers.  EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES IN THIS ARTICLE II, SELLER SPECIFICALLY DISCLAIMS ALL WARRANTIES OR REPRESENTATIONS OF ANY KIND OR CHARACTER, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE (INCLUDING WARRANTIES OF HABITABILITY, MERCHANTABILITY, WORKMANLIKE CONSTRUCTION AND FITNESS FOR USE OR ACCEPTABILITY FOR THE PURPOSE INTENDED BY PURCHASER) WITH RESPECT TO THE PROPERTY OR ITS CONDITION.  THE DISCLAIMERS IN THIS PARAGRAPH SPECIFICALLY EXTEND TO (1) MATTERS RELATING TO HAZARDOUS MATERIALS AND COMPLIANCE WITH ENVIRONMENTAL LAWS, (2) GEOLOGICAL CONDITIONS, INCLUDING SUBSIDENCE, SUBSURFACE CONDITIONS, WATER TABLE, UNDERGROUND STREAMS AND RESERVOIRS AND OTHER UNDERGROUND WATER CONDITIONS, LIMITATIONS REGARDING THE WITHDRAWAL OF WATER, EARTHQUAKE FAULTS, AND MATTERS RELATING TO FLOOD PRONE AREAS, FLOOD PLAIN, FLOODWAY OR SPECIAL FLOOD HAZARDS, (3) DRAINAGE, (4) SOIL CONDITIONS, INCLUDING THE EXISTENCE OF UNSTABLE SOILS, CONDITIONS OF SOIL FILL, SUSCEPTIBILITY TO LANDSLIDES, AND THE SUFFICIENCY OF ANY UNDERSHORING, (5) THE VALUE AND PROFIT POTENTIAL OF THE PROPERTY, (6) DESIGN, QUALITY, SUITABILITY, STRUCTURAL INTEGRITY AND PHYSICAL CONDITION OF THE PROPERTY AND (7) COMPLIANCE OF THE PROPERTY WITH ANY LAWS (INCLUDING BUILDING CODES AND SIMILAR LAWS, THE AMERICANS WITH DISABILITIES ACT OF 1990 AND THE FAIR HOUSING AMENDMENTS ACT OF 1988).  EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN ARTICLE II OF THIS AGREEMENT, PURCHASER IS ACQUIRING THE WAGON WHEEL MEMBERSHIP INTERESTS WITH THE UNDERSTANDING THAT THE PROPERTY IS “AS IS” AND “WHERE IS” AND SUBJECT TO ALL FAULTS, DEFECTS OR OTHER ADVERSE MATTERS.  EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT, UPON CLOSING PURCHASER WILL ASSUME ALL RISKS OF THE PROPERTY, INCLUDING ADVERSE STRUCTURAL, PHYSICAL, ECONOMIC OR ENVIRONMENTAL CONDITIONS OF THE PROPERTY THAT MAY THEN EXIST, WHETHER OR NOT REVEALED BY THE INSPECTIONS AND INVESTIGATIONS CONDUCTED BY PURCHASER.  THIS PARAGRAPH SHALL NOT BE CONSTRUED TO LIMIT ANY RIGHTS OR CLAIMS THE PROJECT OWNER MAY HAVE AGAINST THE GENERAL CONTRACTOR PURSUANT TO THE CONSTRUCTION CONTRACT OR ANY CLAIMS AGAINST ANY SUBCONTRACTOR OR SUPPLIER RELATIVE TO THE DEVELOPMENT AND CONSTRUCTION OF THE PROJECT.  Purchaser acknowledges and agrees that the disclaimers, waivers, releases and other provisions set forth in this paragraph are an integral part of this Agreement and that Seller would not have agreed to complete the transaction on 21 -------------------------------------------------------------------------------- the terms provided in this Agreement without the disclaimers, waivers, releases and other provisions set forth in this paragraph. ARTICLE III. REPRESENTATIONS AND WARRANTIES OF PURCHASER Purchaser hereby represents and warrants to Seller as follows: 3.1          EXISTENCE. Purchaser is a Delaware limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware, and has the requisite power and authority to own its assets and to carry on its business as it is now being conducted. 3.2          POWER AND AUTHORITY. (A)           PURCHASER HAS THE FULL LEGAL RIGHT, POWER AND AUTHORITY TO ENTER INTO THIS AGREEMENT AND ALL AGREEMENTS AND OTHER DOCUMENTS EXECUTED AND DELIVERED BY IT PURSUANT TO THIS AGREEMENT AND TO CONSUMMATE THE PURCHASE OF THE WAGON WHEEL MEMBERSHIP INTEREST AND THE OTHER TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY; (B)           PURCHASER HAS DULY AND PROPERLY TAKEN ALL ACTION REQUIRED BY LAW AND ITS ORGANIZATIONAL DOCUMENTS TO AUTHORIZE THE EXECUTION, DELIVERY AND PERFORMANCE OF THIS AGREEMENT AND ANY RELATED DOCUMENTS AND THE CONSUMMATION OF THE MEMBERSHIP INTEREST PURCHASE; AND (C)           THIS AGREEMENT AND ALL AGREEMENTS AND DOCUMENTS EXECUTED BY PURCHASER AND DELIVERED TO SELLER IN CONNECTION HEREWITH HAVE BEEN DULY EXECUTED AND DELIVERED BY PURCHASER AND CONSTITUTE THE LEGAL, VALID AND BINDING OBLIGATIONS OF PURCHASER ENFORCEABLE AGAINST PURCHASER IN ACCORDANCE WITH THEIR RESPECTIVE TERMS. 3.3          NO VIOLATION. The execution and delivery of this Agreement and the agreements executed and delivered by Purchaser pursuant to this Agreement, do not, and the consummation of the actions contemplated hereby or thereby will not, (i) violate, contravene or conflict with any provision of the Organizational Documents of Purchaser, (ii) violate, contravene or conflict with any provisions of, result in the acceleration of any obligation under, constitute a default or breach under, or give any right of termination or cancellation under, any material mortgage, Lien, lease, agreement, rent, contract, note, instrument, debenture, license, order, arbitration award, judgment or decree to which Purchaser is a party or by which Purchaser is bound, or (iii) violate, contravene or conflict with any law, rule or regulation to which Purchaser is subject. 3.4          BROKERS AND FINDERS FEES. No person is entitled to any fee from Purchaser as a broker or finder as a result of the purchase of the Wagon Wheel Membership Interest. 22 --------------------------------------------------------------------------------   3.5          INVESTMENT REPRESENTATIONS. (A)           SUITABILITY AS A PURCHASER OF THE WAGON WHEEL MEMBERSHIP INTEREST.  PURCHASER (I) IS AN “ACCREDITED INVESTOR,” AS THAT TERM IS DEFINED IN REGULATION D UNDER THE SECURITIES ACT AND HAS SUCH KNOWLEDGE, SKILL AND EXPERIENCE IN BUSINESS AND FINANCIAL MATTERS THAT IT IS CAPABLE OF EVALUATING THE MERITS AND RISKS OF AN INVESTMENT IN THE WAGON WHEEL MEMBERSHIP INTEREST AND THE SUITABILITY THEREOF AS AN INVESTMENT FOR IT, (II) UNDERSTANDS THAT AN INVESTMENT IN THE WAGON WHEEL MEMBERSHIP INTEREST INVOLVES A RISK OF FINANCIAL LOSS, AND (III) UNDERSTANDS THAT THE WAGON WHEEL MEMBERSHIP INTEREST HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR ANY STATE SECURITIES LAWS AND THAT THE WAGON WHEEL MEMBERSHIP INTEREST MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF WITHOUT REGISTRATION UNDER THE SECURITIES ACT AND COMPARABLE STATE SECURITIES LAWS OR AN EXEMPTION THEREFROM. (B)           INVESTMENT.  PURCHASER HAS NOT ENTERED INTO ANY AGREEMENT TO EXCHANGE THE WAGON WHEEL MEMBERSHIP INTEREST WITH ANY OTHER PARTY.  PURCHASER IS ACQUIRING THE WAGON WHEEL MEMBERSHIP INTEREST FOR INVESTMENT FOR ITS OWN ACCOUNT AND NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF IN VIOLATION OF FEDERAL AND STATE SECURITIES LAWS. 3.6          CONSENTS. No consent, authorization, permit, license or filing with any governmental authority, lender, lessor, landlord, manufacturer, supplier or other person or entity is required to authorize, or is required in connection with, the execution, delivery and performance by Purchaser of this Agreement and the agreements and documents contemplated hereunder to be entered into by the Purchaser or the transfer of the Wagon Wheel Membership Interest. 3.7          TERRORISM. None of Purchaser, nor any of its respective members or other equity owners, and none of its respective employees, officers, directors, representatives or agents, (i) is a person or entity with whom U.S. persons or entities are restricted from doing business under regulations of the OFAC (including those named on OFAC’s Specially Designated and Blocked Persons List) or under any statute, executive order (including the September 24, 2001, Executive Order Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism), or other governmental action relating to terrorist activities or money laundering and (ii) is engaged in any dealings or transactions or be otherwise associated with such persons or entities. ARTICLE IV. POST-CLOSING AGREEMENTS 4.1          FURTHER ACTION. From and after the Closing, each party hereto shall perform such further acts and execute such documents, and otherwise cooperate with the other parties hereto, as may be reasonably required to effectuate the Membership Interest Purchase and the other transactions contemplated hereby. 23 -------------------------------------------------------------------------------- 4.2          RECEIPT OF PAYMENTS AND CORRESPONDENCE. From and after the Closing: (A)           IF EITHER PARTY AT ANY TIME COMES INTO POSSESSION OF ANY ASSETS THAT ARE THE PROPERTY OF THE OTHER PARTY, THE RECEIVING PARTY SHALL DELIVER SUCH ASSETS OVER TO THE OTHER PARTY WITHIN THREE (3) BUSINESS DAYS. (B)           IF AFTER CLOSING SELLER SHALL RECEIVE ANY COMMUNICATIONS OR CORRESPONDENCE PERTAINING TO 109 WAGON WHEEL, THE PROJECT OWNER OR THEIR BUSINESSES, SELLER SHALL PROMPTLY FORWARD SUCH COMMUNICATION OR CORRESPONDENCE TO PURCHASER.  WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, IN THE EVENT THAT, AFTER THE CLOSING, SELLER RECEIVES ANY TELEPHONIC OR ELECTRONIC COMMUNICATIONS (INCLUDING WITHOUT LIMITATION ELECTRONIC MAIL) OF 109 WAGON WHEEL OR THE PROJECT OWNER, SELLER SHALL IMMEDIATELY (AND, WITH REGARD TO WRITTEN COMMUNICATIONS, WITHIN THREE DAYS) DIRECT SUCH COMMUNICATIONS OR INQUIRIES TO A TELEPHONE NUMBER, ADDRESS OR ELECTRONIC MAIL ADDRESS, AS APPLICABLE, PROVIDED BY PURCHASER. 4.3          INSPECTION OF RECORDS. From and after the Closing, each party shall retain and make its books and records (including work papers in the possession of its accountants) available for inspection and copying by the other party and its Representatives, for reasonable business purposes related to 109 Wagon Wheel, the Project Owner and the Membership Interest Purchase upon reasonable notice and at all reasonable times during normal business hours, for a three year period after the date hereof.  Each party also shall make such books and records available for inspection and copying by the other party and its Representatives, in the manner described above, for a seven year period, to the extent required in connection with any litigation or Tax audit or inquiry relating thereto.  In the event of any litigation or threatened litigation between the parties relating to this Agreement or the transactions contemplated hereby, the covenants contained in this Section 4.3 shall not be considered a waiver by any party of any right to assert the attorney-client or other privilege. 4.4          TRANSFER TAXES.   Seller shall be responsible for, and pay and discharge in full, any sales, transfer or similar Taxes resulting from the consummation of the transactions contemplated by this Agreement. 4.5          TAX COVENANTS. (A)           SELLER SHALL BE RESPONSIBLE FOR ALL TAXES (INCLUDING WITHOUT LIMITATION, FOR THIS PURPOSE, TAXES THAT ARE DUE WITH RESPECT TO TAX RETURNS THAT ARE REQUIRED TO BE FILED BY 109 WAGON WHEEL OR THE PROJECT OWNER FOR THE TAXABLE PERIOD ENDED ON OR BEFORE THE CLOSING DATE) OF 109 WAGON WHEEL OR THE PROJECT OWNER WITH RESPECT TO ANY AND ALL PERIODS, OR PORTIONS THEREOF, ENDING ON OR BEFORE THE CLOSING DATE (THE “PRE-CLOSING DATE PERIOD”) AND FOR ALL CLAIMS, LOSSES, LIABILITIES, OBLIGATIONS, DAMAGES, IMPOSITIONS, ASSESSMENTS, DEMANDS, JUDGMENTS, SETTLEMENTS, COSTS AND EXPENSES WITH RESPECT TO SUCH TAXES.  WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, SELLER SHALL BE RESPONSIBLE FOR AND SHALL PROMPTLY PAY AND REIMBURSE THE PURCHASER FOR ANY AND ALL TAXES ARISING OR RESULTING FROM 109 WAGON WHEEL’S OR THE PROJECT OWNER’S QUALIFICATION OR FAILURE THEREOF TO TRANSACT BUSINESS AS A FOREIGN ENTITY IN ANY STATE FOR ALL PRE-CLOSING DATE PERIODS.  PURCHASER SHALL BE LIABLE 24 -------------------------------------------------------------------------------- FOR TAXES OF 109 WAGON WHEEL OR THE PROJECT OWNER WITH RESPECT TO ANY AND ALL PERIODS, OR PORTIONS THEREOF, BEGINNING AFTER THE CLOSING DATE (THE “POST-CLOSING DATE PERIODS”) AND FOR ANY AND ALL CLAIMS, LOSSES, LIABILITIES, OBLIGATIONS, DAMAGES, IMPOSITIONS, ASSESSMENTS, DEMANDS, JUDGMENTS, SETTLEMENTS, COSTS AND EXPENSES WITH RESPECT TO SUCH TAXES.  ANY AND ALL TRANSACTIONS AND THE EVENTS CONTEMPLATED BY THIS AGREEMENT THAT OCCUR AT OR PRIOR TO THE CLOSING DATE SHALL BE DEEMED TO HAVE OCCURRED IN THE PRE-CLOSING DATE PERIODS.  ANY AND ALL TRANSACTIONS OR EVENTS THAT OCCUR ON THE CLOSING DATE BUT AFTER THE CLOSING SHALL BE DEEMED TO HAVE OCCURRED IN THE POST-CLOSING DATE PERIOD. (B)           IN THE CASE OF ANY TAXES THAT ARE ATTRIBUTABLE TO A TAXABLE PERIOD THAT BEGINS BEFORE THE CLOSING DATE AND ENDS AFTER THE CLOSING DATE, THE AMOUNT OF TAXES ATTRIBUTABLE TO THE PRE-CLOSING DATE PERIOD SHALL BE DETERMINED AS FOLLOWS: (1)           IN THE CASE OF PROPERTY (AD VALOREM), FRANCHISE OR SIMILAR TAXES IMPOSED ON 109 WAGON WHEEL OR THE PROJECT OWNER BASED ON CAPITAL (INCLUDING NET WORTH OR LONG-TERM DEBT) OR NUMBER OF SHARES OF STOCK AUTHORIZED, ISSUED OR OUTSTANDING, THE PORTION ATTRIBUTABLE TO THE PRE-CLOSING DATE PERIOD SHALL BE THE AMOUNT OF SUCH TAXES FOR THE ENTIRE TAXABLE PERIOD MULTIPLIED BY A FRACTION, THE NUMERATOR OF WHICH IS THE NUMBER OF DAYS IN THE PRE-CLOSING DATE PERIOD AND THE DENOMINATOR OF WHICH IS THE NUMBER OF DAYS IN THE ENTIRE TAXABLE PERIOD; PROVIDED, HOWEVER, THE AMOUNT OF TAX ATTRIBUTABLE TO THE PRE-CLOSING DATE PERIOD SHALL NOT EXCEED THE AMOUNT OF TAX 109 WAGON WHEEL OR THE PROJECT OWNER, AS APPLICABLE, WOULD HAVE PAID IF ITS TAXABLE PERIOD ENDED ON THE CLOSING DATE. (2)           IN THE CASE OF ALL OTHER TAXES, THE PORTION ATTRIBUTABLE TO THE PRE-CLOSING DATE PERIOD SHALL BE DETERMINED ON THE BASIS OF AN INTERIM CLOSING OF THE BOOKS OF 109 WAGON WHEEL OR THE PROJECT OWNER AS OF THE CLOSING DATE, AND THE DETERMINATION OF THE HYPOTHETICAL TAX FOR SUCH PRE-CLOSING DATE PERIOD SHALL BE DETERMINED ON THE BASIS OF SUCH INTERIM CLOSING OF THE BOOKS, WITHOUT ANNUALIZATION.  THE HYPOTHETICAL TAX FOR ANY PERIOD SHALL IN NO CASE BE LESS THAN ZERO ($0).  TAXES ATTRIBUTABLE TO THE PRE-CLOSING DATE PERIOD SHALL BE DETERMINED UNDER THE SAME METHOD OF ACCOUNTING USED BY 109 WAGON WHEEL OR THE PROJECT OWNER DURING THAT PERIOD. (C)           SELLER SHALL PREPARE AND TIMELY FILE, OR CAUSE TO BE TIMELY FILED, FOR THE PROJECT OWNER AND 109 WAGON WHEEL, WITH REASONABLE ASSISTANCE OF PROJECT OWNER AND 109 WAGON WHEEL, TAX RETURNS THAT ARE REQUIRED BY LAW TO BE FILED FOR THE TAXABLE PERIOD ENDED ON OR BEFORE THE CLOSING DATE.  SELLER SHALL, AT LEAST TWENTY (20) DAYS PRIOR TO FILING SUCH TAX RETURNS, PROVIDE A COPY OF SUCH TAX RETURNS TO PURCHASER.  PURCHASER SHALL, WITHIN TEN (10) DAYS OF RECEIVING SUCH TAX RETURNS, ADVISE SELLER REGARDING ANY MATTERS IN SUCH TAX RETURNS THAT IT CONSIDERS DETRIMENTAL TO PURCHASER, 109 WAGON WHEEL OR THE PROJECT OWNER, AND WITH WHICH IT DISAGREES.  IN SUCH CASE, SELLER AND PURCHASER SHALL USE REASONABLE BEST EFFORTS TO REACH A TIMELY AND MUTUALLY SATISFACTORY SOLUTION TO THE DISPUTED MATTERS.  SELLER SHALL PROVIDE TO PURCHASER A COPY OF ALL SUCH TAX RETURNS TOGETHER WITH THE WORK PAPERS AND SCHEDULES UTILIZED IN THEIR PREPARATION.  PURCHASER, 109 WAGON WHEEL, THE PROJECT OWNER AND SELLER SHALL COOPERATE FULLY, AS AND TO THE EXTENT REASONABLY REQUESTED, IN CONNECTION WITH THE FILING OF TAX RETURNS AND ANY AUDIT, LITIGATION OR OTHER PROCEEDING WITH RESPECT TO TAXES AND TAX RETURNS (WHICH SELLER SHALL CONTROL AND REMAIN RESPONSIBLE FOR WITH RESPECT TO THE PRE-CLOSING DATE PERIODS).  SUCH COOPERATION SHALL INCLUDE THE RETENTION, AND (UPON THE OTHER PARTY’S REQUEST) THE PROVISION, OF RECORDS AND INFORMATION THAT ARE REASONABLY RELEVANT TO ANY SUCH AUDIT, LITIGATION OR OTHER PROCEEDING AND MAKING EMPLOYEES AVAILABLE ON A MUTUALLY CONVENIENT BASIS TO PROVIDE 25 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION AND EXPLANATION OF ANY MATERIAL PROVIDED HEREUNDER; PROVIDED THAT THE PARTY REQUESTING ASSISTANCE SHALL PAY THE REASONABLE OUT-OF-POCKET EXPENSES INCURRED BY THE PARTY PROVIDING SUCH ASSISTANCE; AND PROVIDED FURTHER THAT NO PARTY SHALL BE REQUIRED TO PROVIDE ASSISTANCE AT TIMES OR IN AMOUNTS THAT WOULD INTERFERE UNREASONABLY WITH THE BUSINESS AND OPERATIONS OF SUCH PARTY.  PURCHASER AGREES TO RETAIN ALL BOOKS AND RECORDS, WITH RESPECT TO TAX MATTERS PERTINENT TO PROJECT OWNER AND 109 WAGON WHEEL RELATING TO ANY PRE-CLOSING DATE PERIODS, AND TO ANY TAX PERIODS BEGINNING BEFORE THE CLOSING DATE AND ENDING AFTER THE CLOSING DATE, UNTIL THE EXPIRATION OF ANY APPLICABLE STATUTE OF LIMITATIONS OR EXTENSIONS THEREOF. (D)           AT LEAST TEN (10) DAYS PRIOR TO THE CLOSING DATE, PURCHASER SHALL SUBMIT A WRITTEN SCHEDULE THAT SETS FORTH PURCHASER’S PROPOSED ALLOCATION OF THE PURCHASE PRICE, IN RELATIVE PERCENTAGES FOR EACH TYPE OF ASSET BEING ACQUIRED, WHICH SCHEDULE SHALL BE DELIVERED TO SELLER FOR SELLER’S CONSENT THERETO, WHICH CONSENT SHALL NOT BE UNREASONABLY WITHHELD.  IF SELLER OBJECTS TO PURCHASER’S WRITTEN SCHEDULE, PURCHASER AND SELLER SHALL USE REASONABLE EFFORTS TO CREATE A WRITTEN SCHEDULE IN A FORM MUTUALLY AGREEABLE TO BOTH PARTIES.  PRIOR TO THE CLOSING DATE, PURCHASER SHALL PREPARE INTERNAL REVENUE SERVICE FORM 8594, ASSET ACQUISITION STATEMENT UNDER SECTION 1060 (“FORM 8594”), IN CONFORMITY WITH THE WRITTEN SCHEDULE AS DETERMINED IN ACCORDANCE WITH THIS SECTION.  PURCHASER AND SELLER SHALL ATTACH SUCH FORM 8594 TO THEIR RESPECTIVE TAX RETURNS FOR THE APPLICABLE TAX YEAR, AND TO THE EXTENT THAT THE PURCHASE PRICE IS ADJUSTED, CONSISTENTLY REVISE AND AMEND THE ALLOCATION SCHEDULE AND FORM 8594 AS NECESSARY.  THE ALLOCATION DERIVED PURSUANT TO THIS SECTION SHALL BE BINDING ON PURCHASER AND SELLER FOR ALL TAX REPORTING PURPOSES AND NEITHER PURCHASER NOR SELLER (OR ANY OF THEIR RESPECTIVE AFFILIATES) SHALL TAKE ANY POSITION (WHETHER IN TAX RETURNS, TAX AUDITS, OR OTHER ADMINISTRATIVE OR COURT PROCEEDINGS WITH RESPECT TO TAXES) THAT IS INCONSISTENT WITH SUCH ALLOCATION UNLESS REQUIRED TO DO SO BY APPLICABLE LAW. 4.6          Audit. Purchaser has advised Seller that Purchaser must cause to be prepared up to three (3) years of audited financial statements in respect of the Property in compliance with the policies of Purchaser and certain laws and regulations, including, without limitation, Securities and Exchange Commission Regulation S-X. Seller agrees to use reasonable efforts to cooperate with Purchaser’s auditors in the preparation of such audited financial statements (it being understood and agreed that the foregoing covenant shall survive the Closing). Without limiting the generality of the preceding sentence (i) Seller shall, during normal business hours, allow Purchaser’s auditors reasonable access to such books and records maintained by Seller (and Seller’s manager of the Property) in respect of the Property as necessary to prepare such audited financial statements; (ii) Seller shall use reasonable efforts to provide to Purchaser such financial information and supporting documentation in the possession of Seller or as are necessary for Purchaser’s auditors to prepare audited financial statements; (iii) if Purchaser or its auditors require any information that is in the possession of the party from which Seller purchased the Property, Seller shall contact such prior owner of the Property and use commercially reasonable efforts to obtain from such party the information requested by Purchaser; (iv) Seller will make available for interview by Purchaser and Purchaser’s auditors the agents or representatives of Seller responsible for the day-to-day operation of the Property and the keeping of the books and records in respect of the operation of the Property; and (v) if Seller has audited financial statements with respect to the Property, Seller shall promptly provide Purchaser’s auditors with a copy of such audited financial statements. If after the Closing Date Seller obtains an audited financial statement in respect of the Property for a fiscal period prior to the Closing Date that 26 -------------------------------------------------------------------------------- was not completed as of the Closing Date, then Seller shall promptly provide Purchaser with a copy of such audited financial statement, and the foregoing covenant shall survive Closing.  It shall be a condition precedent to the obligations of Purchaser under this Agreement that Seller shall have materially complied with the covenants set forth in this Section 4.6 as of the Closing Date. ARTICLE V. REMEDIES 5.1          PURCHASER’S REMEDIES. (A)           SURVIVAL OF REPRESENTATIONS AND WARRANTIES.   ALL REPRESENTATIONS AND WARRANTIES OF SELLER (I) UNDER ARTICLE II OF THIS AGREEMENT AND (II) SET FORTH IN THE SELLER CLOSING CERTIFICATE SHALL SURVIVE THE CLOSING FOR TWELVE MONTHS FOLLOWING THE CLOSING, AT WHICH DATE SUCH REPRESENTATIONS AND WARRANTIES SHALL TERMINATE, EXCEPT THAT LIABILITY ARISING FROM OR RELATED TO THE REPRESENTATIONS AND WARRANTIES IN SECTION 2.1, SECTION 2.2, SECTION 2.3, SECTION 2.4(A), SECTION 2.5, SECTION 2.9, SECTION 2.10, SECTION 2.11, AND SECTION 2.14 (AND THE CORRESPONDING PROVISIONS OF THE SELLER CLOSING CERTIFICATE) SHALL SURVIVE INDEFINITELY.  NOTWITHSTANDING THE PRECEDING SENTENCE, ANY REPRESENTATION OR WARRANTY IN RESPECT OF WHICH INDEMNITY MAY BE SOUGHT UNDER THIS SECTION 5.1 SHALL SURVIVE THE TIME AT WHICH IT WOULD OTHERWISE TERMINATE PURSUANT TO THE FOREGOING PROVISIONS OF THIS SECTION 5.1, IF NOTICE OF THE INACCURACY OR BREACH THEREOF GIVING RISE TO SUCH RIGHT TO INDEMNITY SHALL HAVE BEEN GIVEN TO THE SELLER BY PURCHASER PRIOR TO SUCH TIME.  THE CONSUMMATION OF THE CLOSING SHALL NOT AFFECT THE OTHER COVENANTS AND OBLIGATIONS OF THE PARTIES HERETO. (B)           INDEMNIFICATION OF PURCHASER.  SELLER SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS PURCHASER, 109 WAGON WHEEL AND THE PROJECT OWNER FROM AND AGAINST AND IN RESPECT OF, AND PROMPTLY REIMBURSE SUCH ENTITIES FOR THE AMOUNT OF, ANY AND ALL LOSSES, COSTS, FINES, LIABILITIES, DEFICIENCIES, OBLIGATIONS, CLAIMS, PENALTIES, DAMAGES, SETTLEMENTS, AWARDS AND EXPENSES (INCLUDING WITHOUT LIMITATION REASONABLE EXPENSES OF INVESTIGATION AND DEFENSE, AND REASONABLE LEGAL FEES AND EXPENSES) (COLLECTIVELY “LOSSES”) RESULTING FROM, IN CONNECTION WITH OR ARISING OUT OF, DIRECTLY OR INDIRECTLY: (1)           SUBJECT TO SECTION 5.1(A), ANY BREACH OF ANY REPRESENTATION OR WARRANTY OF SELLER IN THIS AGREEMENT, INCLUDING ANY CERTIFICATE OR DOCUMENT DELIVERED BY SELLER IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED HEREBY; (2)           ANY BREACH OF ANY COVENANT OR OBLIGATION MADE BY SELLER IN THIS AGREEMENT, INCLUDING ANY CERTIFICATE OR DOCUMENT DELIVERED BY SELLER IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED HEREBY; (3)           SUBJECT TO SECTION 5.3, IF THE CLOSING OCCURS, (I) ANY ACTIVITY OR EVENT INVOLVING THE PROPERTY AND OCCURRING BEFORE CLOSING, OTHER THAN AS A CONSEQUENCE OF ACTS, OR WHEN UNDER A DUTY TO ACT, OMISSIONS OF PURCHASER OR ANY OF ITS AFFILIATES OR ANY OF THEIR RESPECTIVE REPRESENTATIVES, CONSULTANTS OR CONTRACTORS, (II) FAILURE OF THE PROJECT OWNER TO PERFORM ANY OBLIGATION UNDER ANY CONTRACT PRIOR TO CLOSING, (III) MISAPPLICATION OF DEPOSITS PRIOR TO CLOSING, OR (IV) ANY LIABILITY OR OBLIGATION OF THE PROJECT OWNER OR 109 WAGON WHEEL EXISTING AS OF CLOSING OTHER THAN PERMITTED OBLIGATIONS; AND (4)           ANY ACTION, SUIT OR PROCEEDING RELATING TO ANY OF THE FOREGOING. 27 --------------------------------------------------------------------------------   (C)           SPECIFIC PERFORMANCE.  IT IS UNDERSTOOD THAT SELLER’S BREACH OF THIS AGREEMENT MAY MATERIALLY AND IRREPARABLY HARM PURCHASER, AND THAT MONEY DAMAGES MAY ACCORDINGLY NOT BE AN ADEQUATE REMEDY FOR ANY BREACH OF THIS AGREEMENT, AND THAT PURCHASER, IN ITS SOLE DISCRETION AND IN ADDITION TO ANY OTHER REMEDIES IT MAY HAVE AT LAW OR IN EQUITY MAY APPLY TO ANY COURT OF LAW OR EQUITY OF COMPETENT JURISDICTION (WITHOUT POSTING ANY BOND OR DEPOSIT) FOR SPECIFIC PERFORMANCE OR OTHER INJUNCTIVE RELIEF IN ORDER TO ENFORCE OR PREVENT ANY VIOLATIONS OF THIS AGREEMENT. 5.2          SELLER’S REMEDIES. (A)           INDEMNIFICATION OF SELLER.  PURCHASER SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS SELLER FROM AND AGAINST AND IN RESPECT OF, AND PROMPTLY REIMBURSE SELLER FOR THE AMOUNT OF, ANY AND ALL LOSSES RESULTING FROM, IN CONNECTION WITH OR ARISING OUT OF, DIRECTLY OR INDIRECTLY: (1)           SUBJECT TO SECTION 5.3, IF THE CLOSING OCCURS (I) ANY ACTIVITY OR EVENT INVOLVING THE PROPERTY AND OCCURRING AFTER CLOSING, (II) FAILURE OF THE PROJECT OWNER TO PERFORM ANY OBLIGATION UNDER ANY CONTRACT FOLLOWING CLOSING, (III) FAILURE TO PROPERLY APPLY DEPOSITS FOR WHICH PURCHASER RECEIVES A CREDIT HEREUNDER, OR (IV) PERFORMANCE OR NONPERFORMANCE OF THE PERMITTED OBLIGATIONS AFTER THE CLOSING; AND (2)           ANY ACTION, SUIT OR PROCEEDING RELATING TO ANY OF THE FOREGOING. (B)           NONPERFORMANCE BY PURCHASER.  EXCEPT WITH REGARD TO PURCHASER’S INDEMNITY OBLIGATIONS DETAILED IN THIS AGREEMENT, SELLER’S SOLE AND EXCLUSIVE REMEDY FOR ANY PURCHASER BREACH OF, MISREPRESENTATION UNDER, OR NONPERFORMANCE OF THIS AGREEMENT, OR ANY OTHER ACT OR OMISSION OF PURCHASER OR ITS AFFILIATES RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY INCLUDING, WITHOUT LIMITATION, THE FAILURE OF PURCHASER TO CONSUMMATE THE TRANSACTIONS CONTEMPLATED HEREBY, SHALL BE TO TERMINATE THE PURCHASE OPTION AND THE PUT OPTION, AND SELLER SHALL HAVE NO OTHER REMEDY AT LAW OR EQUITY PURSUANT TO THIS AGREEMENT OR OTHERWISE AGAINST ANY PERSON OR ENTITY, ANY SUCH OTHER REMEDY BEING EXPRESSLY WAIVED. PURCHASER’S BREACH OF, MISREPRESENTATION UNDER, OR NONPERFORMANCE OF THIS AGREEMENT, OR ANY OTHER ACT OR OMISSION OF PURCHASER OR ITS AFFILIATES RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, SHALL NOT AFFECT THE RIGHTS AND OBLIGATIONS UNDER THE MEZZANINE LOANS.  NOTWITHSTANDING THE FOREGOING, IF UPON APPLICATION TO THE OUTSTANDING BALANCE OF THE MEZZANINE LOANS OF THE PROCEEDS FROM THE SALE OF THE PROPERTY AS PERMITTED BY SECTION 1.7(F), THE MEZZANINE LOANS ARE NOT PAID IN FULL, PURCHASER SHALL CAUSE TO BE DISCHARGED THE REMAINING BALANCE OF THE MEZZANINE LOANS. 5.3          INDEMNITY LIMITS. Neither Purchaser nor Sellers will be liable under Section 5.1(b)(3) or 5.2(a)(1) in respect of (i) Hazardous Materials existing on the Property (including in ground water, soil or soil vapor or in the ambient air over the Property) as of the Closing, or (ii) defects in the Improvements that exist as of Closing or non-compliance of the Improvements with applicable laws that exist as of the Closing (but without limiting any rights that the Project Owner may have under the Construction Contract).  The limitations of this Section 5.3 do not extend to personal injury, loss of property (other than the Property) or death that results from Hazardous Materials, defects in the Improvements or noncompliance of the Improvements with applicable laws, responsibility for which will be 28 -------------------------------------------------------------------------------- apportioned between Seller and Purchaser in accordance with Section 5.1(b)(3) or 5.2(a)(1) based on the time that the injury, loss or death occurs. 5.4          ARBITRATION.   Except with respect to any action by Purchaser for specific performance of this Agreement or any other action for injunctive relief, which actions shall be commenced and resolved in a court of competent jurisdiction, and except as otherwise expressly provided herein, any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by binding arbitration in Dallas, Texas, by a single arbitrator reasonably satisfactory to Purchaser and Seller (provided, however, that if Purchaser and Seller are unable to agree upon a mutually satisfactory arbitrator, then the arbitrator shall be selected in accordance with the applicable rules of the American Arbitration Association), in accordance with the rules of the American Arbitration Association governing large, complex commercial disputes then in effect.  Purchaser and Seller will share equally the total expense charged by the American Arbitration Association and the arbitrator related to such arbitration as those expenses become due; but each party shall bear its own legal, accounting and all of its other fees and expenses related to the arbitration.  Such arbitration and determination shall be final and binding on Purchaser and Seller, judgment may be entered upon such determination and award in any court having jurisdiction thereof, and Purchaser and Seller agree that no appeals shall be taken therefrom except as set forth in 9 U.S.C. §10.  Notice of a demand for arbitration of any dispute subject to arbitration by one party shall be made in writing and simultaneously served on the other parties and filed with the American Arbitration Association.  The parties agree that after any such notice has been filed, they shall, before the hearing thereof, make discovery and disclosure of all matters relevant to such dispute, to the extent and in the manner provided by the applicable rules of the American Arbitration Association.  The arbitrator’s determination with respect to discovery shall be final and conclusive.  Discovery and disclosure shall be completed no later than ninety (90) days after filing of such notice of arbitration unless extended by the arbitrator upon a showing of good cause by a party to the arbitration.  The arbitrator may consider any evidence which is relevant to the subject matter of such dispute even if such evidence might also be relevant to issue or issues not subject to arbitration hereunder. ARTICLE VI. GENERAL 6.1          ENTIRETY AND MODIFICATION. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes any and all prior agreements and understandings, whether oral or written, between the parties hereto relating to such subject matter.  No modification, alteration, amendment, waiver or supplement to this Agreement shall be valid or effective unless the same is in writing and signed by all parties hereto. 6.2          ASSIGNMENT; SUCCESSORS AND ASSIGNS. Except as specifically provided otherwise in this Agreement, neither this Agreement nor any interest herein shall be assignable (voluntarily, involuntarily, by judicial process, operation of law or otherwise), in whole or in part, by any party without the prior written consent of the other parties 29 -------------------------------------------------------------------------------- hereto, and any such attempted assignment shall be null and void.  Notwithstanding the foregoing, Purchaser may, without the consent of any other party assign its rights and obligations under this Agreement to an Affiliate of Purchaser; provided, however, no such assignment shall affect the rights and obligations of Purchaser to Seller under this Agreement.  This Agreement shall be binding upon and inure to the benefit of the respective parties hereto and their successors and permitted assigns. 6.3          Expenses.  Except as otherwise provided herein, Purchaser and Seller shall each pay their own respective fees and expenses incurred in connection with the negotiation, execution, delivery and performance of this Agreement. 6.4          Notices. Any and all notices and other communications hereunder shall be in writing addressed to the parties at the addresses specified below or such other addresses as a party may direct by notice given in accordance with this Section, and shall be delivered in one of the following manners (a) by personal delivery, in which case notice shall be deemed to have been duly given when delivered; or (b) by reputable delivery service (including, by way of example and not limitation, Federal Express, UPS and DHL) which makes a record of the date and time of delivery, in which case notice shall be deemed to have been duly given on the date indicated on the delivery service’s record of delivery: If to Seller, to: SW 108 Wagon Wheel JM LLC 2001 Bryan Street, Suite 3700 Dallas, Texas 75201 Attention: Timothy J. Hogan with a copy to: Jones Day 325 John H. McConnell Blvd., Suite 600, Columbus, Ohio 43215 Attention:  Michael K. Ording If to Purchaser, to: BEHRINGER HARVARD ALEXAN NEVADA, LLC c/o Behringer Harvard Funds 15601 Dallas Parkway, Suite 600 Addison, Texas 72001 Attention:  Mark T. Alfieri 30 --------------------------------------------------------------------------------   with a copy to: Behringer Harvard Funds 15601 Dallas Parkway, Suite 600 Addison, Texas 72001 Attention:  Chief Legal Officer with an additional copy to: Haynes and Boone, LLP 2505 North Plano Road, Suite 4000 Richardson, Texas 75082 Attention: Richard K. Martin 6.5          Severability; Reformation. In case any provision of this Agreement shall be invalid, illegal or unenforceable, such provision shall be reformed to best effectuate the intent of the parties and permit enforcement thereof, and the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.  If such provision is not capable of reformation, it shall be severed from this Agreement and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 6.6          No Waiver. A party’s failure to enforce any provision or provisions of this Agreement shall not in any way be construed as a waiver of any such provision or provisions, nor prevent that party thereafter from enforcing each and every other provision of this Agreement.  The rights granted all parties herein are cumulative and shall not constitute a waiver of a party’s right to assert all other legal remedies available to it under the circumstances. 6.7          Headings. The headings of this Agreement are inserted for convenience and identification only, and are in no way intended to describe, interpret, define or limit the scope, extent or intent hereof. 6.8          Counterparts; Facsimiles. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.  This Agreement and any other document or agreement executed in connection herewith (other than any document for which an originally-executed signature page is required by law) may be executed by delivery of a facsimile copy of an executed signature page with the same force and effect as the delivery of an originally-executed signature page. 31 -------------------------------------------------------------------------------- 6.9          Governing Law. This Agreement shall be governed in all respects by, construed, interpreted and applied in accordance with the internal laws of the State of Nevada, without regard to principles of conflicts of laws that would refer the matter to the laws of another jurisdiction. [Remainder of Page Intentionally Blank] 32 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written.   PURCHASER:       BEHRINGER HARVARD ALEXAN NEVADA, LLC, a Delaware   limited liability company           By:       Name:       Title:               SELLER:       SW 108 WAGON WHEEL JM LLC       By: SW 105 Wagon Wheel Limited Partnership, a Delaware     limited partnership, its sole member         By: SW 104 Development GP LLC, a Delaware limited     liability company, its general partner                 By:         Name:         Title:       SIGNATURE PAGE TO OPTION AGREEMENT 1 -------------------------------------------------------------------------------- EXHIBIT A DEFINITIONS For purposes of the Agreement to which this is an exhibit, the terms underlined in the paragraphs of this exhibit shall have the meaning set forth next to the underlined term. 106 Membership Interest.  Defined in the Recitals. 109 Membership Interest.  Defined in the Recitals. 109 Wagon Wheel.  Defined in the Recitals of this Agreement. 108 Wagon Wheel.  Defined in the preamble of this Agreement. Affiliate.  As to any person or entity, any corporation, limited liability company or other business organization or person who or which directly or indirectly through one or more intermediaries (a) is owned or controlled by such person or entity, (b) owns or controls such person or entity or (c) is under substantially common control with such person or entity. Agreement.  This Option Agreement, its Exhibits and any written amendments to this Option Agreement (including an amendment changing Exhibits) that may be executed from time to time by Seller and Purchaser. Architect.  Perlman Design Group. Business Days.  Monday through Friday of each calendar week, exclusive of federal holidays. Closing.  Defined in Section 1.1(c). Closing Date.  The date of the Closing. Code.  Defined in Section 2.10. Completion Date.   The date of satisfaction of the following: (a)  the issuance of the final certificate of occupancy for the Project, (b) the issuance of a certificate of substantial completion from the Architect for the Project, (c) receipt of a contractor’s release and the receipt of lien waivers or similar evidence of payment from the General Contractor and all major subcontractors (i.e., subcontractors whose contract amount exceeds $100,000) for the Property to Purchaser’s reasonable satisfaction.  If Senior Lender shall deem the Project substantially complete, then the date of such determination by the Senior Lender shall be the Completion Date. Completion Notice.  Defined in Section 1.1(a). Construction Contract.  The Owner-Contractor Agreement for Construction Project of Limited Scope dated on or about the date hereof by and between the Project Owner, as owner, and the General Contractor, as contractor (including exhibits), regarding construction of the Project. Option Agreement-Alexan at Nevada State Drive, Clark County, Nevada A-1 -------------------------------------------------------------------------------- Construction Loan.  Defined in the Recitals. Disclosure Schedules. Defined in Article II. Employee Benefit Plans.  Defined in Section 2.14. Environmental Laws.  Defined in Section 2.18(c). Environmental Liability.  Defined in Section 2.18(c). ERISA.  Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated from time to time under that statute. ERISA Affiliate.  Defined in Section 2.14. Fee Title Purchase. Defined in Section 1.1(g). Form 8594.  Defined in Section 4.5(d). General Contractor.  Vanguard, Inc. Governmental Authorities.  Any and all federal, state, county, city, town, other municipal corporation, governmental or quasi-governmental board, agency, authority, department or body having jurisdiction over the Land or the Project. Governmental Authorizations.  The permits, variances, approvals and other actions which under Governmental Requirements applicable to the Project have been or must be issued, granted, or taken by Governmental Authorities in connection with the Project. Governmental Entities.  Defined in Section 2.10. Governmental Entity.  Defined in Section 2.10. Governmental Requirement(s).  Building, zoning, subdivision, traffic, parking, land use, Environmental Laws, occupancy, health, accessibility for disabled and other applicable laws, statutes, codes, ordinances, rules, regulations, requirements, and decrees, of any Governmental Authorizations pertaining (a) to the Improvements, Project or Land or (b) to the use and operation of the Property for its intended purpose.  This term shall include the conditions or requirements of Governmental Authorizations. Guaranteed Obligations.  The obligations of Seller to Purchaser pursuant to Section 1.7(c) and Section 5.1(b). Hazardous Materials.  At any time, (i) asbestos and asbestos containing material, (ii) any substance that is then defined or listed in, or otherwise classified pursuant to, any Environmental Laws as a “hazardous substance”, “hazardous material”, “hazardous waste”, “infectious waste”, “toxic substance”, “toxic pollutant” or any other formulation intended to define, list, or classify substances by reason of deleterious properties such as ignitability, corrosivity, reactivity, A-2 -------------------------------------------------------------------------------- carcinogenicity, toxicity, reproductive toxicity, or “EP toxicity”, or (iii) any petroleum and drilling fluids, produced waters, and other wastes associated with the exploration, development or production of crude oil, natural gas, or geothermal resources or (iv) petroleum products, polychlorinated biphenyls, urea formaldehyde, radon gas, radioactive matter and medical waste. Hazardous Materials Activity.  Any actual use, packaging, labeling, treatment, leaching, spill, cleanup, storage, holding, existence, release, threatened release, emission, discharge, generation, processing, treatment, abatement, removal, disposition, handling or transportation of any Hazardous Materials from, under, into or on the Property. Improvements.  The following as described in the Plans:  (a) buildings constituting the apartment project, including club house and amenities; (b) surface parking lots and any structured parking; (c) associated driveways and loading areas; (d) landscaping; and (e) associated water, storm drainage, sewage, electrical, communications and other utilities facilities all as depicted in and defined by the Plans. Interest Charges.  Interest paid or accrued on the Mezzanine Loans through the Closing Date. Junior Mezzanine Loan.  Defined in the Recitals. Land.  Defined in the Recitals. Legal Requirements.  As defined in Section 2.17. Liens.  Any claims, liens, mortgages, pledges, security interests, charges, covenants, options, claims, voting arrangements, restrictions on transfer, or other restrictions or encumbrances of any nature whatsoever. Limited Guarantors.  CFP Residential LP, a Texas limited partnership, Kenneth Valach, an individual, J. Ronald Terwilliger, an individual and Bruce Hart, an individual. Limited Guaranty.  The Limited Guaranty of even date herewith executed by the Limited Guarantors in substantially the form attached hereto as Exhibit G attached hereto. Losses.  Defined in Section 5.1(b). Membership Interest Purchase.  Defined in Section 1.1(f). Mezzanine Loan Documents.  The documents evidencing or securing the Mezzanine Loans. Mezzanine Loans.  The Senior Mezzanine Loan and the Junior Mezzanine Loan. Money Liens.  Mortgages, statutory liens and any and all other liens or charges on the Property. Notifying Party.  Defined in Section 1.8(b). A-3 -------------------------------------------------------------------------------- Off-Site Improvements.  Any and all off-site improvements required in connection with Governmental Authorizations or otherwise required or agreed to in connection with the development of the Improvements. Organizational Documents.  Defined in Section 2.3(b). Permitted Dispositions:  Any of the following:  (i) a Tenant Lease of an individual dwelling unit for a term of two years or less not containing an option to purchase; (ii) the sale of obsolete, worn out or damaged property or fixtures that is contemporaneously replaced by items of equal or better function and quality, which are free of liens, encumbrances and security interests other than Permitted Exceptions; (iii) any sale that results from theft, condemnation or other involuntary conversion; (iv) the sale (including through consumption) of personal property in the ordinary course of business that is contemporaneously replaced by items of equal or better function and quality; (v) the grant of an easement if, before the grant, Purchaser determines (which determination must be made reasonably) that the easement will not materially affect the operation or value of the Project; and (vi) the creation of (1) a lien for taxes, assessments or other governmental charges or levies that are not then due or that are being contested in good faith and in accordance with applicable statutory procedures or (2) a mechanic’s, lien against the Project which is bonded off, released of record or otherwise remedied to Purchaser’s reasonable satisfaction within 30 days of the date of creation. Permitted Exceptions.  All of (a) those matters of title and survey which affect the Property and are described on Exhibit D, (b) liens for taxes, assessments or other governmental charges, impositions or levies that are not then due, (c) liens for taxes, assessments or other governmental impositions or levies that are being contested in good faith and, at Closing, Seller has provided security reasonably acceptable to Purchaser necessary to discharge such liens, (d) mechanics’, materialmen’s, or judgment liens against the Property which are being contested in good faith and, at Closing, Seller has provided security reasonably acceptable to Purchaser necessary to discharge such liens, (e) Leases entered into on the terms allowed by this Agreement, (f) other matters approved by Purchaser, and (g) matters created by Purchaser or any of its affiliates or any of their respective representatives, consultants or contractors. Permitted Obligations.  Liabilities or obligations of the Project Owner in connection with (a) Service Contracts, (b) Permitted Exceptions, (c) Tenant Leases, (d) liabilities allocable to Purchaser based on proration credit to Purchaser, and (e) Governmental Authorizations; provided, however, liabilities or obligations arising from any breach of, or default under, the foregoing prior to the Closing shall not be Permitted Obligations. Personal Property.  All of Project Owner’s right, title and interest in and to (a) Plans; (b) Governmental Authorizations issued, granted or pending with respect to the Project; (c) studies, reports, surveys and other informational materials relating to the Land or the Project, including any “as-built” plans and CAD drawings; (d) all equipment, fixtures, appliances, inventory, computers, computer hardware, computer software, and other personal property of whatever kind or character owned by Project Owner and attached to or installed or located on or in the Land or the Improvements, including, without limitation, furniture, furnishings, drapes and floor coverings, office equipment and supplies, heating, lighting, refrigeration, plumbing, ventilating, incinerating, cooking, laundry, communication, electrical, dishwashing, and air conditioning equipment, disposals, window screens, storm windows, recreational equipment, pool equipment, patio furniture, A-4 -------------------------------------------------------------------------------- sprinklers, hoses, tools and lawn equipment; and (e) all of Project Owner’s right, title, and interest in and to (i) all permits, licenses (excluding software licenses), approvals, utility rights, development rights and similar rights related to the Property, or any portion thereof, whether granted by Governmental Entities or private persons, (ii) all telephone numbers and exchanges serving the Property, or any portion thereof, (iii) all business and goodwill of Seller related to the Property, or any portion thereof, (iv) all site plans, surveys, soil and substrata studies, architectural drawings, plans and specifications, engineering plans and studies, floor plans, landscape plans and other plans or studies of any kind that relate to the Property, or any portion thereof, (v) all leasing materials and brochures (excluding any such materials that bear proprietary trademarks, trade names, logos or symbols including the name “Alexan” or variants thereof), ledger cards, leasing records, leasing applications, tenant credit reports and maintenance and operating records related to the operation of Property, or any portion thereof, (vi) all warranties and guaranties (express or implied) issued in connection with, or arising out of (A) the purchase and repair of all furniture, fixtures, equipment, inventory, and other tangible personal property owned by Project Owner and attached to and located in or used in connection with the Property; or (B) the construction of any of the improvements located on the Property, or any portion thereof, and expressly including any warranty or guaranty from the General Contractor. Plans.  The plans and specifications described in Exhibit C. Post-Closing Date Periods.  Defined in Section 4.5(a). Pre-Closing Date Periods.  Defined in Section 4.5(a). Project.  A collective reference to (a) the Improvements and (b) the Off-Site Improvements. Project Budget.  The budget for development of the Property attached to this Agreement as Exhibit E. Project Costs.  Costs incurred by Project Owner for the acquisition of the Land and the development and construction of Project and for lease-up and operation of the Project to and through the Completion Date, including the costs within the categories listed in the Budget or the illustrative categories set forth in the subparts of this definition.  If a Project Cost may fall within one or more categories listed in this definition, the intent of this definition is that it be considered only once in the computation of Project Costs.  Illustrative categories of Project Costs are in the following subparts: (a)           Sums paid or incurred to acquire the Land, including the Project Owner’s share of third party closing costs and prorations. (b)           Sums paid or incurred under the Construction Contract or any other contract for work, equipment, labor, materials or supplies in connection with the Project. (c)           Amounts paid or incurred for fees and reimbursable expenses under contracts with the Architect and all other professionals for development of the Plans or for survey, engineering, inspection, environmental, geotechnical and other design, construction and engineering studies and services. A-5 -------------------------------------------------------------------------------- (d)           Costs paid or incurred in applying for, pursuing, obtaining and satisfying Governmental Authorizations. (e)           Premiums paid or incurred for title insurance and title insurance endorsements to the Title Policy. (f)            Premiums paid or incurred by the Project Owner for casualty, liability and builders risk insurance with regard to the Property. (g)           Interest payments on the Construction Loan, other payments (excluding repayment of principal) under the Construction Loan, and any payments on the Mezzanine Loan (excluding any payments of principal or interest). (h)           Pursuant to the terms of the Mezzanine Loans, Project Owner, Wagon Wheel 109 or Seller is obligated to reimburse to Purchaser legal fees incurred by counsel to Purchaser or any of its Affiliates, in connection with the Mezzanine Loans, the development of the Project, the negotiation of this Agreement, and the Construction Loan.  All reimbursements described in the immediately preceding sentence shall be considered a Project Cost. (i)            Legal fees for services rendered by counsel to the Project Owner, Seller or any of their Affiliates in connection with the acquisition of the Land, the development of the Project, the negotiation and closing of the Construction Loan and the Mezzanine Loans and the negotiation of this Agreement. (j)            The Deferred Developer Allowance set forth in the Budget. Project Owner.  Defined in the preamble of this Agreement. Property.  The Land, the Improvements, the Personal Property, the Tenant Leases and the Service Contracts. Purchase Notice.  Defined in Section 1.1(c). Purchase Option.  Defined in the Recitals. Purchase Price.  Defined in Section 1.2. Purchaser.  Defined in the preamble of this Agreement. Purchaser Closing Certificate.  Defined in Section 1.4(c). Put Notice.  Defined in Section 1.1(d). Put Option.  Defined in the Recitals. Receiving Party.  Defined in Section 1.8(b). A-6 -------------------------------------------------------------------------------- Release.  Defined in Section 2.18(c). Rent Ready Condition.  Defined in Section 1.7(e). Representatives.  Defined in Section 1.1(b). Restrictions.  Any and all restrictions, easements, conditions, covenants and other agreements recorded against the Land or Improvements. Seller.  Defined in the preamble of this Agreement. Seller Closing Certificate.  Defined in Section 1.4(b). Seller/ERISA Affiliate Benefit Plans.  Defined in Section 2.14. Senior Lender.  Defined in the Recitals. Senior Mezzanine Loan.  Defined in the Recitals. Service Contracts.  All service and maintenance contracts which relate to or affect the Project or the operation thereof.  A list of the existing Service Contracts is attached as Exhibit F. Tax.  Defined in Section 2.10. Tax Returns.  Defined in Section 2.10. Taxes.  Defined in Section 2.10. Tenant Leases.  All tenant leases which relate to or affect the Project or the operation thereof. Title Company.    First American Title Insurance Company. Title Policy.  The owner title policy issued by the Title Company with regard to the Project, concurrently with the Construction Loan. Wagon Wheel Membership Interest.  Defined in the Recitals. A-7 --------------------------------------------------------------------------------   EXHIBIT B LAND PARCEL 1: A PORTION OF THE NORTHWEST QUARTER (NW 1/4) OF SECTION 34, AND THE NORTHEAST QUARTER (NE 1/4) OF SECTION 33, TOWNSHIP 22 SOUTH, RANGE 63 EAST, M.D.M., CLARK COUNTY, NEVADA, AND BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS: PARCEL 3, AS SHOWN BY MAP THEREOF ON FILE IN FILE 65, OF PARCEL MAPS, PAGE 89, IN THE OFFICE OF THE COUNTY RECORDER OF CLARK COUNTY, NEVADA. PARCEL 2: A PORTION OF THE EAST HALF (E 1/2) OF THE NORTHWEST QUARTER (NW 1/4) OF SECTION 34, TOWNSHIP 22 SOUTH, RANGE 63 EAST, M.D.M., AND MORE PARTICULARLY DESCRIBED AS FOLLOWS, TO WIT: BEGINNING AT A POINT ON THE LEFT OR SOUTHWESTERLY RTGHT-OF-WAY LINE OF US-95 FREEWAY, 452.14 FEET LEFT OF AND AT RIGHT ANGLES TO HIGHWAY ENGINEER’S STATION “ESI” 311+53.29 P.O.T.; SAID POINT OF BEGINNING FURTHER DESCRIBED AS BEARING SOUTH 33°05’47” WEST A DISTANCE OF 1,665.04 FEET FROM THE NORTH QUARTER CORNER OF SECTION 34, TOWNSHIP 22 SOUTH, RANGE 63 EAST, M.D.M.; THENCE ALONG THE FORMER LEFT OR SOUTHWESTERLY RIGHT-OF-WAY LINE OF US-95 FREEWAY THE FOLLOWING SIX (6) COURSES AND DISTANCES: 1) NORTH 59°12’25” WEST 179.53 FEET; 2) FROM A TANGENT WHICH BEARS SOUTH 25°02’05” WEST, CURVING TO THE LEFT WITH A RADIUS OF 50 FEET, THROUGH AN ANGLE OF 82°00’10”, AN ARC DISTANCE OF 71.56 FEET; 3) NORTH 56°58’05” WEST 285.01 FEET; 4) FROM A TANGENT WHICH BEARS SOUTH 56°58’05” EAST, CURVING TO THE LEFT WITH A RADIUS OF 50 FEET, THROUGH AN ANGLE OF 75°47’09”, AN ARC DISTANCE OF 66.14 FEET; 5) NORTH 47°14’46” EAST 75.10 FEET; 6) FROM A TANGENT WHICH BEARS THE LAST DESCRIBED COURSE, CURVING TO THE LEFT WITH A RADIUS OF 50 FEET, THROUGH AN ANGLE OF 85°40’37”, AN ARC DISTANCE OF 74.77 FEET TO A POINT ON THE SOUTHWESTERLY RIGHT-OF-WAY LINE OF US-95 FREEWAY; THENCE SOUTH 39°26’45” EAST, ALONG SAID LEFT OR SOUTHWESTERLY RIGHT- OF-WAY LINE, A DISTANCE OF 399.07 FEET TO THE POINT OF BEGINNING. NOTE: THE ABOVE METES AND BOUNDS LEGAL DESCRIPTION APPEARED PREVIOUSLY B-1 -------------------------------------------------------------------------------- IN THAT CERTAIN DOCUMENT RECORDED OCTOBER 8, 2004 IN BOOK 20041008 OF OFFICIAL RECORDS AS INSTRUMENT NO. 03637, CLARK COUNTY, NEVADA. B-2 --------------------------------------------------------------------------------   EXHIBIT C PLANS [insert description of Plans] C-1 --------------------------------------------------------------------------------   EXHIBIT D PERMITTED EXCEPTIONS D-1 --------------------------------------------------------------------------------   EXHIBIT E PROJECT BUDGET E-1 --------------------------------------------------------------------------------   EXHIBIT F SERVICE AND MAINTENANCE CONTRACTS None F-1 --------------------------------------------------------------------------------   EXHIBIT G FORM OF LIMITED GUARANTY G-1 --------------------------------------------------------------------------------

Exhibit 10.5 AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Agreement”), dated as of November 9, 2006 (the “Effective Date”), between ACA CAPITAL HOLDINGS, INC., a Delaware corporation (“Holdings”), ACA FINANCIAL GUARANTY CORPORATION, a Maryland corporation (“Financial,” and, together with Holdings, the “Company”) and ALAN S. ROSEMAN (the “Executive”). The Company and the Executive are parties to that certain Amended and Restated Employment Agreement, dated as of September 30, 2004 (the “Former Employment Agreement”). Financial desires to continue to employ the Executive and the Executive desires to continue such employment. Accordingly, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the receipt and adequacy of which are mutually acknowledged, the Company and the Executive agree as follows: 1.                                       DEFINITIONS.  FOR PURPOSES OF THIS AGREEMENT, THE FOLLOWING TERMS SHALL HAVE THE FOLLOWING MEANINGS: (A)                                  “AFFILIATE” OF A PERSON MEANS A PERSON THAT DIRECTLY OR INDIRECTLY THROUGH ONE OR MORE INTERMEDIARIES CONTROLS, IS CONTROLLED BY OR IS UNDER COMMON CONTROL WITH, THE PERSON SPECIFIED. (B)                                 “BASE SALARY” MEANS THE SALARY PROVIDED FOR IN SECTION 4 OR ANY INCREASED SALARY GRANTED TO THE EXECUTIVE PURSUANT TO SECTION 4. (C)                                  “BOARD” MEANS THE BOARD OF DIRECTORS OF HOLDINGS, AS CONSTITUTED FROM TIME TO TIME. (D)                                 “CAUSE” MEANS THE EXECUTIVE: (I)                                     IS CONVICTED OF, OR PLEADS NOLO CONTENDERE (OR SIMILAR PLEA) TO, A FELONY; (II)                                  PERFORMS AN ACTION OR FAILS TO TAKE AN ACTION THAT CONSTITUTES WILLFUL MISCONDUCT (WHICH IS MATERIALLY AND DEMONSTRABLY INJURIOUS TO THE COMPANY OR ANY SUBSIDIARY THEREOF) OR FRAUD BY THE EXECUTIVE IN THE PERFORMANCE OF THE EXECUTIVE’S DUTIES TO THE COMPANY; (III)                               ENGAGES IN INDEPENDENTLY VERIFIED (DETERMINED BY A QUALIFIED MEDICAL OR MENTAL HEALTH PROFESSIONAL), CONTINUING AND UNREMEDIED FOR A PERIOD OF AT LEAST SIX (6) MONTHS, SUBSTANCE ABUSE INVOLVING DRUGS OR ALCOHOL; (IV)                              WILLFULLY AND REPEATEDLY FAILS, AFTER THIRTY (30) BUSINESS DAYS NOTICE, TO MATERIALLY FOLLOW THE LAWFUL INSTRUCTIONS OF THE BOARD; OR -------------------------------------------------------------------------------- (V)                                 MATERIALLY BREACHES ANY WRITTEN POLICY, RULE OR REGULATION ADOPTED BY THE COMPANY OR ANY OF ITS SUBSIDIARIES RELATING TO COMPLIANCE WITH SECURITIES LAWS AND SUCH BREACH IS NOT CURED BY THE EXECUTIVE OR WAIVED IN WRITING BY THE COMPANY WITHIN THIRTY (30) DAYS AFTER WRITTEN NOTICE OF SUCH BREACH TO THE EXECUTIVE. No act, or failure to act, on Executive’s part shall be considered “willful” unless done, or omitted to be done, without good faith and without reasonable belief that the action or omission was in the best interest of the Company. (E)                                  “CHANGE OF CONTROL” MEANS THE OCCURRENCE OF ANY OF THE FOLLOWING EVENTS AFTER THE EFFECTIVE DATE: (I)                                     ANY PERSON (OTHER THAN ANY PERSON THAT IS A STOCKHOLDER OF HOLDINGS AS OF THE EFFECTIVE DATE, OR OTHER THAN A TRUSTEE OR OTHER FIDUCIARY HOLDING SECURITIES UNDER AN EMPLOYEE BENEFIT PLAN OF HOLDINGS, OR A CORPORATION OWNED DIRECTLY OR INDIRECTLY BY THE STOCKHOLDERS OF HOLDINGS IN SUBSTANTIALLY THE SAME PROPORTIONS AS THEIR OWNERSHIPS OF STOCK OF HOLDINGS) BECOMES THE BENEFICIAL OWNER, DIRECTLY OR INDIRECTLY (IN ONE TRANSACTION OR A SERIES OF RELATED TRANSACTIONS), OF SECURITIES OF HOLDINGS REPRESENTING MORE THAN FIFTY PERCENT (50%) OF THE COMBINED VOTING POWER OF HOLDINGS’ THEN OUTSTANDING VOTING SECURITIES; OR (II)                                  DURING ANY PERIOD OF TWO (2) CONSECUTIVE YEARS (NOT INCLUDING ANY PERIOD PRIOR TO THE EFFECTIVE DATE), INDIVIDUALS WHO AT THE BEGINNING OF SUCH PERIOD CONSTITUTE THE BOARD (AND ANY NEW DIRECTOR, WHOSE ELECTION BY HOLDINGS’ STOCKHOLDERS WAS APPROVED BY A VOTE OF AT LEAST TWO-THIRDS (2/3) OF THE DIRECTORS THEN STILL IN OFFICE WHO EITHER WERE DIRECTORS AT THE BEGINNING OF THE PERIOD OR WHOSE ELECTION OR NOMINATION FOR ELECTION WAS SO APPROVED), CEASE FOR ANY REASON TO CONSTITUTE A MAJORITY THEREOF; OR (III)                               ANY PERSON (OTHER THAN ANY PERSON THAT IS A STOCKHOLDER OF HOLDINGS AS OF THE EFFECTIVE DATE, OR OTHER THAN A TRUSTEE OR OTHER FIDUCIARY HOLDING SECURITIES UNDER AN EMPLOYEE BENEFIT PLAN OF HOLDINGS, OR A CORPORATION OWNED DIRECTLY OR INDIRECTLY BY THE STOCKHOLDERS OF HOLDINGS IN SUBSTANTIALLY THE SAME PROPORTIONS AS THEIR OWNERSHIPS OF STOCK OF HOLDINGS) IS OR BECOMES ABLE TO, OR ACQUIRES THE POWER TO, ELECT A MAJORITY OF THE MEMBERS OF THE BOARD; OR (IV)                              A CLOSING OR COMPLETION, AS APPLICABLE, OF: (I) A PLAN OR PROPOSAL OF COMPLETE LIQUIDATION OR DISSOLUTION OF HOLDINGS; (II) AN AGREEMENT FOR THE SALE OR DISPOSITION OF ALL OR SUBSTANTIALLY ALL OF HOLDINGS’ ASSETS; OR (III) A MERGER, CONSOLIDATION, OR REORGANIZATION OF HOLDINGS WITH OR INVOLVING ANY OTHER CORPORATION OR ENTITY, OTHER THAN A MERGER, CONSOLIDATION, OR REORGANIZATION THAT WOULD RESULT IN THE VOTING SECURITIES OF HOLDINGS OUTSTANDING IMMEDIATELY PRIOR THERETO CONTINUING TO REPRESENT (EITHER BY REMAINING OUTSTANDING OR BY BEING CONVERTED INTO VOTING SECURITIES OF THE SURVIVING ENTITY) AT LEAST FIFTY PERCENT (50%) OF THE COMBINED VOTING POWER OF THE VOTING SECURITIES OF HOLDINGS (OR SUCH SURVIVING ENTITY) OUTSTANDING IMMEDIATELY AFTER SUCH MERGER, CONSOLIDATION, OR REORGANIZATION. However, in no event shall a “Change of Control” be deemed to have occurred, with respect to the Executive, if Executive is part of a purchasing group that consummates the Change-of-Control transaction.  Executive shall be deemed “part of a purchasing group” for purposes of the 2 -------------------------------------------------------------------------------- preceding sentence if the Executive is an equity participant in the purchasing company or group (except for: (i) passive ownership of less than ten percent (10%) of the stock or equity interests of the purchasing company; or (ii) ownership of an equity interest in the purchasing company or group that is otherwise not significant, as determined prior to the Change of Control by a majority of the non-employee continuing directors of Holdings). (F)                                    “CLAIM” MEANS ANY CLAIM, DEMAND, REQUEST, INVESTIGATION, DISPUTE, CONTROVERSY, THREAT, DISCOVERY REQUEST, OR REQUEST FOR TESTIMONY OR INFORMATION. (G)                                 “CODE” MEANS THE INTERNAL REVENUE CODE OF 1986, AS AMENDED.  ANY REFERENCE TO A PARTICULAR SECTION OF THE CODE SHALL INCLUDE ANY PROVISION THAT MODIFIES, REPLACES, OR SUPERSEDES SUCH SECTION. (H)                                 “COMMON STOCK” MEANS COMMON STOCK, PAR VALUE $0.01 PER SHARE, OF HOLDINGS. (I)                                     UNLESS THE CONTEXT OTHERWISE REQUIRES, THE TERM “CONTROL” (INCLUDING THE TERMS “CONTROLLING,” “CONTROLLED BY” AND “UNDER COMMON CONTROL WITH”) MEANS THE POSSESSION, DIRECT OR INDIRECT, OF THE POWER TO DIRECT OR CAUSE THE DIRECTION OF THE MANAGEMENT AND POLICIES OF A PERSON, WHETHER THROUGH THE OWNERSHIP OF VOTING SECURITIES, BY CONTRACT, OR OTHERWISE. (J)                                     “CONSTRUCTIVE TERMINATION” MEANS A TERMINATION BY THE EXECUTIVE OF HIS EMPLOYMENT WITH THE COMPANY ON WRITTEN NOTICE GIVEN TO THE COMPANY WITHIN SIXTY (60) DAYS FOLLOWING THE DATE ON WHICH HE LEARNS OF THE OCCURRENCE, WITHOUT HIS PRIOR WRITTEN CONSENT, OF ANY OF THE FOLLOWING EVENTS, IF THE COMPANY SHALL HAVE FAILED TO CURE SUCH EVENT WITHIN THIRTY (30) DAYS FOLLOWING RECEIPT OF WRITTEN NOTICE FROM THE EXECUTIVE: (I)                                     A REDUCTION IN HIS THEN CURRENT BASE SALARY OR IN HIS TARGET ANNUAL INCENTIVE AWARD PURSUANT TO SECTION 5 (OTHER THAN FOR CAUSE); (II)                                  THE TERMINATION OF, OR A REDUCTION IN, ANY MATERIAL EMPLOYEE BENEFIT OR PERQUISITE ENJOYED BY HIM (OTHER THAN FOR CAUSE); (III)                               THE FAILURE TO ELECT OR REELECT HIM TO THE POSITION DESCRIBED IN SECTION 3 OR THE REMOVAL OF HIM FROM SUCH POSITION (OTHER THAN FOR CAUSE), EXCLUDING FOR THIS PURPOSE THE HIRING OF A CHIEF OPERATING OFFICER BY THE COMPANY; (IV)                              A MATERIAL CHANGE IN THE EXECUTIVE’S POSITIONS, TITLES OR RESPONSIBILITIES WITH THE COMPANY (OTHER THAN AS A RESULT OF A PROMOTION) AS SET FORTH IN SECTION 3 OF THIS AGREEMENT OR ANY ACTION BY THE COMPANY WHICH RESULTS IN A MATERIAL DIMINUTION IN THE AUTHORITY OF EXECUTIVE (OTHER THAN FOR CAUSE), EXCLUDING FOR THIS PURPOSE THE HIRING OF A CHIEF OPERATING OFFICER BY THE COMPANY; (V)                                 THE RELOCATION OF THE EXECUTIVE’S PRINCIPAL OFFICE TO A LOCATION OUTSIDE OF MANHATTAN, NEW YORK WITHOUT HIS CONSENT; 3 -------------------------------------------------------------------------------- (VI)                              THE CONSUMMATION OF A CHANGE OF CONTROL OR, AT THE EXECUTIVE’S SOLE ELECTION, COMPANY’S FAILURE TO OBTAIN AN ASSUMPTION OF THIS AGREEMENT AND THE OBLIGATIONS HEREUNDER BY ANY SUCCESSOR TO HOLDINGS OR FINANCIAL IN ACCORDANCE WITH SECTION 12 HEREIN; OR (VII)                           THE COMPANY’S MATERIAL BREACH OF THIS AGREEMENT. (K)                                  “DISABILITY” MEANS THE EXECUTIVE’S INABILITY, DUE TO PHYSICAL OR MENTAL INCAPACITY, TO SUBSTANTIALLY PERFORM HIS DUTIES AND RESPONSIBILITIES UNDER THIS AGREEMENT FOR A PERIOD OF 180 CONSECUTIVE DAYS AS DETERMINED BY AN APPROVED MEDICAL DOCTOR.  FOR THIS PURPOSE, AN “APPROVED MEDICAL DOCTOR” MEANS A MEDICAL DOCTOR MUTUALLY SELECTED BY THE EXECUTIVE AND THE COMPANY.  IF THE EXECUTIVE AND THE COMPANY CANNOT AGREE ON A MEDICAL DOCTOR, EACH PARTY SHALL SELECT A MEDICAL DOCTOR AND THE TWO DOCTORS SHALL SELECT A THIRD WHO SHALL BE THE APPROVED MEDICAL DOCTOR FOR THIS PURPOSE. (L)                                     “PARTIES” MEANS THE COMPANY AND THE EXECUTIVE. (M)                               “PERSON” MEANS ANY INDIVIDUAL, CORPORATION, PARTNERSHIP, LIMITED LIABILITY COMPANY, JOINT VENTURE, TRUST, ESTATE, BOARD, COMMITTEE, AGENCY, BODY, EMPLOYEE BENEFIT PLAN, OTHER PERSON OR ENTITY OR GROUP (WITHIN THE MEANING OF SECTION 13(D) (3) OR 14(D) (2) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED). (N)                                 “PROCEEDING” MEANS ANY THREATENED OR ACTUAL ACTION, SUIT, OR PROCEEDING, WHETHER CIVIL, CRIMINAL, ADMINISTRATIVE, INVESTIGATIVE, APPELLATE, OR OTHER. (O)                                 “PRO-RATA ANNUAL INCENTIVE AWARD” MEANS AN AMOUNT EQUAL TO THE PRODUCT OBTAINED BY MULTIPLYING (I) THE EXECUTIVE’S TARGET ANNUAL INCENTIVE AWARD SET FORTH IN SECTION 5 FOR THE CALENDAR YEAR DURING WHICH HIS EMPLOYMENT HEREUNDER TERMINATES (WITH SUCH AWARD DEEMED TO BE NO LESS THAN THE GREATER OF (X) THE TARGET ANNUAL INCENTIVE AWARD FOR SUCH YEAR PURSUANT TO SECTION 5 OR (Y) THE ACTUAL ANNUAL INCENTIVE AWARD OF THE EXECUTIVE IN THE PRIOR YEAR OF EMPLOYMENT HEREUNDER) TIMES (II) A FRACTION, THE NUMERATOR OF WHICH IS THE NUMBER OF DAYS ON WHICH THE EXECUTIVE WAS EMPLOYED BY THE COMPANY DURING SUCH YEAR AND THE DENOMINATOR OF WHICH IS 365. (P)                                 “SEVERANCE PERIOD” SHALL MEAN THE GREATER OF (I) ONE YEAR FOLLOWING THE TERMINATION DATE AND (II) THE PERIOD FROM THE TERMINATION DATE AND ENDING ON THE DATE THE THEN EXISTING TERM OF EMPLOYMENT WOULD HAVE EXPIRED PURSUANT TO SECTION 2 HAD THE TERMINATION DATE NOT OCCURRED, ASSUMING THAT EACH PARTY WOULD HAVE GIVEN NOTICE OF NON-RENEWAL ON THE EARLIEST TIME AFTER SUCH DATE THAT IT COULD GIVE SUCH NOTICE. (Q)                                 “SUBSIDIARY” OF ANY COMPANY MEANS ANY CORPORATION OF WHICH SUCH COMPANY BENEFICIALLY OWNS, DIRECTLY OR INDIRECTLY, MORE THAN 50% OF THE VOTING STOCK, MEASURED EITHER BY NUMBER OF SHARES AND OTHER VOTING SECURITIES OR BY NUMBER OF VOTES ENTITLED TO BE CAST. (R)                                    “TERM OF EMPLOYMENT” MEANS THE PERIOD SPECIFIED IN SECTION 2. (S)                                  “TERMINATION DATE” MEANS THE DATE ON WHICH THE EXECUTIVE’S EMPLOYMENT HEREUNDER TERMINATES IN ACCORDANCE WITH THIS AGREEMENT. 4 -------------------------------------------------------------------------------- (T)                                    “VOTING STOCK” MEANS ISSUED AND OUTSTANDING CAPITAL STOCK OR OTHER SECURITIES OR INTERESTS OF ANY CLASS OR CLASSES HAVING GENERAL VOTING POWER, UNDER ORDINARY CIRCUMSTANCES IN THE ABSENCE OF CONTINGENCIES, TO ELECT, IN THE CASE OF A CORPORATION, THE DIRECTORS OF SUCH CORPORATION AND, IN THE CASE OF ANY OTHER ENTITY, THE CORRESPONDING GOVERNING PERSON(S). 2.                                       TERM OF EMPLOYMENT.  THE COMPANY AGREES TO EMPLOY THE EXECUTIVE UNDER THIS AGREEMENT, AND THE EXECUTIVE ACCEPTS SUCH EMPLOYMENT, FOR THE TERM OF EMPLOYMENT.  THE TERM OF EMPLOYMENT SHALL COMMENCE ON THE EFFECTIVE DATE AND SHALL END ON SEPTEMBER 30, 2009, AND ON EVERY SUCCESSIVE ONE-YEAR ANNIVERSARY THEREAFTER, THE TERM OF EMPLOYMENT SHALL AUTOMATICALLY BE RENEWED FOR ONE YEAR UNLESS EITHER PARTY PROVIDED THE OTHER PARTY WITH THREE MONTHS’ ADVANCE WRITTEN NOTICE OF THAT PARTY’S DESIRE THAT THE TERM OF EMPLOYMENT SHOULD TERMINATE.  FOR THE AVOIDANCE OF DOUBT, IN NO EVENT SHALL SUCH NON-RENEWAL BY THE COMPANY OF THE TERM OF EMPLOYMENT BE DEEMED A TERMINATION BY THE COMPANY OF THE EXECUTIVE’S EMPLOYMENT HEREUNDER.  NOTWITHSTANDING THE FOREGOING, THE TERM OF EMPLOYMENT MAY BE EARLIER TERMINATED, BUT ONLY IN STRICT ACCORDANCE WITH THE PROVISIONS OF SECTION 9. 3.                                       POSITIONS, DUTIES, AND RESPONSIBILITIES.  (A) DURING THE TERM OF EMPLOYMENT, THE EXECUTIVE SHALL BE EMPLOYED AS THE PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHIEF OPERATING OFFICER OF EACH OF HOLDINGS AND FINANCIAL, AND SHALL PERFORM SUCH DUTIES AND EXERCISE SUCH POWERS AS ARE INCIDENT TO SUCH OFFICES AND AS MAY BE ASSIGNED (CONSISTENT WITH THE EXECUTIVE’S POSITION WITH THE COMPANY) FROM TIME TO TIME BY THE BOARD.  THE EXECUTIVE, IN CARRYING OUT HIS EXECUTIVE DUTIES UNDER THIS AGREEMENT, SHALL REPORT TO THE BOARD.  IT IS THE INTENTION OF THE PARTIES THAT THE EXECUTIVE SHALL BE ELECTED TO AND SERVE AS A MEMBER OF THE BOARD, AND HOLDINGS SHALL USE ITS BEST EFFORTS TO CAUSE ITS PRINCIPAL STOCKHOLDERS TO CAUSE THE ELECTION OF THE EXECUTIVE TO THE BOARD.  IN ADDITION, EXECUTIVE SHALL SERVE AS THE DEPUTY CHAIR OF THE BOARD, AND THE CHAIRMAN OF THE BOARD OF DIRECTORS FOR FINANCIAL. (B)                                 NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, NOTHING SHALL PRECLUDE THE EXECUTIVE FROM (I) SERVING ON THE BOARDS OF DIRECTORS OF A REASONABLE NUMBER OF OTHER CORPORATIONS OR THE BOARDS OF A REASONABLE NUMBER OF TRADE ASSOCIATIONS AND/OR CHARITABLE ORGANIZATIONS (PROVIDED THAT IN EACH SUCH CASE THE EXECUTIVE SHALL GIVE THE BOARD AT LEAST 10 BUSINESS DAYS’ ADVANCE WRITTEN NOTICE OF THE EXECUTIVE’S INTENTION TO SERVE ON ANY SUCH BOARD AND, IF THE BOARD REASONABLY OBJECTS THERETO, THE EXECUTIVE AGREES NOT TO SERVE ON SUCH BOARD), (II) ENGAGING IN CHARITABLE ACTIVITIES AND COMMUNITY AFFAIRS, INCLUDING POLITICAL ACTIVITIES, AND (III) MANAGING HIS PERSONAL INVESTMENTS AND AFFAIRS, PROVIDED THAT SUCH ACTIVITIES DO NOT MATERIALLY INTERFERE WITH THE PROPER PERFORMANCE OF HIS DUTIES AND RESPONSIBILITIES AS THE COMPANY’S PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHIEF OPERATING OFFICER. 4.                                       BASE SALARY.  THE EXECUTIVE SHALL BE PAID AN ANNUAL BASE SALARY OF $650,000.  SUCH BASE SALARY SHALL BE PAYABLE AT INTERVALS IN ACCORDANCE WITH THE REGULAR PAYROLL PRACTICES OF THE COMPANY APPLICABLE TO SENIOR EXECUTIVES BUT NO LESS FREQUENTLY THAN MONTHLY.  THE BASE SALARY SHALL BE REVIEWED NO LESS FREQUENTLY THAN ANNUALLY DURING THE TERM OF EMPLOYMENT FOR INCREASES. 5.                                       ANNUAL INCENTIVE AWARDS.  THE EXECUTIVE SHALL BE ELIGIBLE FOR AN ANNUAL INCENTIVE AWARD (“ANNUAL INCENTIVE AWARD”) FROM THE COMPANY FOR EACH FISCAL YEAR DURING THE TERM OF EMPLOYMENT BASED ON A RANGE WHICH SHALL BE BETWEEN 70% AND 500% OF HIS ANNUALIZED BASE 5 -------------------------------------------------------------------------------- SALARY THAT IS IN EFFECT AT THE END OF SUCH FISCAL YEAR, AND HIS ACTUAL ANNUAL INCENTIVE AWARD AMOUNT FOR EACH SUCH YEAR SHALL BE DETERMINED BASED ON CRITERIA ESTABLISHED BY THE BOARD’S COMPENSATION COMMITTEE (THE “COMPENSATION COMMITTEE”).  THE EXECUTIVE SHALL RECEIVE HIS ANNUAL INCENTIVE AWARD IN RESPECT OF ANY FISCAL YEAR NO LATER THAN THE MARCH 1ST IMMEDIATELY FOLLOWING THE FISCAL YEAR TO WHICH THE ANNUAL INCENTIVE AWARD RELATES. 6.                                       RESTRICTED STOCK.  PRIOR TO THE EFFECTIVE DATE, THE COMPANY HAD GRANTED TO EXECUTIVE 55,869 RESTRICTED SHARES OF THE COMPANY’S SERIES B SENIOR CONVERTIBLE PREFERRED STOCK, PAR VALUE $0.10 (THE “RESTRICTED STOCK”).  TWO-THIRDS OF THE RESTRICTED STOCK HAS VESTED AND THE REMAINING 33.34% OF THE RESTRICTED STOCK WILL VEST ON SEPTEMBER 30, 2007, PROVIDED THAT EXECUTIVE IS THEN EMPLOYED BY THE COMPANY OR A SUBSIDIARY, EXCEPT AS PROVIDED IN SECTIONS 9 AND 10 HEREIN. 7.                                       OTHER BENEFITS.  (A) EMPLOYEE BENEFITS.  DURING THE TERM OF EMPLOYMENT, THE EXECUTIVE SHALL PARTICIPATE IN ALL EMPLOYEE BENEFIT PLANS, PROGRAMS, AND ARRANGEMENTS MADE AVAILABLE GENERALLY TO THE COMPANY’S SENIOR EXECUTIVES OR TO ITS EMPLOYEES, INCLUDING, WITHOUT LIMITATION, PROFIT-SHARING, SAVINGS (QUALIFIED AND NON-QUALIFIED) AND OTHER DEFINED CONTRIBUTION RETIREMENT PLANS OR PROGRAMS, MEDICAL, DENTAL, HOSPITALIZATION, VISION, SHORT-TERM AND LONG-TERM DISABILITY AND LIFE INSURANCE PLANS OR PROGRAMS, ACCIDENTAL DEATH AND DISMEMBERMENT PROTECTION, TRAVEL ACCIDENT INSURANCE, AND ANY OTHER EMPLOYEE WELFARE BENEFIT PLANS OR PROGRAMS THAT MAY BE SPONSORED BY THE COMPANY FROM TIME TO TIME, INCLUDING ANY PLANS OR PROGRAMS THAT SUPPLEMENT THE ABOVE-LISTED TYPES OF PLANS OR PROGRAMS, WHETHER FUNDED OR UNFUNDED; PROVIDED, HOWEVER, THAT NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED TO REQUIRE THE COMPANY TO ESTABLISH OR MAINTAIN ANY SUCH PLANS, PROGRAMS, OR ARRANGEMENTS, EXCEPT FOR FAMILY MEDICAL, DENTAL, AND HOSPITALIZATION INSURANCE PROVIDING COVERAGE, AT NO COST TO THE EXECUTIVE, WHICH SHALL BE REQUIRED BENEFIT PLANS FOR THE EXECUTIVE. (B)                                 PERQUISITES.  DURING THE TERM OF EMPLOYMENT, THE EXECUTIVE SHALL PARTICIPATE IN ALL FRINGE BENEFITS AND PERQUISITES GENERALLY AVAILABLE TO SENIOR EXECUTIVES OF THE COMPANY AT LEVELS, AND ON TERMS AND CONDITIONS, THAT ARE COMMENSURATE WITH HIS POSITIONS AND RESPONSIBILITIES AT THE COMPANY; PROVIDED THAT THE COMPANY SHALL PROVIDE THE EXECUTIVE WITH AN EXPENSE ACCOUNT IN AN AMOUNT NOT TO EXCEED $20,000 PER ANNUM WHICH SHALL BE USED BY THE EXECUTIVE FOR CERTAIN EXECUTIVE BENEFITS AND THE PROMOTION THE BUSINESS OF THE COMPANY AND ITS SUBSIDIARIES.  THE EXECUTIVE SHALL ALSO RECEIVE SUCH ADDITIONAL FRINGE BENEFITS AND PERQUISITES AS THE COMPENSATION COMMITTEE MAY, IN ITS DISCRETION, FROM TIME-TO-TIME PROVIDE. (C)                                  VACATION.  DURING THE TERM OF EMPLOYMENT, THE EXECUTIVE SHALL BE ENTITLED TO VACATION IN ACCORDANCE WITH THE REASONABLE PRACTICES OF THE COMPANY. 8.                                       REIMBURSEMENT OF BUSINESS AND OTHER EXPENSES.  (A) THE EXECUTIVE IS AUTHORIZED TO INCUR REASONABLE EXPENSES IN CARRYING OUT HIS DUTIES AND RESPONSIBILITIES UNDER THIS AGREEMENT, AND THE COMPANY SHALL PROMPTLY REIMBURSE HIM FOR ALL SUCH EXPENSES, SUBJECT TO DOCUMENTATION IN ACCORDANCE WITH REASONABLE POLICIES OF THE COMPANY. (B)                                 THE COMPANY SHALL PROMPTLY REIMBURSE THE EXECUTIVE FOR ANY AND ALL REASONABLE EXPENSES (INCLUDING, WITHOUT LIMITATION, ATTORNEYS’ FEES AND OTHER CHARGES OF COUNSEL) 6 -------------------------------------------------------------------------------- INCURRED BY HIM IN CONNECTION WITH THE NEGOTIATION AND DOCUMENTATION OF THIS AGREEMENT AND THE EXECUTIVE’S OTHER EMPLOYMENT ARRANGEMENTS WITH THE COMPANY. 9.                                       TERMINATION OF EMPLOYMENT.  THE PARTIES ACKNOWLEDGE THAT EXECUTIVE’S EMPLOYMENT WITH THE COMPANY MAY BE TERMINATED PRIOR TO THE EXPIRATION OF THE TERM OF EMPLOYMENT IN ACCORDANCE WITH THIS SECTION 9 AND THAT UPON SUCH TERMINATION EXECUTIVE SHALL BE ENTITLED TO NO FURTHER COMPENSATION OR BENEFITS EXCEPT AS SET FORTH IN THIS SECTION. (A)                                  TERMINATION DUE TO DEATH.  THE EXECUTIVE’S EMPLOYMENT HEREUNDER SHALL BE TERMINATED AS OF THE DATE OF HIS DEATH.  IN THE EVENT THAT THE EXECUTIVE’S EMPLOYMENT HEREUNDER IS TERMINATED DUE TO HIS DEATH, HIS ESTATE OR HIS BENEFICIARIES (AS THE CASE MAY BE) SHALL BE ENTITLED TO THE FOLLOWING: (I)                                     BASE SALARY THROUGH THE DATE OF HIS DEATH AND FOR AN ADDITIONAL 90 DAYS THEREAFTER; (II)                                  A PRO-RATA ANNUAL INCENTIVE AWARD FOR THE CALENDAR YEAR IN WHICH HIS DEATH OCCURS, PAYABLE IN A LUMP SUM PROMPTLY AFTER HIS DEATH; (III)                               IMMEDIATE VESTING OF ALL RESTRICTED STOCK HELD BY THE EXECUTIVE; (IV)                              A LUMP-SUM PAYMENT IN RESPECT OF ALL ACCRUED BUT UNUSED VACATION DAYS AT HIS BASE SALARY RATE IN EFFECT ON THE TERMINATION DATE, PAYMENT OF ANY OTHER AMOUNTS EARNED, ACCRUED OR OWING TO THE EXECUTIVE BUT NOT YET PAID, INCLUDING, BUT NOT LIMITED TO, ANY ANNUAL INCENTIVE AWARD(S) EARNED OR AWARDED BUT NOT YET PAID, AND RECEIPT OF OTHER BENEFITS IN ACCORDANCE WITH APPLICABLE PLANS AND PROGRAMS OF THE COMPANY (THE “STANDARD BENEFIT”); AND (V)                                 PAYMENT OF COBRA PREMIUMS FOR THE ENTIRE PERIOD OF ELIGIBILITY FOR THE EXECUTIVE’S ELIGIBLE DEPENDENTS AND CONTINUED PARTICIPATION FOR ONE YEAR FOR EACH OF THE EXECUTIVE’S DEPENDENTS IN ALL OTHER EMPLOYEE WELFARE BENEFIT PLANS, PROGRAMS, AND ARRANGEMENTS IN WHICH SUCH DEPENDENT WAS PARTICIPATING AS OF THE DATE OF THE EXECUTIVE’S DEATH, ON TERNS AND CONDITIONS NO LESS FAVORABLE THAN THOSE APPLYING ON SUCH DATE. (B)                                 TERMINATION DUE TO DISABILITY.  THE EXECUTIVE’S EMPLOYMENT HEREUNDER SHALL TERMINATE DUE TO DISABILITY, AS OF THE DATE FIFTEEN (15) DAYS AFTER THE PARTY TERMINATING HIS EMPLOYMENT GIVES WRITTEN NOTICE OF SUCH TERMINATION TO THE OTHER PARTY.  IN THE EVENT THAT THE EXECUTIVE’S EMPLOYMENT HEREUNDER IS TERMINATED DUE TO DISABILITY, HE SHALL BE ENTITLED TO THE FOLLOWING: (I)                                     CONTINUATION OF BASE SALARY UNTIL COMMENCEMENT OF LONG-TERM DISABILITY PAYMENTS; (II)                                  A PRO-RATA ANNUAL INCENTIVE AWARD FOR THE CALENDAR YEAR IN WHICH HIS EMPLOYMENT TERMINATES, PAYABLE IN A LUMP SUM PROMPTLY FOLLOWING THE TERMINATION DATE; (III)                               IMMEDIATE VESTING OF ALL RESTRICTED STOCK HELD BY THE EXECUTIVE; (IV)                              THE STANDARD BENEFIT; AND 7 -------------------------------------------------------------------------------- (V)                                 PAYMENT OF COBRA PREMIUMS FOR THE ENTIRE PERIOD OF ELIGIBILITY FOR THE EXECUTIVE AND ELIGIBLE DEPENDENTS AND PARTICIPATION FOR ONE YEAR FOR THE EXECUTIVE AND EACH OF HIS DEPENDENTS IN ALL COMPANY LIFE INSURANCE COVERAGE AND IN ALL OTHER COMPANY EMPLOYEE WELFARE BENEFIT PLANS, PROGRAMS, AND ARRANGEMENTS. (C)                                  TERMINATION BY THE COMPANY FOR CAUSE. (I)                                     NO TERMINATION OF THE EXECUTIVE’S EMPLOYMENT HEREUNDER BY THE COMPANY FOR CAUSE SHALL BE EFFECTIVE UNLESS THE PROVISIONS OF THIS SECTION 9(C)(I) SHALL HAVE BEEN FULLY COMPLIED WITH.  PRIOR TO ANY TERMINATION BY THE COMPANY FOR CAUSE, THE EXECUTIVE SHALL BE GIVEN WRITTEN NOTICE BY THE BOARD OF THE INTENTION TO TERMINATE HIM, SUCH NOTICE (A) TO DESCRIBE THE PARTICULAR CIRCUMSTANCES THAT CONSTITUTE THE GROUNDS ON WHICH THE PROPOSED TERMINATION FOR CAUSE IS BASED AND (B) TO BE GIVEN NO LATER THAN 60 DAYS AFTER THE BOARD FIRST LEARNS OF SUCH CIRCUMSTANCES.  THE EXECUTIVE SHALL HAVE 30 DAYS AFTER RECEIVING SUCH NOTICE IN WHICH TO CURE SUCH GROUNDS, TO THE EXTENT SUCH CURE IS POSSIBLE.  IF, AFTER THE 30 DAY NOTICE PERIOD, A MAJORITY OF THE BOARD DETERMINES, IN GOOD FAITH, AT A MEETING OF THE BOARD CALLED AND HELD FOR SUCH PURPOSES (AFTER REASONABLE, BUT IN NO EVENT, LESS THAN 10 DAYS’ NOTICE TO THE EXECUTIVE AND AN OPPORTUNITY FOR THE EXECUTIVE, TOGETHER WITH HIS COUNSEL, TO BE HEARD BEFORE THE BOARD) THAT CAUSE FOR EXECUTIVE’S TERMINATION EXISTS AND NO CURE HAS BEEN MADE OR WAS POSSIBLE, THE BOARD SHALL PROVIDE NOTICE TO EXECUTIVE OF HIS TERMINATION FOR CAUSE, WHICH SHALL BE EFFECTIVE AS OF THE DATE OF THE NOTICE OF TERMINATION FOR CAUSE.  IN THE EVENT ANY COURT OF LAW SHALL DETERMINE THAT CAUSE DID NOT EXIST FOR THE TERMINATION OF THE EXECUTIVE’S EMPLOYMENT, HIS EMPLOYMENT SHALL BE DEEMED TO HAVE BEEN TERMINATED WITHOUT CAUSE FOR PURPOSES OF DETERMINING HIS RIGHTS UNDER THIS AGREEMENT AND ANY OTHER APPLICABLE AGREEMENTS, BUT HE SHALL IN NO EVENT BE ENTITLED TO REINSTATEMENT OF HIS EMPLOYMENT. (II)                                  IN THE EVENT THAT THE EXECUTIVE’S EMPLOYMENT HEREUNDER IS TERMINATED BY THE COMPANY FOR CAUSE IN ACCORDANCE WITH SECTION 9(C)(I), HE SHALL BE ENTITLED TO THE FOLLOWING: (A)                              Payment of Base Salary through the Termination Date; and (B)                                the Standard Benefit. (D)                                 TERMINATION WITHOUT CAUSE; CONSTRUCTIVE TERMINATION BY THE EXECUTIVE.  THE COMPANY MAY TERMINATE EXECUTIVE’S EMPLOYMENT HEREUNDER WITHOUT CAUSE AT ANY TIME FOR ANY REASON.  IN THE EVENT THAT THE EXECUTIVE’S EMPLOYMENT HEREUNDER IS TERMINATED BY THE COMPANY, OTHER THAN DUE TO DISABILITY IN ACCORDANCE WITH SECTION 9(B) OR FOR CAUSE IN ACCORDANCE WITH SECTION 9(C)(I), OR IN THE EVENT OF THE EXECUTIVE’S TERMINATION OF HIS EMPLOYMENT AS A RESULT OF A CONSTRUCTIVE TERMINATION, THE EXECUTIVE SHALL BE ENTITLED TO: (I)                                     PAYMENT OF BASE SALARY THROUGH THE TERMINATION DATE; (II)                                  THE STANDARD BENEFIT; AND (III)                               UPON EXECUTION OF A RELEASE OF ALL CLAIMS THAT HE MAY HAVE AGAINST THE COMPANY IN A FORM MUTUALLY ACCEPTABLE TO THE COMPANY AND THE EXECUTIVE: 8 -------------------------------------------------------------------------------- (1)                                  A PRO-RATA ANNUAL INCENTIVE AWARD FOR THE CALENDAR YEAR IN WHICH THE EXECUTIVE WAS TERMINATED, WHICH SHALL BE CALCULATED BASED ON THE LAST FULL YEAR ANNUAL INCENTIVE AWARD PAID BY THE COMPANY TO EXECUTIVE, PAYABLE IN A LUMP SUM PROMPTLY FOLLOWING THE TERMINATION DATE; (2)                                  a prompt lump-sum severance payment equal to two times the Executive’s annual Base Salary as of the Termination Date; (3)                                  (i) immediate vesting of all restricted stock and options to purchase Common Stock of the Company (“Stock Options”) held by the Executive and (ii) exercise Stock Options awarded to the Executive on or after the Effective Date under any incentive stock option agreement, non-qualified stock option agreement or similar such agreement for one year following the Termination Date; and (4)                                  payment of COBRA premiums for the entire period of eligibility for the Executive and eligible dependents and continued participation for the Executive and each of his dependents in all Company life insurance coverage and all other Company welfare benefit plans, programs, and arrangements until the earlier of (x) one year from the Termination Date or (y) the date the Executive receives equivalent coverage and benefits from a subsequent employer. (E)                                  VOLUNTARY TERMINATION.  IN THE EVENT THAT THE EXECUTIVE TERMINATES HIS EMPLOYMENT WITH THE COMPANY ON HIS OWN INITIATIVE, OTHER THAN BY DEATH, FOR DISABILITY OR BY A CONSTRUCTIVE TERMINATION, HE SHALL HAVE THE SAME ENTITLEMENTS HEREUNDER AS PROVIDED IN SECTION 9(C)(II) IN THE CASE OF A TERMINATION BY THE COMPANY FOR CAUSE.  A VOLUNTARY TERMINATION UNDER THIS SECTION 9(E) SHALL BE EFFECTIVE UPON WRITTEN NOTICE TO THE COMPANY AND SHALL NOT BE DEEMED A BREACH OF THIS AGREEMENT. (F)                                    BENEFIT PLANS.  IN THE EVENT THAT THE EXECUTIVE, OR ANY OF HIS DEPENDENTS, IS PRECLUDED FROM CONTINUING FULL PARTICIPATION IN ANY EMPLOYEE BENEFIT PLAN, PROGRAM, OR ARRANGEMENT AS PROVIDED IN SECTIONS 9(A)(V), 9(B)(V), OR 9(D)(V), THE EXECUTIVE SHALL BE PROVIDED WITH THE AFTER-TAX ECONOMIC EQUIVALENT OF ANY BENEFIT OR COVERAGE FOREGONE.  FOR THIS PURPOSE, THE ECONOMIC EQUIVALENT OF ANY BENEFIT OR COVERAGE FOREGONE SHALL BE DEEMED TO BE THE TOTAL COST TO THE EXECUTIVE OR ANY OF HIS DEPENDENTS OF OBTAINING SUCH BENEFIT OR COVERAGE BY HIMSELF ON AN INDIVIDUAL BASIS.  PAYMENT OF SUCH AFTER-TAX ECONOMIC EQUIVALENT SHALL BE MADE QUARTERLY IN ADVANCE, WITHOUT DISCOUNT. (G)                                 NO MITIGATION; OFFSET.  IN THE EVENT OF ANY TERMINATION OF THE EXECUTIVE’S EMPLOYMENT WITH THE COMPANY, THE EXECUTIVE SHALL BE UNDER NO OBLIGATION TO SEEK OTHER EMPLOYMENT OR OTHERWISE MITIGATE THE OBLIGATIONS OF THE COMPANY UNDER THIS AGREEMENT.  THE COMPANY MAY OFFSET AGAINST AMOUNTS DUE THE EXECUTIVE UNDER THIS AGREEMENT FOR ANY AMOUNTS (I) BORROWED BY OR ADVANCED TO THE EXECUTIVE FROM THE COMPANY OR ANY OF ITS SUBSIDIARIES OR (II) OWED BY EXECUTIVE TO THE COMPANY OR ANY OF ITS SUBSIDIARIES PURSUANT TO ANY ORDER, JUDGMENT, RULING, INJUNCTION, ASSESSMENT, AWARD, DECREE OR WRIT OF ANY GOVERNMENT OR POLITICAL SUBDIVISION, WHETHER FEDERAL, STATE, LOCAL, PROVINCIAL OR FOREIGN, OR ANY AGENCY OR INSTRUMENTALITY OF ANY SUCH GOVERNMENT OR POLITICAL SUBDIVISION, OR ANY FEDERAL, STATE, LOCAL OR FOREIGN COURT OR ARBITRATOR, IN EACH CASE THAT HAS NOT YET THEN BEEN REPAID TO THE COMPANY OR SUCH SUBSIDIARY BY THE EXECUTIVE. 9 -------------------------------------------------------------------------------- 10.                                 CHANGE OF CONTROL, EXCISE TAX GROSS-UP AND TAG ALONG RIGHTS. (A)                                  CHANGE OF CONTROL.  IN THE EVENT THAT A CHANGE OF CONTROL OCCURS DURING THE TERM OF EMPLOYMENT, THEN ALL OF EXECUTIVE’S RESTRICTED STOCK AND STOCK OPTIONS SHALL THEREUPON BECOME FULLY VESTED AND NONFORFEITABLE. (B)                                 EXCISE TAX GROSS-UP.  IN THE EVENT THAT ANY PAYMENT OR BENEFIT MADE OR PROVIDED TO OR FOR THE BENEFIT OF THE EXECUTIVE IN CONNECTION WITH THIS AGREEMENT AND/OR HIS EMPLOYMENT WITH THE COMPANY OR THE TERMINATION THEREOF (A “PAYMENT” IS DETERMINED TO BE SUBJECT TO ANY EXCISE TAX (“EXCISE TAX”) IMPOSED BY SECTION 4999 OF THE CODE (OR ANY SUCCESSOR TO SUCH SECTION), THE COMPANY SHALL PAY TO THE EXECUTIVE, PRIOR TO THE TIME ANY EXCISE TAX IS PAYABLE WITH RESPECT TO SUCH PAYMENT (THROUGH WITHHOLDING OR OTHERWISE), AN ADDITIONAL AMOUNT (A “GROSS-UP PAYMENT”) WHICH, AFTER THE IMPOSITION OF ALL INCOME, EMPLOYMENT, EXCISE AND OTHER TAXES, PENALTIES AND INTEREST THEREON, IS EQUAL TO THE SUM OF (I) THE EXCISE TAX ON SUCH PAYMENT PLUS (II) ANY PENALTY AND INTEREST ASSESSMENTS ASSOCIATED WITH SUCH EXCISE TAX.  THE DETERMINATION OF WHETHER ANY PAYMENT IS SUBJECT TO AN EXCISE TAX AND, IF SO, THE AMOUNT AND TIME OF ANY GROSS-UP PAYMENT PURSUANT TO THIS SECTION 10(B) SHALL BE MADE BY AN INDEPENDENT AUDITOR (THE “AUDITOR”) JOINTLY SELECTED BY THE PARTIES AND PAID BY THE COMPANY.  UNLESS THE EXECUTIVE AGREES OTHERWISE IN WRITING, THE AUDITOR SHALL BE A NATIONALLY RECOGNIZED UNITED STATES PUBLIC ACCOUNTING FIRM THAT HAS NOT, DURING THE TWO YEARS PRECEDING THE DATE OF ITS SELECTION, ACTED IN ANY WAY ON BEHALF OF THE COMPANY OR ANY OF ITS AFFILIATES.  IF THE PARTIES CANNOT AGREE ON THE ACCOUNTING FIRM TO SERVE AS THE AUDITOR, THEN THE PARTIES SHALL EACH SELECT ONE ACCOUNTING FIRM AND THOSE TWO ACCOUNTING FIRMS SHALL JOINTLY SELECT THE ACCOUNTING FIRM TO SERVE AS THE AUDITOR.  THE PARTIES SHALL COOPERATE WITH EACH OTHER IN CONNECTION WITH ANY PROCEEDING OR CLAIM RELATING TO THE EXISTENCE OR AMOUNT OF ANY LIABILITY FOR EXCISE TAX.  ALL EXPENSES RELATING TO ANY SUCH PROCEEDING OR CLAIM (INCLUDING ATTORNEYS’ FEES AND CHARGES AND ALL OTHER EXPENSES INCURRED BY THE EXECUTIVE IN CONNECTION THEREWITH) SHALL BE BORNE AND PAID BY THE COMPANY.  ANY PAYMENTS PAYABLE UNDER THIS SECTION 10(B) SHALL BE SUBJECT TO A GROSS-UP PAYMENT IN THE EVENT THAT THE EXECUTIVE IS SUBJECT TO EXCISE TAX ON SUCH PAYMENT.  THIS SECTION 10(B) SHALL APPLY IRRESPECTIVE OF WHETHER A CHANGE OF CONTROL HAS OCCURRED. 11.                                 INDEMNIFICATION.  (A) THE COMPANY AGREES THAT (I) IF THE EXECUTIVE IS MADE A PARTY, OR IS THREATENED TO BE MADE A PARTY, TO ANY PROCEEDING BY REASON OF THE FACT THAT HE IS OR WAS A DIRECTOR, OFFICER, EMPLOYEE, AGENT, MANAGER, CONSULTANT, OR REPRESENTATIVE OF THE COMPANY OR IS OR WAS SERVING AT THE REQUEST OF THE COMPANY OR ANY OF ITS AFFILIATES AS A DIRECTOR, OFFICER, MEMBER, EMPLOYEE, AGENT, MANAGER, CONSULTANT, OR REPRESENTATIVE OF ANOTHER PERSON OR (II) IF ANY CLAIM IS MADE, OR THREATENED TO BE MADE, THAT ARISES OUT OF OR RELATES TO THE EXECUTIVE’S SERVICE IN ANY OF THE FOREGOING CAPACITIES, THEN THE EXECUTIVE SHALL PROMPTLY BE INDEMNIFIED AND HELD HARMLESS BY THE COMPANY TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW AGAINST ANY AND ALL COSTS, EXPENSES, LIABILITIES, AND LOSSES (INCLUDING, WITHOUT LIMITATION, ATTORNEY’S FEES, JUDGMENTS, INTEREST, EXPENSES OF INVESTIGATION, PENALTIES, FINES, ERISA EXCISE TAXES OR PENALTIES, AND AMOUNTS PAID OR TO BE PAID IN SETTLEMENT) INCURRED OR SUFFERED BY THE EXECUTIVE IN CONNECTION THEREWITH, AND SUCH INDEMNIFICATION SHALL CONTINUE AS TO THE EXECUTIVE EVEN IF HE HAS CEASED TO BE A DIRECTOR, MEMBER, EMPLOYEE, AGENT, MANAGER, CONSULTANT OR REPRESENTATIVE OF THE COMPANY OR OTHER PERSON AND SHALL INURE TO THE BENEFIT OF THE EXECUTIVE’S HEIRS, EXECUTORS, AND ADMINISTRATORS.  PROMPTLY FOLLOWING THE EFFECTIVE DATE, THE COMPANY HEREBY AGREES THAT IT WILL AMEND ITS MEMORANDUM OF ASSOCIATION, ARTICLES OF ASSOCIATION, ARTICLES OF INCORPORATION AND BY-LAWS TO THE EXTENT NECESSARY 10 -------------------------------------------------------------------------------- TO PROVIDE THE EXECUTIVE WITH THE BROADEST INDEMNITY PERMITTED BY APPLICABLE LAW AND TO PROVIDE THE EXECUTIVE WITH COPIES OF SUCH CORPORATE DOCUMENTS AS THE EXECUTIVE MAY REQUEST FROM TIME TO TIME.  THE COMPANY SHALL ADVANCE TO THE EXECUTIVE ALL COSTS AND EXPENSES INCURRED BY HIM IN CONNECTION WITH ANY SUCH PROCEEDING OR CLAIM WITHIN 15 DAYS AFTER RECEIVING WRITTEN NOTICE REQUESTING SUCH AN ADVANCE.  SUCH NOTICE SHALL INCLUDE, TO THE EXTENT REQUIRED BY APPLICABLE LAW, AN UNDERTAKING BY THE EXECUTIVE TO REPAY THE AMOUNT ADVANCED IF HE IS ULTIMATELY DETERMINED NOT TO BE ENTITLED TO INDEMNIFICATION AGAINST SUCH COSTS AND EXPENSES. (B)                                 NEITHER THE FAILURE OF THE COMPANY (INCLUDING THE BOARD, INDEPENDENT LEGAL COUNSEL, OR STOCKHOLDERS) TO HAVE MADE A DETERMINATION IN CONNECTION WITH ANY REQUEST FOR INDEMNIFICATION OR ADVANCEMENT UNDER SECTION 12(A) THAT THE EXECUTIVE HAS SATISFIED ANY APPLICABLE STANDARD OF CONDUCT NOR A DETERMINATION BY THE COMPANY (INCLUDING THE BOARD, INDEPENDENT LEGAL COUNSEL, OR STOCKHOLDERS) THAT THE EXECUTIVE HAS NOT MET ANY APPLICABLE STANDARD OF CONDUCT, SHALL CREATE A PRESUMPTION THAT THE EXECUTIVE HAS NOT MET AN APPLICABLE STANDARD OF CONDUCT. (C)                                  DURING THE TERM OF EMPLOYMENT AND FOR A PERIOD OF SIX YEARS THEREAFTER, THE COMPANY SHALL KEEP IN PLACE A DIRECTORS AND OFFICERS’ LIABILITY INSURANCE POLICY (OR POLICIES) PROVIDING COMPREHENSIVE COVERAGE TO THE EXECUTIVE (OR LEGAL REPRESENTATIVE OR OTHER SUCCESSOR) EQUAL TO AT LEAST THE GREATER OF (I) $5,000,000 PER YEAR AND (II) THE COVERAGE THAT THE COMPANY PROVIDES FOR ANY OTHER PRESENT OR FORMER SENIOR EXECUTIVE OR DIRECTOR OF THE COMPANY. 12.                                 ASSIGNABILITY; BINDING NATURE.  (A) THIS AGREEMENT SHALL BE BINDING UPON AND INURE TO THE BENEFIT OF THE PARTIES AND THEIR RESPECTIVE SUCCESSORS, HEIRS (IN THE CASE OF THE EXECUTIVE), AND ASSIGNS. (B)                                 NO RIGHTS OR OBLIGATIONS OF THE COMPANY UNDER THIS AGREEMENT MAY BE ASSIGNED OR TRANSFERRED BY THE COMPANY EXCEPT THAT SUCH RIGHTS OR OBLIGATIONS MAY BE ASSIGNED OR TRANSFERRED PURSUANT TO A MERGER OR CONSOLIDATION IN WHICH THE COMPANY IS NOT THE CONTINUING ENTITY, OR A SALE OR LIQUIDATION OF ALL OR SUBSTANTIALLY ALL OF THE ASSETS AND BUSINESS OF THE COMPANY; PROVIDED, THAT THE ASSIGNEE OR TRANSFEREE IS THE SUCCESSOR TO ALL OR SUBSTANTIALLY ALL OF THE ASSETS AND BUSINESS OF THE COMPANY AND SUCH ASSIGNEE OR TRANSFEREE ASSUMES THE LIABILITIES, OBLIGATIONS, AND DUTIES OF THE COMPANY, AS CONTAINED IN THIS AGREEMENT, EITHER CONTRACTUALLY OR AS A MATTER OF LAW.  IN THE EVENT OF ANY SALE OF ASSETS AND BUSINESS OR LIQUIDATION AS DESCRIBED IN THE PRECEDING SENTENCE, THE COMPANY SHALL USE ITS BEST EFFORTS TO CAUSE SUCH ASSIGNEE OR TRANSFEREE TO EXPRESSLY ASSUME THE LIABILITIES, OBLIGATIONS AND DUTIES OF THE COMPANY HEREUNDER AND SHALL CAUSE SUCH ASSIGNEE OR TRANSFEREE TO DELIVER A LEGAL, VALID, AND ENFORCEABLE WRITTEN INSTRUMENT IN FORM AND SUBSTANCE SATISFACTORY TO THE EXECUTIVE AND HIS COUNSEL TO SUCH EFFECT. (C)                                  NO RIGHTS OR OBLIGATIONS OF THE EXECUTIVE UNDER THIS AGREEMENT MAY BE ASSIGNED OR TRANSFERRED BY THE EXECUTIVE OTHER THAN HIS RIGHTS TO COMPENSATION AND BENEFITS, WHICH MAY BE TRANSFERRED ONLY BY WILL OR OPERATION OF LAW, EXCEPT AS PROVIDED IN SECTION 17(F). 13.                                 REPRESENTATIONS.  THE COMPANY REPRESENTS AND WARRANTS THAT:  (A) IT IS FULLY AUTHORIZED BY ACTION OF THE BOARD OF THE COMPANY (AND OF ANY OTHER PERSON OR BODY WHOSE ACTION IS REQUIRED) TO ENTER INTO THIS AGREEMENT AND TO PERFORM ITS OBLIGATIONS HEREUNDER AND UPON THE EXECUTION AND DELIVERY OF THIS AGREEMENT BY THE PARTIES, THIS AGREEMENT SHALL BE THE 11 -------------------------------------------------------------------------------- VALID AND BINDING OBLIGATION OF THE COMPANY, ENFORCEABLE AGAINST THE COMPANY IN ACCORDANCE WITH ITS TERMS. (B)                                 HOLDINGS AND FINANCIAL ARE CORPORATIONS, EACH DULY ORGANIZED, VALIDLY EXISTING, AND IN GOOD STANDING UNDER THE LAWS OF BERMUDA AND THE STATES OF DELAWARE AND MARYLAND, RESPECTIVELY, AND EACH HAVING FULL CORPORATE POWER AND AUTHORITY TO CONDUCT ITS BUSINESS AS SUCH BUSINESSES ARE PRESENTLY CONDUCTED. (C)                                  THE EXECUTION AND DELIVERY BY EACH OF HOLDINGS AND FINANCIAL OF THIS AGREEMENT AND THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED HEREBY WILL NOT RESULT IN THE VIOLATION OF ANY LAW, STATUTE, RULE, REGULATION, ORDER, WRIT, INJUNCTION, JUDGMENT, OR DECREE OF ANY COURT OR GOVERNMENTAL AUTHORITY TO OR BY WHICH HOLDINGS OR FINANCIAL IS BOUND, OR OF ANY PROVISION OF THE CERTIFICATE OF INCORPORATION (AS AMENDED) OR BY-LAWS (AS AMENDED) OF HOLDINGS OR FINANCIAL, AND WILL NOT CONFLICT WITH, OR RESULT IN A BREACH OR VIOLATION OF, ANY OF THE TERMS OR PROVISIONS OF, OR CONSTITUTE (WITH DUE NOTICE OR LAPSE OF TIME OR BOTH) A DEFAULT UNDER, ANY AGREEMENT, INSTRUMENT, OR DOCUMENT TO WHICH HOLDINGS OR FINANCIAL IS A PARTY OR BY WHICH IT IS BOUND OR TO WHICH ANY OF ITS PROPERTIES OR ASSETS IS SUBJECT, NOR RESULT IN THE CREATION OR IMPOSITION OF ANY LIEN UPON ANY OF THE PROPERTIES OR ASSETS OF HOLDINGS OR FINANCIAL. 14.                                 COVENANT NOT TO COMPETE; CONFIDENTIALITY; INTELLECTUAL PROPERTY, INVENTIONS AND PATENTS; EXECUTIVE’S COOPERATION. (A)                                  COVENANT NOT TO COMPETE. (I)                                     IN FURTHER CONSIDERATION OF THE COMPENSATION TO BE PAID TO THE EXECUTIVE HEREUNDER, THE EXECUTIVE ACKNOWLEDGES THAT DURING THE COURSE OF HIS EMPLOYMENT WITH THE COMPANY HE HAS AND SHALL BECOME FAMILIAR WITH THE COMPANY’S AND ITS SUBSIDIARIES’ TRADE SECRETS AND WITH OTHER CONFIDENTIAL INFORMATION CONCERNING THE COMPANY AND ITS SUBSIDIARIES AND THAT HIS SERVICES SHALL BE OF SPECIAL, UNIQUE AND EXTRAORDINARY VALUE TO THE COMPANY, AND THEREFORE, THE EXECUTIVE AGREES THAT DURING THE TERM OF EMPLOYMENT AND FOR A PERIOD OF (1) IN THE CASE OF A TERMINATION BY THE COMPANY WITHOUT CAUSE OR BY EXECUTIVE AS A RESULT OF A CONSTRUCTIVE TERMINATION, 12 MONTHS OR (2) IN THE CASE OF A TERMINATION OF EMPLOYMENT FOR ANY OTHER REASON, 18 MONTHS, SO LONG AS THE COMPANY IS NOT IN DEFAULT OF A MATERIAL PAYMENT OBLIGATION UNDER THIS AGREEMENT OR IN DEFAULT OF ANY MATERIAL OBLIGATION UNDER SECTION 11 (THE “NONCOMPETE PERIOD”), THE EXECUTIVE SHALL NOT DIRECTLY OR INDIRECTLY (WHETHER AS AN EMPLOYEE, CONSULTANT, INVESTOR, INDEPENDENT CONTRACTOR, OR DIRECTOR, BUT OTHER THAN AS A HOLDER OF A PASSIVE INVESTMENT OF NOT IN EXCESS OF 5% OF THE OUTSTANDING VOTING SHARES OF ANY PUBLICLY TRADED COMPANY), ENGAGE, ENTER INTO OR ATTEMPT TO ENTER INTO, OR MANAGE, CONTROL, PARTICIPATE IN, CONSULT WITH, RENDER SERVICES FOR, OR BE EMPLOYED BY, A RESTRICTED BUSINESS (AS DEFINED BELOW) IN THE UNITED STATES OR OTHER JURISDICTIONS IN WHICH THE COMPANY OR ANY OF ITS SUBSIDIARIES CONDUCTS BUSINESS; PROVIDED, THAT THIS COVENANT (A) SHALL NOT APPLY FOLLOWING THE EXPIRATION OF THE TERM OF EMPLOYMENT DUE TO SERVICE OF NOTICE BY EITHER PARTY IN ACCORDANCE WITH SECTION 2 HEREOF; AND (II)                                  THE EXECUTIVE AGREES THAT DURING THE NONCOMPETE PERIOD, THE EXECUTIVE SHALL NOT DIRECTLY OR INDIRECTLY (WHETHER AS AN EMPLOYEE, CONSULTANT, INVESTOR, INDEPENDENT CONTRACTOR, OR DIRECTOR, BUT OTHER THAN AS A HOLDER OF A PASSIVE INVESTMENT OF NOT IN EXCESS OF 5% OF THE OUTSTANDING VOTING SHARES OF ANY PUBLICLY TRADED COMPANY): 12 -------------------------------------------------------------------------------- (A)                              INDUCE OR ATTEMPT TO PERSUADE ANY THEN-CURRENT EMPLOYEE, AGENT, MANAGER, CONSULTANT, DIRECTOR, CUSTOMER, COUNTERPARTY OR OTHER BUSINESS RELATIONSHIP OF THE COMPANY OR ANY OF ITS SUBSIDIARIES TO TERMINATE SUCH EMPLOYMENT OR OTHER RELATIONSHIP (INCLUDING, WITHOUT LIMITATION, BY MAKING ANY NEGATIVE OR DISPARAGING STATEMENTS OR COMMUNICATIONS REGARDING THE COMPANY OR ANY OF ITS SUBSIDIARIES); (B)                                solicit or induce any then-current customer or previously identified prospective customers of the Company or any of its Subsidiaries of which the Executive was aware on the Termination Date (i) to do business with any Restricted Business in competition with the Company or (ii) to reduce its business with the Company; or (C)                                hire any Person who was an employee of the Company or any of its Subsidiaries within the 12 month period prior to the Termination Date. (III)                               FOR THE PURPOSES OF THIS SECTION 14, A “RESTRICTED BUSINESS” SHALL MEAN A FINANCIAL GUARANTY INSURANCE, SPECIALIZED SURETY, CREDIT DERIVATIVE AND/OR STRUCTURED FINANCE BUSINESS, WHETHER EXISTING OR TO BE FORMED AND WITHOUT REGARD TO ITS CLAIMS-PAYING ABILITY, OR ANY OTHER BUSINESS WHICH THE COMPANY OR ANY OF ITS SUBSIDIARIES CONDUCTS DURING THE TERM OF EMPLOYMENT OR ON THE TERMINATION DATE. (IV)                              THE COVENANTS OF THE EXECUTIVE SET FORTH IN THIS SECTION 14(A) SHALL BE NULL AND VOID AND WITHOUT ANY FORCE OR EFFECT UPON THE EFFECTIVE DATE OF ANY LIQUIDATION OR DISSOLUTION OF THE COMPANY, IT BEING UNDERSTOOD THAT A MERGER OR CONSOLIDATION OF THE COMPANY SHALL NOT BE DEEMED TO CONSTITUTE A LIQUIDATION OR DISSOLUTION OF THE COMPANY. (V)                                 THE COVENANTS SET FORTH ABOVE IN THIS SECTION 14(A) SHALL BE CONSTRUED AS A SERIES OF SEPARATE COVENANTS, ONE FOR EACH COUNTY IN EACH OF THE STATES OF THE UNITED STATES OR COUNTRY OUTSIDE THE UNITED STATES TO WHICH SUCH RESTRICTION APPLIES, SUBJECT, HOWEVER, TO THE APPLICABLE LAWS OF SUCH JURISDICTIONS. (VI)                              IF, AT THE TIME OF ENFORCEMENT OF THIS SECTION 14, ANY COURT OF COMPETENT JURISDICTION SHALL HOLD THAT THE DURATION, SCOPE OR AREA RESTRICTIONS STATED HEREIN ARE UNREASONABLE UNDER CIRCUMSTANCES THEN EXISTING, THE PARTIES AGREE THAT THE MAXIMUM DURATION, SCOPE OR AREA REASONABLE UNDER SUCH CIRCUMSTANCES SHALL BE SUBSTITUTED FOR THE STATED DURATION, SCOPE OR AREA AND THAT SUCH ARBITRATOR OR COURT SHALL BE AUTHORIZED TO REVISE THE RESTRICTIONS CONTAINED HEREIN TO COVER THE MAXIMUM PERIOD, SCOPE AND AREA PERMITTED BY APPLICABLE LAW.  THE EXECUTIVE ACKNOWLEDGES THAT THE RESTRICTIONS CONTAINED IN THIS SECTION 14 ARE REASONABLE AND NECESSARY TO THE PROTECTION OF LEGITIMATE COMPANY INTERESTS. (VII)                           IN THE EVENT OF THE BREACH OR A THREATENED BREACH BY THE EXECUTIVE OF ANY OF THE PROVISIONS OF THIS SECTION 14, THE EXECUTIVE ACKNOWLEDGES AND AGREES THAT THE COMPANY WOULD SUFFER IRREPARABLE HARM, AND THUS, IN ADDITION AND SUPPLEMENTARY TO OTHER RIGHTS AND REMEDIES EXISTING IN ITS FAVOR, THE COMPANY SHALL BE ENTITLED TO SEEK AND OBTAIN SPECIFIC PERFORMANCE AND/OR INJUNCTIVE OR OTHER EQUITABLE RELIEF IN ORDER TO ENFORCE OR PREVENT ANY VIOLATIONS OF THE PROVISIONS HEREOF (WITHOUT POSTING A BOND OR OTHER SECURITY).  IN ADDITION, IN THE EVENT OF A BREACH OR VIOLATION BY EXECUTIVE OF THIS SECTION 14, THE NONCOMPETE PERIOD SHALL BE 13 -------------------------------------------------------------------------------- AUTOMATICALLY EXTENDED BY THE AMOUNT OF TIME BETWEEN THE INITIAL OCCURRENCE OF THE BREACH OR VIOLATION AND WHEN SUCH BREACH OR VIOLATION HAS BEEN DULY CURED. (B)                                 CONFIDENTIALITY. (I)                                     THE EXECUTIVE ACKNOWLEDGES THAT HE HAS AND WILL DEVELOP AND BE EXPOSED TO INFORMATION THAT IS OR WILL BE PROPRIETARY TO THE COMPANY AND ITS SUBSIDIARIES, INCLUDING, BUT NOT LIMITED TO, CUSTOMER LISTS, MARKETING PLANS, PRICING DATA, PRODUCT DEVELOPMENT PLANS, AND OTHER INTANGIBLE INFORMATION, AND THAT THE INFORMATION AND DATA (INCLUDING TRADE SECRETS) OBTAINED BY HIM WHILE EMPLOYED BY THE COMPANY CONCERNING THE BUSINESS OR AFFAIRS OF THE COMPANY AND ITS SUBSIDIARIES (“CONFIDENTIAL INFORMATION”) ARE THE PROPERTY OF THE COMPANY AND/OR ONE OR MORE OF ITS SUBSIDIARIES.  THE EXECUTIVE AGREES TO USE SUCH INFORMATION ONLY IN CONNECTION WITH THE PERFORMANCES OF HIS DUTIES HEREUNDER, TO FOREVER MAINTAIN SUCH INFORMATION IN CONFIDENCE AND NOT TO DISCLOSE TO ANY PERSON OR USE FOR HIS OWN PURPOSES ANY CONFIDENTIAL INFORMATION OR ANY CONFIDENTIAL OR PROPRIETARY INFORMATION OF OTHER PERSONS IN THE POSSESSION OF THE COMPANY (“THIRD PARTY INFORMATION”) WITHOUT THE PRIOR WRITTEN CONSENT OF THE BOARD, UNLESS AND TO THE EXTENT THAT THE CONFIDENTIAL INFORMATION OR THIRD PARTY INFORMATION IS OR BECOMES GENERALLY KNOWN TO AND AVAILABLE FOR USE BY THE PUBLIC OR IN THE COMPANY’S INDUSTRY OTHER THAN, IN EACH CASE, AS A RESULT OF THE EXECUTIVE’S BREACH OF THIS SECTION; PROVIDED, HOWEVER, THAT THE EXECUTIVE MAY DISCLOSE SUCH INFORMATION WHEN REQUIRED TO BY LAW OR SUBPOENA FROM A COURT, GOVERNMENT AGENCY OR LEGISLATIVE BODY; PROVIDED FURTHER, HOWEVER, THAT THE EXECUTIVE SHALL IMMEDIATELY NOTIFY THE COMPANY OF HIS RECEIPT OF ANY REQUEST OR DEMAND (WHETHER THROUGH LEGAL PROCESS OR OTHERWISE) THAT HE PROVIDE SUCH DISCLOSURE, AND THEREAFTER THE EXECUTIVE SHALL COOPERATE FULLY WITH ANY COMPANY EFFORTS TO RESIST, RESTRICT OR MODIFY ANY SUCH REQUEST OR DEMAND.  THE EXECUTIVE SHALL DELIVER TO THE COMPANY AT THE TERMINATION DATE, OR AT ANY OTHER TIME THE COMPANY MAY REQUEST, ALL MEMORANDA, NOTES, PLANS, RECORDS, REPORTS, COMPUTER FILES, DISKS AND TAPES, PRINTOUTS AND SOFTWARE AND OTHER DOCUMENTS AND DATA (AND ALL COPIES THEREOF) EMBODYING OR RELATING TO THIRD PARTY INFORMATION, CONFIDENTIAL INFORMATION, WORK PRODUCT (AS DEFINED BELOW) OR THE BUSINESS OF THE COMPANY OR ANY OF ITS SUBSIDIARIES WHICH HE MAY THEN POSSESS OR HAVE UNDER HIS CONTROL. (II)                                  THE EXECUTIVE SHALL BE PROHIBITED IN THE COURSE PERFORMING HIS DUTIES FOR THE COMPANY FROM USING OR DISCLOSING ANY CONFIDENTIAL INFORMATION OR TRADE SECRETS THAT THE EXECUTIVE MAY HAVE LEARNED THROUGH ANY PRIOR EMPLOYMENT. (C)                                  INTELLECTUAL PROPERTY, INVENTIONS AND PATENTS.  THE EXECUTIVE ACKNOWLEDGES THAT (AS APPLICABLE) ALL DISCOVERIES, CONCEPTS, IDEAS, INVENTIONS, INNOVATIONS, IMPROVEMENTS, DEVELOPMENTS, METHODS, ANALYSES, REPORTS, PATENT APPLICATIONS AND COPYRIGHTABLE WORK (WHETHER OR NOT INCLUDING ANY CONFIDENTIAL INFORMATION) AND ALL REGISTRATIONS OR APPLICATIONS RELATED THERETO, ALL OTHER PROPRIETARY INFORMATION AND ALL SIMILAR OR RELATED INFORMATION (WHETHER OR NOT PATENTABLE) WHICH DIRECTLY RELATE TO THE COMPANY’S OR ANY OF ITS SUBSIDIARIES’ ACTUAL OR ANTICIPATED BUSINESS, RESEARCH AND DEVELOPMENT OR EXISTING OR FUTURE PRODUCTS OR SERVICES AND WHICH ARE CONCEIVED, DEVELOPED OR MADE BY THE EXECUTIVE (WHETHER ALONE OR JOINTLY WITH OTHERS) WHILE EMPLOYED BY THE COMPANY, WHETHER BEFORE OR AFTER THE DATE OF THIS AGREEMENT (“WORK PRODUCT”), BELONG TO THE COMPANY AND/OR ONE OR MORE OF ITS SUBSIDIARIES.  UPON THE REQUEST OF THE BOARD FROM TIME TO TIME, THE EXECUTIVE SHALL PROMPTLY DISCLOSE SUCH WORK PRODUCT TO THE BOARD AND, AT THE COMPANY’S EXPENSE, PERFORM ALL ACTIONS REASONABLY REQUESTED BY THE BOARD 14 -------------------------------------------------------------------------------- (WHETHER DURING OR AFTER THE TERM OF EMPLOYMENT) TO ESTABLISH AND CONFIRM SUCH OWNERSHIP (INCLUDING, WITHOUT LIMITATION, ASSIGNMENTS, CONSENTS, POWERS OF ATTORNEY AND OTHER INSTRUMENTS).  THE EXECUTIVE ACKNOWLEDGES THAT ALL WORK PRODUCT SHALL BE DEEMED TO CONSTITUTE “WORKS MADE FOR HIRE” UNDER THE U.S. COPYRIGHT ACT OF 1976, AS AMENDED. (D)                                 EXECUTIVE’S COOPERATION.  DURING THE TERM OF EMPLOYMENT AND THEREAFTER, THE EXECUTIVE SHALL COOPERATE WITH THE COMPANY IN ANY INTERNAL INVESTIGATION, ANY ADMINISTRATIVE, REGULATORY OR JUDICIAL PROCEEDING OR ANY DISPUTE WITH A THIRD PARTY AS REASONABLY REQUESTED BY THE COMPANY (INCLUDING, WITHOUT LIMITATION, THE EXECUTIVE BEING AVAILABLE TO THE COMPANY UPON REASONABLE NOTICE FOR INTERVIEWS AND FACTUAL INVESTIGATIONS, APPEARING AT THE COMPANY’S REQUEST TO GIVE TESTIMONY WITHOUT REQUIRING SERVICE OF A SUBPOENA OR OTHER LEGAL PROCESS, VOLUNTEERING TO THE COMPANY ALL PERTINENT INFORMATION AND TURNING OVER TO THE COMPANY ALL RELEVANT DOCUMENTS WHICH ARE OR MAY COME INTO THE EXECUTIVE’S POSSESSION, ALL AT TIMES AND ON SCHEDULES THAT ARE REASONABLY CONSISTENT WITH EXECUTIVE’S OTHER PERMITTED ACTIVITIES AND COMMITMENTS).  IN THE EVENT THE COMPANY REQUIRES THE EXECUTIVE’S COOPERATION IN ACCORDANCE WITH THIS SECTION 14(D), THE COMPANY SHALL REIMBURSE THE EXECUTIVE SOLELY FOR REASONABLE TRAVEL EXPENSES (INCLUDING LODGING AND MEALS) UPON SUBMISSION OF RECEIPTS AND SHALL COMPENSATE THE EXECUTIVE FOR SUCH COOPERATION AT $250 PER HOUR; PROVIDED, HOWEVER, THAT SUCH COMPENSATION SHALL ONLY BE PAID FOR EXECUTIVE’S TIME FOLLOWING THE TERM OF EMPLOYMENT AND, IF THE EXECUTIVE HAS RECEIVED A PAYMENT UNDER SECTION 9(D)(III)(2) FOLLOWING THE SEVERANCE PERIOD.  NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN, UPON TERMINATION OF THE TERM OF EMPLOYMENT HEREUNDER, THE EXECUTIVE SHALL AUTOMATICALLY BE DEEMED TO HAVE RESIGNED AS A DIRECTOR OF THE BOARD AND OF ANY BOARD OF DIRECTORS (OR SIMILAR GOVERNING BODY) OF ANY SUBSIDIARY OF THE COMPANY. 15.                                 NOTICES.  ANY NOTICE, CONSENT, DEMAND, REQUEST, OR OTHER COMMUNICATION GIVEN TO A PERSON IN CONNECTION WITH THIS AGREEMENT SHALL BE IN WRITING AND SHALL BE DEEMED TO HAVE BEEN GIVEN TO SUCH PERSON (A) WHEN DELIVERED PERSONALLY TO SUCH PERSON, OR (B), PROVIDED THAT A WRITTEN ACKNOWLEDGMENT OF RECEIPT IS OBTAINED, TWO DAYS AFTER BEING SENT BY PREPAID CERTIFIED OR REGISTERED MAIL, OR BY A NATIONALLY RECOGNIZED OVERNIGHT COURIER, TO THE ADDRESS SPECIFIED BELOW FOR SUCH PERSON (OR TO SUCH OTHER ADDRESS AS SUCH PERSON SHALL HAVE SPECIFIED BY 10 DAYS’ ADVANCE NOTICE GIVEN IN ACCORDANCE WITH THIS SECTION 15), OR (C) IN THE CASE OF THE COMPANY ONLY, ON THE FIRST BUSINESS DAY AFTER IT IS SENT BY FACSIMILE TO THE FACSIMILE NUMBER SET FORTH FOR THE COMPANY (OR TO SUCH OTHER FACSIMILE NUMBER AS THE COMPANY SHALL HAVE SPECIFIED BY 10 DAYS’ ADVANCE NOTICE GIVEN IN ACCORDANCE WITH THIS SECTION 15), WITH A CONFIRMATORY COPY SENT BY CERTIFIED OR REGISTERED MAIL OR BY OVERNIGHT COURIER TO THE COMPANY IN ACCORDANCE WITH THIS SECTION 15. If to the Company, to: ACA Financial Guaranty Corporation 140 Broadway New York, NY 10005 Attention:  General Counsel Telephone: (212) 375-2000 Facsimile: (212) 375-2100 15 -------------------------------------------------------------------------------- If to the Executive, to: The Executive’s principal residence as shown in the records of the Company with a copy to: The Executive at the Company’s address and A. Richard Susko Cleary Gottlieb One Liberty Plaza New York New York 10006 Telephone:  (212) 225 2410 Facsimile: (212) 225 3999 The address most recently specified by the Executive or beneficiary through notice given in accordance with this Section 15. 16.                                 GUARANTEE OF OBLIGATIONS.  HOLDINGS IS A BENEFICIARY OF THE SERVICES PROVIDED BY EXECUTIVE AND HEREBY IRREVOCABLY AND UNCONDITIONALLY GUARANTEE THE PERFORMANCE OF ALL OBLIGATIONS OF FINANCIAL HEREUNDER. 17.                                 INSURANCE.  THE COMPANY MAY, AT ITS DISCRETION, APPLY FOR AND PROCURE IN ITS OWN NAME AND FOR ITS OWN BENEFIT LIFE AND/OR DISABILITY INSURANCE ON THE EXECUTIVE IN ANY AMOUNT OR AMOUNTS CONSIDERED ADVISABLE.  THE EXECUTIVE AGREES TO COOPERATE IN ANY MEDICAL OR OTHER EXAMINATION, SUPPLY ANY INFORMATION AND EXECUTE AND DELIVER ANY APPLICATIONS OR OTHER INSTRUMENTS IN WRITING AS MAY BE REASONABLY NECESSARY TO OBTAIN AND CONSTITUTE SUCH INSURANCE. 18.                                 MISCELLANEOUS. (A)                                  ENTIRE AGREEMENT.  THIS AGREEMENT CONTAINS THE ENTIRE UNDERSTANDING AND AGREEMENT BETWEEN THE PARTIES CONCERNING THE SUBJECT MATTER HEREOF AND, AS OF THE EFFECTIVE DATE, SUPERSEDES ALL PRIOR AGREEMENTS, UNDERSTANDINGS, DISCUSSIONS, NEGOTIATIONS, AND UNDERTAKINGS, WHETHER WRITTEN OR ORAL, BETWEEN THE PARTIES WITH RESPECT THERETO, INCLUDING, BUT NOT LIMITED TO, THE FORMER EMPLOYMENT AGREEMENT. (B)                                 SPECIFIC PERFORMANCE.  THE PARTIES HERETO RECOGNIZE THAT IT IS TO THE BENEFIT OF THE COMPANY AND THE EXECUTIVE THAT THIS AGREEMENT BE CARRIED OUT; AND FOR THOSE AND OTHER REASONS, THE EXECUTIVE AND THE COMPANY WOULD BE IRREPARABLY DAMAGED IF THIS AGREEMENT IS NOT SPECIFICALLY ENFORCED IN THE EVENT OF A BREACH HEREOF.  IF THIS AGREEMENT IS BREACHED BY THE COMPANY OR THE EXECUTIVE, THE PARTIES HERETO HEREBY AGREE THAT REMEDIES AT LAW MIGHT BE INADEQUATE AND THAT, THEREFORE, SUCH RIGHTS AND OBLIGATIONS, AND THIS AGREEMENT SHALL BE ENFORCEABLE BY SPECIFIC PERFORMANCE ON THE PART OF THE COMPANY OR THE EXECUTIVE, AS APPLICABLE.  THE REMEDY OF SPECIFIC PERFORMANCE SHALL NOT BE AN EXCLUSIVE REMEDY, BUT SHALL BE CUMULATIVE OF ALL OTHER RIGHTS AND REMEDIES OF THE PARTIES HERETO AT LAW, IN EQUITY, OR UNDER THIS AGREEMENT. 16 -------------------------------------------------------------------------------- (C)                                  SEVERABILITY.  IN THE EVENT THAT ANY PROVISION OR PORTION OF THIS AGREEMENT SHALL BE DETERMINED TO BE INVALID OR UNENFORCEABLE FOR ANY REASON, IN WHOLE OR IN PART, THE REMAINING PROVISIONS OF THIS AGREEMENT SHALL BE UNAFFECTED THEREBY AND SHALL REMAIN IN FULL FORCE AND EFFECT TO THE FULLEST EXTENT PERMITTED BY LAW SO AS TO ACHIEVE THE PURPOSES OF THIS AGREEMENT. (D)                                 AMENDMENT OR WAIVER.  NO PROVISION IN THIS AGREEMENT MAY BE AMENDED UNLESS SUCH AMENDMENT IS SET FORTH IN A WRITING SIGNED BY THE PARTIES.  NO WAIVER BY EITHER PARTY OF ANY BREACH OF ANY CONDITION OR PROVISION CONTAINED IN THIS AGREEMENT SHALL BE DEEMED A WAIVER OF ANY SIMILAR OR DISSIMILAR CONDITION OR PROVISION AT THE SAME OR ANY PRIOR OR SUBSEQUENT TIME.  TO BE EFFECTIVE, ANY WAIVER MUST BE SET FORTH IN A WRITING SIGNED BY THE WAIVING PARTY. (E)                                  HEADINGS.  THE HEADINGS OF THE SECTIONS CONTAINED IN THIS AGREEMENT ARE FOR CONVENIENCE ONLY AND SHALL NOT BE DEEMED TO CONTROL OR AFFECT THE MEANING OR CONSTRUCTION OF ANY PROVISION OF THIS AGREEMENT. (F)                                    BENEFICIARIES/REFERENCES.  THE EXECUTIVE SHALL BE ENTITLED, TO THE EXTENT PERMITTED UNDER ANY APPLICABLE LAW, TO SELECT AND CHANGE A BENEFICIARY OR BENEFICIARIES TO RECEIVE ANY COMPENSATION OR BENEFIT HEREUNDER FOLLOWING THE EXECUTIVE’S DEATH BY GIVING THE COMPANY WRITTEN NOTICE THEREOF.  IN THE EVENT OF THE EXECUTIVE’S DEATH OR A JUDICIAL DETERMINATION OF HIS INCOMPETENCE, REFERENCE IN THIS AGREEMENT TO THE EXECUTIVE SHALL BE DEEMED, WHERE APPROPRIATE, TO REFER TO HIS BENEFICIARY, ESTATE, OR OTHER LEGAL REPRESENTATIVE. (G)                                 SURVIVORSHIP.  IT IS THE EXPRESS INTENTION AND AGREEMENT OF THE PARTIES HERETO THAT THE PROVISIONS OF SECTIONS 1, 6(C), 9, 10(C), 11, 12, 14, 15, 16, 18(B), 18(C), 18(F), 18(H), AND THIS SECTION 18(G) SHALL SURVIVE THE TERMINATION OF EMPLOYMENT OF THE EXECUTIVE. (H)                                 GOVERNING LAW/JURISDICTION.  THIS AGREEMENT SHALL BE GOVERNED, CONSTRUED, PERFORMED, AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO PRINCIPLES OF CONFLICTS OF LAWS. (I)                                     COUNTERPARTS.  THIS AGREEMENT MAY BE EXECUTED IN TWO OR MORE COUNTERPARTS, EACH OF WHICH SHALL BE DEEMED AN ORIGINAL, BUT ALL OF WHICH, WHEN TAKEN TOGETHER, SHALL CONSTITUTE ONE AND THE SAME INSTRUMENT. [The remainder of this page intentionally left blank.] 17 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first set forth above.   ACA CAPITAL HOLDINGS, INC.           By:  /s/ Nora J. Dahlman         Name: Nora J. Dahlman       Title: General Counsel and Secretary           ACA FINANCIAL GUARANTY     CORPORATION             By:  /s/ Nora J. Dahlman         Name: Nora J. Dahlman       Title: General Counsel and Secretary                         /s/ Alan S. Roseman           ALAN S. ROSEMAN     18 --------------------------------------------------------------------------------

  Exhibit 10.6 AGREEMENT AND DEED OF THE CREATION OF A FIRST RANKING RIGHT OF PLEDGE OF RECEIVABLES On the twentieth day of March, two thousand and six, appeared before me, Johannes Schouten, hereinafter referred to as “civil law notary”, substitute of Pieter Heyme Bolland, civil law notary (notaris) (“Notary”) officiating at (met plaats van vestiging te) Amsterdam, The Netherlands: 1.   Saskia Dorothée Schenke, employed at AKD Prinsen Van Wijmen N.V. at its office at Orlyplein 10, 1043 DP Amsterdam, the Netherlands, born at Wijchen, the Netherlands on the twenty-fourth day of March nineteen hundred and eighty-two, acting upon a written power of attorney granted by and as such representing Affiliated Computer Services International B.V., a private limited liability company (besloten vennootschap met beperkte aansprakelijkheid) organized and existing under the laws of the Netherlands, with Ministry of Justice number B.V. 1165104, having its corporate seat (statutaire zetel) at Amsterdam, the Netherlands, with address Fred. Roeskestraat 123-I, 1076 EE Amsterdam, the Netherlands, registered with the trade register of the Chamber of Commerce for Amsterdam (Kamer van Koophandel en Fabrieken voor Amsterdam) under number 34160388 (the “Pledgor”); 2.   Bart Garnaat, employed as a lawyer at AKD Prinsen Van Wijmen N.V. at its office at Orlyplein 10, 1043 DP Amsterdam, the Netherlands, born at Purmerend, the Netherlands on the sixteenth day of September nineteen hundred and seventy-eight, acting upon a written power of attorney granted by and as such representing Citicorp USA, Inc., a company incorporated under the laws of Delaware, United States of America, having its registered office in 1209 Orange Street, c/o CT Corporation, Wilmington, Delaware, United States of America, with address 388 Greenwich Street, New York, New York 10013, United States of America, for the purposes hereof acting in its own capacity (the “Pledgee”). Page 1 of 19   --------------------------------------------------------------------------------   WHEREAS: A.   On the twentieth day of March two thousand six, a Credit Agreement (the “Credit Agreement”) (as same may be extended, prolonged or amended, renewed or novated from time to time) was entered into amongst, inter alia, (1) Affiliated Computer Services, Inc. as Borrower (the “Company”), (2) ACS Worldwide Lending Ltd. as the U.K. Borrower, (3) Citicorp USA, Inc. as Administrative Agent and (4) Citigroup Global Markets, Inc. as Sole Lead Arranger and Book Runner.   B.   Moreover, in connection with the transactions contemplated by the Credit Agreement, the Pledgor has entered into a Guaranty (as defined in the Credit Agreement (and included in the Loan Documents)) dated the twentieth day of March two thousand six in favor of the Guaranteed Parties (the “Guaranty”). A copy of the Guaranty is attached to this Deed (as hereinafter defined).   C.   Pursuant to the Credit Agreement and the Guaranty, the Pledgor is obliged to create a right of pledge on the Present Receivables (as hereinafter defined), the Relative Future Receivables (as hereinafter defined) and the Absolute Future Receivables (as hereinafter defined) in favor of the Pledgee for the benefit of the Guaranteed Parties, and, pursuant to this Deed (as hereinafter defined), for the benefit of the Pledgee (for the avoidance of doubt acting in its own capacity) which pledge shall be created by this Deed (as hereinafter defined). DECLARE AS FOLLOWS: 1.   INTERPRETATION   1.1   Words and expressions defined in the Credit Agreement shall have the same meaning when used herein unless otherwise defined herein.   1.2   In this agreement and deed of the creation of a first ranking right of pledge of Receivables (pandakte) (the “Deed”) the following words and expressions shall have the following meanings:       Absolute Future Receivables   means all Receivables acquired by the Pledgor after the time of this Deed from any Subsidiaries of the Borrower or of any Subsidiary Borrower, other than the Future Receivables acquired directly pursuant to a legal relationship now in existence;       Articles of Association   means the articles of association (statuten) of the Company as they read since they have lastly been amended by a deed of amendment, executed on the tenth day of March, two thousand six, before a substitute of Paul Hubertus Nicolaas Quist, civil law notary officiating in Amsterdam, the Netherlands, (these articles of association have not been amended since) as amended from time to time; Page 2 of 19   --------------------------------------------------------------------------------         Enforcement Event   means any default (verzuim) in or in connection with the proper performance of the Secured Obligations, provided it is also an Event of Default (as defined in the Credit Agreement) which has occurred and is continuing, and has not been remedied or waived;       Existing Indenture   means the Indenture, dated the sixth day of June two thousand five, between the Company and The Bank of New York Trust Company, N.A., as trustee, as supplemented by the First Supplemental Indenture and the Second Supplemental Indenture;       Existing Note   means each of the notes issued under and governed by the Existing Indenture;       Existing Note Obligations   means all obligations of the Company under the Existing Notes;       First Supplemental Indenture   means the First Supplemental Indenture, dated the sixth day of June two thousand five, between the Company and The Bank of New York Trust Company, N.A., as trustee, but not as thereafter may be supplemented or amended;       Foreign Obligations   means all Obligations, other than any U.S. Obligations, which now or at any time hereafter may be or become due, owing or incurred by the Guarantors to any one or more of the Administrative Agent, Citicorp USA, Inc. in its own capacity, each Lender, each Issuer and each other holder of a Foreign Obligation, as creditor, joint and several creditor (whether in the meaning of Section 6:16 of the Dutch Civil Code or not) or otherwise from time to time, whether due and payable or not, whether contingent or not and whether alone or jointly with others, as principal, guarantor, surety or otherwise and in whatever name or style, under, in connection with or pursuant to the Loan Documents (as parties may succeed thereto as a party or may withdraw therefrom as a party), other than the Parallel Obligations, strictly to the extent relating to other than any U.S. Obligations; Page 3 of 19   --------------------------------------------------------------------------------         Guaranteed Parties   has the meaning as defined in the Guaranty;       Receivables Intercompany   means all rights of the Pledgor to receive payment of an amount of money (vordering tot voldoening van een geldsom) from any Group Member, whether the same now exist (bestaan), or will hereafter be acquired by the Pledgor directly pursuant to a legal relationship now in existence (rechtstreeks zullen worden verkregen uit een nu reeds bestaande rechtsverhouding) or will hereafter be acquired otherwise by the Pledgor, and all rights, including dependent and ancillary rights, privileges and actions attached thereto;       Receivables   means (a) accounts receivable and all Proceeds thereof, and (b) to the extent not required to secure the Existing Note Obligations under the Supplemental Indentures (as hereafter defined) and to the extent not otherwise included under clause (a) of this definition of Receivables, all rights of the Pledgor to receive payment of an amount of money (vordering tot voldoening van een geldsom), whether the same now exist (bestaan), or will hereafter be acquired by the Pledgor directly pursuant to a legal relationship now in existence (rechtstreeks zullen worden verkregen uit een nu reeds bestaande rechtsverhouding) or will hereafter be acquired otherwise by the Pledgor, and all rights, including dependent and ancillary rights, privileges and actions attached thereto, including but not limited to the proceeds of any of the same;       Parallel Debt   has the meaning mentioned in article 2 hereof;       Parallel Obligations   the full and prompt payment when due of any and all obligations to pay an amount of money (verplichtingen tot voldoening van een geldsom), whether present or future, actual or contingent, that may at any time be owing by the Pledgor to the Pledgee under or pursuant to Clause 2 (Parallel Debt) of this Deed;       Present Receivables   means all Receivables now in existence (bestaan) including but not limited to the receivables referred to in Schedule 1 of this Deed; Page 4 of 19   --------------------------------------------------------------------------------         Relative Future Receivables   means all Receivables which the Pledgor will acquire after the time of this Deed directly pursuant to a legal relationship now in existence (rechtstreeks zullen worden verkregen uit een nu reeds bestaande rechtsverhouding);       Second Supplemental Indenture   means the Second Supplemental Indenture, dated the sixth day of June two thousand five, between the Company and The Bank of New York Trust Company, N.A., as trustee, but not as thereafter may be supplemented or amended;       Secured Obligations   the Parallel Obligations and the Foreign Obligations to the extent owing to the Pledgee;       Security Period   means the period beginning on the date hereof and ending on the date on which all Secured Obligations have been irrevocably, fully and completely repaid or discharged in accordance with Clause 8.1 of this Deed;       Supplemental Indenture   means each of the First Supplemental Indenture and the Second Supplemental Indenture. 1.3   Save where the contrary is indicated, any reference in this Deed to: the “Pledgee”, the “Pledgor” or the “Administrative Agent” shall be construed so as to include its or their respective permitted successors, transferees and assigns pursuant to the terms of the relevant Loan Documents from time to time and any successor of such successor, transferee or assign in accordance with their respective interests;       a “Clause” shall, subject to any contrary indication, be construed as a reference to a clause hereof;       the term “including” shall be construed as meaning “including without limitation”;       a “person” shall be construed as a reference to any person, firm, company, corporation, body corporate, government, state or agency of a state or any association or partnership (whether or not having separate legal personality) of two or more of the foregoing;       "tax” shall be construed so as to include any tax, levy, impost, duty or other charge of a similar nature (including any penalty or interest payable in connection with any failure to pay or delay in paying any of the same);       the “Credit Agreement” and this “Deed” or any other agreement or document shall, where applicable, be deemed to be a reference to the Page 5 of 19   --------------------------------------------------------------------------------       Credit Agreement and this Deed, or such other agreement or document as the same may have been, or may from time to time be, extended, prolonged, amended, supplemented, renewed or novated; and       a statute or statutory provision shall be construed as a reference to such statute or statutory provision as the same may have been, or may be from time to time, amended or re-enacted and all instruments, orders, plans, regulations, by-laws, permissions and directions at any time made thereunder.       This Deed is deemed to be included in the definition of the Collateral Documents mentioned in the Credit Agreement. 1.4   Headings are for convenience of reference only. Where the context admits, the singular includes the plural and vice versa.   2.   PARALLEL DEBT   2.1   Parallel Debt   (a)   Without prejudice to the provisions of the Credit Agreement and for the purpose of ensuring and preserving the validity and continuity of the security rights granted and to be granted by the Pledgor under or pursuant to this Deed the Pledgor hereby irrevocably and unconditionally undertakes to pay to the Pledgee amounts equal to and in the currency of the Foreign Obligations from time to time due by the Pledgor in accordance with the terms and conditions of the Loan Documents (such payment undertaking and the obligations and liabilities which are the result thereof the “Parallel Debt”);     (b)   The Pledgor and the Pledgee acknowledge that (i) for this purpose the Parallel Debt constitutes undertakings, obligations and liabilities of the Pledgor to the Pledgee under this Deed which are separate and independent from, and without prejudice to, the corresponding Foreign Obligations which the Loan Parties have to any of the Guaranteed Parties and (ii) that the Parallel Debt represents the Pledgee’s own claims (vorderingen op naam) to receive payment of the Parallel Debt, provided that the total amount which may become due under the Parallel Debt shall never exceed the total amount which may become due under the Foreign Obligations.     (c)   Every payment of monies made by a Loan Party to any of the Guaranteed Parties shall (conditionally upon such payment not subsequently being avoided or reduced by virtue of any provisions or enactments relating to bankruptcy, insolvency, liquidation or similar laws of general application) be in satisfaction pro tanto of the covenant by the Pledgor contained in Clause 2.1(a), provided that, if any such payment as is mentioned above is subsequently avoided or reduced by virtue of any provisions or enactments relating to bankruptcy, liquidation or similar laws of general application, the Pledgee shall be entitled to receive the amount of such payment from the Pledgor and the Pledgor shall remain liable to perform the relevant obligation and the relevant liability shall be deemed not to have been discharged. Page 6 of 19   --------------------------------------------------------------------------------     (d)   Subject to the provision in Clause 2.1(c), but notwithstanding any of the other provisions of this Clause 2:   (i)   the total amount due and payable as Parallel Debt under this Clause 2 shall be decreased to the extent a Loan Party shall have paid any amounts to any of the Guaranteed Parties to reduce the outstanding Foreign Obligations or any of the Guaranteed Parties otherwise receives any amount in payment of the Foreign Obligations; and     (ii)   to the extent that the Pledgor shall have paid any amounts to the Pledgee under the Parallel Debt or the Pledgee shall have otherwise received monies in payment of the Parallel Debt, the total amount due and payable under the Foreign Obligations shall be decreased as if said amounts were received directly in payment of the Foreign Obligations.   (e)   The Pledgee, by signing this Deed, acknowledges the provisions of Clause 2.1 on behalf of the Loan Parties.     (f)   The Pledgee undertakes to distribute to the Loan Parties an amount equal to an amount collected or recovered by the Pledgee which it has applied in reduction of its claim under the Parallel Debt in accordance with the terms of this Deed, as if the corresponding claim under the Foreign Obligations of the Loan Parties has not been discharged. 2.2   Undertaking to Pledge       The Pledgor and the Pledgee hereby agree that the Pledgor shall grant to the Pledgee for the benefit of the Guaranteed Parties, and, where it concerns the Parallel Debt, for the benefit of the Pledgee, the rights of pledge purported to be granted under or pursuant to this Deed.   2.3   Pledgee not an Agent       The parties acknowledge that, save as indicated in Clause 2.1(e), the Pledgee acts in its own name and not as agent or representative of the Loan Parties or any of them and the rights of pledge created hereunder or pursuant hereto will not be held on trust.   2.4   Default       Any failure to satisfy the Secured Obligations when due shall constitute a default (verzuim) in or in connection with the proper performance of the Secured Obligations, without any reminder letter (sommatie) or notice of default (ingebrekestelling) being sent or required.   3.   PLEDGE OF THE PRESENT RECEIVABLES, THE RELATIVE FUTURE RECEIVABLES AND ABSOLUTE FUTURE RECEIVABLES       In order to secure and provide for the payment and discharge of all Secured Obligations, the Pledgor hereby pledges (verpandt) to the Pledgee for the duration of the Security Period:   (i)   by way of a disclosed right of pledge (openbaar pandrecht) all of its Present Receivables and Relative Future Receivables and, to the extent legally possible, on all of its Absolute Future Receivables, in sofar as such Receivables consist of Intercompany Receivables, which rights of pledge the Pledgee hereby accepts;     (ii)   by way of a first priority non-disclosed right of pledge (eerste stil pandrecht) all of its Present Receivables and Relative Future Page 7 of 19   --------------------------------------------------------------------------------         Receivables and, to the extent legally possible, on all of its Absolute Future Receivables, in sofar as such Receivables consist of other Receivables than Intercompany Receivables, which rights of pledge the Pledgee hereby accepts. The Pledgee shall be authorised, immediately after the execution of this Deed of Pledge or at any time thereafter, to notify the disclosed rights of pledge hereby granted by the Pledgor to each debtor of the Receivables, by notice substantially in the form of Schedule 2 attached to this Deed of Pledge. 4.   FUTURE RECEIVABLES   4.1   The Pledgor hereby undertakes to pledge to the Pledgee in order to secure and provide for the payment and discharge of all Secured Obligations and subject to the terms hereof all of its Receivables (i) not later than ten (10) business days from the last day of each year (or with such other frequency as the Pledgee may designate in writing to the Pledgor) or (ii) at first reasonable request of the Pledgee.   4.2   In order to effect the pledge of the Receivables referred to in paragraph 1 of this Clause 4, the Pledgor shall complete and sign and send to the Pledgee a shortened pledge list (the “Borderel”) in the form of Schedule 3 attached to this Deed, accompanied by an authorisation (the “Authorisation”) in the form of Schedule 4 attached to this Deed and a separate (electronic) listing of all names and addresses of its debtors at that moment. The Administrative Agent shall be authorised to present each Borderel immediately for registration to the Belastingdienst/Ondernemingen (the “Tax Inspection”), together with the relevant Authorisation and under cover of a registration letter in substantially the form of Schedule 5 attached to this Deed, or such other format as the Administrative Agent deems useful.   4.3   Notwithstanding the obligations of the Pledgor under paragraph 1 of this Clause 4, the Pledgee is hereby irrevocably authorised by the Pledgor to sign on its behalf at any time a supplemental pledge notice, whereby the Pledgor pledges to the Pledgee all its Receivables which are then capable of being pledged, in substantially the form of Schedule 6 attached to this Deed. The Administrative Agent shall be authorised to (i) present such supplemental pledge notice for registration to the Tax Inspection, under cover of a registration letter in substantially the form of Schedule 5 attached to this Deed, or such other format as the Administrative Agent deems useful, and (ii) notify the disclosed rights of pledge created by such supplemental pledge notice to each debtor of the Receivables by notice in substantially the form of Schedule 7 attached to this Deed, and the Administrative Agent shall give notice of such supplemental pledge notice to the Pledgor as soon as reasonably practicable.   5.   INFORMATION       The Pledgor shall upon a reasonable and well-founded request of the Pledgee submit an electronic listing of all its Receivables, with full names, addresses, contact persons and their telephone numbers, amount and invoice number of each invoice of its debtors at that Page 8 of 19   --------------------------------------------------------------------------------       moment outstanding in such a format that the Administrative Agent can use the same to process and address electronically specified notices of pledge (medelingen van pandrecht) to a debtor by means of printing the same on stickers and/or letters.   6.   FURTHER ASSURANCES/DELIVERY OF DOCUMENTS   6.1   Upon receipt of reasonable prior written notice the Pledgor, at its own reasonable expense, shall execute such agreements, deeds, confirmations and notices and give, perform and do all such assurances, acts and things as the Pledgee reasonably may require for giving full effect to this Deed, for creating, perfecting or protecting the Pledgee’s security rights in respect of the Receivables or any part thereof, for facilitating the realisation of the Receivables or any part thereof, and/or for assuring, confirming or facilitating the exercise of all rights, powers, authorities, discretions and remedies vested in the Pledgee under this Deed in respect of the Receivables or any part thereof.   6.2   The Pledgor, at its own reasonable cost and expense, shall take all such reasonable steps as may be necessary or advisable (on the basis of advice received from reputable independent legal counsel):   (a)   to defend its right, title and interest in and to the Receivables against the claims and demands of any person, where necessary in cooperation with the Pledgee;     (b)   to perfect, protect and maintain the security intended to be conferred on the Pledgee by or pursuant to this Deed; and     (c)   to make all such filings and registrations and to take all such other steps as may be necessary in connection with the creation, perfection, protection or maintenance of any security which it may, or may be required to, create in connection herewith. 7.   GENERAL PROVISIONS   7.1   Further to and subject to the conditions mentioned in the Credit Agreement, the Pledgor hereby acknowledges that all risks connected with the ownership of the Receivables (including possible loss in value or otherwise and any expenses and charges) incurred or to be incurred in respect of or in connection with any such Receivables shall be exclusively for the account of the Pledgor, except to the extent the same shall arise as a result of the gross negligence or willful misconduct of the party seeking to be indemnified.   7.2   Taxes       The Pledgor shall bear any and all reasonable charges, taxes, imposts, duties, filing and registration fees and other expenses due in respect of the Receivables pledged hereunder or pursuant hereto, whether known at present or to be levied in the future, in relation to this Deed as indicated in section 2.16 of the Credit Agreement.   7.3   Possible Attachment       In the event of a possible attachment by a third party of any of the Receivables, the Pledgor shall, at its own expense, (i) promptly notify the Pledgee and send it or its attorneys a copy of the relevant attachment documentation as well as all other documents required under applicable law for challenging the attachment (if possible), (ii) Page 9 of 19   --------------------------------------------------------------------------------       notify the third party or the court process server acting on behalf of such third party in writing of the Pledgee’s interest in the relevant Receivables, and (iii) take such measures as reasonably may be required to protect the Pledgee’s interest in the relevant Receivables. All costs and expenses incurred by the Pledgee in taking such measures itself shall be for the account of the Pledgor.   7.4   The Pledgor shall at its own expense execute and give, perform and do all such assurances, acts and things as the Pledgee reasonably may require (i) for creating, perfecting or protecting the security over the Receivables or any part thereof, (ii) for facilitating the realisation of the Receivables or any part thereof and (iii) in exercising all powers, authorities and discretions vested in the Pledgee in respect of the Receivables or any part thereof.   8.   TERMINATION   8.1   This Deed and the Pledgee’s security interest constituted hereunder or pursuant hereto, shall be in full force and effect until a duly authorised officer of the Pledgee has certified in writing, at the request and cost of the Pledgor – which certificate the Pledgee shall issued to the Pledgor within forty-five (45) days following the date on which the request by the Pledgor was received by the Pledgee -, that all Secured Obligations have been irrevocably, fully and completely repaid or discharged and that the security interest constituted hereunder or pursuant hereto is terminated (opzeggen) and released (afstand doen), but any such certification, termination and release shall be subject to Clauses 9.5 and 9.6.   8.2   Subject to the conditions mentioned in section 10.8 (b) of the Credit Agreement, the Pledgee may at any time cancel (opzeggen) and/or release (afstand doen) in whole or in part of this right of pledge by given notice to the Pledgor in respect of Receivables.   9.   CONTINUING AND INDEPENDENT SECURITY   9.1   Ultimate Balance       The Pledgee’s security interest constituted by or pursuant to this Deed shall be continuing and shall remain in full force and effect, notwithstanding any intermediate payment of the Foreign Obligations or the Secured Obligations, and shall apply to the ultimate balance thereof.   9.2   Waiver of Defenses       To the fullest extent permitted by law, the liability of and the security rights granted by the Pledgor hereunder or pursuant hereto in respect of the Secured Obligations shall not be prejudiced, affected or diminished by any act, omission or circumstance which, but for this provision, might operate to release, discharge or reduce the efficacy of the security interests granted hereunder or pursuant hereto or to release, discharge or otherwise exonerate the Pledgor from any of the Secured Obligations or the Foreign Obligations, including, whether or not known to the Pledgor or the Pledgee:   (a)   any time, waiver or indulgence granted to or composition with the Pledgor or any other person; Page 10 of 19   --------------------------------------------------------------------------------     (b)   the taking, variation, compromise, renewal or release of, or refusal or neglect to perfect or enforce, any rights, remedies or securities against or granted by the Pledgor;     (c)   any variation of, or extension of the due date for performance of any term of any agreement in connection with the Foreign Obligations or the Secured Obligations (to the extent that the Pledgor’s obligations in respect of such Foreign Obligations or such Secured Obligations shall apply to such term as varied or in respect of the extended due date) or any increase, reduction, exchange, acceleration, renewal, surrender, release or loss of or failure to perfect any of the Foreign Obligations or the Secured Obligations or any security therefor or any non-presentment or non-observance of any formality in respect of any instruments;     (d)   the transfer by any of the Guaranteed Parties of all or any of its rights, benefits and/or obligations under the Credit Agreement or any other agreement to which it is party to another person or entity;     (e)   the insolvency (including bankruptcy (faillissement) or moratorium (surséance van betaling)), or liquidation, dissolution or any change in the name or constitution of the Pledgor; or     (f)   any irregularity, unenforceability or invalidity of any (but not all) of the Secured Obligations or of the obligations of any other person or any present or future law or order of any government or authority (whether of right or in fact) purporting to reduce or otherwise affect any of such obligations to the intent that the Pledgor’s obligations under this Deed shall remain in full force and this Deed and the term “Secured Obligations” shall be construed accordingly as if there were no such irregularity, unenforceability, invalidity, law or order. To the extent possible under the laws of the Netherlands the term “Secured Obligations” shall include all items which would be Secured Obligations but for the liquidation, absence of legal personality or incapacity of the Pledgor or any statute of limitation. 9.3   Immediate Recourse       To the fullest extent allowed by applicable law the Pledgor waives any right it may have of first requiring the Pledgee to proceed against or claim payment from any person or entity or enforce any Guaranty or security granted by any other person or entity before enforcing this Deed and/or its rights hereunder or pursuant hereto.   9.4   Additional Security       This Deed shall be in addition to and shall not in any way be prejudiced by or dependent on any collateral or other security now or hereafter held by the Pledgee as security for the Secured Obligations or any lien to which it may be entitled. The rights of the Pledgee hereunder are in addition to and not exclusive of those provided by law.   9.5   Certificates       A certificate signed by any two authorised officers of the Pledgee setting forth any amount due to it from the Pledgor in respect of any Page 11 of 19   --------------------------------------------------------------------------------       Secured Obligations shall be prima facie evidence of such amount against the Pledgor in the absence of manifest error or fraud.   9.6   Discharge       Where any discharge (whether in respect of this Deed, any other security for the Secured Obligations or otherwise) is made in whole or in part or any arrangement is made on the faith of any payment, security or other disposition which is subsequently avoided or must be restored on bankruptcy, liquidation or otherwise without limitation, the liability of the Pledgor under this Deed and the pledge hereby created shall continue (or, to the extent required by applicable law in the event that the pledge hereby created has been discharged in full, shall be reinstated) as if there had been no discharge or arrangement. The Pledgee shall be entitled to concede or compromise any claim that any such payment, security or other disposition is liable to avoidance or repayment.   9.7   Exercise of Rights, Powers, Remedies       Before exercising any of the rights, powers or remedies conferred upon it by this Deed or by law the Pledgee does not need to (i) take proceedings or obtain judgment against the Pledgor or any other person in any court, (ii) make or file any claim or proof in a winding-up or dissolution of the Pledgor or of any other person, or (iii) enforce or seek to enforce any other security which the Pledgee may now or at any time hereafter hold for or in connection with the Secured Obligations.   10.   REPRESENTATIONS, WARRANTIES AND COVENANTS   10.1   In addition and without prejudice to those covenants, undertakings, commitments and obligations of the Pledgor incorporated elsewhere herein, in the Credit Agreement or in any other Loan Document, the Pledgor hereby covenants that it shall indemnify the Pledgee against and hold it harmless in respect of any liability or loss incurred by the Pledgee in connection with any action taken by the Pledgor in respect of the Receivables or any agreement in respect thereof entered into by the Pledgor but to which the Pledgee is not a party, in the event that such action or agreement is not taken or entered into with prior express consent or approval of, or pursuant to directions from, the Pledgee, unless that liability or loss arises as a result of the Pledgee’s gross negligence or wilful misconduct.       The provisions of this Clause 10.1 shall survive the termination of this Deed and the right of pledge hereby created as referred to in Clause 8.1 and Clause 8.2 of this Deed.   10.2   In addition and without prejudice to those covenants, undertakings, commitments and obligations of the Pledgor incorporated elsewhere herein and in the Credit Agreement, the Pledgor hereby represents and warrants to the Pledgee that on the date hereof:   (a)   to its best knowledge, Schedule 1 attached to this Deed sets forth a true and complete listing of all of its Present Receivables and its Relative Future Receivables; Page 12 of 19   --------------------------------------------------------------------------------     (b)   that it is proprietor (rechthebbende) of the Present Receivables and has full power to dispose (beschikkingsbevoegd) of the Present Receivables;     (c)   save as permitted under the Credit Agreement, that the Present Receivables and the Relative Future Receivables are not subject to any rights of pledge or other limited rights, it has not delivered the Present Receivables, the Relative Future Receivables, whether or not in advance, or created, whether or not in advance, any rights of pledge or other limited rights (beperkte rechten), to its best knowledge, it has not made any offer or entered into an agreement to that effect with respect to the Receivables, and that, to its best knowledge, no attachment has been levied on any of the Present Receivables and/or Relative Future Receivables;     (d)   that the Receivables are valid, enforceable and freely transferable at the time that they are pledged to the Pledgee;     (e)   that this Deed creates a valid first-ranking right of pledge on its Present Receivables, its Relative Future Receivables, in accordance with its terms;     (f)   to its best knowledge, there are no outstanding options or other rights, whether actual or contingent, entitling the holder thereof to acquire any of its Receivables; and     (g)   that each duly signed and duly registered supplemental pledge deed in the form of Schedule 3 and in the form of Schedule 7 to this Deed, to its best knowledge, will create a valid right of pledge on the Receivables referred to therein. 10.3   The Pledgor hereby represents and warrants that the representations and warranties given by it in paragraph 2 sub (a), (b) and (g) and in paragraph 4 of this Clause 10 (Representations, warranties and covenants) shall be deemed to be repeated by reference to the facts and circumstances existing on each day the Pledgor acquires any Receivables.   10.4   The Pledgor further represents and warrants to the Pledgee that:   (i)   the Pledgor has not:   (a)   taken any action that impedes the Pledgee’s rights hereunder; or     (b)   agreed to grant any encumbrance (beperkt recht) over any of the Receivables (other than Customary Permitted Liens under the Credit Agreement);   (ii)   the Pledgor has the authority (beschikkingsbevoegdheid) to pledge the Receivables to the Pledgee. 10.5   Without the prior written consent of the Pledgee which is not unreasonably withheld (and save as expressly permitted by the Credit Agreement), the Pledgor shall not:   (a)   unless in the course of its ordinary business, sell, transfer, assign or otherwise dispose of its Receivables; or     (b)   create or permit to subsist any encumbrances on any of its Receivables;     (c)   change the manner, place or terms of payment of change or extend the time of payment of its Receivables. Page 13 of 19   --------------------------------------------------------------------------------   10.6   The Pledgor shall as soon as possible inform the Pledgee, upon becoming aware of the same, of any claim or any notice relating to any of the Receivables received from any other party and of all other matters, which are or could be relevant to the position of the Pledgee hereunder.   10.7   The Pledgor shall use all reasonable endeavour to obtain (in form and content reasonable satisfactory to the Pledgee) as soon as possible any consents necessary to enable the Receivables to be subject to a right of pledge pursuant to this Deed and, immediately upon obtaining such consent, the Receivable concerned shall become subject to such right of pledge and the Pledgor shall promptly deliver a copy of each consent to the Pledgee, without prejudice to the previous provisions of this Deed.   11.   AUTHORITY TO COLLECT THE RECEIVABLES   11.1   The Pledgor shall have the right to receive and collect payment (inningsbevoegdheid) of the Receivables until the Pledgee has given a written notice to the debtors of those Receivables, notifying them of this pledge and stating that the Pledgor is no longer entitled to receive and collect payments, which notice shall only be given if an Enforcement Event has occurred.   11.2   After the notice referred to in paragraph 1 of this Clause 11 has been given in respect of the Pledgor, the Pledgee shall be exclusively authorised to demand and accept payment of the Pledgor’s Receivables, to collect payment thereof by judicial or extra-judicial means, to grant discharge in respect thereof, to enter into compromises, settlements and other agreements with the debtors thereof and, generally, to exercise all rights of the Pledgor in connection with the Pledgor’s Receivables.   11.3   The Pledgor hereby waives its right under Section 3:246, paragraph 4 of the Dutch Civil Code, to petition to the cantonal judge (kantonrechter) to authorise it to collect and receive payment of its Receivables in deviation from this Deed, which waiver is hereby accepted by the Pledgee.   11.4   The Pledgee shall not, on any account whatsoever, be liable to the Pledgor for any failure to collect or to collect in full any of the Receivables.   12.   IMMEDIATE FORECLOSURE. ENFORCEMENT   12.1   Without prejudice to any other right or remedy available to the Pledgee, upon the occurrence and during the continuance of any Enforcement Event, the Administrative Agent, by giving written notice to the Pledgor, may declare the security hereby constituted immediately enforceable and the Pledgee may immediately exercise in respect of any or all of the Receivables any or all of its rights and powers set out in this Deed irrespective of whether the Pledgee shall have proceeded against or claimed payment from any party liable for any of the Secured Obligations. The Pledgor waives any right it may have requiring the Pledgee first so to proceed or so to claim or to enforce any security granted by any other person before enforcing this Deed. In particular, the Pledgor to the fullest extent permitted by applicable law irrevocably waives all defenses conferred by Section Page 14 of 19   --------------------------------------------------------------------------------       3:234 of the Dutch Civil Code, which waiver is hereby accepted by Pledgee.   12.2   Upon the occurrence of an Enforcement Event, the Pledgee shall be entitled to the fullest extent permitted by applicable law, without further notice, advertisement, hearing or process of law of any kind except as may be otherwise required by law, to sell and assign all or part of the Receivables in accordance with the laws of the Netherlands, including:   (a)   selling the Receivables at a public auction in accordance with local custom and conditions in accordance Section 3:250 of the Dutch Civil Code; or     (b)   applying for a court order (the corresponding right to apply of the Pledgor is hereby excluded, and the Pledgor to the fullest extent permitted by applicable law hereby waives and agrees not to exercise its right to apply for such a court order, which waiver is hereby accepted by the Pledgee) authorising the sale of the Receivables in the manner determined by the court, or authorising that the Receivables remain with the Pledgee in payment of such amount as will be determined by the court in accordance with Section 3:251 of the Dutch Civil Code. The Pledgee shall not be bound by the period of notice of intent to sell prescribed by Section 3:249(1) of the Dutch Civil Code. 12.3   The Pledgee shall have the right to impose such limitations and restrictions on the sale of the Receivables as the Pledgee may deem necessary or appropriate to comply with any law, rule or regulation applicable to the sale. The Pledgor shall cooperate with the Pledgee in obtaining any necessary permits, exemptions or consents of competent authorities and in ensuring that the sale of the Receivables does not violate any applicable securities laws.   12.4   The Pledgor shall not be entitled to file a request with the interim provisions judge (voorzieningenrechter) requesting that the Receivables or part thereof be sold in a deviating manner as provided for in Section 3:251 of the Dutch Civil Code. Nothing in the preceding sentence shall limit the right of the Pledgee to file such request.   12.5   Without prejudice to Section 3:253 of the Dutch Civil Code, any monies received by the Pledgee pursuant to this Deed and/or under the powers hereby conferred shall be applied by the Pledgee in accordance with the terms of Section 10.9 of the Credit Agreement.   12.6   The Pledgor shall render such assistance and provide such information free of charge as the Pledgee may reasonably deem necessary in connection with the exercise of its rights, powers or remedies provided for in this Deed.   12.7   The Pledgee shall not be liable to the Pledgor for any damages caused by the sale of the Receivables or part thereof.   12.8   At any time after the security hereby constituted has become enforceable the Pledgee may redeem any prior encumbrance over any Receivables or procure to be subrogated in such prior encumbrance. All principal monies, interest, costs, charges and expenses of and incidental to such redemption and subrogation shall be paid by the Page 15 of 19   --------------------------------------------------------------------------------       Pledgor to the Pledgee on demand and shall be deemed to be a Secured Obligation for the purpose hereof.   13.   WAIVER OF THE PLEDGOR’S RIGHTS   13.1   During the term of this Deed and that of the Credit Agreement, the Pledgor hereby agrees not to exercise any rights of recourse (regresrechten) or any rights which it may acquire by way of subrogation under (or in connection with) this Deed against any person liable for the Secured Obligations.   13.2   As security for the Secured Obligations the Pledgor agrees to grant and, to the extent legally possible, hereby so grants to the Pledgee a right of pledge (een pandrecht) on any and all of its rights of recourse (regresrechten) or any rights which it may acquire by way of subrogation under (or in connection with) this Deed against any person liable for the Secured Obligations, which right of pledge the Pledgee hereby accepts.   13.3   The Pledgor represents and warrants to the Pledgee that, if such comes in existence, it is or will be proprietor (rechthebbende) of the claims referred to in paragraph 2 of this Clause 13 (Waiver of the Pledgor’s rights), that it has or will have full power to dispose (beschikkingsbevoegd) of such claims, and that such claims are not and will not be subject to any pledge or other limited right (beperkt recht), or any agreement to grant a pledge or other limited right, nor has an attachment (beslag) been levied on any of such claims.   14.   APPLICATION OF PROCEEDS   14.1   After the security interests hereby constituted have become enforceable pursuant to the Loan Documents, but subject to the payment of any claims having priority to this security interest, all monies received, recovered or realised by the Pledgee pursuant to this Deed and/or under the powers hereby conferred (including the proceeds of any conversion of currency), shall be applied by the Pledgee for payment of the Secured Obligations, but without prejudice to Section 3:253 of the Dutch Civil Code or the right of the Pledgee to recover any shortfall and without prejudice to the provisions of the Credit Agreement from the Pledgor or any other party or person liable in connection with such shortfall and, in the sole discretion of the Pledgee and to the extent possible under applicable law, may be credited to any bank account and may be held in such account for as long as the Pledgee shall think fit (with interest accruing thereon at such rate, if any, as the Pledgee may deem fit) pending its application from time to time (as the Pledgee shall be entitled to do in its sole discretion, but subject to the provisions of the Credit Agreement).   14.2   For the purpose of or pending the discharge of any of the Secured Obligations, the Pledgee may convert any monies received, recovered or realised or subject to application by the Pledgee under this Deed (including the proceeds of any previous conversion under this Clause 14.2) from their existing currency into such other currency as the Pledgee may reasonably deem advisable, and any such conversion shall be effected at the Pledgee’s then prevailing spot selling rate of Page 16 of 19   --------------------------------------------------------------------------------       exchange for such other currency against the existing currency and otherwise in accordance with the provisions of the Credit Agreement.   15.   REMEDIES       No failure on the part of the Pledgee to exercise, and no delay on its part in exercising, any right or remedy under this Deed will operate as a waiver thereof, nor will any single or partial exercise of any right or remedy preclude any other or further exercise thereof or the exercise of any other right or remedy. The rights and remedies provided in this Deed are cumulative and not exclusive of any rights or remedies provided by the chosen law, any applicable laws of a foreign jurisdiction or the Credit Agreement.   16.   SET-OFF       Upon the occurrence and during the continuance of an Enforcement Event the Pledgee is authorised to apply or set-off (without prior notice) any credit balance and claim (whether or not then due or payable) to which the Pledgor at any time is beneficially entitled on any account at any office of the Pledgee in or towards payment of or against all or any part of the Secured Obligations and other monies hereby secured and owed by it to the Pledgee, and for that purpose, may convert one currency into another and set-off claims in different currencies. The rights under this Clause are additional to, and/or may be exercised alternatively to, rights and security in respect of any such credit balance and claim elsewhere in this Deed or otherwise.   17.   SEVERABILITY       If any of the terms hereof is or becomes invalid or unenforceable (or the charges created hereby are ineffective) for any reason under the laws of any jurisdiction or in relation to the Pledgor, such invalidity or unenforceability shall not affect its validity or enforceability in any other jurisdiction or invalidate or make unenforceable any other term hereof or the terms hereof in relation to the Pledgor. The parties hereto agree that they will negotiate in good faith to replace any provision hereof so held invalid, illegal or unenforceable with a valid provision which is as similar as possible in substance to the invalid, illegal or unenforceable provision. 18.   RESCISSION       The Pledgor hereby waives to the fullest extent allowed by law its right to rescind (ontbinden) or avoid (vernietigen) the legal acts (rechtshandelingen) represented by this Deed, which waiver is hereby accepted by the Pledgee.   19.   APPOINTMENT OF ATTORNEY   19.1   To the fullest extent permitted by applicable law, the Pledgor hereby irrevocably appoints the Pledgee to be, following the occurrence of an Enforcement Event, its true and lawful attorney (with full power of substitution and delegation) for and on behalf of the Pledgor and in its name or in the name of the Pledgee and as the Pledgor’s act and deed to sign, execute, seal, deliver, acknowledge, file, register and perfect any and all such assurances, documents, instruments, agreements, certificates and consents and to do any and all such acts and things as Page 17 of 19   --------------------------------------------------------------------------------       the Pledgor itself could do in relation to the Receivables or in relation to any matters dealt with in this Deed and which the Pledgee reasonably may deem to be necessary in order to give full effect to the purposes of this Deed. It is expressly agreed that this appointment also applies to situations where the Pledgee (also) acts as the Pledgor’s counterparty (Selbsteintritt). The Pledgor will ratify and confirm whatever the Pledgee shall reasonably do or cause to be done in pursuance of the powers conferred to it hereunder.   19.2   The Pledgee shall not have any obligation whatsoever to exercise any of the powers conferred upon it by this Clause or to make any demand or enquiry as to the nature or sufficiency of any payment received by it, or to present or file any claim or notice or take any other action whatsoever with respect to the Receivables. No action taken by or omitted to be taken by the Pledgee in good faith shall give rise to any defence, counterclaim or set-off against the Pledgee or otherwise affect any of the Secured Obligations.   19.3   If a party hereto is represented by (an) attorney(s) in connection with the signing and/or execution and/or delivery of this Deed or any agreement, document or understanding referred to herein or made pursuant hereto, the choice of Netherlands law contained in the relevant power(s) of attorney to govern such power of attorney is hereby expressly acknowledged and accepted by the other party hereto as the law governing (i) the internal relationship between the principal and the attorney(s), (ii) the (external) authority of the attorney(s) and the (external) consequences of the exercise of such power(s) of attorney by the attorney(s), and (iii) any other attorney issues.   20.   POWER TO ASSIGN; REPLEDGE   20.1   To the fullest extent permitted under the laws of the Netherlands, subject always to relevant provisions of the Credit Agreement, the Pledgee (but not, for the avoidance of doubt, the Pledgor) shall be entitled to assign and/or transfer all or part of its rights and obligations under this Deed to any assignee and/or transferee, and the Pledgor hereby in advance gives its irrevocable consent to (geeft toestemming bij voorbaat) within the meaning of Sections 6:156 of the Dutch Civil Code and hereby in advance irrevocably cooperates with (verleent bij voorbaat medewerking aan), within the meaning of Section 6:156 to 6:159 of the Dutch Civil Code, any such assignment and/or transfer (including by means of take-over of debt (schuld-overneming) or take-over of agreement (contractsoverneming), as the case may be) hereunder. The Pledgee shall be entitled to impart any information concerning the Pledgor to any successor of proposed successor.   20.2   The Pledgor hereby expressly and irrevocably grants authority to the Pledgee to repledge (herverpanden) the Receivables to one or more of the Loan Parties as Repledgee (herpandhouder) as envisaged by Section 3:242 of the Dutch Civil Code. Page 18 of 19   --------------------------------------------------------------------------------   21.   NOTICES       All notices, requests, demands and other communications under this Deed must be made as referred to in the Guaranty.   22.   GOVERNING LAW AND JURISDICTION   22.1   This Deed shall be governed by and construed in accordance with the laws of The Netherlands.   22.2   The parties hereto irrevocably agree that the District Court (Rechtbank) of Amsterdam, the Netherlands shall have exclusive jurisdiction to hear and determine in first instance any suit, action or proceeding and to settle any disputes which may arise out of or in connection with this Deed, subject to appeal (hoger beroep).   23.   NOTARY       The Pledgor and the Pledgee acknowledge that Pieter Heyme Bolland, aforementioned, is (associated with) the Pledgee’s counsel and that they are aware of the provisions of Articles 8, 9, 10 and 14.2 of the Guidelines concerning associations between civil law notaries (notarissen) and attorneys-at-law (advocaten) as established by the Board of the Royal Professional Organisation of Civil Law Notaries (Koninklijke Notariële Beroepsorganisatie). The Pledgor and the Pledgee explicitly agree that the Pledgee is represented by the Pledgee’s counsel in any matter relating to this agreement and any disputes in connection therewith. POWERS OF ATTORNEY The aforementioned powers of attorney appear sufficiently to me, notary, from three (3) powers of attorney, (copies of) which will be attached to this deed. The appearing persons declare explicitly to warrant for the existence and extent of these powers of attorney. The appearing persons are known to me, civil law notary. WITNESSED THIS DEED, the original of which was drawn up and executed in Amsterdam on the date first written above. Prior to the execution of this deed, I, civil law notary, informed the appearing persons of the substance of the deed and gave them an explanation thereon, and furthermore pointed out the consequences which will result for the party from the contents of this deed. Subsequently, the appearing persons declared to have taken note of and agreed with the contents of this deed after timely being given the opportunity thereto and waived a full reading of this deed. Immediately after a limited reading, this deed was signed by the appearing persons and me, civil law notary, at twelve hours fifty-one minutes. ISSUED FOR TRUE COPY by me, Johannes Schouten, substitute of Pieter Heyme Bolland, civil law notary Officiating at Amsterdam, the Netherlands on the twentieth day of March two thousand six. Page 19 of 19  

Exhibit 10.18 FIFTH AMENDMENT TO THE EXPONENT, INC. 401(k) SAVINGS PLAN (AS AMENDED AND RESTATED JANUARY 2, 1999) WHEREAS, Exponent, Inc. (the “Company”) adopted an amended and restated 401(k) Savings Plan effective January 2, 1999 (the “Plan”); and WHEREAS, the Plan must be amended as a result of changes to Section 401(a)(31)(B) of the Internal Revenue Code regarding automatic rollovers of certain mandatory lump sum payments; and WHEREAS, the Company retains the right to amend the Plan under Section 11.1(a) thereof; NOW, THEREFORE, effective March 28, 2005, subsection (c)(i) of 6.8 Commencement of Distributions shall read in full as follows: (i) if the Participant’s vested Account balance does not exceed Five Thousand Dollars ($5,000) at the time of distribution, then the Participant shall receive a lump sum distribution of the entire vested portion of such Account balance and the nonvested portion shall be treated as a forfeiture. In the event of such a mandatory lump sum distribution greater than $1,000, if the Participant does not elect to have such distribution paid directly to an “eligible retirement plan” (as defined in Section 6.10 and Section 6 of Appendix E) specified by the Participant in a direct rollover or to receive the distribution directly in the manner set forth in the Plan, then the Plan Administrator will pay the distribution in a direct rollover to an individual retirement plan designated by the Plan Administrator. IN WITNESS WHEREOF, the Company has caused this Fifth Amendment to be executed by its duly authorized officer.   Dated: December 20, 2005   EXPONENT, INC.   By:   /s/ Richard L. Schlenker   Title:   Secretary

EXECUTION COPY RESIDENTIAL ASSET SECURITIES CORPORATION, Depositor, RESIDENTIAL FUNDING CORPORATION, Master Servicer, and U.S. BANK NATIONAL ASSOCIATION Trustee POOLING AND SERVICING AGREEMENT Dated as of May 1, 2006 Home Equity Mortgage Asset-Backed Pass-Through Certificates Series 2006-EMX4 -------------------------------------------------------------------------------- TABLE OF CONTENTS PAGE ARTICLE I DEFINITIONS..................................................................3 Section 1.01. Definitions.......................................................3 Section 1.02. Determination of LIBOR...........................................41 ARTICLE II CONVEYANCE OF MORTGAGE LOANS; ORIGINAL ISSUANCE OF CERTIFICATES.............43 Section 2.01. Conveyance of Mortgage Loans.....................................43 Section 2.02. Acceptance by Trustee............................................46 Section 2.03. Representations, Warranties and Covenants of the Master Servicer and the Depositor........................................................47 Section 2.04. Representations and Warranties of Sellers........................49 Section 2.05. Execution and Authentication of Certificates; Conveyance of REMIC-I Regular Interests........................................................51 Section 2.06. Purposes and Powers of the Trust.................................51 Section 2.07. Agreement Regarding Ability to Disclose..........................52 ARTICLE III ADMINISTRATION AND SERVICING OF MORTGAGE LOANS..............................53 Section 3.01. Master Servicer to Act as Servicer...............................53 Section 3.02. Subservicing Agreements Between Master Servicer and Subservicers; Enforcement of Subservicers' Obligations.....................................55 Section 3.03. Successor Subservicers...........................................56 Section 3.04. Liability of the Master Servicer.................................56 Section 3.05. No Contractual Relationship Between Subservicer and Trustee or Certificateholders...............................................57 Section 3.06. Assumption or Termination of Subservicing Agreements by Trustee..57 Section 3.07. Collection of Certain Mortgage Loan Payments; Deposits to Custodial Account57 Section 3.08. Subservicing Accounts; Servicing Accounts........................60 Section 3.09. Access to Certain Documentation and Information Regarding the Mortgage Loans 61 Section 3.10. Permitted Withdrawals from the Custodial Account.................61 Section 3.11. Maintenance of Primary Insurance Coverage........................63 Section 3.12. Maintenance of Fire Insurance and Omissions and Fidelity Coverage63 Section 3.13. Enforcement of Due-on-Sale Clauses; Assumption and Modification Agreements; Certain Assignments..............................................64 Section 3.14. Realization Upon Defaulted Mortgage Loans........................66 Section 3.15. Trustee to Cooperate; Release of Mortgage Files..................68 Section 3.16. Servicing and Other Compensation; Compensating Interest..........69 Section 3.17. Reports to the Trustee and the Depositor.........................70 Section 3.18. Annual Statement as to Compliance and Servicing Assessment.......70 Section 3.19. Annual Independent Public Accountants' Servicing Report..........71 Section 3.20. Right of the Depositor in Respect of the Master Servicer.........71 Section 3.21. [Reserved].......................................................72 Section 3.22. Advance Facility.................................................72 ARTICLE IV PAYMENTS TO CERTIFICATEHOLDERS..............................................76 Section 4.01. Certificate Account..............................................76 Section 4.02. Distributions....................................................76 Section 4.03. Statements to Certificateholders; Statements to Rating Agencies; Exchange Act Reporting........................................................79 Section 4.04. Distribution of Reports to the Trustee and the Depositor; Advances by the Master Servicer..................................................83 Section 4.05. Allocation of Realized Losses....................................84 Section 4.06. Reports of Foreclosures and Abandonment of Mortgaged Property....86 Section 4.07. Optional Purchase of Defaulted Mortgage Loans....................86 Section 4.08. Limited Mortgage Loan Repurchase Right...........................86 Section 4.09. Derivative Contracts.............................................87 Section 4.10. Yield Maintenance Agreement......................................88 ARTICLE V THE CERTIFICATES............................................................89 Section 5.01. The Certificates.................................................89 Section 5.02. Registration of Transfer and Exchange of Certificates............91 Section 5.03. Mutilated, Destroyed, Lost or Stolen Certificates................95 Section 5.04. Persons Deemed Owners............................................95 Section 5.05. Appointment of Paying Agent......................................96 ARTICLE VI THE DEPOSITOR AND THE MASTER SERVICER.......................................97 Section 6.01. Respective Liabilities of the Depositor and the Master Servicer..97 Section 6.02. Merger or Consolidation of the Depositor or the Master Servicer; Assignment of Rights and Delegation of Duties by Master Servicer............97 Section 6.03. Limitation on Liability of the Depositor, the Master Servicer and Others 98 Section 6.04. Depositor and Master Servicer Not to Resign......................98 ARTICLE VII DEFAULT.....................................................................99 Section 7.01. Events of Default................................................99 Section 7.02. Trustee or Depositor to Act; Appointment of Successor...........100 Section 7.03. Notification to Certificateholders..............................101 Section 7.04. Waiver of Events of Default.....................................102 ARTICLE VIII CONCERNING THE TRUSTEE.....................................................103 Section 8.01. Duties of Trustee...............................................103 Section 8.02. Certain Matters Affecting the Trustee...........................104 Section 8.03. Trustee Not Liable for Certificates or Mortgage Loans...........105 Section 8.04. Trustee May Own Certificates....................................106 Section 8.05. Master Servicer to Pay Trustee's Fees and Expenses; Indemnification106 Section 8.06. Eligibility Requirements for Trustee............................106 Section 8.07. Resignation and Removal of the Trustee..........................107 Section 8.08. Successor Trustee...............................................108 Section 8.09. Merger or Consolidation of Trustee..............................108 Section 8.10. Appointment of Co-Trustee or Separate Trustee...................108 Section 8.11. Appointment of Custodians.......................................109 Section 8.12. Appointment of Office or Agency.................................110 Section 8.13. DTC Letter of Representations...................................110 Section 8.14. Yield Maintenance Agreement.....................................110 ARTICLE IX TERMINATION................................................................111 Section 9.01. Termination Upon Purchase or Liquidation of All Mortgage Loans..111 Section 9.02. Additional Termination Requirements.............................114 ARTICLE X REMIC PROVISIONS...........................................................116 Section 10.01. REMIC Administration............................................116 Section 10.02. Master Servicer, REMIC Administrator and Trustee Indemnification119 ARTICLE XI MISCELLANEOUS PROVISIONS...................................................120 Section 11.01. Amendment.......................................................120 Section 11.02. Recordation of Agreement; Counterparts..........................122 Section 11.03. Limitation on Rights of Certificateholders......................122 Section 11.04. Governing Law...................................................123 Section 11.05. Notices.........................................................123 Section 11.06. Notices to Rating Agencies......................................124 Section 11.07. Severability of Provisions......................................124 Section 11.08. Supplemental Provisions for Resecuritization....................124 Section 11.09. Third-Party Beneficiary.........................................125 ARTICLE XII COMPLIANCE WITH REGULATION AB..............................................125 Section 12.01. Intent of Parties; Reasonableness...............................125 Section 12.02. Additional Representations and Warranties of the Trustee........126 Section 12.03. Information to be Provided by the Trustee.......................126 Section 12.04. Report on Assessment of Compliance and Attestation..............127 Section 12.05. Indemnification; Remedies.......................................127 EXHIBIT A FORM OF CLASS A CERTIFICATE................................................A-1 EXHIBIT B FORM OF CLASS M CERTIFICATE................................................B-1 EXHIBIT C FORM OF CLASS SB CERTIFICATE...............................................C-1 EXHIBIT D FORM OF CLASS R CERTIFICATE................................................D-1 EXHIBIT E FORM OF CUSTODIAL AGREEMENT................................................E-1 EXHIBIT F MORTGAGE LOAN SCHEDULE.....................................................F-1 EXHIBIT G FORM OF REQUEST FOR RELEASE................................................G-1 EXHIBIT H-1 FORM OF TRANSFER AFFIDAVIT AND AGREEMENT.................................H-1-1 EXHIBIT H-2 FORM OF TRANSFEROR CERTIFICATE...........................................H-2-1 EXHIBIT I FORM OF INVESTOR REPRESENTATION LETTER.....................................I-1 EXHIBIT J FORM OF TRANSFEROR REPRESENTATION LETTER...................................J-1 EXHIBIT K TEXT OF AMENDMENT TO POOLING AND SERVICING AGREEMENT PURSUANT TO SECTION 11.01(E) FOR A LIMITED GUARANTY....................................K-1 EXHIBIT L FORM OF LIMITED GUARANTY...................................................L-1 EXHIBIT M FORM OF LENDER CERTIFICATION FOR ASSIGNMENT OF MORTGAGE LOAN...............M-1 EXHIBIT N FORM OF RULE 144A INVESTMENT REPRESENTATION................................N-1 EXHIBIT O [RESERVED].................................................................O-1 EXHIBIT P FORM OF ERISA LETTER.......................................................P-1 EXHIBIT Q [RESERVED].................................................................Q-1 EXHIBIT R ASSIGNMENT AGREEMENT......................................................R-1 EXHIBIT S SERVICING CRITERIA.........................................................S-1 EXHIBIT T-1 FORM OF 10-K CERTIFICATION...............................................T-1-1 EXHIBIT T-2 FORM OF BACK-UP CERTIFICATION............................................T-2-1 EXHIBIT U INFORMATION TO BE PROVIDED BY THE MASTER SERVICER TO THE RATING AGENCIES RELATING TO REPORTABLE MODIFIED MORTGAGE LOANS.........................................U-1 -------------------------------------------------------------------------------- This Pooling and Servicing Agreement, effective as of May 1, 2006, among RESIDENTIAL ASSET SECURITIES CORPORATION, as the depositor (together with its permitted successors and assigns, the "Depositor"), RESIDENTIAL FUNDING CORPORATION, as master servicer (together with its permitted successors and assigns, the "Master Servicer"), and U.S. BANK NATIONAL ASSOCIATION, a banking association organized under the laws of the United States, as trustee (together with its permitted successors and assigns, the "Trustee"). PRELIMINARY STATEMENT: The Depositor intends to sell mortgage asset-backed pass-through certificates (collectively, the "Certificates"), to be issued hereunder in fifteen Classes, which in the aggregate will evidence the entire beneficial ownership interest in the Mortgage Loans (as defined herein) and certain other related assets. REMIC I As provided herein, the REMIC Administrator will make an election to treat the segregated pool of assets consisting of the Mortgage Loans and certain other related assets (exclusive of the Yield Maintenance Agreement) subject to this Agreement as a real estate mortgage investment conduit (a "REMIC") for federal income tax purposes, and such segregated pool of assets will be designated as "REMIC I." Component I of the Class R Certificates will represent the sole Class of "residual interests" in REMIC I for purposes of the REMIC Provisions (as defined herein) under federal income tax law. The following table irrevocably sets forth the designation, remittance rate (the "Uncertificated REMIC I Pass-Through Rate") and initial Uncertificated Principal Balance for each of the "regular interests" in REMIC I (the "REMIC I Regular Interests"). The "latest possible maturity date" (determined solely for purposes of satisfying Treasury regulation Section 1.860G-1(a)(4)(iii)) for each REMIC I Regular Interest shall be the Maturity Date. None of the REMIC I Regular Interests will be certificated. UNCERTIFICATED REMIC I INITIAL UNCERTIFICATED ------------------- REMIC I LATEST POSSIBLE DESIGNATION PASS-THROUGH RATE PRINCIPAL BALANCE MATURITY DATE LT-1 Variable(1) $ 684,887,002.30 June 25, 2036 LT-2 Variable(1) $ 23,894.18 June 25, 2036 LT-3 0.00% $ 44,605.83 June 25, 2036 LT-4 Variable(1) $ 44,605.83 June 25, 2036 _______________ (1) Calculated as provided in the definition of Uncertificated REMIC I Pass-Through Rate. REMIC II As provided herein, the REMIC Administrator will make an election to treat the segregated pool of assets consisting of the REMIC I Regular Interests as a REMIC for federal income tax purposes, and such segregated pool of assets will be designated as REMIC II. Component II of the Class R Certificates will represent the sole Class of "residual interests" in REMIC II for purposes of the REMIC Provisions under federal income tax law. The following table irrevocably sets forth the designation, Pass-Through Rate, aggregate Initial Certificate Principal Balance, certain features, month of Final Scheduled Distribution Date and initial ratings for each Class of Certificates comprising the interests representing "regular interests" in REMIC II. The "latest possible maturity date" (determined solely for purposes of satisfying Treasury Regulation Section 1.860G-1(a)(4)(iii)) for each Class of REMIC II Regular Interests shall be the Maturity Date. Month of Final Aggregate Initial Scheduled Pass-Through Certificate Distribution Designation Type Rate Principal Balance Features Date S&P Moody's Class A-1 Regular(1) Adjustable(2)(3) $255,871,000.00 Senior/Adjustable February 2027 AAA Aaa Rate Class A-2 Regular(1) Adjustable(2)(3) $108,534,000.00 Senior/Adjustable November 2031 AAA Aaa Rate Class A-3 Regular(1) Adjustable(2)(3) $120,000,000.00 Senior/Adjustable April 2036 AAA Aaa Rate Class A-4 Regular(1) Adjustable(2)(3) $ 41,332,000.00 Senior/Adjustable June 2036 AAA Aaa Rate Class M-1 Regular(1) Adjustable(2)(3) $ 27,743,000.00 Mezzanine/Adjustable June 2036 AA+ Aa1 Rate Class M-2 Regular(1) Adjustable(2)(3) $ 25,002,000.00 Mezzanine/Adjustable June 2036 AA+ Aa2 Rate Class M-3 Regular(1) Adjustable(2)(3) $ 14,385,000.00 Mezzanine/Adjustable June 2036 AA Aa3 Rate Class M-4 Regular(1) Adjustable(2)(3) $ 13,358,000.00 Mezzanine/Adjustable June 2036 AA- A1 Rate Class M-5 Regular(1) Adjustable(2)(3) $ 12,672,000.00 Mezzanine/Adjustable June 2036 A+ A2 Rate Class M-6 Regular(1) Adjustable(2)(3) $ 12,330,000.00 Mezzanine/Adjustable June 2036 A A3 Rate Class M-7 Regular(1) Adjustable(2)(3) $ 11,645,000.00 Mezzanine/Adjustable June 2036 A- Baa1 Rate Class M-8 Regular(1) Adjustable(2)(3) $ 10,275,000.00 Mezzanine/Adjustable June 2036 BBB+ Baa2 Rate Class M-9 Regular(1) Adjustable(2)(3) $ 8,563,000.00 Mezzanine/Adjustable June 2036 BBB Baa3 Rate Class SB Regular (4) $ 23,290,108.14 Subordinate June 2036 N/R N/R (4) _______________ (1) The Class A and Class M Certificates will represent ownership of REMIC II Regular Interests together with certain rights to payments to be made from amounts received under the Yield Maintenance Agreement which will be deemed made for federal income tax purposes outside of REMIC II by the holder of the Class SB Certificates as the owner of the Yield Maintenance Agreement. (2) The REMIC II Regular Interests ownership of which is represented by the Class A and Class M Certificates, will accrue interest at a per annum rate equal to the lesser of (i) LIBOR plus the applicable Margin and (ii) the Net WAC Cap Rate and the provisions for the payment of Basis Risk Shortfalls herein, which payments will not be part of the entitlement of the REMIC II Regular Interests related to such Certificates. (3) The Class A and Class M Certificates will also entitle their holders to certain payments from the Holder of the Class SB Certificates from amounts to which the related REMIC II Regular Interest is entitled and from amounts received under the Yield Maintenance Agreement, which will not be a part of their ownership of the REMIC II Regular Interests. (4) The Class SB Certificates will accrue interest as described in the definition of Accrued Certificate Interest. The Class SB Certificates will not accrue interest on their Certificate Principal Balance. The Class SB Certificates will represent ownership of two REMIC II Regular Interests, a principal only regular interest designated REMIC II Regular Interest SB-PO and an interest only regular interest designated REMIC II Regular Interest SB-IO, which will be entitled to distributions as set forth herein. The rights of the Holder of the Class SB Certificates to payments from the Yield Maintenance Agreement shall be outside and apart from its rights under the REMIC II Regular Interests SB-IO and SB-PO. -------------------------------------------------------------------------------- In consideration of the mutual agreements herein contained, the Depositor, the Master Servicer and the Trustee agree as follows: -------------------------------------------------------------------------------- ARTICLE I DEFINITIONS Section 1.01...Definitions. Whenever used in this Agreement, the following words and phrases, unless the context otherwise requires, shall have the meanings specified in this Article. Accrued Certificate Interest: With respect to each Distribution Date and each Class of Class A Certificates and Class M Certificates, interest accrued during the related Interest Accrual Period on the Certificate Principal Balance thereof immediately prior to such Distribution Date at the Pass-Through Rate for that Distribution Date. The amount of Accrued Certificate Interest on each Class of Certificates shall be reduced by the amount of Prepayment Interest Shortfalls on the related Mortgage Loans during the prior calendar month to the extent not covered by Compensating Interest pursuant to Section 3.16, and by Relief Act Shortfalls on the related Mortgage Loans during the related Due Period. All such reductions with respect to the related Mortgage Loans will be allocated among the Certificates in proportion to the amount of Accrued Certificate Interest payable on such Certificates on such Distribution Date absent such reductions. Accrued Certificate Interest for any Distribution Date shall further be reduced by the interest portion of Realized Losses allocated to any Class of Certificates pursuant to Section 4.05. Accrued Certificate Interest shall accrue on the basis of a 360-day year and the actual number of days in the related Interest Accrual Period. With respect to each Distribution Date and the Class SB Certificates, interest accrued during the preceding Interest Accrual Period at the Pass-Through Rate on the Notional Amount as specified in the definition of Pass-Through Rate, immediately prior to such Distribution Date, reduced by any interest shortfalls with respect to the Mortgage Loans, including Prepayment Interest Shortfalls to the extent not covered by Compensating Interest pursuant to Section 3.16 or by Excess Cash Flow pursuant to Section 4.02(c)(v) and (vi). Accrued Certificate Interest on the Class SB Certificates shall accrue on the basis of a 360-day year and the actual number of days in the related Interest Accrual Period. Adjusted Mortgage Rate: With respect to any Mortgage Loan and any date of determination, the Mortgage Rate borne by the related Mortgage Note, less the rate at which the related Subservicing Fee accrues. Adjustment Date: With respect to each adjustable-rate Mortgage Loan, each date set forth in the related Mortgage Note on which an adjustment to the interest rate on such Mortgage Loan becomes effective. Advance: With respect to any Mortgage Loan, any advance made by the Master Servicer, pursuant to Section 4.04. Affiliate: With respect to any Person, any other Person controlling, controlled by or under common control with such first Person. For purposes of this definition, "control" 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. Agreement: This Pooling and Servicing Agreement and all amendments hereof and supplements hereto. Amount Held for Future Distribution: With respect to any Distribution Date, the total of the amounts held in the Custodial Account at the close of business on the preceding Determination Date on account of (i) Liquidation Proceeds, Subsequent Recoveries, Insurance Proceeds, REO Proceeds, Principal Prepayments, Mortgage Loan purchases made pursuant to Section 2.02, 2.03, 2.04 or 4.07 and Mortgage Loan substitutions made pursuant to Section 2.03 or 2.04 received or made in the month of such Distribution Date (other than such Liquidation Proceeds, Subsequent Recoveries, Insurance Proceeds, REO Proceeds and purchases of Mortgage Loans that the Master Servicer has deemed to have been received in the preceding month in accordance with Section 3.07(b)) and (ii) payments which represent early receipt of scheduled payments of principal and interest due on a date or dates subsequent to the Due Date in the related Due Period. Appraised Value: With respect to any Mortgaged Property, the lesser of (i) the appraised value of such Mortgaged Property based upon the appraisal made at the time of the origination of the related Mortgage Loan, and (ii) the sales price of the Mortgaged Property at such time of origination, except in the case of a Mortgaged Property securing a refinanced or modified Mortgage Loan as to which it is either the appraised value based upon the appraisal made at the time of origination of the loan which was refinanced or modified or the appraised value determined in an appraisal at the time of refinancing or modification, as the case may be. Assignment: An assignment of the Mortgage, notice of transfer or equivalent instrument, in recordable form, sufficient under the laws of the jurisdiction wherein the related Mortgaged Property is located to reflect of record the sale of the Mortgage Loan to the Trustee for the benefit of Certificateholders, which assignment, notice of transfer or equivalent instrument may be in the form of one or more blanket assignments covering Mortgages secured by Mortgaged Properties located in the same county, if permitted by law and accompanied by an Opinion of Counsel to that effect. Assignment Agreement: The Assignment and Assumption Agreement, dated the Closing Date, between Residential Funding and the Depositor relating to the transfer and assignment of the Mortgage Loans, attached hereto as Exhibit R. Available Distribution Amount: With respect to any Distribution Date, an amount equal to (a) the sum of (i) the amount relating to the Mortgage Loans on deposit in the Custodial Account as of the close of business on the immediately preceding Determination Date, including any Subsequent Recoveries, and amounts deposited in the Custodial Account in connection with the substitution of Qualified Substitute Mortgage Loans, (ii) the amount of any Advance made on the immediately preceding Certificate Account Deposit Date with respect to the Mortgage Loans, (iii) any amount deposited in the Certificate Account on the related Certificate Account Deposit Date pursuant to the second paragraph of Section 3.12(a) in respect of the Mortgage Loans, (iv) any amount that the Master Servicer is not permitted to withdraw from the Custodial Account pursuant to Section 3.16(e) in respect of the Mortgage Loans, and (v) any amount deposited in the Certificate Account pursuant to Section 4.07 or 9.01 in respect of the Mortgage Loans, reduced by (b) the sum as of the close of business on the immediately preceding Determination Date of (x) the Amount Held for Future Distribution with respect to the Mortgage Loans, and (y) amounts permitted to be withdrawn by the Master Servicer from the Custodial Account in respect of the Mortgage Loans pursuant to clauses (ii)-(x), inclusive, of Section 3.10(a). Balloon Loan: Each of the Mortgage Loans having an original term to maturity that is shorter than the related amortization term. Balloon Payment: With respect to any Balloon Loan, the related Monthly Payment payable on the stated maturity date of such Balloon Loan. Bankruptcy Code: The Bankruptcy Code of 1978, as amended. Basis Risk Shortfalls: With respect to each Class of the Class A Certificates and Class M Certificates, and any Distribution Date, the sum of (a) with respect to any Distribution Date on which the Net WAC Cap Rate is used to determine the Pass-Through Rate of such Class, an amount equal to the excess of (x) Accrued Certificate Interest for such Class calculated at a per annum rate equal to LIBOR plus the related Margin for such Distribution Date (which shall not exceed 14.000% per annum), over (y) Accrued Certificate Interest for such Class calculated using the Net WAC Cap Rate, (b) any shortfalls for such Class calculated pursuant to clause (a) above remaining unpaid from prior Distribution Dates, and (c) one month's interest on the amount in clause (b) (based on the number of days in the preceding Interest Accrual Period) at a per annum rate equal to LIBOR plus the related Margin for such Distribution Date (which shall not exceed 14.000% per annum). Book-Entry Certificate: Any Certificate registered in the name of the Depository or its nominee. Business Day: Any day other than (i) a Saturday or a Sunday or (ii) a day on which banking institutions in the State of California, the State of Minnesota, the State of Texas, the State of New York or the State of Illinois (and such other state or states in which the Custodial Account or the Certificate Account are at the time located) are required or authorized by law or executive order to be closed. Capitalization Reimbursement Amount: With respect to any Distribution Date, the amount of Advances or Servicing Advances that were added to the Stated Principal Balance of the Mortgage Loans during the prior calendar month and reimbursed to the Master Servicer or Subservicer on or prior to such Distribution Date pursuant to Section 3.10(a)(vii). Cash Liquidation: With respect to any defaulted Mortgage Loan other than a Mortgage Loan as to which an REO Acquisition occurred, a determination by the Master Servicer that it has received all Insurance Proceeds, Liquidation Proceeds and other payments or cash recoveries which the Master Servicer reasonably and in good faith expects to be finally recoverable with respect to such Mortgage Loan. Certificate: Any Class A Certificate, Class M Certificate, Class SB Certificate or Class R Certificate. Certificate Account: The account or accounts created and maintained pursuant to Section 4.01, which shall be entitled "U.S. Bank National Association, as trustee, in trust for the registered holders of Residential Asset Securities Corporation, Home Equity Mortgage Asset-Backed Pass-Through Certificates, Series 2006-EMX4" and which account shall be held for the benefit of the Certificateholders and which must be an Eligible Account. Certificate Account Deposit Date: With respect to any Distribution Date, the Business Day prior thereto. Certificateholder or Holder: The Person in whose name a Certificate is registered in the Certificate Register, except that neither a Disqualified Organization nor a Non-United States Person shall be a holder of a Class R Certificate for any purpose hereof. Solely for the purpose of giving any consent or direction pursuant to this Agreement, any Certificate, other than a Class R Certificate, registered in the name of the Depositor, the Master Servicer or any Subservicer or any Affiliate thereof shall be deemed not to be outstanding and the Percentage Interest or Voting Rights evidenced thereby shall not be taken into account in determining whether the requisite amount of Percentage Interests or Voting Rights necessary to effect any such consent or direction has been obtained. All references herein to "Holders" or "Certificateholders" shall reflect the rights of Certificate Owners as they may indirectly exercise such rights through the Depository and participating members thereof, except as otherwise specified herein; provided, however, that the Trustee shall be required to recognize as a "Holder" or "Certificateholder" only the Person in whose name a Certificate is registered in the Certificate Register. Certificate Owner: With respect to a Book-Entry Certificate, the Person who is the beneficial owner of such Certificate, as reflected on the books of an indirect participating brokerage firm for which a Depository Participant acts as agent, if any, and otherwise on the books of a Depository Participant, if any, and otherwise on the books of the Depository. Certificate Principal Balance: With respect to any Class A Certificate or Class M Certificate, on any date of determination, an amount equal to (i) the Initial Certificate Principal Balance of such Certificate as specified on the face thereof, minus (ii) the sum of (x) the aggregate of all amounts previously distributed with respect to such Certificate (or any predecessor Certificate) and applied to reduce the Certificate Principal Balance thereof pursuant to Section 4.02(c) and (y) the aggregate of all reductions in Certificate Principal Balance deemed to have occurred in connection with Realized Losses which were previously allocated to such Certificate (or any predecessor Certificate) pursuant to Section 4.05; provided, that with respect to any Distribution Date, the Certificate Principal Balance of any outstanding Class of Class A Certificates and Class M Certificates (with respect to the Class A Certificates, on a pro rata basis based on the amount of Realized Loss previously allocated thereto and remaining unreimbursed) to which a Realized Loss was previously allocated and remains unreimbursed will be increased, to the extent of Realized Losses previously allocated thereto and remaining unreimbursed, but only to the extent of Subsequent Recoveries received during the preceding calendar month. With respect to any Class SB Certificate, on any date of determination, an amount equal to the Percentage Interest evidenced by such Certificate, multiplied by an amount equal to (i) the excess, if any, of (A) the then aggregate Stated Principal Balance of the Mortgage Loans over (B) the then aggregate Certificate Principal Balance of the Class A Certificates and Class M Certificates then outstanding, which represents the sum of (i) the Initial Principal Balance of the REMIC II Regular Interest SB-PO, as reduced by Realized Losses allocated thereto and payments deemed made thereon, and (ii) accrued and unpaid interest on the REMIC II Regular Interest SB-IO, as reduced by Realized Losses allocated thereto. The Class R Certificates will not have a Certificate Principal Balance. Certificate Register and Certificate Registrar: The register maintained and the registrar appointed pursuant to Section 5.02. Class: Collectively, all of the Certificates or uncertificated interests bearing the same designation. Class A Certificates: Collectively, the Class A-1 Certificates, Class A-2 Certificates, Class A-3 Certificates and Class A-4 Certificates. Class A Principal Distribution Amount: With respect to any Distribution Date (a) prior to the Stepdown Date or on or after the Stepdown Date if a Trigger Event is in effect for that Distribution Date, the Principal Distribution Amount for that Distribution Date or (b) on or after the Stepdown Date if a Trigger Event is not in effect for that Distribution Date, the lesser of: (i) the Principal Distribution Amount for that Distribution Date; and (ii) the excess, if any, of (A) the aggregate Certificate Principal Balance of the Class A Certificates immediately prior to that Distribution Date over (B) the lesser of (x) the product of (1) the applicable Subordination Percentage and (2) the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date and (y) the excess, if any, of the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date, over the Overcollateralization Floor. Class A-1 Certificate: Any one of the Class A-1 Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed hereto as Exhibit A, senior to the Class M Certificates, Class SB Certificates and Class R Certificates with respect to distributions and the allocation of Realized Losses as set forth in Section 4.05, and evidencing an interest designated as a "regular interest" in REMIC II for purposes of the REMIC Provisions. Class A-1 Margin: 0.040% per annum. Class A-2 Certificate: Any one of the Class A-2 Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed hereto as Exhibit A, senior to the Class M Certificates, Class SB Certificates and Class R Certificates with respect to distributions and the allocation of Realized Losses as set forth in Section 4.05, and evidencing an interest designated as a "regular interest" in REMIC II for purposes of the REMIC Provisions. Class A-2 Margin: 0.110% per annum. Class A-3 Certificate: Any one of the Class A-3 Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed hereto as Exhibit A, senior to the Class M Certificates, Class SB Certificates and Class R Certificates with respect to distributions and the allocation of Realized Losses as set forth in Section 4.05, and evidencing an interest designated as a "regular interest" in REMIC III for purposes of the REMIC Provisions. Class A-3 Margin: Initially, 0.160% per annum, and on any Distribution Date on and after the second Distribution Date after the first possible Optional Termination Date, 0.320% per annum. Class A-4 Certificate: Any one of the Class A-4 Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed hereto as Exhibit A, senior to the Class M Certificates, Class SB Certificates and Class R Certificates with respect to distributions and the allocation of Realized Losses as set forth in Section 4.05, and evidencing an interest designated as a "regular interest" in REMIC III for purposes of the REMIC Provisions. Class A-4 Margin: Initially, 0.230% per annum, and on any Distribution Date on and after the second Distribution Date after the first possible Optional Termination Date, 0.460% per annum. Class M Certificates: Collectively, the Class M-1 Certificates, Class M-2 Certificates, Class M-3 Certificates, Class M-4 Certificates, Class M-5 Certificates, Class M-6 Certificates, Class M-7 Certificates, Class M-8 Certificates and Class M-9 Certificates. Class M-1 Certificate: Any one of the Class M-1 Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed hereto as Exhibit B, and evidencing (i) an interest designated as a "regular interest" in REMIC II for purposes of the REMIC Provisions and (ii) the right to receive payments under the Yield Maintenance Agreement. Class M-1 Margin: Initially, 0.280% per annum, and on any Distribution Date on and after the second Distribution Date after the first possible Optional Termination Date, 0.420% per annum. Class M-1 Principal Distribution Amount: With respect to any Distribution Date (a) prior to the Stepdown Date or on or after the Stepdown Date if a Trigger Event is in effect for that Distribution Date, the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount or (b) on or after the Stepdown Date if a Trigger Event is not in effect for that Distribution Date, the lesser of: (i) the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount; and (ii) the excess, if any, of (A) the sum of (1) the aggregate Certificate Principal Balance of the Class A Certificates (after taking into account the payment of the Class A Principal Distribution Amount for that Distribution Date) and (2) the Certificate Principal Balance of the Class M-1 Certificates immediately prior to that Distribution Date over (B) the lesser of (x) the product of (1) the applicable Subordination Percentage and (2) the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date and (y) the excess, if any, of the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date, over the Overcollateralization Floor. Class M-2 Certificate: Any one of the Class M-2 Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed hereto as Exhibit B, and evidencing (i) an interest designated as a "regular interest" in REMIC II for purposes of the REMIC Provisions and (ii) the right to receive payments under the Yield Maintenance Agreement. Class M-2 Margin: Initially, 0.300% per annum, and on any Distribution Date on and after the second Distribution Date after the first possible Optional Termination Date, 0.450% per annum. Class M-2 Principal Distribution Amount: With respect to any Distribution Date (a) prior to the Stepdown Date or on or after the Stepdown Date if a Trigger Event is in effect for that Distribution Date, the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount and the Class M-1 Principal Distribution Amount or (b) on or after the Stepdown Date if a Trigger Event is not in effect for that Distribution Date, the lesser of: (i) the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount and the Class M-1 Principal Distribution Amount; and (ii) the excess, if any, of (A) the sum of (1) the aggregate Certificate Principal Balance of the Class A Certificates and Class M-1 Certificates (after taking into account the payment of the Class A Principal Distribution Amount and the Class M-1 Principal Distribution Amount for that Distribution Date) and (2) the Certificate Principal Balance of the Class M-2 Certificates immediately prior to that Distribution Date over (B) the lesser of (x) the product of (1) the applicable Subordination Percentage and (2) the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date and (y) the excess, if any, of the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date, over the Overcollateralization Floor. Class M-3 Certificate: Any one of the Class M-3 Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed hereto as Exhibit B, and evidencing (i) an interest designated as a "regular interest" in REMIC II for purposes of the REMIC Provisions and (ii) the right to receive payments under the Yield Maintenance Agreement. Class M-3 Margin: Initially, 0.320% per annum, and on any Distribution Date on and after the second Distribution Date after the first possible Optional Termination Date, 0.480% per annum. Class M-3 Principal Distribution Amount: With respect to any Distribution Date (a) prior to the Stepdown Date or on or after the Stepdown Date if a Trigger Event is in effect for that Distribution Date, the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount, the Class M-1 Principal Distribution Amount and the Class M-2 Principal Distribution Amount or (b) on or after the Stepdown Date if a Trigger Event is not in effect for that Distribution Date, the lesser of: (i) the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount, the Class M-1 Principal Distribution Amount and the Class M-2 Principal Distribution Amount; and (ii) the excess, if any, of (A) the sum of (1) the aggregate Certificate Principal Balance of the Class A Certificates, Class M-1 Certificates and Class M-2 Certificates (after taking into account the payment of the Class A Principal Distribution Amount, the Class M-1 Principal Distribution Amount and the Class M-2 Principal Distribution Amount for that Distribution Date) and (2) the Certificate Principal Balance of the Class M-3 Certificates immediately prior to that Distribution Date over (B) the lesser of (x) the product of (1) the applicable Subordination Percentage and (2) the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date and (y) the excess, if any, of the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date, over the Overcollateralization Floor. Class M-4 Certificate: Any one of the Class M-4 Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed hereto as Exhibit B, and evidencing (i) an interest designated as a "regular interest" in REMIC II for purposes of the REMIC Provisions and (ii) the right to receive payments under the Yield Maintenance Agreement. Class M-4 Margin: Initially, 0.350% per annum, and on any Distribution Date on and after the second Distribution Date after the first possible Optional Termination Date, 0.525% per annum. Class M-4 Principal Distribution Amount: With respect to any Distribution Date (a) prior to the Stepdown Date or on or after the Stepdown Date if a Trigger Event is in effect for that Distribution Date, the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount, the Class M-1 Principal Distribution Amount, the Class M-2 Principal Distribution Amount and the Class M-3 Principal Distribution Amount or (b) on or after the Stepdown Date if a Trigger Event is not in effect for that Distribution Date, the lesser of: (i) the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount, the Class M-1 Principal Distribution Amount, the Class M-2 Principal Distribution Amount and the Class M-3 Principal Distribution Amount; and (ii) the excess, if any, of (A) the sum of (1) the aggregate Certificate Principal Balance of the Class A Certificates, Class M-1 Certificates, Class M-2 Certificates and Class M-3 Certificates (after taking into account the payment of the Class A Principal Distribution Amount, the Class M-1 Principal Distribution Amount, the Class M-2 Principal Distribution Amount and the Class M-3 Principal Distribution Amount for that Distribution Date) and (2) the Certificate Principal Balance of the Class M-4 Certificates immediately prior to that Distribution Date over (B) the lesser of (x) the product of (1) the applicable Subordination Percentage and (2) the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date and (y) the excess, if any, of the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date, over the Overcollateralization Floor. Class M-5 Certificate: Any one of the Class M-5 Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed hereto as Exhibit B, and evidencing (i) an interest designated as a "regular interest" in REMIC II for purposes of the REMIC Provisions and (ii) the right to receive payments under the Yield Maintenance Agreement. Class M-5 Margin: Initially, 0.390% per annum, and on any Distribution Date on and after the second Distribution Date after the first possible Optional Termination Date, 0.585% per annum. Class M-5 Principal Distribution Amount: With respect to any Distribution Date (a) prior to the Stepdown Date or on or after the Stepdown Date if a Trigger Event is in effect for that Distribution Date, the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount, the Class M-1 Principal Distribution Amount, the Class M-2 Principal Distribution Amount, the Class M-3 Principal Distribution Amount and the Class M-4 Principal Distribution Amount or (b) on or after the Stepdown Date if a Trigger Event is not in effect for that Distribution Date, the lesser of: (i) the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount, the Class M-1 Principal Distribution Amount, the Class M-2 Principal Distribution Amount, the Class M-3 Principal Distribution Amount and the Class M-4 Principal Distribution Amount; and (ii) the excess, if any, of (A) the sum of (1) the aggregate Certificate Principal Balance of the Class A Certificates, Class M-1 Certificates, Class M-2 Certificates, Class M-3 Certificates and Class M-4 Certificates (after taking into account the payment of the Class A Principal Distribution Amount, the Class M-1 Principal Distribution Amount, the Class M-2 Principal Distribution Amount, the Class M-3 Principal Distribution Amount and the Class M-4 Principal Distribution Amount for that Distribution Date) and (2) the Certificate Principal Balance of the Class M-5 Certificates immediately prior to that Distribution Date over (B) the lesser of (x) the product of (1) the applicable Subordination Percentage and (2) the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date and (y) the excess, if any, of the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date, over the Overcollateralization Floor. Class M-6 Certificate: Any one of the Class M-6 Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed hereto as Exhibit B, and evidencing (i) an interest designated as a "regular interest" in REMIC II for purposes of the REMIC Provisions and (ii) the right to receive payments under the Yield Maintenance Agreement. Class M-6 Margin: Initially, 0.480% per annum, and on any Distribution Date on and after the second Distribution Date after the first possible Optional Termination Date, 0.720% per annum. Class M-6 Principal Distribution Amount: With respect to any Distribution Date (a) prior to the Stepdown Date or on or after the Stepdown Date if a Trigger Event is in effect for that Distribution Date, the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount, the Class M-1 Principal Distribution Amount, the Class M-2 Principal Distribution Amount, the Class M-3 Principal Distribution Amount, the Class M-4 Principal Distribution Amount and the Class M-5 Principal Distribution Amount or (b) on or after the Stepdown Date if a Trigger Event is not in effect for that Distribution Date, the lesser of: (iii) the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount, the Class M-1 Principal Distribution Amount, the Class M-2 Principal Distribution Amount, the Class M-3 Principal Distribution Amount, the Class M-4 Principal Distribution Amount and the Class M-5 Principal Distribution Amount; and (iv) the excess, if any, of (A) the sum of (1) the aggregate Certificate Principal Balance of the Class A Certificates, Class M-1 Certificates, Class M-2 Certificates, Class M-3 Certificates, Class M-4 Certificates and Class M-5 Certificates (after taking into account the payment of the Class A Principal Distribution Amount, the Class M-1 Principal Distribution Amount, the Class M-2 Principal Distribution Amount, the Class M-3 Principal Distribution Amount, the Class M-4 Principal Distribution Amount and the Class M-5 Principal Distribution Amount for that Distribution Date) and (2) the Certificate Principal Balance of the Class M-6 Certificates immediately prior to that Distribution Date over (B) the lesser of (x) the product of (1) the applicable Subordination Percentage and (2) the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date and (y) the excess, if any, of the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date, over the Overcollateralization Floor. Class M-7 Certificate: Any one of the Class M-7 Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed hereto as Exhibit B, and evidencing (i) an interest designated as a "regular interest" in REMIC II for purposes of the REMIC Provisions and (ii) the right to receive payments under the Yield Maintenance Agreement. Class M-7 Margin: Initially, 0.900% per annum, and on any Distribution Date on and after the second Distribution Date after the first possible Optional Termination Date, 1.350% per annum. Class M-7 Principal Distribution Amount: With respect to any Distribution Date (a) prior to the Stepdown Date or on or after the Stepdown Date if a Trigger Event is in effect for that Distribution Date, the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount, the Class M-1 Principal Distribution Amount, the Class M-2 Principal Distribution Amount, the Class M-3 Principal Distribution Amount, the Class M-4 Principal Distribution Amount, the Class M-5 Principal Distribution Amount and the Class M-6 Principal Distribution Amount or (b) on or after the Stepdown Date if a Trigger Event is not in effect for that Distribution Date, the lesser of: (i) the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount, the Class M-1 Principal Distribution Amount, the Class M-2 Principal Distribution Amount, the Class M-3 Principal Distribution Amount, the Class M-4 Principal Distribution Amount, the Class M-5 Principal Distribution Amount and the Class M-6 Principal Distribution Amount; and (ii) the excess, if any, of (A) the sum of (1) the aggregate Certificate Principal Balance of the Class A Certificates, Class M-1 Certificates, Class M-2 Certificates, Class M-3 Certificates, Class M-4 Certificates, Class M-5 Certificates and Class M-6 Certificates (after taking into account the payment of the Class A Principal Distribution Amount, the Class M-1 Principal Distribution Amount, the Class M-2 Principal Distribution Amount, the Class M-3 Principal Distribution Amount, the Class M-4 Principal Distribution Amount, the Class M-5 Principal Distribution Amount and the Class M-6 Principal Distribution Amount for that Distribution Date) and (2) the Certificate Principal Balance of the Class M-7 Certificates immediately prior to that Distribution Date over (B) the lesser of (x) the product of (1) the applicable Subordination Percentage and (2) the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date and (y) the excess, if any, of the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date, over the Overcollateralization Floor. Class M-8 Certificate: Any one of the Class M-8 Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed hereto as Exhibit B, and evidencing (i) an interest designated as a "regular interest" in REMIC II for purposes of the REMIC Provisions and (ii) the right to receive payments under the Yield Maintenance Agreement. Class M-8 Margin: Initially, 1.100% per annum, and on any Distribution Date on and after the second Distribution Date after the first possible Optional Termination Date, 1.650% per annum. Class M-8 Principal Distribution Amount: With respect to any Distribution Date (a) prior to the Stepdown Date or on or after the Stepdown Date if a Trigger Event is in effect for that Distribution Date, the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount, the Class M-1 Principal Distribution Amount, the Class M-2 Principal Distribution Amount, the Class M-3 Principal Distribution Amount, the Class M-4 Principal Distribution Amount, the Class M-5 Principal Distribution Amount, the Class M-6 Principal Distribution Amount and the Class M-7 Principal Distribution Amount or (b) on or after the Stepdown Date if a Trigger Event is not in effect for that Distribution Date, the lesser of: (i) the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount, the Class M-1 Principal Distribution Amount, the Class M-2 Principal Distribution Amount, the Class M-3 Principal Distribution Amount, the Class M-4 Principal Distribution Amount, the Class M-5 Principal Distribution Amount, the Class M-6 Principal Distribution Amount and the Class M-7 Principal Distribution Amount; and (ii) the excess, if any, of (A) the sum of (1) the aggregate Certificate Principal Balance of the Class A Certificates, Class M-1 Certificates, Class M-2 Certificates, Class M-3 Certificates, Class M-4 Certificates, Class M-5 Certificates, Class M-6 Certificates and Class M-7 Certificates (after taking into account the payment of the Class A Principal Distribution Amount, the Class M-1 Principal Distribution Amount, the Class M-2 Principal Distribution Amount, the Class M-3 Principal Distribution Amount, the Class M-4 Principal Distribution Amount, the Class M-5 Principal Distribution Amount, the Class M-6 Principal Distribution Amount and the Class M-7 Principal Distribution Amount for that Distribution Date) and (2) the Certificate Principal Balance of the Class M-8 Certificates immediately prior to that Distribution Date over (B) the lesser of (x) the product of (1) the applicable Subordination Percentage and (2) the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date and (y) the excess, if any, of the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date, over the Overcollateralization Floor. Class M-9 Certificate: Any one of the Class M-9 Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed hereto as Exhibit B, and evidencing (i) an interest designated as a "regular interest" in REMIC II for purposes of the REMIC Provisions and (ii) the right to receive payments under the Yield Maintenance Agreement. Class M-9 Margin: Initially, 2.000% per annum, and on any Distribution Date on and after the second Distribution Date after the first possible Optional Termination Date, 3.000% per annum. Class M-9 Principal Distribution Amount: With respect to any Distribution Date (a) prior to the Stepdown Date or on or after the Stepdown Date if a Trigger Event is in effect for that Distribution Date, the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount, the Class M-1 Principal Distribution Amount, the Class M-2 Principal Distribution Amount, the Class M-3 Principal Distribution Amount, the Class M-4 Principal Distribution Amount, the Class M-5 Principal Distribution Amount, the Class M-6 Principal Distribution Amount, the Class M-7 Principal Distribution Amount and the Class M-8 Principal Distribution Amount or (b) on or after the Stepdown Date if a Trigger Event is not in effect for that Distribution Date, the lesser of: (i) the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount, the Class M-1 Principal Distribution Amount, the Class M-2 Principal Distribution Amount, the Class M-3 Principal Distribution Amount, the Class M-4 Principal Distribution Amount, the Class M-5 Principal Distribution Amount, Class M-6 Principal Distribution Amount, the Class M-7 Principal Distribution Amount and the Class M-8 Principal Distribution Amount; and (ii) the excess, if any, of (A) the sum of (1) the aggregate Certificate Principal Balance of the Class A Certificates, Class M-1 Certificates, Class M-2 Certificates, Class M-3 Certificates, Class M-4 Certificates, Class M-5 Certificates, Class M-6 Certificates, Class M-7 Certificates and Class M-8 Certificates (after taking into account the payment of the Class A Principal Distribution Amount, the Class M-1 Principal Distribution Amount, the Class M-2 Principal Distribution Amount, the Class M-3 Principal Distribution Amount, the Class M-4 Principal Distribution Amount, the Class M-5 Principal Distribution Amount, the Class M-6 Principal Distribution Amount, the Class M-7 Principal Distribution Amount and the Class M-8 Principal Distribution Amount for that Distribution Date) and (2) the Certificate Principal Balance of the Class M-9 Certificates immediately prior to that Distribution Date over (B) the lesser of (x) the product of (1) the applicable Subordination Percentage and (2) the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date and (y) the excess, if any, of the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date, over the Overcollateralization Floor. Class R Certificate: Any one of the Class R Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed hereto as Exhibit D and evidencing an interest designated as a "residual interest" in a REMIC for purposes of the REMIC Provisions. Class SB Certificate: Any one of the Class SB Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed hereto as Exhibit C, subordinate to the Class A Certificates and Class M Certificates with respect to distributions and the allocation of Realized Losses as set forth in Section 4.05, and evidencing an interest comprised of "regular interests" in REMIC II together with certain rights to payments under the Yield Maintenance Agreement for purposes of the REMIC Provisions. Closing Date: May 25, 2006. Code: The Internal Revenue Code of 1986. Commission: The Securities and Exchange Commission. Compensating Interest: With respect to any Distribution Date, any amount paid by the Master Servicer in accordance with Section 3.16(f). Corporate Trust Office: The principal office of the Trustee at which at any particular time its corporate trust business with respect to this Agreement shall be administered, which office at the date of the execution of this instrument is located at U.S. Bank National Association, EP-MN-WS3D, 60 Livingston Avenue, St. Paul, Minnesota 55107, Attn: Structured Finance/RASC 2006-EMX4. Credit Repository: Equifax, Transunion and Experian, or their successors in interest. Curtailment: Any Principal Prepayment made by a Mortgagor which is not a Principal Prepayment in Full. Custodial Account: The custodial account or accounts created and maintained pursuant to Section 3.07 in the name of a depository institution, as custodian for the holders of the Certificates, for the holders of certain other interests in mortgage loans serviced or sold by the Master Servicer and for the Master Servicer, into which the amounts set forth in Section 3.07 shall be deposited directly. Any such account or accounts shall be an Eligible Account. Custodial Agreement: An agreement that may be entered into among the Depositor, the Master Servicer, the Trustee and a Custodian in substantially the form of Exhibit E hereto. Custodian: Wells Fargo Bank, N.A., or any successor custodian appointed pursuant to a Custodial Agreement. Cut-off Date: May 1, 2006. Cut-off Date Balance: $685,000,108.14. Cut-off Date Principal Balance: With respect to any Mortgage Loan, the unpaid principal balance thereof at the Cut-off Date after giving effect to all installments of principal due on or prior thereto (or due in the month of the Cut-off Date), whether or not received. Debt Service Reduction: With respect to any Mortgage Loan, a reduction in the scheduled Monthly Payment for such Mortgage Loan by a court of competent jurisdiction in a proceeding under the Bankruptcy Code, except such a reduction constituting a Deficient Valuation or any reduction that results in a permanent forgiveness of principal. Deficient Valuation: With respect to any Mortgage Loan, a valuation by a court of competent jurisdiction of the Mortgaged Property in an amount less than the then outstanding indebtedness under the Mortgage Loan, or any reduction in the amount of principal to be paid in connection with any scheduled Monthly Payment that constitutes a permanent forgiveness of principal, which valuation or reduction results from a proceeding under the Bankruptcy Code. Definitive Certificate: Any definitive, fully registered Certificate. Deleted Mortgage Loan: A Mortgage Loan replaced or to be replaced with a Qualified Substitute Mortgage Loan. Delinquent: As used herein, a Mortgage Loan is considered to be: "30 to 59 days" or "30 or more days" delinquent when a payment due on any scheduled due date remains unpaid as of the close of business on the next following monthly scheduled due date; "60 to 89 days" or "60 or more days" delinquent when a payment due on any scheduled due date remains unpaid as of the close of business on the second following monthly scheduled due date; and so on. The determination as to whether a Mortgage Loan falls into these categories is made as of the close of business on the last business day of each month. For example, a Mortgage Loan with a payment due on July 1 that remained unpaid as of the close of business on August 31 would then be considered to be 30 to 59 days delinquent. Delinquency information as of the Cut-off Date is determined and prepared as of the close of business on the last business day immediately prior to the Cut-off Date. Depositor: As defined in the preamble hereto. Depository: The Depository Trust Company, or any successor Depository hereafter named. The nominee of the initial Depository for purposes of registering those Certificates that are to be Book-Entry Certificates is Cede & Co. The Depository shall at all times be a "clearing corporation" as defined in Section 8-102(a)(5) of the Uniform Commercial Code of the State of New York and a "clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act. Depository Participant: A broker, dealer, bank or other financial institution or other Person for whom from time to time a Depository effects book-entry transfers and pledges of securities deposited with the Depository. Derivative Contract: Any ISDA Master Agreement, together with the related Schedule and Confirmation, entered into by the Trustee and a Derivative Counterparty in accordance with Section 4.09. Derivative Counterparty: Any counterparty to a Derivative Contract as provided in Section 4.09 Destroyed Mortgage Note: A Mortgage Note the original of which was permanently lost or destroyed and has not been replaced. Determination Date: With respect to any Distribution Date, the 20th day (or if such 20th day is not a Business Day, the Business Day immediately following such 20th day) of the month of the related Distribution Date. Disqualified Organization: Any organization defined as a "disqualified organization" under Section 860E(e)(5) of the Code, including, if not otherwise included, any of the following: (i) the United States, any State or political subdivision thereof, any possession of the United States, or any agency or instrumentality of any of the foregoing (other than an instrumentality which is a corporation if all of its activities are subject to tax and, except for Freddie Mac, a majority of its board of directors is not selected by such governmental unit), (ii) a foreign government, any international organization, or any agency or instrumentality of any of the foregoing, (iii) any organization (other than certain farmers' cooperatives described in Section 521 of the Code) which is exempt from the tax imposed by Chapter 1 of the Code (including the tax imposed by Section 511 of the Code on unrelated business taxable income) and (iv) rural electric and telephone cooperatives described in Section 1381(a)(2)(C) of the Code. A Disqualified Organization also includes any "electing large partnership," as defined in Section 775(a) of the Code and any other Person so designated by the Trustee based upon an Opinion of Counsel that the holding of an Ownership Interest in a Class R Certificate by such Person may cause any REMIC or any Person having an Ownership Interest in any Class of Certificates (other than such Person) to incur a liability for any federal tax imposed under the Code that would not otherwise be imposed but for the Transfer of an Ownership Interest in a Class R Certificate to such Person. The terms "United States," "State" and "international organization" shall have the meanings set forth in Section 7701 of the Code or successor provisions. Distribution Date: The 25th day of any month beginning in June 2006 or, if such 25th day is not a Business Day, the Business Day immediately following such 25th day. DTC Letter: The Letter of Representations, dated May 24, 2006, among the Trustee on behalf of the Trust Fund, U.S. Bank National Association, in its individual capacity as agent thereunder and the Depository. Due Date: With respect to any Distribution Date and any Mortgage Loan, the day during the related Due Period on which the Monthly Payment is due. Due Period: With respect to any Distribution Date, the calendar month of such Distribution Date. Eligible Account: An account that is any of the following: (i) maintained with a depository institution the debt obligations of which have been rated by each Rating Agency in its highest rating available, or (ii) an account or accounts in a depository institution in which such accounts are fully insured to the limits established by the FDIC, provided that any deposits not so insured shall, to the extent acceptable to each Rating Agency, as evidenced in writing, be maintained such that (as evidenced by an Opinion of Counsel delivered to the Trustee and each Rating Agency) the registered Holders of Certificates have a claim with respect to the funds in such account or a perfected first security interest against any collateral (which shall be limited to Permitted Investments) securing such funds that is superior to claims of any other depositors or creditors of the depository institution with which such account is maintained, or (iii) in the case of the Custodial Account, a trust account or accounts maintained in the corporate trust department of U.S. Bank National Association, or (iv) in the case of the Certificate Account, a trust account or accounts maintained in the corporate trust department of U.S. Bank National Association, or (v) an account or accounts of a depository institution acceptable to each Rating Agency (as evidenced in writing by each Rating Agency that use of any such account as the Custodial Account or the Certificate Account will not reduce the rating assigned to any Class of Certificates by such Rating Agency below the then-current rating assigned to such Certificates by such Rating Agency). Eligible Master Servicing Compensation: With respect to any Distribution Date, the lesser of (a) one-twelfth of 0.125% of the Stated Principal Balance of the related Mortgage Loans immediately preceding such Distribution Date and (b) the sum of the Servicing Fee and all income and gain on amounts held in the Custodial Account and the Certificate Account and payable to the Certificateholders with respect to such Distribution Date; provided that for purposes of this definition the amount of the Servicing Fee will not be reduced pursuant to Section 7.02(a) except as may be required pursuant to the last sentence of such Section. ERISA: The Employee Retirement Income Security Act of 1974, as amended. Event of Default: As defined in Section 7.01. Excess Cash Flow: With respect to any Distribution Date, an amount equal to the sum of (A) the excess of (i) the Available Distribution Amount for that Distribution Date over (ii) the sum of (a) the Interest Distribution Amount for that Distribution Date and (b) the lesser of (1) the aggregate Certificate Principal Balance of Class A Certificates and Class M Certificates immediately prior to such Distribution Date and (2) the Principal Remittance Amount for that Distribution Date to the extent not applied to pay interest on the Class A Certificates and Class M Certificates on such Distribution Date, (B) the Overcollateralization Reduction Amount, if any, for that Distribution Date and (C) any Yield Maintenance Agreement Payment received by the Trustee for that Distribution Date. Excess Overcollateralization Amount: With respect to any Distribution Date, the excess, if any, of (a) the Overcollateralization Amount on such Distribution Date over (b) the Required Overcollateralization Amount for such Distribution Date. Exchange Act: The Securities Exchange Act of 1934, as amended. Expense Fee Rate: With respect to any Mortgage Loan as of any date of determination, the sum of the applicable Servicing Fee Rate and the per annum rate at which the applicable Subservicing Fee accrues. Fannie Mae: Fannie Mae, a federally chartered and privately owned corporation organized and existing under the Federal National Mortgage Association Charter Act, or any successor thereto. FDIC: Federal Deposit Insurance Corporation or any successor thereto. Final Distribution Date: The Distribution Date on which the final distribution in respect of the Certificates will be made pursuant to Section 9.01, which Final Distribution Date shall in no event be later than the end of the 90-day liquidation period described in Section 9.02. Final Scheduled Distribution Date: Solely for purposes of the face of the Certificates, as follows: with respect to the Class A-1 Certificates, the Distribution Date occurring in February 2027; with respect to the Class A-2 the Distribution Date occurring in November 2031; with respect to the Class A-3 the Distribution Date occurring in April 2036; and with respect to the Class A-4 Certificates and each Class of Class M Certificates, the Distribution Date occurring in June 2036. No event of default under this Agreement will arise or become applicable solely by reason of the failure to retire the entire Certificate Principal Balance of any Class of Class A Certificates or Class M Certificates on or before its Final Scheduled Distribution Date. Fitch: Fitch Ratings, or its successors in interest. Foreclosure Profits: With respect to any Distribution Date or related Determination Date and any Mortgage Loan, the excess, if any, of Liquidation Proceeds, Insurance Proceeds and REO Proceeds (net of all amounts reimbursable therefrom pursuant to Section 3.10(a)(ii)) in respect of each Mortgage Loan or REO Property for which a Cash Liquidation or REO Disposition occurred in the related Prepayment Period over the sum of the unpaid principal balance of such Mortgage Loan or REO Property (determined, in the case of an REO Disposition, in accordance with Section 3.14) plus accrued and unpaid interest at the Mortgage Rate on such unpaid principal balance from the Due Date to which interest was last paid by the Mortgagor to the first day of the month following the month in which such Cash Liquidation or REO Disposition occurred. Form 10-K Certification: As defined in Section 4.03(e). Freddie Mac: Freddie Mac, a corporate instrumentality of the United States created and existing under Title III of the Emergency Home Finance Act of 1970, as amended, or any successor thereto. Gross Margin: With respect to each adjustable-rate Mortgage Loan, the fixed percentage set forth in the related Mortgage Note and indicated on the Mortgage Loan Schedule as the "NOTE MARGIN," which percentage is added to the related Index on each Adjustment Date to determine (subject to rounding in accordance with the related Mortgage Note, the Periodic Cap, the Maximum Mortgage Rate and the Minimum Mortgage Rate) the interest rate to be borne by such Mortgage Loan until the next Adjustment Date. HUD: The United States Department of Housing and Urban Development. Independent: When used with respect to any specified Person, means such a Person who (i) is in fact independent of the Depositor, the Master Servicer and the Trustee, or any Affiliate thereof, (ii) does not have any direct financial interest or any material indirect financial interest in the Depositor, the Master Servicer or the Trustee or in an Affiliate thereof, and (iii) is not connected with the Depositor, the Master Servicer or the Trustee as an officer, employee, promoter, underwriter, trustee, partner, director or person performing similar functions. Index: With respect to any adjustable-rate Mortgage Loan and as to any Adjustment Date therefor, the related index as stated in the related Mortgage Note. Initial Certificate Principal Balance: With respect to each Class of Certificates (other than the Class R Certificates), the Certificate Principal Balance of such Class of Certificates as of the Closing Date as set forth in the Preliminary Statement hereto. Insurance Proceeds: Proceeds paid in respect of the Mortgage Loans pursuant to any Primary Insurance Policy or any other related insurance policy covering a Mortgage Loan, to the extent such proceeds are payable to the mortgagee under the Mortgage, any Subservicer, the Master Servicer or the Trustee and are not applied to the restoration of the related Mortgaged Property or released to the Mortgagor in accordance with the procedures that the Master Servicer would follow in servicing mortgage loans held for its own account. Interest Accrual Period: With respect to the Distribution Date in June 2006, the period commencing the Closing Date and ending on the day preceding the Distribution Date in June 2006, and with respect to any Distribution Date after the Distribution Date in June 2006, the period commencing on the Distribution Date in the month immediately preceding the month in which such Distribution Date occurs and ending on the day preceding such Distribution Date. Interest Distribution Amount: For any Distribution Date, the amounts payable pursuant to Section 4.02(c)(i) and (ii). Interim Certification: As defined in Section 2.02. Late Collections: With respect to any Mortgage Loan, all amounts received during any Due Period, whether as late payments of Monthly Payments or as Insurance Proceeds, Liquidation Proceeds or otherwise, which represent late payments or collections of Monthly Payments due but delinquent for a previous Due Period and not previously recovered. LIBOR: With respect to any Distribution Date, the arithmetic mean of the London interbank offered rate quotations for one-month U.S. Dollar deposits, expressed on a per annum basis, determined in accordance with Section 1.02. LIBOR Business Day: Any day other than (i) a Saturday or Sunday or (ii) a day on which banking institutions in London, England are required or authorized by law to be closed. LIBOR Certificates: Collectively, the Class A Certificates and Class M Certificates. LIBOR Rate Adjustment Date: With respect to each Distribution Date, the second LIBOR Business Day immediately preceding the commencement of the related Interest Accrual Period. Limited Repurchase Right Holder: RFC Asset Holdings II, Inc., or its successor. Liquidation Proceeds: Amounts (other than Insurance Proceeds) received by the Master Servicer in connection with the taking of an entire Mortgaged Property by exercise of the power of eminent domain or condemnation or in connection with the liquidation of a defaulted Mortgage Loan through trustee's sale, foreclosure sale or otherwise, other than REO Proceeds and Subsequent Recoveries. Loan-to-Value Ratio: As of any date, the fraction, expressed as a percentage, the numerator of which is the current principal balance of the related Mortgage Loan at the date of determination and the denominator of which is the Appraised Value of the related Mortgaged Property. Margin: The Class A-1 Margin, Class A-2 Margin, Class A-3 Margin, Class A-4 Margin, Class M-1 Margin, Class M-2 Margin, Class M-3 Margin, Class M-4 Margin, Class M-5 Margin, Class M-6 Margin, Class M-7 Margin, Class M-8 Margin or Class M-9 Margin, as applicable. Marker Rate: With respect to the Class SB Certificates or the REMIC II Regular Interest SB-IO and any Distribution Date, a per annum rate equal to two (2) times the weighted average of the Uncertificated REMIC I Pass-Through Rates for REMIC I Regular Interest LT2 and REMIC I Regular Interest LT3. Master Servicer: As defined in the preamble hereto. Maturity Date: With respect to each Class of Certificates representing ownership of REMIC II Regular Interests or REMIC I Regular Interests issued by each of REMIC I and REMIC II the latest possible maturity date, solely for purposes of Section 1.860G-1(a)(4)(iii) of the Treasury Regulations, by which the Certificate Principal Balance of each such Class of Certificates representing a regular interest in the Trust Fund would be reduced to zero, which is, for each such regular interest, June 25, 2036, which is the Distribution Date occurring in the month following the last scheduled monthly payment of the Mortgage Loans. Maximum Mortgage Rate: With respect to any adjustable-rate Mortgage Loan, the per annum rate indicated on the Mortgage Loan Schedule as the "NOTE CEILING," which rate is the maximum interest rate that may be applicable to such Mortgage Loan at any time during the life of such Mortgage Loan. Maximum Net Mortgage Rate: With respect to any adjustable-rate Mortgage Loan and any date of determination, the Maximum Mortgage Rate minus the Expense Fee Rate. With respect to any fixed-rate Mortgage Loan and any date of determination, the Net Mortgage Rate. MERS: Mortgage Electronic Registration Systems, Inc., a corporation organized and existing under the laws of the State of Delaware, or any successor thereto. MERS(R)System: The system of recording transfers of Mortgages electronically maintained by MERS. MIN: The Mortgage Identification Number for Mortgage Loans registered with MERS on the MERS(R)System. Minimum Mortgage Rate: With respect to any adjustable-rate Mortgage Loan, a per annum rate equal to the greater of (i) the Note Margin and (ii) the rate indicated on the Mortgage Loan Schedule as the "NOTE FLOOR," which rate may be applicable to such Mortgage Loan at any time during the life of such Mortgage Loan. Modified Mortgage Loan: Any Mortgage Loan that has been the subject of a Servicing Modification. Modified Net Mortgage Rate: With respect to any Mortgage Loan that is the subject of a Servicing Modification, the Net Mortgage Rate minus the rate per annum by which the Mortgage Rate on such Mortgage Loan was reduced. MOM Loan: With respect to any Mortgage Loan, MERS acting as the mortgagee of such Mortgage Loan, solely as nominee for the originator of such Mortgage Loan and its successors and assigns, at the origination thereof. Monthly Payment: With respect to any Mortgage Loan (including any REO Property) and the Due Date in any Due Period, the payment of principal and interest due thereon in accordance with the amortization schedule at the time applicable thereto (after adjustment, if any, for Curtailments and for Deficient Valuations occurring prior to such Due Date but before any adjustment to such amortization schedule by reason of any bankruptcy, other than a Deficient Valuation, or similar proceeding or any moratorium or similar waiver or grace period and before any Servicing Modification that constitutes a reduction of the interest rate on such Mortgage Loan). Moody's: Moody's Investors Service, Inc., or its successors in interest. Mortgage: With respect to each Mortgage Note, the mortgage, deed of trust or other comparable instrument creating a first or junior lien on an estate in fee simple or leasehold interest in real property securing a Mortgage Note. Mortgage File: The mortgage documents listed in Section 2.01 pertaining to a particular Mortgage Loan and any additional documents required to be added to the Mortgage File pursuant to this Agreement. Mortgage Loans: Such of the mortgage loans transferred and assigned to the Trustee pursuant to Section 2.01 as from time to time are held or deemed to be held as a part of the Trust Fund, the Mortgage Loans originally so held being identified in the initial Mortgage Loan Schedule, and Qualified Substitute Mortgage Loans held or deemed held as part of the Trust Fund including, without limitation, each related Mortgage Note, Mortgage and Mortgage File and all rights appertaining thereto. Mortgage Loan Schedule: The lists of the Mortgage Loans attached hereto as Exhibit F (as amended from time to time to reflect the addition of Qualified Substitute Mortgage Loans), which lists shall set forth at a minimum the following information as to each Mortgage Loan: (i) the Mortgage Loan identifying number ("RFC LOAN #"); (ii) [reserved]; (iii) the maturity of the Mortgage Note ("MATURITY DATE," or "MATURITY DT"); (iv) for the adjustable-rate Mortgage Loans, the Mortgage Rate as of origination ("ORIG RATE"); (v) the Mortgage Rate as of the Cut-off Date ("CURR RATE"); (vi) the Net Mortgage Rate as of the Cut-off Date ("CURR NET"); (vii) the scheduled monthly payment of principal, if any, and interest as of the Cut-off Date ("ORIGINAL P & I" or "CURRENT P & I"); (viii) the Cut-off Date Principal Balance ("PRINCIPAL BAL"); (ix) the Loan-to-Value Ratio at origination ("LTV"); (x) a code "T," "BT" or "CT" under the column "LN FEATURE," indicating that the Mortgage Loan is secured by a second or vacation residence (the absence of any such code means the Mortgage Loan is secured by a primary residence); (xi) a code "N" under the column "OCCP CODE," indicating that the Mortgage Loan is secured by a non-owner occupied residence (the absence of any such code means the Mortgage Loan is secured by an owner occupied residence); (xii) for the adjustable-rate Mortgage Loans, the Maximum Mortgage Rate ("NOTE CEILING"); (xiii) for the adjustable-rate Mortgage Loans, the maximum Net Mortgage Rate ("NET CEILING"); (xiv) for the adjustable-rate Mortgage Loans, the Note Margin ("NOTE MARGIN"); (xv) for the adjustable-rate Mortgage Loans, the first Adjustment Date after the Cut-off Date ("NXT INT CHG DT"); (xvi) for the adjustable-rate Mortgage Loans, the Periodic Cap ("PERIODIC DECR" or "PERIODIC INCR"); (xvii) [reserved]; and (xviii) for the adjustable-rate Mortgage Loans, the rounding of the semi-annual or annual adjustment to the Mortgage Rate ("NOTE METHOD"). Such schedules may consist of multiple reports that collectively set forth all of the information required. Mortgage Note: The originally executed note or other evidence of indebtedness evidencing the indebtedness of a Mortgagor under a Mortgage Loan, together with any modification thereto. Mortgage Rate: With respect to any Mortgage Loan, the interest rate borne by the related Mortgage Note, or any modification thereto other than a Servicing Modification. The Mortgage Rate on the adjustable-rate Mortgage Loans will adjust on each Adjustment Date to equal the sum (rounded to the nearest multiple of one-eighth of one percent (0.125%) or up to the nearest one-eighth of one percent, which are indicated by a "U" on the Mortgage Loan Schedule, except in the case of the adjustable-rate Mortgage Loans indicated by an "X" on the Mortgage Loan Schedule under the heading "NOTE METHOD"), of the related Index plus the Note Margin, in each case subject to the applicable Periodic Cap, Maximum Mortgage Rate and Minimum Mortgage Rate. Mortgaged Property: The underlying real property securing a Mortgage Loan. Mortgagor: The obligor on a Mortgage Note. Net Mortgage Rate: With respect to any Mortgage Loan as of any date of determination, a per annum rate equal to the Mortgage Rate for such Mortgage Loan as of such date minus the related Expense Fee Rate. Net WAC Cap Rate: With respect to any Distribution Date, the product of (i) a per annum rate equal to the weighted average of the Net Mortgage Rates (or, if applicable, the Modified Net Mortgage Rates) using the Net Mortgage Rates in effect for the Monthly Payments due on such Mortgage Loans during the related Due Period, weighted on the basis of the respective Stated Principal Balances thereof for such Distribution Date and (ii) a fraction equal to 30 divided by the actual number of days in the related Interest Accrual Period. Non-United States Person: Any Person other than a United States Person. Nonrecoverable Advance: Any Advance previously made or proposed to be made by the Master Servicer or Subservicer in respect of a Mortgage Loan (other than a Deleted Mortgage Loan) which, in the good faith judgment of the Master Servicer, will not, or, in the case of a proposed Advance, would not, be ultimately recoverable by the Master Servicer from related Late Collections, Insurance Proceeds, Liquidation Proceeds or REO Proceeds. To the extent that any Mortgagor is not obligated under the related Mortgage documents to pay or reimburse any portion of any Servicing Advances that are outstanding with respect to the related Mortgage Loan as a result of a modification of such Mortgage Loan by the Master Servicer, which forgives amounts which the Master Servicer or Subservicer had previously advanced, and the Master Servicer determines that no other source of payment or reimbursement for such advances is available to it, such Servicing Advances shall be deemed to be Nonrecoverable Advances. The determination by the Master Servicer that it has made a Nonrecoverable Advance shall be evidenced by a certificate of a Servicing Officer, Responsible Officer or Vice President or its equivalent or senior officer of the Master Servicer, delivered to the Depositor, the Trustee, and the Master Servicer setting forth such determination, which shall include any other information or reports obtained by the Master Servicer such as property operating statements, rent rolls, property inspection reports and engineering reports, which may support such determinations. Notwithstanding the above, the Trustee shall be entitled to rely upon any determination by the Master Servicer that any Advance previously made is a Nonrecoverable Advance or that any proposed Advance, if made, would constitute a Nonrecoverable Advance. Nonsubserviced Mortgage Loan: Any Mortgage Loan that, at the time of reference thereto, is not subject to a Subservicing Agreement. Note Margin: With respect to each adjustable-rate Mortgage Loan, the fixed percentage set forth in the related Mortgage Note and indicated on the Mortgage Loan Schedule as the "NOTE MARGIN," which percentage is added to the Index on each Adjustment Date to determine (subject to rounding in accordance with the related Mortgage Note, the Periodic Cap, the Maximum Mortgage Rate and the Minimum Mortgage Rate) the interest rate to be borne by such adjustable-rate Mortgage Loan until the next Adjustment Date. Notional Amount: With respect to the Class SB Certificates or the REMIC II Regular Interest SB-IO, immediately prior to any Distribution Date, the aggregate of the Uncertificated Principal Balances of the REMIC I Regular Interests. Officers' Certificate: A certificate signed by the Chairman of the Board, the President, a Vice President, Assistant Vice President, Director, Managing Director, the Treasurer, the Secretary, an Assistant Treasurer or an Assistant Secretary of the Depositor or the Master Servicer, as the case may be, and delivered to the Trustee, as required by this Agreement. Opinion of Counsel: A written opinion of counsel acceptable to the Trustee and the Master Servicer and which counsel may be counsel for the Depositor or the Master Servicer, provided that any Opinion of Counsel (i) referred to in the definition of "Disqualified Organization" or (ii) relating to the qualification of any REMIC hereunder as a REMIC or compliance with the REMIC Provisions must, unless otherwise specified, be an opinion of Independent counsel. Optional Termination Date: Any Distribution Date on or after which the Stated Principal Balance (after giving effect to distributions to be made on such Distribution Date) of the Mortgage Loans is less than 10.00% of the Cut-off Date Balance. Outstanding Mortgage Loan: With respect to the Due Date in any Due Period, a Mortgage Loan (including an REO Property) that was not the subject of a Principal Prepayment in Full, Cash Liquidation or REO Disposition and that was not purchased, deleted or substituted for prior to such Due Date pursuant to Section 2.02, 2.03, 2.04 or 4.07. Overcollateralization Amount: With respect to any Distribution Date, the excess, if any, of (a) the aggregate Stated Principal Balance of the Mortgage Loans before giving effect to distributions of principal to be made on such Distribution Date over (b) the aggregate Certificate Principal Balance of the Class A Certificates and Class M Certificates immediately prior to such date. Overcollateralization Floor: An amount equal to the product of 0.50% and the Cut-off Date Balance. Overcollateralization Increase Amount: With respect to any Distribution Date, the lesser of (a) Excess Cash Flow for that Distribution Date (to the extent not used to cover the amounts described in clauses (iv) and (v) of the definition of Principal Distribution Amount as of such Distribution Date) and (b) the excess of (1) the Required Overcollateralization Amount for such Distribution Date over (2) the Overcollateralization Amount for such Distribution Date. Overcollateralization Reduction Amount: With respect to any Distribution Date on which the Excess Overcollateralization Amount is, after taking into account all other distributions to be made on such Distribution Date, greater than zero, the Overcollateralization Reduction Amount shall be equal to the lesser of (i) the Excess Overcollateralization Amount for that Distribution Date and (ii) the Principal Remittance Amount on such Distribution Date. Ownership Interest: With respect to any Certificate, any ownership or security interest in such Certificate, including any interest in such Certificate as the Holder thereof and any other interest therein, whether direct or indirect, legal or beneficial, as owner or as pledgee. Pass-Through Rate: With respect to each Class of Class A Certificates and Class M Certificates and any Distribution Date, the least of (i) a per annum rate equal to LIBOR plus the related Margin for such Distribution Date, (ii) 14.000% per annum and (iii) the Net WAC Cap Rate for such Distribution Date. With respect to the Class SB Certificates and any Distribution Date or the REMIC II Regular Interest SB-IO, a per annum rate equal to the percentage equivalent of a fraction, the numerator of which is the sum of the amounts calculated pursuant to clauses (i) through (iii) below, and the denominator of which is the aggregate principal balance of the REMIC I Regular Interests. For purposes of calculating the Pass-Through Rate for the Class SB Certificates or the REMIC II Regular Interest SB-IO, the numerator is equal to the sum of the following components: (i) the Uncertificated Pass-Through Rate for REMIC I Regular Interest LT1 minus the related Marker Rate, applied to a notional amount equal to the Uncertificated Principal Balance of REMIC I Regular Interest LT1; (ii) the Uncertificated Pass-Through Rate for REMIC I Regular Interest LT2 minus the related Marker Rate, applied to a notional amount equal to the Uncertificated Principal Balance of REMIC I Regular Interest LT2; and (iii) the Uncertificated Pass-Through Rate for REMIC I Regular Interest LT4 minus twice the related Marker Rate, applied to a notional amount equal to the Uncertificated Principal Balance of REMIC I Regular Interest LT4. Paying Agent: U.S. Bank National Association or any successor Paying Agent appointed by the Trustee. Percentage Interest: With respect to any Class A Certificate or Class M Certificate, the undivided percentage ownership interest in the related Class evidenced by such Certificate, which percentage ownership interest shall be equal to the Initial Certificate Principal Balance thereof divided by the aggregate Initial Certificate Principal Balance of all of the Certificates of the same Class. The Percentage Interest with respect to a Class SB Certificate or Class R Certificate shall be stated on the face thereof. Periodic Cap: With respect to each adjustable-rate Mortgage Loan, the periodic rate cap that limits the increase or the decrease of the related Mortgage Rate on any Adjustment Date pursuant to the terms of the related Mortgage Note. Permitted Investments: One or more of the following: (i) obligations of or guaranteed as to principal and interest by the United States or any agency or instrumentality thereof when such obligations are backed by the full faith and credit of the United States; (ii) repurchase agreements on obligations specified in clause (i) maturing not more than one month from the date of acquisition thereof, provided that the unsecured obligations of the party agreeing to repurchase such obligations are at the time rated by each Rating Agency in its highest short-term rating available; (iii) federal funds, certificates of deposit, demand deposits, time deposits and bankers' acceptances (which shall each have an original maturity of not more than 90 days and, in the case of bankers' acceptances, shall in no event have an original maturity of more than 365 days or a remaining maturity of more than 30 days) denominated in United States dollars of any U.S. depository institution or trust company incorporated under the laws of the United States or any state thereof or of any domestic branch of a foreign depository institution or trust company; provided that the debt obligations of such depository institution or trust company at the date of acquisition thereof have been rated by each Rating Agency in its highest short-term rating available; and, provided further that, if the original maturity of such short-term obligations of a domestic branch of a foreign depository institution or trust company shall exceed 30 days, the short-term rating of such institution shall be A-1+ in the case of Standard & Poor's if Standard & Poor's is a Rating Agency; (iv) commercial paper and demand notes (having original maturities of not more than 365 days) of any corporation incorporated under the laws of the United States or any state thereof which on the date of acquisition has been rated by each Rating Agency in its highest short term rating available; provided that such commercial paper and demand notes shall have a remaining maturity of not more than 30 days; (v) a money market fund or a qualified investment fund rated by each Rating Agency in its highest long-term rating available (which may be managed by the Trustee or one of its Affiliates); and (vi) other obligations or securities that are acceptable to each Rating Agency as a Permitted Investment hereunder and will not reduce the rating assigned to any Class of Certificates by such Rating Agency below the then-current rating assigned to such Certificates by such Rating Agency, as evidenced in writing; provided, however, that no instrument shall be a Permitted Investment if it represents, either (1) the right to receive only interest payments with respect to the underlying debt instrument or (2) the right to receive both principal and interest payments derived from obligations underlying such instrument and the principal and interest payments with respect to such instrument provide a yield to maturity greater than 120% of the yield to maturity at par of such underlying obligations. References herein to the highest rating available on unsecured long-term debt shall mean AAA in the case of Standard & Poor's and Aaa in the case of Moody's, and for purposes of this Agreement, any references herein to the highest rating available on unsecured commercial paper and short-term debt obligations shall mean the following: A-1 in the case of Standard & Poor's and P-1 in the case of Moody's; provided, however, that any Permitted Investment that is a short-term debt obligation rated A-1 by Standard & Poor's must satisfy the following additional conditions: (i) the total amount of debt from A-1 issuers must be limited to the investment of monthly principal and interest payments (assuming fully amortizing collateral); (ii) the total amount of A-1 investments must not represent more than 20% of the aggregate outstanding Certificate Principal Balance of the Certificates and each investment must not mature beyond 30 days; (iii) the terms of the debt must have a predetermined fixed dollar amount of principal due at maturity that cannot vary; and (iv) if the investments may be liquidated prior to their maturity or are being relied on to meet a certain yield, interest must be tied to a single interest rate index plus a single fixed spread (if any) and must move proportionately with that index. Any Permitted Investment may be purchased by or through the Trustee or its Affiliates. Permitted Transferee: Any Transferee of a Class R Certificate, other than a Disqualified Organization or Non-United States Person. Person: Any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. Prepayment Assumption: With respect to the Class A Certificates and Class M Certificates, the prepayment assumption to be used for determining the accrual of original issue discount and premium and market discount on such Certificates for federal income tax purposes, which (a) with respect to the fixed-rate Mortgage Loans, assumes a constant prepayment rate of one-tenth of 23% per annum of the then outstanding Stated Principal Balance of the fixed-rate Mortgage Loans in the first month of the life of such Mortgage Loans and an additional one-tenth of 23% per annum in each month thereafter until the tenth month, and beginning in the tenth month and in each month thereafter during the life of the fixed-rate Mortgage Loans, a constant prepayment rate of 23% per annum each month ("23% HEP") and (b) with respect to the adjustable-rate Mortgage Loans assumes a prepayment assumption of 2% of the constant prepayment rate in month one, increasing by approximately 2.545% from month 2 until month 12, a constant prepayment rate of 30% from month 12 to month 22, a constant prepayment rate of 50% from month 23 to month 27, and a constant prepayment rate of 35% thereafter, used for determining the accrual of original issue discount and premium and market discount on the Class A Certificates and Class M Certificates for federal income tax purposes. The constant prepayment rate assumes that the stated percentage of the outstanding Stated Principal Balance of the adjustable-rate Mortgage Loans is prepaid over the course of a year. Prepayment Interest Shortfall: With respect to any Distribution Date and any Mortgage Loan (other than a Mortgage Loan relating to an REO Property) that was the subject of (a) a Principal Prepayment in Full during the related Prepayment Period, an amount equal to the excess of one month's interest at the related Net Mortgage Rate (or Modified Net Mortgage Rate in the case of a Modified Mortgage Loan) on the Stated Principal Balance of such Mortgage Loan over the amount of interest (adjusted to the related Net Mortgage Rate (or Modified Net Mortgage Rate in the case of a Modified Mortgage Loan)) paid by the Mortgagor for such Prepayment Period to the date of such Principal Prepayment in Full or (b) a Curtailment during the prior calendar month, an amount equal to one month's interest at the related Net Mortgage Rate (or Modified Net Mortgage Rate in the case of a Modified Mortgage Loan) on the amount of such Curtailment. Prepayment Period: With respect to any Distribution Date, the calendar month preceding the month of distribution. Primary Insurance Policy: Each primary policy of mortgage guaranty insurance as indicated by a numeric code on the Mortgage Loan Schedule with the exception of code "A23," "A34" or "A96" under the column "MI CO CODE." Principal Distribution Amount: With respect to any Distribution Date, the lesser of (a) the excess of (x) the sum of (A) the Available Distribution Amount and (B) with respect to clauses (b)(v) and (vi) below, the Yield Maintenance Agreement Payment for that Distribution Date, over (y) the Interest Distribution Amount, and (b) the sum of: (i) the principal portion of each Monthly Payment received or Advanced with respect to the related Due Period on each Outstanding Mortgage Loan; (ii) the Stated Principal Balance of any Mortgage Loan repurchased during the related Prepayment Period (or deemed to have been so repurchased in accordance with Section 3.07(b)) pursuant to Section 2.02, 2.03, 2.04 or 4.07 and the amount of any shortfall deposited in the Custodial Account in connection with the substitution of a Deleted Mortgage Loan pursuant to Section 2.03 or 2.04 during the related Prepayment Period; (iii) the principal portion of all other unscheduled collections, other than Subsequent Recoveries, on the Mortgage Loans (including, without limitation, Principal Prepayments in Full, Curtailments, Insurance Proceeds, Liquidation Proceeds and REO Proceeds) received during the related Prepayment Period (or deemed to have been so received) to the extent applied by the Master Servicer as recoveries of principal of the Mortgage Loans pursuant to Section 3.14; (iv) the lesser of (1) Subsequent Recoveries for such Distribution Date and (2) the principal portion of any Realized Losses allocated to any Class of Certificates on a prior Distribution Date and remaining unpaid; (v) the lesser of (1) the Excess Cash Flow for such Distribution Date (to the extent not used pursuant to clause (iv) of this definition on such Distribution Date) and (2) the principal portion of any Realized Losses incurred (or deemed to have been incurred) on any Mortgage Loans in the calendar month preceding such Distribution Date; and (vi) the lesser of (1) the Excess Cash Flow for that Distribution Date (to the extent not used pursuant to clauses (iv) and (v) of this definition on such Distribution Date) and (2) the Overcollateralization Increase Amount for such Distribution Date; minus (vii) (A) the amount of any Overcollateralization Reduction Amount for such Distribution Date and (B) the amount of any Capitalization Reimbursement Amount for such Distribution Date. Principal Prepayment: Any payment of principal or other recovery on a Mortgage Loan, including a recovery that takes the form of Liquidation Proceeds or Insurance Proceeds, which is received in advance of its scheduled Due Date and is not accompanied by an amount as to interest representing scheduled interest on such payment due on any date or dates in any month or months subsequent to the month of prepayment. Principal Prepayment in Full: Any Principal Prepayment made by a Mortgagor of the entire principal balance of a Mortgage Loan. Principal Remittance Amount: With respect to any Distribution Date, all amounts described in clauses (b)(i) through (iii) of the definition of Principal Distribution Amount for that Distribution Date. Program Guide: The AlterNet Seller Guide as incorporated into the Residential Funding Seller Guide for mortgage collateral sellers that participate in Residential Funding's AlterNet Mortgage Program, and Residential Funding's Servicing Guide and any other subservicing arrangements which Residential Funding has arranged to accommodate the servicing of the Mortgage Loans and in each case all supplements and amendments thereto published by Residential Funding. Purchase Price: With respect to any Mortgage Loan (or REO Property) required to be or otherwise purchased on any date pursuant to Section 2.02, 2.03, 2.04 or 4.07, an amount equal to the sum of (i) 100% of the Stated Principal Balance thereof plus the principal portion of any related unreimbursed Advances and (ii) unpaid accrued interest at either (a) the Adjusted Mortgage Rate (or Modified Net Mortgage Rate in the case of a Modified Mortgage Loan) plus the rate per annum at which the Servicing Fee is calculated, or (b) in the case of a purchase made by the Master Servicer, at the Net Mortgage Rate (or Modified Net Mortgage Rate in the case of a Modified Mortgage Loan), in each case on the Stated Principal Balance thereof to the first day of the month following the month of purchase from the Due Date to which interest was last paid by the Mortgagor. With respect to any Mortgage Loan (or REO Property) required to be or otherwise purchased on any date pursuant to Section 4.08, an amount equal to the greater of (i) the sum of (a) 100% of the Stated Principal Balance thereof plus the principal portion of any related unreimbursed Advances of such Mortgage Loan (or REO Property) and (b) unpaid accrued interest at either (1) the Adjusted Mortgage Rate (or Modified Net Mortgage Rate in the case of a Modified Mortgage Loan) plus the rate per annum at which the Servicing Fee is calculated, or (2) in the case of a purchase made by the Master Servicer, at the Net Mortgage Rate (or Modified Net Mortgage Rate in the case of a Modified Mortgage Loan), in each case on the Stated Principal Balance thereof to the first day of the month following the month of purchase from the Due Date to which interest was last paid by the Mortgagor, and (ii) the fair market value of such Mortgage Loan (or REO Property). Qualified Substitute Mortgage Loan: A Mortgage Loan substituted by Residential Funding or the Depositor for a Deleted Mortgage Loan which must, on the date of such substitution, as confirmed in an Officers' Certificate delivered to the Trustee, (i) have an outstanding principal balance, after deduction of the principal portion of the monthly payment due in the month of substitution (or in the case of a substitution of more than one Mortgage Loan for a Deleted Mortgage Loan, an aggregate outstanding principal balance, after such deduction), not in excess of the Stated Principal Balance of the Deleted Mortgage Loan (the amount of any shortfall to be deposited by Residential Funding, in the Custodial Account in the month of substitution); (ii) have a Mortgage Rate and a Net Mortgage Rate no lower than and not more than 1% per annum higher than the Mortgage Rate and Net Mortgage Rate, respectively, of the Deleted Mortgage Loan as of the date of substitution; (iii) have a Loan-to-Value Ratio at the time of substitution no higher than that of the Deleted Mortgage Loan at the time of substitution; (iv) have a remaining term to stated maturity not greater than (and not more than one year less than) that of the Deleted Mortgage Loan; (v) comply with each representation and warranty set forth in Sections 2.03 and 2.04 hereof and Section 4 of the Assignment Agreement, (other than the representations and warranties set forth therein with respect to the number of loans (including the related percentage) in excess of zero which meet or do not meet a specified criteria); (vi) not be 30 days or more Delinquent; (vii) not be subject to the requirements of HOEPA (as defined in the Assignment Agreement); (viii) have a policy of title insurance, in the form and amount that is in material compliance with the Program Guide, that was effective as of the closing of such Mortgage Loan, is valid and binding, and remains in full force and effect, unless the Mortgage Property is located in the State of Iowa where an attorney's certificate has been provided as described in the Program Guide; (ix) if the Deleted Loan is not a Balloon Loan, not be a Balloon Loan; (x) with respect to adjustable rate Mortgage Loans, have a Mortgage Rate that adjusts with the same frequency and based upon the same Index as that of the Deleted Mortgage Loan; (xi) with respect to adjustable rate Mortgage Loans, have a Note Margin not less than that of the Deleted Mortgage Loan; (xii) with respect to adjustable rate Mortgage Loans, have a Periodic Rate Cap that is equal to that of the Deleted Mortgage Loan; (xiii) with respect to adjustable rate Mortgage Loans, have a next Adjustment Date no later than that of the Deleted Mortgage Loan, and (xiv) be secured by a lien with the same lien priority as the Deleted Loan. Rating Agency: Each of Standard & Poor's and Moody's. If any agency or a successor is no longer in existence, "Rating Agency" shall be such statistical credit rating agency, or other comparable Person, designated by the Depositor, notice of which designation shall be given to the Trustee and the Master Servicer. Realized Loss: With respect to each Mortgage Loan (or REO Property) as to which a Cash Liquidation or REO Disposition has occurred, an amount (not less than zero) equal to (i) the Stated Principal Balance of the Mortgage Loan (or REO Property) as of the date of Cash Liquidation or REO Disposition, plus (ii) interest (and REO Imputed Interest, if any) at the Net Mortgage Rate from the Due Date as to which interest was last paid or advanced to Certificateholders up to the last day of the month in which the Cash Liquidation (or REO Disposition) occurred on the Stated Principal Balance of such Mortgage Loan (or REO Property) outstanding during each Due Period that such interest was not paid or advanced, minus (iii) the proceeds, if any, received during the month in which such Cash Liquidation (or REO Disposition) occurred, to the extent applied as recoveries of interest at the Net Mortgage Rate and to principal of the Mortgage Loan, net of the portion thereof reimbursable to the Master Servicer or any Subservicer with respect to related Advances, Servicing Advances or other expenses as to which the Master Servicer or Subservicer is entitled to reimbursement thereunder but which have not been previously reimbursed. With respect to each Mortgage Loan which is the subject of a Servicing Modification, (a) (1) the amount by which the interest portion of a Monthly Payment or the principal balance of such Mortgage Loan was reduced or (2) the sum of any other amounts owing under the Mortgage Loan that were forgiven and that constitute Servicing Advances that are reimbursable to the Master Servicer or a Subservicer, and (b) any such amount with respect to a Monthly Payment that was or would have been due in the month immediately following the month in which a Principal Prepayment or the Purchase Price of such Mortgage Loan is received or is deemed to have been received. With respect to each Mortgage Loan which has become the subject of a Deficient Valuation, the difference between the principal balance of the Mortgage Loan outstanding immediately prior to such Deficient Valuation and the principal balance of the Mortgage Loan as reduced by the Deficient Valuation. With respect to each Mortgage Loan which has become the object of a Debt Service Reduction, the amount of such Debt Service Reduction. Notwithstanding the above, neither a Deficient Valuation nor a Debt Service Reduction shall be deemed a Realized Loss hereunder so long as the Master Servicer has notified the Trustee in writing that the Master Servicer is diligently pursuing any remedies that may exist in connection with the representations and warranties made regarding the related Mortgage Loan and either (A) the related Mortgage Loan is not in default with regard to payments due thereunder or (B) delinquent payments of principal and interest under the related Mortgage Loan and any premiums on any applicable primary hazard insurance policy and any related escrow payments in respect of such Mortgage Loan are being advanced on a current basis by the Master Servicer or a Subservicer, in either case without giving effect to any Debt Service Reduction. Realized Losses allocated to the Class SB Certificates shall be allocated first to the REMIC II Regular Interest SB-IO in reduction of the accrued but unpaid interest thereon until such accrued and unpaid interest shall have been reduced to zero and then to the REMIC II Regular Interest SB-PO in reduction of the Principal Balance thereof. To the extent the Master Servicer receives Subsequent Recoveries with respect to any Mortgage Loan, the amount of the Realized Loss with respect to that Mortgage Loan will be reduced to the extent such recoveries are applied to reduce the Certificate Principal Balance of any Class of Certificates on any Distribution Date. Record Date: With respect to each Distribution Date and the LIBOR Certificates, the Business Day immediately preceding such Distribution Date. With respect to each Distribution Date and the Certificates (other than the LIBOR Certificates), the close of business on the last Business Day of the month next preceding the month in which the related Distribution Date occurs, except in the case of the first Record Date which shall be the Closing Date. Reference Bank Rate: As defined in Section 1.02. Regular Certificates: The Class A Certificates, Class M Certificates and Class SB Certificates. Regulation AB: Subpart 229.1100 - Asset Backed Securities (Regulation AB), 17 C.F.R. ss.ss.229.1100-229.1123, as such may be amended from time to time, and subject to such clarification and interpretation as have been provided by the Commission in the adopting release (Asset-Backed Securities, Securities Act Release No. 33-8518, 70 Fed. Reg. 1,506, 1,531 (January 7, 2005)) or by the staff of the Commission, or as may be provided by the Commission or its staff from time to time. Relief Act: The Servicemembers Civil Relief Act, formerly known as the Soldiers' and Sailors' Civil Relief Act of 1940. Relief Act Shortfalls: Interest shortfalls on the Mortgage Loans resulting from the Relief Act or similar legislation or regulations. REMIC: A "real estate mortgage investment conduit" within the meaning of Section 860D of the Code. As used herein, the term "REMIC" shall mean REMIC I or REMIC II. REMIC Administrator: Residential Funding Corporation. If Residential Funding Corporation is found by a court of competent jurisdiction to no longer be able to fulfill its obligations as REMIC Administrator under this Agreement the Master Servicer or Trustee acting as successor Master Servicer shall appoint a successor REMIC Administrator, subject to assumption of the REMIC Administrator obligations under this Agreement. REMIC I: The segregated pool of assets subject hereto, constituting a portion of the primary trust created hereby and to be administered hereunder, exclusive of the Yield Maintenance Agreement, which are not assets of any REMIC, with respect to which a separate REMIC election is to be made, consisting of: (i) the Mortgage Loans and the related Mortgage Files; (ii) all payments on and collections in respect of the Mortgage Loans due after the Cut-off Date (other than Monthly Payments due in the month of the Cut-off Date) as shall be on deposit in the Custodial Account or in the Certificate Account and identified as belonging to the Trust Fund; (iii) property which secured a Mortgage Loan and which has been acquired for the benefit of the Certificateholders by foreclosure or deed in lieu of foreclosure; (iv) the hazard insurance policies and Primary Insurance Policies pertaining to the Mortgage Loans, if any; and (v) all proceeds of clauses (i) through (iv) above. REMIC I Distribution Amount: For any Distribution Date, the Available Distribution Amount shall be distributed to the REMIC I Regular Interests and the Class R Certificates in the following amounts and priority: (i) to the extent of the Available Distribution Amount, to REMIC II as the holder of REMIC I Regular Interests LT1, LT2, LT3 and LT4, pro rata, in an amount equal to (A) their Uncertificated Accrued Interest for such Distribution Date, plus (B) any amounts in respect thereof remaining unpaid from previous Distribution Dates; and (ii) to the extent of the Available Distribution Amount remaining after the distributions made pursuant to clause (i) above, to REMIC II as the holder of the REMIC I Regular Interests, in an amount equal to: (A) in respect of the REMIC I Regular Interests LT2, LT3 and LT4, their respective Principal Distribution Amounts; (B) in respect of the REMIC I Regular Interest LT1 any remainder until the Uncertificated Principal Balance thereof is reduced to zero; (C) any remainder in respect of the REMIC I Regular Interests LT2, LT3 and LT4, pro rata according to their respective Uncertificated Principal Balances as reduced by the distributions deemed made pursuant to (A) above, until their respective Uncertificated Principal Balances are reduced to zero; and (iii) any remaining amounts to the Holders of the Class R Certificates. REMIC I Principal Reduction Amounts: For any Distribution Date, the amounts by which the principal balances of the REMIC I Regular Interests LT1, LT2, LT3 and LT4, respectively, will be reduced on such Distribution Date by the allocation of Realized Losses and the distribution of principal, determined as follows: For purposes of the succeeding formulas the following symbols shall have the meanings set forth below: Y1 = the aggregate principal balance of the REMIC I Regular Interest LT1 after distributions on the prior Distribution Date. Y2 = the principal balance of the REMIC I Regular Interest LT2 after distributions on the prior Distribution Date. Y3 = the principal balance of the REMIC I Regular Interest LT3 after distributions on the prior Distribution Date. Y4 = the principal balance of the REMIC I Regular Interest LT4 after distributions on the prior Distribution Date (note: Y3 = Y4). AY1 = the REMIC I Regular Interest LT1 Principal Reduction Amount. AY2 = the REMIC I Regular Interest LT2 Principal Reduction Amount. AY3 = the REMIC I Regular Interest LT3 Principal Reduction Amount. AY4 = the REMIC I Regular Interest LT4 Principal Reduction Amount. P0 = the aggregate principal balance of the REMIC I Regular Interests LT1, LT2, LT3 and LT4 after distributions and the allocation of Realized Losses on the prior Distribution Date. P1 = the aggregate principal balance of the REMIC I Regular Interests LT1, LT2, LT3 and LT4 after distributions and the allocation of Realized Losses to be made on such Distribution Date. AP = P0 - P1 = the aggregate of the REMIC I Regular Interests LT1, LT2, LT3 and LT4 Principal Reduction Amounts. =the aggregate of the principal portions of Realized Losses to be allocated to, and the principal distributions to be made on, the Certificates on such Distribution Date (including distributions of accrued and unpaid interest on the Class SB Certificates for prior Distribution Dates). R0 = the Net WAC Cap Rate (stated as a monthly rate) after giving effect to amounts distributed and Realized Losses allocated on the prior Distribution Date. R1 = the Net WAC Cap Rate (stated as a monthly rate) after giving effect to amounts to be distributed and Realized Losses to be allocated on such Distribution Date. a = (Y2 + Y3)/P0. The initial value of a on the Closing Date for use on the first Distribution Date shall be 0.0001. a0 = the lesser of (A) the sum for all Classes of Certificates, other than the Class SB Certificates, of the product for each Class of (i) the monthly interest rate (as limited by the REMIC Net WAC Rate, if applicable) for such Class applicable for distributions to be made on such Distribution Date and (ii) the aggregate Certificate Principal Balance for such Class after distributions and the allocation of Realized Losses on the prior Distribution Date and (B) R0*P0. a1 = the lesser of (A) the sum for all Classes of Certificates, other than the Class SB Certificates, of the product for each Class of (i) the monthly interest rate (as limited by the Net WAC Cap Rate, if applicable) for such Class applicable for distributions to be made on the next succeeding Distribution Date and (ii) the aggregate Certificate Principal Balance for such Class after distributions and the allocation of Realized Losses to be made on such Distribution Date and (B) R1*P1. Then, based on the foregoing definitions: AY1 = AP - AY2 - AY3 - AY4; AY2 = a{ a0R1P1 - a1R0P0}/{2R1R0P1 - a1R0}; AY3 = aAP - AY2; and AY4 = AY3. if both AY2 and AY3, as so determined, are non-negative numbers. Otherwise: (1) If AY2, as so determined, is negative, then AY2 = 0; AY3 = a{a1R0P0 - a0R1P1}/{a1R0}; AY4 = AY3; and AY1 = AP - AY2 - AY3 - AY4. (2) If AY3, as so determined, is negative, then AY3 = 0; AY2 = a{a1R0P0 - a0R1P1}/{2R1R0P1 - a1R0}; AY4 = AY3; and AY1 = AP - AY2 - AY3 - AY4. REMIC I Realized Losses: Realized Losses on the Mortgage Loans shall be allocated to the REMIC I Regular Interests as follows: The interest portion of Realized Losses on the Mortgage Loans, if any, shall be allocated among the REMIC I Regular Interests LT1, LT2 and LT4 pro rata according to the amount of interest accrued but unpaid thereon, in reduction thereof. Any interest portion of such Realized Losses in excess of the amount allocated pursuant to the preceding sentence shall be treated as a principal portion of Realized Losses not attributable to any specific Mortgage Loan and allocated pursuant to the succeeding sentences. The principal portion of Realized Losses on the Mortgage Loans, if any, shall be allocated first, to the REMIC I Regular Interests LT2, LT3 and LT4 pro rata according to their respective Principal Reduction Amounts to the extent thereof in reduction of the Uncertificated Principal Balance of such REMIC I Regular Interests and, second, the remainder, if any, of such principal portion of such Realized Losses shall be allocated to the REMIC I Regular Interest LT1 in reduction of the Uncertificated Principal Balance thereof. REMIC I Regular Interests: REMIC I Regular Interest LT1, REMIC II Regular Interest LT2, REMIC II Regular Interest LT3 and REMIC II Regular Interest LT4. REMIC I Regular Interest LT1: A regular interest in REMIC I that is held as an asset of REMIC II, that has an initial principal balance equal to the related Uncertificated Principal Balance, that bears interest at the related Uncertificated REMIC I Pass-Through Rate, and that has such other terms as are described herein. REMIC I Regular Interest LT1 Principal Distribution Amount: For any Distribution Date, the excess, if any, of the REMIC I Regular Interest LT1 Principal Reduction Amount for such Distribution Date over the Realized Losses allocated to the REMIC I Regular Interest LT1 on such Distribution Date. REMIC I Regular Interest LT2: A regular interest in REMIC I that is held as an asset of REMIC II, that has an initial principal balance equal to the related Uncertificated Principal Balance, that bears interest at the related Uncertificated REMIC I Pass-Through Rate, and that has such other terms as are described herein. REMIC I Regular Interest LT2 Principal Distribution Amount: For any Distribution Date, the excess, if any, of the REMIC I Regular Interest LT2 Principal Reduction Amount for such Distribution Date over the Realized Losses allocated to the REMIC I Regular Interest LT2 on such Distribution Date. REMIC I Regular Interest LT3: A regular interest in REMIC II that is held as an asset of REMIC II, that has an initial principal balance equal to the related Uncertificated Principal Balance, that bears interest at the related Uncertificated REMIC I Pass-Through Rate, and that has such other terms as are described herein. REMIC I Regular Interest LT3 Principal Distribution Amount: For any Distribution Date, the excess, if any, of the REMIC I Regular Interest LT3 Principal Reduction Amount for such Distribution Date over the Realized Losses allocated to the REMIC I Regular Interest LT3 on such Distribution Date. REMIC I Regular Interest LT4: A regular interest in REMIC II that is held as an asset of REMIC II, that has an initial principal balance equal to the related Uncertificated Principal Balance, that bears interest at the related Uncertificated REMIC I Pass-Through Rate, and that has such other terms as are described herein. REMIC I Regular Interest LT4 Principal Distribution Amount: For any Distribution Date, the excess, if any, of the REMIC I Regular Interest LT4 Principal Reduction Amount for such Distribution Date over the Realized Losses allocated to the REMIC I Regular Interest LT4 on such Distribution Date. REMIC II: The segregated pool of assets subject hereto, constituting a portion of the primary trust created hereby and to be administered hereunder, with respect to which a separate REMIC election is to be made, consisting of the REMIC I Regular Interests. REMIC II Regular Interest SB-PO: A separate non-certificated beneficial ownership interest in REMIC II issued hereunder and designated as a REMIC II Regular Interest. REMIC II Regular Interest SB-PO shall have no entitlement to interest, and shall be entitled to distributions of principal subject to the terms and conditions hereof, in aggregate amount equal to the initial Certificate Principal Balance of the Class SB Certificates as set forth in the Preliminary Statement hereto. REMIC II Regular Interest SB-IO: A separate non-certificated beneficial ownership interest in REMIC II issued hereunder and designated as a REMIC II Regular Interest. REMIC II Regular Interest SB-IO shall have no entitlement to principal, and shall be entitled to distributions of interest subject to the terms and conditions hereof, in aggregate amount equal to the interest distributable with respect to the Class SB Certificates pursuant to the terms and conditions hereof. REMIC II Regular Interests: REMIC II Regular Interests SB-IO and SB-PO, together with the regular interests in REMIC II represented by the Class A Certificates and Class M Certificates exclusive of the rights of such Certificates to payments of Basis Risk Shortfall Amounts and to payments derived from the Yield Maintenance Agreement. REMIC Administrator: Residential Funding Corporation. If Residential Funding Corporation is found by a court of competent jurisdiction to no longer be able to fulfill its obligations as REMIC Administrator under this Agreement the Master Servicer or Trustee acting as successor Master Servicer shall appoint a successor REMIC Administrator, subject to assumption of the REMIC Administrator obligations under this Agreement. REMIC Provisions: Provisions of the federal income tax law relating to real estate mortgage investment conduits, which appear at Sections 860A through 860G of Subchapter M of Chapter 1 of the Code, and related provisions, and temporary and final regulations (or, to the extent not inconsistent with such temporary or final regulations, proposed regulations) and published rulings, notices and announcements promulgated thereunder, as the foregoing may be in effect from time to time. REO Acquisition: The acquisition by the Master Servicer on behalf of the Trustee for the benefit of the Certificateholders of any REO Property pursuant to Section 3.14. REO Disposition: With respect to any REO Property, a determination by the Master Servicer that it has received substantially all Insurance Proceeds, Liquidation Proceeds, REO Proceeds and other payments and recoveries (including proceeds of a final sale) which the Master Servicer expects to be finally recoverable from the sale or other disposition of the REO Property. REO Imputed Interest: With respect to any REO Property, for any period, an amount equivalent to interest (at a rate equal to the Net Mortgage Rate that would have been applicable to the related Mortgage Loan had it been outstanding) on the unpaid principal balance of the Mortgage Loan as of the date of acquisition thereof for such period. REO Proceeds: Proceeds, net of expenses, received in respect of any REO Property (including, without limitation, proceeds from the rental of the related Mortgaged Property) which proceeds are required to be deposited into the Custodial Account only upon the related REO Disposition. REO Property: A Mortgaged Property acquired by the Master Servicer on behalf of the Trust Fund for the benefit of the Certificateholders through foreclosure or deed in lieu of foreclosure in connection with a defaulted Mortgage Loan. Reportable Modified Mortgage Loan: Any Mortgage Loan that (a) has been subject to an interest rate reduction, (b) has been subject to a term extension or (c) has had amounts owing on such Mortgage Loan capitalized by adding such amount to the Stated Principal Balance of such Mortgage Loan; provided, however, that a Mortgage Loan modified in accordance with (a) above for a temporary period shall not be a Reportable Modified Mortgage Loan if such Mortgage Loan has not been delinquent in payments of principal and interest for six months since the date of such modification if that interest rate reduction is not made permanent thereafter. Repurchase Event: As defined in the Assignment Agreement. Request for Release: A request for release, the form of which is attached as Exhibit G hereto, or an electronic request in a form acceptable to the Custodian. Required Insurance Policy: With respect to any Mortgage Loan, any insurance policy which is required to be maintained from time to time under this Agreement, the Program Guide or the related Subservicing Agreement in respect of such Mortgage Loan. Required Overcollateralization Amount: With respect to any Distribution Date, (a) prior to the Stepdown Date, an amount equal to 3.40% of the aggregate Stated Principal Balance of the Mortgage Loans as of the Cut-off Date, (b) on or after the Stepdown Date if a Trigger Event is not in effect, the greater of (i) an amount equal to 6.80% of the aggregate outstanding Stated Principal Balance of the Mortgage Loans after giving effect to distributions made on that Distribution Date and (ii) the Overcollateralization Floor and (c) on or after the Stepdown Date if a Trigger Event is in effect, an amount equal to the Required Overcollateralization Amount from the immediately preceding Distribution Date. The Required Overcollateralization Amount may be reduced so long as written confirmation is obtained from each Rating Agency that such reduction shall not reduce the ratings assigned to any Class of Certificates by such Rating Agency below the lower of the then-current rating or the rating assigned to such Certificates as of the Closing Date by such Rating Agency. Residential Funding: Residential Funding Corporation, a Delaware corporation, in its capacity as seller of the Mortgage Loans to the Depositor and any successor thereto. Responsible Officer: When used with respect to the Trustee, any officer of the Corporate Trust Department of the Trustee, including any Senior Vice President, any Vice President, any Assistant Vice President, any Assistant Secretary, any Trust Officer or Assistant Trust Officer, or any other officer of the Trustee, in each case with direct responsibility for the administration of this Agreement. RFC Exemption: As defined in Section 5.02(e)(ii). Rule 144A: Rule 144A under the Securities Act of 1933, as in effect from time to time. Securitization Transaction: Any transaction involving a sale or other transfer of mortgage loans directly or indirectly to an issuing entity in connection with an issuance of publicly offered or privately placed, rated or unrated mortgage-backed securities. Seller: With respect to any Mortgage Loan, a Person, including any Subservicer, that executed a Seller's Agreement applicable to such Mortgage Loan. Seller's Agreement: An agreement for the origination and sale of Mortgage Loans generally in the form of the seller contract referred to or contained in the Program Guide, or in such other form as has been approved by the Master Servicer and the Depositor. Senior Enhancement Percentage: For any Distribution Date, the fraction, expressed as a percentage, the numerator of which is the sum of (i) the aggregate Certificate Principal Balance of the Class M Certificates and (ii) the Overcollateralization Amount, in each case prior to the distribution of the Principal Distribution Amount on such Distribution Date and the denominator of which is the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date. Servicing Accounts: The account or accounts created and maintained pursuant to Section 3.08. Servicing Advances: All customary, reasonable and necessary "out of pocket" costs and expenses incurred in connection with a default, delinquency or other unanticipated event by the Master Servicer or a Subservicer in the performance of its servicing obligations, including, but not limited to, the cost of (i) the preservation, restoration and protection of a Mortgaged Property or, with respect to a cooperative loan, the related cooperative apartment, (ii) any enforcement or judicial proceedings, including foreclosures, including any expenses incurred in relation to any such proceedings that result from the Mortgage Loan being registered on the MERS(R)System, (iii) the management and liquidation of any REO Property, (iv) any mitigation procedures implemented in accordance with Section 3.07, and (v) compliance with the obligations under Sections 3.01, 3.08, 3.11, 3.12(a) and 3.14, including, if the Master Servicer or any Affiliate of the Master Servicer provides services such as appraisals and brokerage services that are customarily provided by Persons other than servicers of mortgage loans, reasonable compensation for such services. Servicing Criteria: The "servicing criteria" set forth in Item 1122(d) of Regulation AB, as such may be amended from time to time. Servicing Fee: With respect to any Mortgage Loan and Distribution Date, the fee payable monthly to the Master Servicer in respect of master servicing compensation that accrues at an annual rate equal to the Servicing Fee Rate multiplied by the Stated Principal Balance of such Mortgage Loan as of the related Due Date in the related Due Period, as may be adjusted pursuant to Section 3.16(e). Servicing Fee Rate: With respect to any Mortgage Loan, the per annum rate designated on the Mortgage Loan Schedule as the "MSTR SERV FEE," as may be adjusted with respect to successor Master Servicers as provided in Section 7.02, which rate shall never be greater than the Mortgage Rate of such Mortgage Loan. Servicing Modification: Any reduction of the interest rate on or the outstanding principal balance of a Mortgage Loan, any extension of the final maturity date of a Mortgage Loan, and any increase to the Stated Principal Balance of a Mortgage Loan by adding to the Stated Principal Balance unpaid principal and interest and other amounts owing under the Mortgage Loan, in each case pursuant to a modification of a Mortgage Loan that is in default, or for which, in the judgment of the Master Servicer, default is reasonably foreseeable in accordance with Section 3.07(a). Servicing Officer: Any officer of the Master Servicer involved in, or responsible for, the administration and servicing of the Mortgage Loans whose name and specimen signature appear on a list of servicing officers furnished to the Trustee by the Master Servicer on the Closing Date, as such list may from time to time be amended. Sixty-Plus Delinquency Percentage: With respect to any Distribution Date and the Mortgage Loans, the arithmetic average, for each of the three Distribution Dates ending with such Distribution Date, of the fraction, expressed as a percentage, equal to (x) the aggregate Stated Principal Balance of the Mortgage Loans that are 60 or more days delinquent in payment of principal and interest for that Distribution Date, including Mortgage Loans in foreclosure and REO, over (y) the aggregate Stated Principal Balance of all of the Mortgage Loans immediately preceding that Distribution Date. Standard & Poor's: Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. or its successors in interest. Startup Date: The day designated as such pursuant to Article X hereof. Stated Principal Balance: With respect to any Mortgage Loan or related REO Property, as of any date of determination, (i) the sum of (a) the Cut-off Date Principal Balance of the Mortgage Loan and (b) any amount by which the Stated Principal Balance of the Mortgage Loan has been increased pursuant to a Servicing Modification, minus (ii) the sum of (a) the principal portion of the Monthly Payments due with respect to such Mortgage Loan or REO Property during each Due Period ending with the Due Period relating to the most recent Distribution Date which were received or with respect to which an Advance was made, (b) all Principal Prepayments with respect to such Mortgage Loan or REO Property, and all Insurance Proceeds, Liquidation Proceeds and REO Proceeds, to the extent applied by the Master Servicer as recoveries of principal in accordance with Section 3.14 with respect to such Mortgage Loan or REO Property, in each case which were distributed pursuant to Section 4.02 on any previous Distribution Date, and (c) any Realized Loss incurred with respect to such Mortgage Loan allocated to Certificateholders with respect thereto for any previous Distribution Date. Stepdown Date: That Distribution Date which is the earlier to occur of (a) the Distribution Date immediately succeeding the Distribution Date on which the aggregate Certificate Principal Balance of the Class A Certificates has been reduced to zero and (b) the later to occur of (i) the Distribution Date in June 2009 and (ii) the first Distribution Date on which the Senior Enhancement Percentage is equal to or greater than 46.50%. Subordination: The provisions described in Section 4.05 relating to the allocation of Realized Losses. Subordination Percentage: With respect to each Class of Class A Certificates and Class M Certificates, the respective percentage set forth below. Subordination Class Percentage A 53.50% M-1 61.60% M-2 68.90% M-3 73.10% M-4 77.00% M-5 80.70% M-6 84.30% M-7 87.70% M-8 90.70% M-9 93.20% Subsequent Recoveries: As of any Distribution Date, amounts received by the Master Servicer (net of any related expenses permitted to be reimbursed pursuant to Section 3.10) or surplus amounts held by the Master Servicer to cover estimated expenses (including, but not limited to, recoveries in respect of the representations and warranties made by the related Seller pursuant to the applicable Seller's Agreement and assigned to the Trustee pursuant to Section 2.04) specifically related to a Mortgage Loan that was the subject of a Cash Liquidation or an REO Disposition prior to the related Prepayment Period and that resulted in a Realized Loss. Subserviced Mortgage Loan: Any Mortgage Loan that, at the time of reference thereto, is subject to a Subservicing Agreement. Subservicer: Any Person with whom the Master Servicer has entered into a Subservicing Agreement and who generally satisfied the requirements set forth in the Program Guide in respect of the qualification of a Subservicer as of the date of its approval as a Subservicer by the Master Servicer. Subservicer Advance: Any delinquent installment of principal and interest on a Mortgage Loan which is advanced by the related Subservicer (net of its Subservicing Fee) pursuant to the Subservicing Agreement. Subservicing Account: An account established by a Subservicer in accordance with Section 3.08. Subservicing Agreement: The written contract between the Master Servicer and any Subservicer relating to servicing and administration of certain Mortgage Loans as provided in Section 3.02, generally in the form of the servicer contract referred to or contained in the Program Guide or in such other form as has been approved by the Master Servicer and the Depositor. Subservicing Fee: With respect to any Mortgage Loan, the fee payable monthly to the related Subservicer (or, in the case of a Nonsubserviced Mortgage Loan, to the Master Servicer) in respect of subservicing and other compensation that accrues with respect to each Distribution Date at an annual rate designated as "SUBSERV FEE" on the Mortgage Loan Schedule. Tax Returns: The federal income tax return on Internal Revenue Service Form 1066, U.S. Real Estate Mortgage Investment Conduit Income Tax Return, including Schedule Q thereto, Quarterly Notice to Residual Interest Holders of REMIC Taxable Income or Net Loss Allocation, or any successor forms, to be filed on behalf of any REMIC hereunder due to its classification as a REMIC under the REMIC Provisions, together with any and all other information, reports or returns that may be required to be furnished to the Certificateholders or filed with the Internal Revenue Service or any other governmental taxing authority under any applicable provisions of federal, state or local tax laws. Telerate Screen Page 3750: As defined in Section 1.02. Transfer: Any direct or indirect transfer, sale, pledge, hypothecation or other form of assignment of any Ownership Interest in a Certificate. Transfer Affidavit and Agreement: As defined in Section 5.02(f). Transferee: Any Person who is acquiring by Transfer any Ownership Interest in a Certificate. Transferor: Any Person who is disposing by Transfer of any Ownership Interest in a Certificate. Trigger Event: A Trigger Event is in effect with respect to any Distribution Date on or after the Stepdown Date if either (a) the related Sixty-Plus Delinquency Percentage, as determined on that Distribution Date, equals or exceeds 35.50% of the Senior Enhancement Percentage for that Distribution Date or (b) on or after the Distribution Date in June 2008, the aggregate amount of Realized Losses on the Mortgage Loans as a percentage of the Cut-Off Date Balance exceeds the applicable amount set forth below: June 2008 to May 2009: 1.80% with respect to June 2008, plus an additional 1/12th of 2.20% for each month thereafter. June 2009 to May 2010: 4.00% with respect to June2009, plus an additional 1/12th of 2.25% for each month thereafter. June 2010 to May 2011: 6.25% with respect to June 2010, plus an additional 1/12th of 1.75% for each month thereafter. June 2011 to May 2012: 8.00% with respect to June 2011, plus an additional 1/12th of 0.25% for each month thereafter. June 2012 and thereafter: 8.25%. Trustee: As defined in the preamble hereto. Trust Fund: The segregated pool of assets subject hereto, consisting of: (i) the Mortgage Loans and the related Mortgage Files; (ii) all payments on and collections in respect of the Mortgage Loans due after the Cut-off Date (other than Monthly Payments due in the month of the Cut-off Date) as shall be on deposit in the Custodial Account or in the Certificate Account and identified as belonging to the Trust Fund; (iii) property which secured a Mortgage Loan and which has been acquired for the benefit of the Certificateholders by foreclosure or deed in lieu of foreclosure; (iv) the hazard insurance policies and Primary Insurance Policies pertaining to the Mortgage Loans, if any; (v) the Yield Maintenance Agreement; and (vi) all proceeds of clauses (i) through (v) above. Uncertificated Accrued Interest: With respect to any REMIC I Regular Interest for any Distribution Date, one month's interest at the related Uncertificated REMIC I Pass-Through Rate for such Distribution Date, accrued on its Uncertificated Principal Balance immediately prior to such Distribution Date. Uncertificated Accrued Interest for the REMIC I Regular Interests shall accrue on the basis of a 360-day year consisting of twelve 30-day months. For purposes of calculating the amount of Uncertificated Accrued Interest for the REMIC I Regular Interests for any Distribution Date, any Prepayment Interest Shortfalls and Relief Act Shortfalls (to the extent not covered by Compensating Interest) relating to the Mortgage Loans for any Distribution Date shall be allocated among REMIC I Regular Interests LT1, LT2, LT3 and LT4 pro rata, based on, and to the extent of, Uncertificated Accrued Interest, as calculated without application of this sentence. Uncertificated Accrued Interest on REMIC II Regular Interest SB-PO shall be zero. Uncertificated Accrued Interest on REMIC II Regular Interest SB-IO for each Distribution Date shall equal Accrued Certificate Interest for the Class SB Certificates. Uncertificated Principal Balance: The principal amount of any REMIC I Regular Interest outstanding as of any date of determination. The Uncertificated Principal Balance of each REMIC I Regular Interest shall never be less than zero. With respect to the REMIC II Regular Interest SB-PO the initial amount set forth with respect thereto in the Preliminary Statement as reduced by distributions deemed made in respect thereof pursuant to Section 4.02 and Realized Losses allocated thereto pursuant to Section 4.05. Uncertificated REMIC I Pass-Through Rate: With respect to any Distribution Date and (i) REMIC I Regular Interests LT1 and LT2, the weighted average of the Net Mortgage Rates of the Mortgage Loans, (ii) REMIC I Regular Interest LT3, zero (0.00%), and (iii) REMIC I Regular Interest LT4, twice the weighted average of the Net Mortgage Rates of the Mortgage Loans. Uniform Single Attestation Program for Mortgage Bankers: The Uniform Single Attestation Program for Mortgage Bankers, as published by the Mortgage Bankers Association of America and effective with respect to fiscal periods ending on or after December 15, 1995. Uninsured Cause: Any cause of damage to property subject to a Mortgage such that the complete restoration of such property is not fully reimbursable by the hazard insurance policies. United States Person: A citizen or resident of the United States, a corporation, partnership or other entity (treated as a corporation or partnership for United States federal income tax purposes) created or organized in, or under the laws of, the United States, any state thereof, or the District of Columbia (except in the case of a partnership, to the extent provided in Treasury regulations) provided that, for purposes solely of the restrictions on the transfer of Class R Certificates, no partnership or other entity treated as a partnership for United States federal income tax purposes shall be treated as a United States Person unless all persons that own an interest in such partnership either directly or through any entity that is not a corporation for United States federal income tax purposes are required by the applicable operative agreement to be United States Persons, or an estate that is described in Section 7701(a)(30)(D) of the Code, or a trust that is described in Section 7701(a)(30)(E) of the Code. Voting Rights: The portion of the voting rights of all of the Certificates which is allocated to any Certificate. 98.00% of all of the Voting Rights shall be allocated among Holders of the Class A Certificates and Class M Certificates, in proportion to the outstanding Certificate Principal Balances of their respective Certificates; 1% of all of the Voting Rights shall be allocated to the Holders of the Class SB Certificates, and 1% of all of the Voting Rights shall be allocated to the Holders of the Class R Certificates; in each case to be allocated among the Certificates of such Class in accordance with their respective Percentage Interests. Yield Maintenance Agreement: The confirmation, dated as of the Closing Date, between the Trustee, on behalf of the Trust Fund, and the Yield Maintenance Agreement Provider, relating to the Class A Certificates and Class M Certificates or any replacement, substitute, collateral or other arrangement in lieu thereof. Yield Maintenance Agreement Payment: For any Distribution Date, the payment, if any, due under the Yield Maintenance Agreement in respect of such Distribution Date. Yield Maintenance Agreement Provider: Deutsche Bank AG, New York Branch and its successors and assigns or any party to any replacement, substitute, collateral or other arrangement in lieu thereof. Yield Maintenance Agreement Shortfall Amount: For any Distribution Date, the amount, if any, by which the payment on the Class A Certificates and Class M Certificates pursuant to Section 4.02(c) is paid from the Yield Maintenance Agreement Payment for such Distribution Date pursuant to the provisions thereof or would have been so paid but for the failure of the Yield Maintenance Agreement Provider to make a payment required under the Yield Maintenance Agreement. Yield Maintenance Agreement Shortfall Carry-Forward Amount: For any Distribution Date, the aggregate Yield Maintenance Agreement Shortfall Amounts for prior Distribution Dates to the extent not reimbursed to the Class SB Certificates pursuant to Section 4.02(c)(x). Section 1.02. Determination of LIBOR. LIBOR applicable to the calculation of the Pass-Through Rate on the LIBOR Certificates for any Interest Accrual Period will be determined as of each LIBOR Rate Adjustment Date. On each LIBOR Rate Adjustment Date, or if such LIBOR Rate Adjustment Date is not a Business Day, then on the next succeeding Business Day, LIBOR shall be established by the Trustee and, as to any Interest Accrual Period, will equal the rate for one month United States dollar deposits that appears on the Telerate Screen Page 3750 as of 11:00 a.m., London time, on such LIBOR Rate Adjustment Date. "Telerate Screen Page 3750" means the display designated as page 3750 on the Bridge Telerate Service (or such other page as may replace page 3750 on that service for the purpose of displaying London interbank offered rates of major banks). If such rate does not appear on such page (or such other page as may replace that page on that service, or if such service is no longer offered, LIBOR shall be so established by use of such other service for displaying LIBOR or comparable rates as may be selected by the Trustee after consultation with the Master Servicer), the rate will be the Reference Bank Rate. The "Reference Bank Rate" will be determined on the basis of the rates at which deposits in U.S. Dollars are offered by the reference banks (which shall be any three major banks that are engaged in transactions in the London interbank market, selected by the Trustee after consultation with the Master Servicer) as of 11:00 a.m., London time, on the LIBOR Rate Adjustment Date to prime banks in the London interbank market for a period of one month in amounts approximately equal to the aggregate Certificate Principal Balance of the LIBOR Certificates then outstanding. The Trustee shall request the principal London office of each of the reference banks to provide a quotation of its rate. If at least two such quotations are provided, the rate will be the arithmetic mean of the quotations rounded up to the next multiple of 1/16%. If on such date fewer than two quotations are provided as requested, the rate will be the arithmetic mean of the rates quoted by one or more major banks in New York City, selected by the Trustee after consultation with the Master Servicer, as of 11:00 a.m., New York City time, on such date for loans in U.S. Dollars to leading European banks for a period of one month in amounts approximately equal to the aggregate Certificate Principal Balance of the LIBOR Certificates then outstanding. If no such quotations can be obtained, the rate will be LIBOR for the prior Distribution Date; provided however, if, under the priorities described above, LIBOR for a Distribution Date would be based on LIBOR for the previous Distribution Date for the third consecutive Distribution Date, the Trustee, shall select an alternative comparable index (over which the Trustee has no control), used for determining one-month Eurodollar lending rates that is calculated and published (or otherwise made available) by an independent party. The establishment of LIBOR by the Trustee on any LIBOR Rate Adjustment Date and the Trustee's subsequent calculation of the Pass-Through Rates applicable to the LIBOR Certificates for the relevant Interest Accrual Period, in the absence of manifest error, will be final and binding. Promptly following each LIBOR Rate Adjustment Date the Trustee shall supply the Master Servicer with the results of its determination of LIBOR on such date. Furthermore, the Trustee shall supply to any Certificateholder so requesting by calling 1-800-934-6802, the Pass-Through Rate on the LIBOR Certificates for the current and the immediately preceding Interest Accrual Period. ARTICLE II -------------------------------------------------------------------------------- CONVEYANCE OF MORTGAGE LOANS; ORIGINAL ISSUANCE OF CERTIFICATES Section 2.01. Conveyance of Mortgage Loans. (a) The Depositor, concurrently with the execution and delivery hereof, does hereby assign to the Trustee in respect of the Trust Fund without recourse all the right, title and interest of the Depositor in and to (i) the Mortgage Loans, including all interest and principal on or with respect to the Mortgage Loans due on or after the Cut-off Date (other than Monthly Payments due in the month of the Cut-off Date); and (ii) all proceeds of the foregoing. (b) In connection with such assignment, and contemporaneously with the delivery of this Agreement, the Depositor delivered or caused to be delivered hereunder to the Trustee, the Yield Maintenance Agreement (the delivery of which shall evidence that the fixed payment for the Yield Maintenance Agreement has been paid and the Trustee and the Trust Fund shall have no further payment obligation thereunder and that such fixed payment has been authorized hereby), and except as set forth in Section 2.01(c) below and subject to Section 2.01(d) below, the Depositor does hereby deliver to, and deposit with, the Trustee, or to and with one or more Custodians, as the duly appointed agent or agents of the Trustee for such purpose, the following documents or instruments (or copies thereof as permitted by this Section) with respect to each Mortgage Loan so assigned: (i) The original Mortgage Note, endorsed without recourse to the order of the Trustee and showing an unbroken chain of endorsements from the originator thereof to the Person endorsing it to the Trustee, or with respect to any Destroyed Mortgage Note, an original lost note affidavit from the related Seller or Residential Funding stating that the original Mortgage Note was lost, misplaced or destroyed, together with a copy of the related Mortgage Note; (ii) The original Mortgage, noting the presence of the MIN of the Mortgage Loan and language indicating that the Mortgage Loan is a MOM Loan if the Mortgage Loan is a MOM Loan, with evidence of recording indicated thereon or, if the original Mortgage has not yet been returned from the public recording office, a copy of the original Mortgage with evidence of recording indicated thereon; (iii) Unless the Mortgage Loan is registered on the MERS(R)System, the assignment (which may be included in one or more blanket assignments if permitted by applicable law) of the Mortgage to the Trustee with evidence of recording indicated thereon or a copy of such assignment with evidence of recording indicated thereon; (iv) The original recorded assignment or assignments of the Mortgage showing an unbroken chain of title from the originator to the Person assigning it to the Trustee (or to MERS, if the Mortgage Loan is registered on the MERS(R)System and noting the presence of a MIN) with evidence of recordation noted thereon or attached thereto, or a copy of such assignment or assignments of the Mortgage with evidence of recording indicated thereon; and (v) The original of each modification, assumption agreement or preferred loan agreement, if any, relating to such Mortgage Loan, or a copy of each modification, assumption agreement or preferred loan agreement. The Depositor may, in lieu of delivering the original of the documents set forth in Section 2.01(b)(ii), (iii), (iv) and (v) (or copies thereof as permitted by Section 2.01(b)) to the Trustee or the Custodian or Custodians, deliver such documents to the Master Servicer, and the Master Servicer shall hold such documents in trust for the use and benefit of all present and future Certificateholders until such time as is set forth in the next sentence. Within thirty Business Days following the earlier of (i) the receipt of the original of all of the documents or instruments set forth in Section 2.01(b)(ii), (iii), (iv) and (v) (or copies thereof as permitted by such Section) for any Mortgage Loan and (ii) a written request by the Trustee to deliver those documents with respect to any or all of the Mortgage Loans then being held by the Master Servicer, the Master Servicer shall deliver a complete set of such documents to the Trustee or the Custodian or Custodians that are the duly appointed agent or agents of the Trustee. (c) Notwithstanding the provisions of Section 2.01(b), in the event that in connection with any Mortgage Loan, if the Depositor cannot deliver the original of the Mortgage, any assignment, modification, assumption agreement or preferred loan agreement (or copy thereof as permitted by Section 2.01(b)) with evidence of recording thereon concurrently with the execution and delivery of this Agreement because of (i) a delay caused by the public recording office where such Mortgage, assignment, modification, assumption agreement or preferred loan agreement as the case may be, has been delivered for recordation, or (ii) a delay in the receipt of certain information necessary to prepare the related assignments, the Depositor shall deliver or cause to be delivered to the Trustee or the respective Custodian a copy of such Mortgage, assignment, modification, assumption agreement or preferred loan agreement. The Depositor shall promptly cause to be recorded in the appropriate public office for real property records the Assignment referred to in clause (iii) of Section 2.01(b), except (a) in states where, in an Opinion of Counsel acceptable to the Master Servicer, such recording is not required to protect the Trustee's interests in the Mortgage Loan or (b) if MERS is identified on the Mortgage or on a properly recorded assignment of the Mortgage, as applicable, as the mortgagee of record solely as nominee for Residential Funding and its successors and assigns. If any Assignment is lost or returned unrecorded to the Depositor because of any defect therein, the Depositor shall prepare a substitute Assignment or cure such defect, as the case may be, and cause such Assignment to be recorded in accordance with this paragraph. The Depositor shall promptly deliver or cause to be delivered to the Trustee or the respective Custodian such Mortgage or Assignment, as applicable (or copy thereof as permitted by Section 2.01(b)), with evidence of recording indicated thereon upon receipt thereof from the public recording office or from the related Subservicer or Seller. If the Depositor delivers to the Trustee or Custodian any Mortgage Note or Assignment of Mortgage in blank, the Depositor shall, or shall cause the Custodian to, complete the endorsement of the Mortgage Note and the Assignment of Mortgage in the name of the Trustee in conjunction with the Interim Certification issued by the Custodian, as contemplated by Section 2.02. Any of the items set forth in Sections 2.01(b)(ii), (iii), (iv) and (v) and that may be delivered as a copy rather than the original may be delivered to the Trustee or the Custodian. In connection with the assignment of any Mortgage Loan registered on the MERS(R)System, the Depositor further agrees that it will cause, at the Depositor's own expense, within 30 Business Days after the Closing Date, the MERS(R)System to indicate that such Mortgage Loans have been assigned by the Depositor to the Trustee in accordance with this Agreement for the benefit of the Certificateholders by including (or deleting, in the case of Mortgage Loans which are repurchased in accordance with this Agreement) in such computer files (a) the code in the field which identifies the specific Trustee and (b) the code in the field "Pool Field" which identifies the series of the Certificates issued in connection with such Mortgage Loans. The Depositor further agrees that it will not, and will not permit the Master Servicer to, and the Master Servicer agrees that it will not, alter the codes referenced in this paragraph with respect to any Mortgage Loan during the term of this Agreement unless and until such Mortgage Loan is repurchased in accordance with the terms of this Agreement. (d) It is intended that the conveyances by the Depositor to the Trustee of the Mortgage Loans as provided for in this Section 2.01 and the Uncertificated Regular Interests be construed as a sale by the Depositor to the Trustee of the Mortgage Loans and the Uncertificated Regular Interests for the benefit of the Certificateholders. Further, it is not intended that any such conveyance be deemed to be a pledge of the Mortgage Loans and the Uncertificated Regular Interests by the Depositor to the Trustee to secure a debt or other obligation of the Depositor. Nonetheless, (a) this Agreement is intended to be and hereby is a security agreement within the meaning of Articles 8 and 9 of the New York Uniform Commercial Code and the Uniform Commercial Code of any other applicable jurisdiction; (b) the conveyances provided for in this Section 2.01 shall be deemed to be (1) a grant by the Depositor to the Trustee of a security interest in all of the Depositor's right (including the power to convey title thereto), title and interest, whether now owned or hereafter acquired, in and to (A) the Mortgage Loans, including the related Mortgage Note, the Mortgage, any insurance policies and all other documents in the related Mortgage File, (B) all amounts payable pursuant to the Mortgage Loans in accordance with the terms thereof, (C) any Uncertificated Regular Interests and any and all general intangibles, payment intangibles, accounts, chattel paper, instruments, documents, money, deposit accounts, certificates of deposit, goods, letters of credit, advices of credit and investment property and other property of whatever kind or description now existing or hereafter acquired consisting of, arising from or relating to any of the foregoing, and (D) all proceeds of the conversion, voluntary or involuntary, of the foregoing into cash, instruments, securities or other property, including without limitation all amounts from time to time held or invested in the Certificate Account or the Custodial Account, whether in the form of cash, instruments, securities or other property and (2) an assignment by the Depositor to the Trustee of any security interest in any and all of Residential Funding's right (including the power to convey title thereto), title and interest, whether now owned or hereafter acquired, in and to the property described in the foregoing clauses (1)(A), (B), (C) and (D) granted by Residential Funding to the Depositor pursuant to the Assignment Agreement; (c) the possession by the Trustee, the Custodian or any other agent of the Trustee of Mortgage Notes or such other items of property as constitute instruments, money, payment intangibles, negotiable documents, goods, deposit accounts, letters of credit, advices of credit, investment property, certificated securities or chattel paper shall be deemed to be "possession by the secured party," or possession by a purchaser or a person designated by such secured party, for purposes of perfecting the security interest pursuant to the Minnesota Uniform Commercial Code and the Uniform Commercial Code of any other applicable jurisdiction as in effect (including, without limitation, Sections 8-106, 9-313 and 9-106 thereof); and (d) notifications to persons holding such property, and acknowledgments, receipts or confirmations from persons holding such property, shall be deemed notifications to, or acknowledgments, receipts or confirmations from, securities intermediaries, bailees or agents of, or persons holding for, (as applicable) the Trustee for the purpose of perfecting such security interest under applicable law. The Depositor and, at the Depositor's direction, Residential Funding and the Trustee shall, to the extent consistent with this Agreement, take such reasonable actions as may be necessary to ensure that, if this Agreement were deemed to create a security interest in the Mortgage Loans and the Uncertificated Regular Interests and the other property described above, such security interest would be deemed to be a perfected security interest of first priority under applicable law and will be maintained as such throughout the term of this Agreement. Without limiting the generality of the foregoing, the Depositor shall prepare and deliver to the Trustee not less than 15 days prior to any filing date and, the Trustee shall forward for filing, or shall cause to be forwarded for filing, at the expense of the Depositor, all filings necessary to maintain the effectiveness of any original filings necessary under the Uniform Commercial Code as in effect in any jurisdiction to perfect the Trustee's security interest in or lien on the Mortgage Loans and the Uncertificated Regular Interests, as evidenced by an Officers' Certificate of the Depositor, including without limitation (x) continuation statements, and (y) such other statements as may be occasioned by (1) any change of name of Residential Funding, the Depositor or the Trustee (such preparation and filing shall be at the expense of the Trustee, if occasioned by a change in the Trustee's name), (2) any change of location of the place of business or the chief executive office of Residential Funding or the Depositor, (3) any transfer of any interest of Residential Funding or the Depositor in any Mortgage Loan or (4) any transfer of any interest of Residential Funding or the Depositor in any Uncertificated Regular Interests. Section 2.02. Acceptance by Trustee. The Trustee acknowledges receipt (or, with respect to Mortgage Loans subject to a Custodial Agreement, and based solely upon a receipt or certification executed by the Custodian, receipt by the respective Custodian as the duly appointed agent of the Trustee) of the documents referred to in Section 2.01(b)(i) above (except that for purposes of such acknowledgement only, a Mortgage Note may be endorsed in blank and an Assignment of Mortgage may be in blank) and declares that it, or a Custodian as its agent, holds and will hold such documents and the other documents constituting a part of the Mortgage Files delivered to it, or a Custodian as its agent, in trust for the use and benefit of all present and future Certificateholders. The Trustee or Custodian (such Custodian being so obligated under a Custodial Agreement) agrees, for the benefit of Certificateholders, to review each Mortgage File delivered to it pursuant to Section 2.01(b) within 90 days after the Closing Date to ascertain that all required documents (specifically as set forth in Section 2.01(b)), have been executed and received, and that such documents relate to the Mortgage Loans identified on the Mortgage Loan Schedule, as supplemented, that have been conveyed to it, and to deliver to the Trustee a certificate (the "Interim Certification") to the effect that all documents required to be delivered pursuant to Section 2.01(b) above have been executed and received and that such documents relate to the Mortgage Loans identified on the Mortgage Loan Schedule, except for any exceptions listed on Schedule A attached to such Interim Certification. Upon delivery of the Mortgage Files by the Depositor or the Master Servicer, the Trustee shall acknowledge receipt (or, with respect to Mortgage Loans subject to a Custodial Agreement, and based solely upon a receipt or certification executed by the Custodian, receipt by the respective Custodian as the duly appointed agent of the Trustee) of the documents referred to in Section 2.01(b) above. If the Custodian, as the Trustee's agent, finds any document or documents constituting a part of a Mortgage File to be missing or defective, upon receipt of notification from the Custodian as specified in the succeeding sentence, the Trustee shall promptly so notify or cause the Custodian to notify the Master Servicer and the Depositor. Pursuant to Section 2.3 of the Custodial Agreement, the Custodian will notify the Master Servicer, the Depositor and the Trustee of any such omission or defect found by it in respect of any Mortgage File held by it in respect of the items received by it pursuant to the Custodial Agreement. If such omission or defect materially and adversely affects the interests in the related Mortgage Loan of the Certificateholders, the Master Servicer shall promptly notify the related Subservicer or Seller of such omission or defect and request that such Subservicer or Seller correct or cure such omission or defect within 60 days from the date the Master Servicer was notified of such omission or defect and, if such Subservicer or Seller does not correct or cure such omission or defect within such period, that such Subservicer or Seller purchase such Mortgage Loan from the Trust Fund at its Purchase Price, in either case within 90 days from the date the Master Servicer was notified of such omission or defect; provided that if the omission or defect would cause the Mortgage Loan to be other than a "qualified mortgage" as defined in Section 860G(a)(3) of the Code, any such cure or repurchase must occur within 90 days from the date such breach was discovered. The Purchase Price for any such Mortgage Loan shall be deposited or caused to be deposited by the Master Servicer in the Custodial Account maintained by it pursuant to Section 3.07 and, upon receipt by the Trustee of written notification of such deposit signed by a Servicing Officer, the Trustee or any Custodian, as the case may be, shall release to the Master Servicer the related Mortgage File and the Trustee shall execute and deliver such instruments of transfer or assignment prepared by the Master Servicer, in each case without recourse, as shall be necessary to vest in the Subservicer or Seller or its designee, as the case may be, any Mortgage Loan released pursuant hereto and thereafter such Mortgage Loan shall not be part of the Trust Fund. In furtherance of the foregoing and Section 2.04, if the Subservicer or Seller or Residential Funding that repurchases the Mortgage Loan is not a member of MERS and the Mortgage is registered on the MERS(R) System, the Master Servicer, at its own expense and without any right of reimbursement, shall cause MERS to execute and deliver an assignment of the Mortgage in recordable form to transfer the Mortgage from MERS to such Subservicer or Seller or Residential Funding and shall cause such Mortgage to be removed from registration on the MERS(R)System in accordance with MERS' rules and regulations. It is understood and agreed that the obligation of the Subservicer or Seller, to so cure or purchase any Mortgage Loan as to which a material and adverse defect in or omission of a constituent document exists shall constitute the sole remedy respecting such defect or omission available to Certificateholders or the Trustee on behalf of Certificateholders. Section 2.03. Representations, Warranties and Covenants of the Master Servicer and the Depositor. (a) The Master Servicer hereby represents and warrants to the Trustee for the benefit of the Certificateholders that: (i) The Master Servicer is a corporation duly organized, validly existing and in good standing under the laws governing its creation and existence and is or will be in compliance with the laws of each state in which any Mortgaged Property is located to the extent necessary to ensure the enforceability of each Mortgage Loan in accordance with the terms of this Agreement; (ii) The execution and delivery of this Agreement by the Master Servicer and its performance and compliance with the terms of this Agreement will not violate the Master Servicer's Certificate of Incorporation or Bylaws or constitute a material default (or an event which, with notice or lapse of time, or both, would constitute a material default) under, or result in the material breach of, any material contract, agreement or other instrument to which the Master Servicer is a party or which may be applicable to the Master Servicer or any of its assets; (iii) This Agreement, assuming due authorization, execution and delivery by the Trustee and the Depositor, constitutes a valid, legal and binding obligation of the Master Servicer, enforceable against it in accordance with the terms hereof subject to applicable bankruptcy, insolvency, reorganization, moratorium and other laws affecting the enforcement of creditors' rights generally and to general principles of equity, regardless of whether such enforcement is considered in a proceeding in equity or at law; (iv) The Master Servicer is not in default with respect to any order or decree of any court or any order, regulation or demand of any federal, state, municipal or governmental agency, which default might have consequences that would materially and adversely affect the condition (financial or other) or operations of the Master Servicer or its properties or might have consequences that would materially adversely affect its performance hereunder; (v) No litigation is pending or, to the best of the Master Servicer's knowledge, threatened against the Master Servicer which would prohibit its entering into this Agreement or performing its obligations under this Agreement; (vi) The Master Servicer shall comply in all material respects in the performance of this Agreement with all reasonable rules and requirements of each insurer under each Required Insurance Policy; (vii) No information, certificate of an officer, statement furnished in writing or report delivered to the Depositor, any Affiliate of the Depositor or the Trustee by the Master Servicer will, to the knowledge of the Master Servicer, contain any untrue statement of a material fact or omit a material fact necessary to make the information, certificate, statement or report not misleading; (viii) The Master Servicer has examined each existing, and will examine each new, Subservicing Agreement and is or will be familiar with the terms thereof. The terms of each existing Subservicing Agreement and each designated Subservicer are acceptable to the Master Servicer and any new Subservicing Agreements will comply with the provisions of Section 3.02; (ix) The Master Servicer is a member of MERS in good standing, and will comply in all material respects with the rules and procedures of MERS in connection with the servicing of the Mortgage Loans that are registered with MERS; and (x) The Servicing Guide of the Master Servicer requires that the Subservicer for each Mortgage Loan accurately and fully reports its borrower credit files to each of the Credit Repositories in a timely manner. It is understood and agreed that the representations and warranties set forth in this Section 2.03(a) shall survive delivery of the respective Mortgage Files to the Trustee or any Custodian. Upon discovery by either the Depositor, the Master Servicer, the Trustee or any Custodian of a breach of any representation or warranty set forth in this Section 2.03(a) which materially and adversely affects the interests of the Certificateholders in any Mortgage Loan, the party discovering such breach shall give prompt written notice to the other parties (any Custodian being so obligated under a Custodial Agreement). Within 90 days of its discovery or its receipt of notice of such breach, the Master Servicer shall either (i) cure such breach in all material respects or (ii) to the extent that such breach is with respect to a Mortgage Loan or a related document, purchase such Mortgage Loan from the Trust Fund at the Purchase Price and in the manner set forth in Section 2.02; provided that if the breach would cause the Mortgage Loan to be other than a "qualified mortgage" as defined in Section 860G(a)(3) of the Code, any such cure or repurchase must occur within 90 days from the date such breach was discovered. The obligation of the Master Servicer to cure such breach or to so purchase such Mortgage Loan shall constitute the sole remedy in respect of a breach of a representation and warranty set forth in this Section 2.03(a) available to the Certificateholders or the Trustee on behalf of the Certificateholders. (b) The Depositor hereby represents and warrants to the Trustee for the benefit of the Certificateholders that as of the Closing Date (or, if otherwise specified below, as of the date so specified): (i) immediately prior to the conveyance of the Mortgage Loans to the Trustee, the Depositor had good title to, and was the sole owner of, each Mortgage Loan free and clear of any pledge, lien, encumbrance or security interest (other than rights to servicing and related compensation) and such conveyance validly transfers ownership of the Mortgage Loans to the Trustee free and clear of any pledge, lien, encumbrance or security interest; and (ii) each Mortgage Loan constitutes a qualified mortgage under Section 860G(a)(3)(A) of the Code and Treasury Regulations Section 1.860G-2(a)(1). It is understood and agreed that the representations and warranties set forth in this Section 2.03(b) shall survive delivery of the respective Mortgage Files to the Trustee or any Custodian. Upon discovery by any of the Depositor, the Master Servicer, the Trustee or any Custodian of a breach of any of the representations and warranties set forth in this Section 2.03(b) which materially and adversely affects the interests of the Certificateholders in any Mortgage Loan, the party discovering such breach shall give prompt written notice to the other parties (any Custodian being so obligated under a Custodial Agreement); provided, however, that in the event of a breach of the representation and warranty set forth in Section 2.03(b)(ii), the party discovering such breach shall give such notice within five days of discovery. Within 90 days of its discovery or its receipt of notice of breach, the Depositor shall either (i) cure such breach in all material respects or (ii) purchase such Mortgage Loan from the Trust Fund at the Purchase Price and in the manner set forth in Section 2.02; provided that the Depositor shall have the option to substitute a Qualified Substitute Mortgage Loan or Loans for such Mortgage Loan if such substitution occurs within two years following the Closing Date; provided that if the omission or defect would cause the Mortgage Loan to be other than a "qualified mortgage" as defined in Section 860G(a)(3) of the Code, any such cure, substitution or repurchase must occur within 90 days from the date such breach was discovered. Any such substitution shall be effected by the Depositor under the same terms and conditions as provided in Section 2.04 for substitutions by Residential Funding. It is understood and agreed that the obligation of the Depositor to cure such breach or to so purchase or substitute for any Mortgage Loan as to which such a breach has occurred and is continuing shall constitute the sole remedy respecting such breach available to the Certificateholders or the Trustee on behalf of the Certificateholders. Notwithstanding the foregoing, the Depositor shall not be required to cure breaches or purchase or substitute for Mortgage Loans as provided in this Section 2.03(b) if the substance of the breach of a representation set forth above also constitutes fraud in the origination of the Mortgage Loan. Section 2.04. Representations and Warranties of Sellers. The Depositor, as assignee of Residential Funding under the Assignment Agreement, hereby assigns to the Trustee for the benefit of the Certificateholders all of its right, title and interest in respect of the Assignment Agreement applicable to a Mortgage Loan as and to the extent set forth in the Assignment Agreement. Insofar as the Assignment Agreement relates to the representations and warranties made by Residential Funding in respect of such Mortgage Loan and any remedies provided thereunder for any breach of such representations and warranties, such right, title and interest may be enforced by the Master Servicer on behalf of the Trustee and the Certificateholders. Upon the discovery by the Depositor, the Master Servicer, the Trustee or any Custodian of a breach of any of the representations and warranties made in the Assignment Agreement in respect of any Mortgage Loan or of any Repurchase Event which materially and adversely affects the interests of the Certificateholders in such Mortgage Loan, the party discovering such breach shall give prompt written notice to the other parties (any Custodian being so obligated under a Custodial Agreement). The Master Servicer shall promptly notify Residential Funding of such breach or Repurchase Event and request that Residential Funding either (i) cure such breach or Repurchase Event in all material respects within 90 days from the date the Master Servicer was notified of such breach or Repurchase Event or (ii) purchase such Mortgage Loan from the Trust Fund at the Purchase Price and in the manner set forth in Section 2.02. Upon the discovery by the Depositor, the Master Servicer, the Trustee or any Custodian of a breach of any of such representations and warranties set forth in the Assignment Agreement in respect of any Mortgage Loan which materially and adversely affects the interests of the Certificateholders in such Mortgage Loan, the party discovering such breach shall give prompt written notice to the other parties (any Custodian being so obligated under a Custodial Agreement). The Master Servicer shall promptly notify Residential Funding of such breach of a representation or warranty set forth in the Assignment Agreement and request that Residential Funding either (i) cure such breach in all material respects within 90 days from the date the Master Servicer was notified of such breach or (ii) purchase such Mortgage Loan from the Trust Fund within 90 days of the date of such written notice of such breach at the Purchase Price and in the manner set forth in Section 2.02; provided that Residential Funding shall have the option to substitute a Qualified Substitute Mortgage Loan or Loans for such Mortgage Loan if such substitution occurs within two years following the Closing Date; provided that if the breach would cause the Mortgage Loan to be other than a "qualified mortgage" as defined in Section 860G(a)(3) of the Code, any such cure or substitution must occur within 90 days from the date the breach was discovered. If the breach of representation and warranty that gave rise to the obligation to repurchase or substitute a Mortgage Loan pursuant to Section 4 of the Assignment Agreement was the representation and warranty set forth in clause (xlvii) of Section 4 thereof, then the Master Servicer shall request that Residential Funding pay to the Trust Fund, concurrently with and in addition to the remedies provided in the preceding sentence, an amount equal to any liability, penalty or expense that was actually incurred and paid out of or on behalf of the Trust Fund, and that directly resulted from such breach, or if incurred and paid by the Trust Fund thereafter, concurrently with such payment. In the event that Residential Funding elects to substitute a Qualified Substitute Mortgage Loan or Loans for a Deleted Mortgage Loan pursuant to this Section 2.04, Residential Funding shall deliver to the Trustee for the benefit of the Certificateholders with respect to such Qualified Substitute Mortgage Loan or Loans, the original Mortgage Note, the Mortgage, an Assignment of the Mortgage in recordable form, and such other documents and agreements as are required by Section 2.01, with the Mortgage Note endorsed as required by Section 2.01. No substitution will be made in any calendar month after the Determination Date for such month. Monthly Payments due with respect to Qualified Substitute Mortgage Loans in the month of substitution shall not be part of the Trust Fund and will be retained by the Master Servicer and remitted by the Master Servicer to Residential Funding on the next succeeding Distribution Date. For the month of substitution, distributions to the Certificateholders will include the Monthly Payment due on a Deleted Mortgage Loan for such month and thereafter Residential Funding shall be entitled to retain all amounts received in respect of such Deleted Mortgage Loan. The Master Servicer shall amend or cause to be amended the Mortgage Loan Schedule for the benefit of the Certificateholders to reflect the removal of such Deleted Mortgage Loan and the substitution of the Qualified Substitute Mortgage Loan or Loans and the Master Servicer shall deliver the amended Mortgage Loan Schedule to the Trustee. Upon such substitution, the Qualified Substitute Mortgage Loan or Loans shall be subject to the terms of this Agreement and the related Subservicing Agreement in all respects, Residential Funding shall be deemed to have made the representations and warranties with respect to the Qualified Substitute Mortgage Loan (other than those of a statistical nature) contained in the Assignment Agreement as of the date of substitution, and the covenants, representations and warranties set forth in this Section 2.04, and in Section 2.03(b) hereof. In connection with the substitution of one or more Qualified Substitute Mortgage Loans for one or more Deleted Mortgage Loans, the Master Servicer shall determine the amount (if any) by which the aggregate principal balance of all such Qualified Substitute Mortgage Loans as of the date of substitution is less than the aggregate Stated Principal Balance of all such Deleted Mortgage Loans (in each case after application of the principal portion of the Monthly Payments due in the month of substitution that are to be distributed to the Certificateholders in the month of substitution). Residential Funding shall deposit or cause the related Seller to deposit the amount of such shortfall into the Custodial Account on the day of substitution, without any reimbursement therefor. Residential Funding shall give notice in writing to the Trustee of such event, which notice shall be accompanied by an Officers' Certificate as to the calculation of such shortfall and (subject to Section 10.01(f)) by an Opinion of Counsel to the effect that such substitution will not cause (a) any federal tax to be imposed on the Trust Fund, including without limitation, any federal tax imposed on "prohibited transactions" under Section 860F(a)(1) of the Code or on "contributions after the startup date" under Section 860G(d)(1) of the Code or (b) any portion of any REMIC created hereunder to fail to qualify as a REMIC at any time that any Certificate is outstanding. It is understood and agreed that the obligation of Residential Funding to cure such breach or purchase (and in the case of Residential Funding to substitute for) such Mortgage Loan as to which such a breach has occurred and is continuing and to make any additional payments required under the Assignment Agreement in connection with a breach of the representation and warranty in clause (xlvii) of Section 4 thereof shall constitute the sole remedy respecting such breach available to the Certificateholders or the Trustee on behalf of the Certificateholders. If the Master Servicer is Residential Funding, then the Trustee shall also have the right to give the notification and require the purchase or substitution provided for in the second preceding paragraph in the event of such a breach of a representation or warranty made by Residential Funding in the Assignment Agreement. In connection with the purchase of or substitution for any such Mortgage Loan by Residential Funding, the Trustee shall assign to Residential Funding all of the Trustee's right, title and interest in respect of the Assignment Agreement applicable to such Mortgage Loan. Section 2.05. Execution and Authentication of Certificates; Conveyance of REMIC-I Regular Interests. (a) The Trustee acknowledges the assignment to it of the Mortgage Loans and the delivery of the Mortgage Files to it, or any Custodian on its behalf, subject to any exceptions noted, together with the assignment to it of all other assets included in the Trust Fund, receipt of which is hereby acknowledged. Concurrently with such delivery and in exchange therefor, the Trustee, pursuant to the written request of the Depositor executed by an officer of the Depositor, has executed and caused to be authenticated and delivered to or upon the order of the Depositor the Certificates in authorized denominations which evidence ownership of the entire Trust Fund. (b) The Depositor, concurrently with the execution and delivery hereof, does hereby transfer, assign, set over and otherwise convey in trust to the Trustee without recourse all the right, title and interest of the Depositor in and to the REMIC I Regular Interests for the benefit of the holders of the Regular Certificates and Component II of the Class R Certificates. The Trustee acknowledges receipt of the REMIC I Regular Interests (each of which are uncertificated) and declares that it holds and will hold the same in trust for the exclusive use and benefit of the holders of the Regular Certificates and Component II of the Class R Certificates. The interests evidenced by Component II of the Class R Certificates, together with the Regular Certificates, constitute the entire beneficial ownership interest in REMIC II. Section 2.06. Purposes and Powers of the Trust. The purpose of the trust, as created hereunder, is to engage in the following activities: (a) to sell the Certificates to the Depositor in exchange for the Mortgage Loans; (b) to enter into and perform its obligations under this Agreement; (c) to engage in those activities that are necessary, suitable or convenient to accomplish the foregoing or are incidental thereto or connected therewith; and (d) subject to compliance with this Agreement, to engage in such other activities as may be required in connection with conservation of the Trust Fund and the making of distributions to the Certificateholders. The trust is hereby authorized to engage in the foregoing activities. Notwithstanding the provisions of Section 11.01, the trust shall not engage in any activity other than in connection with the foregoing or other than as required or authorized by the terms of this Agreement while any Certificate is outstanding, and this Section 2.06 may not be amended, without the consent of the Certificateholders evidencing a majority of the aggregate Voting Rights of the Certificates. Section 2.07. Agreement Regarding Ability to Disclose. The Depositor, the Master Servicer and the Trustee hereby agree that, notwithstanding any other express or implied agreement to the contrary, any and all Persons, and any of their respective employees, representatives, and other agents may disclose, immediately upon commencement of discussions, to any and all Persons, without limitation of any kind, the tax treatment and tax structure of the transaction and all materials of any kind (including opinions or other tax analyses) that are provided to any of them relating to such tax treatment and tax structure. For purposes of this paragraph, the terms "tax," "tax treatment," "tax structure," and "tax benefit" are defined under Treasury Regulationss.1.6011-4(c). -------------------------------------------------------------------------------- ARTICLE III ADMINISTRATION AND SERVICING OF MORTGAGE LOANS Section 3.01. Master Servicer to Act as Servicer. (a) The Master Servicer shall service and administer the Mortgage Loans in accordance with the terms of this Agreement and the respective Mortgage Loans, following such procedures as it would employ in its good faith business judgment and which are normal and usual in its general mortgage servicing activities, and shall have full power and authority, acting alone or through Subservicers as provided in Section 3.02, to do any and all things which it may deem necessary or desirable in connection with such servicing and administration. Without limiting the generality of the foregoing, the Master Servicer in its own name or in the name of a Subservicer is hereby authorized and empowered by the Trustee when the Master Servicer or the Subservicer, as the case may be, believes it appropriate in its best judgment, to execute and deliver, on behalf of the Certificateholders and the Trustee or any of them, any and all instruments of satisfaction or cancellation, or of partial or full release or discharge, or of consent to assumption or modification in connection with a proposed conveyance, or of assignment of any Mortgage and Mortgage Note in connection with the repurchase of a Mortgage Loan and all other comparable instruments, or with respect to the modification or re-recording of a Mortgage for the purpose of correcting the Mortgage, the subordination of the lien of the Mortgage in favor of a public utility company or government agency or unit with powers of eminent domain, the taking of a deed in lieu of foreclosure, the commencement, prosecution or completion of judicial or non-judicial foreclosure, the conveyance of a Mortgaged Property to the related insurer, the acquisition of any property acquired by foreclosure or deed in lieu of foreclosure, or the management, marketing and conveyance of any property acquired by foreclosure or deed in lieu of foreclosure with respect to the Mortgage Loans and with respect to the Mortgaged Properties. The Master Servicer further is authorized and empowered by the Trustee, on behalf of the Certificateholders and the Trustee, in its own name or in the name of the Subservicer, when the Master Servicer or the Subservicer, as the case may be, believes it is appropriate in its best judgment to register any Mortgage Loan on the MERS(R)System, or cause the removal from the registration of any Mortgage Loan on the MERS(R)System, to execute and deliver, on behalf of the Trustee and the Certificateholders or any of them, any and all instruments of assignment and other comparable instruments with respect to such assignment or re-recording of a Mortgage in the name of MERS, solely as nominee for the Trustee and its successors and assigns. Any expenses incurred in connection with the actions described in the preceding sentence shall be borne by the Master Servicer in accordance with Section 3.16(c), with no right of reimbursement; provided, that if, as a result of MERS discontinuing or becoming unable to continue operations in connection with the MERS(R)System, it becomes necessary to remove any Mortgage Loan from registration on the MERS(R)System and to arrange for the assignment of the related Mortgages to the Trustee, then any related expenses shall be reimbursable to the Master Servicer as set forth in Section 3.10(a)(ii). Notwithstanding the foregoing, subject to Section 3.07(a), the Master Servicer shall not permit any modification with respect to any Mortgage Loan that would both constitute a sale or exchange of such Mortgage Loan within the meaning of Section 1001 of the Code and any proposed, temporary or final regulations promulgated thereunder (other than in connection with a proposed conveyance or assumption of such Mortgage Loan that is treated as a Principal Prepayment in Full pursuant to Section 3.13(d) hereof) and cause any REMIC created hereunder to fail to qualify as a REMIC under the Code. The Trustee shall furnish the Master Servicer with any powers of attorney and other documents necessary or appropriate to enable the Master Servicer to service and administer the Mortgage Loans. The Trustee shall not be liable for any action taken by the Master Servicer or any Subservicer pursuant to such powers of attorney or other documents. In servicing and administering any Nonsubserviced Mortgage Loan, the Master Servicer shall, to the extent not inconsistent with this Agreement, comply with the Program Guide as if it were the originator of such Mortgage Loan and had retained the servicing rights and obligations in respect thereof. If the Mortgage relating to a Mortgage Loan did not have a lien senior to the Mortgage Loan on the related Mortgaged Property as of the Cut-off Date, then the Master Servicer, in such capacity, may not consent to the placing of a lien senior to that of the Mortgage on the related Mortgaged Property. If the Mortgage relating to a Mortgage Loan had a lien senior to the Mortgage Loan on the related Mortgaged Property as of the Cut-off Date, then the Master Servicer, in such capacity, may consent to the refinancing of the prior senior lien, provided that the following requirements are met: (i) (A) the Mortgagor's debt-to-income ratio resulting from such refinancing is less than the original debt-to-income ratio as set forth on the Mortgage Loan Schedule; provided, however, that in no instance shall the resulting Combined Loan-to-Value Ratio ("Combined Loan-to-Value Ratio") of such Mortgage Loan be higher than that permitted by the Program Guide; or (B) the resulting Combined Loan-to-Value Ratio of such Mortgage Loan is no higher than the Combined Loan-to-Value Ratio prior to such refinancing; provided, however, if such refinanced mortgage loan is a "rate and term" mortgage loan (meaning, the Mortgagor does not receive any cash from the refinancing), the Combined Loan-to-Value Ratio may increase to the extent of either (x) the reasonable closing costs of such refinancing or (y) any decrease in the value of the related Mortgaged Property, if the Mortgagor is in good standing as defined by the Program Guide; (ii) the interest rate, or, in the case of an adjustable rate existing senior lien, the maximum interest rate, for the loan evidencing the refinanced senior lien is no more than 2.0% higher than the interest rate or the maximum interest rate, as the case may be, on the loan evidencing the existing senior lien immediately prior to the date of such refinancing; provided, however (A) if the loan evidencing the existing senior lien prior to the date of refinancing has an adjustable rate and the loan evidencing the refinanced senior lien has a fixed rate, then the current interest rate on the loan evidencing the refinanced senior lien may be up to 2.0% higher than the then-current loan rate of the loan evidencing the existing senior lien and (B) if the loan evidencing the existing senior lien prior to the date of refinancing has a fixed rate and the loan evidencing the refinanced senior lien has an adjustable rate, then the maximum interest rate on the loan evidencing the refinanced senior lien shall be less than or equal to (x) the interest rate on the loan evidencing the existing senior lien prior to the date of refinancing plus (y) 2.0%; and (iii) the loan evidencing the refinanced senior lien is not subject to negative amortization. (b) The Master Servicer shall, to the extent consistent with the servicing standards set forth herein, take whatever actions as may be necessary to file a claim under or enforce or allow the Trustee to file a claim under or enforce any title insurance policy with respect to any Mortgage Loan including, without limitation, joining in or causing any Seller or Subservicer (or any other party in possession of any title insurance policy) to join in any claims process, negotiations, actions or proceedings necessary to make a claim under or enforce any title insurance policy. Notwithstanding anything in this Agreement to the contrary, the Master Servicer shall not (unless the Mortgagor is in default with respect to the Mortgage Loan or such default is, in the judgment of the Master Servicer, reasonably foreseeable) make or permit any modification, waiver, or amendment of any term of any Mortgage Loan that would both (i) effect an exchange or reissuance of such Mortgage Loan under Section 1001 of the Code (or final, temporary or proposed Treasury regulations promulgated thereunder) (other than in connection with a proposed conveyance or assumption of such Mortgage Loan that is treated as a Principal Prepayment in Full pursuant to Section 3.13(d) hereof) and (ii) cause any REMIC formed hereunder to fail to qualify as a REMIC under the Code or the imposition of any tax on "prohibited transactions" or "contributions" after the startup date under the REMIC Provisions. (c) In connection with servicing and administering the Mortgage Loans, the Master Servicer and any Affiliate of the Master Servicer (i) may perform services such as appraisals and brokerage services that are customarily provided by Persons other than servicers of mortgage loans, and shall be entitled to reasonable compensation therefor in accordance with Section 3.10 and (ii) may, at its own discretion and on behalf of the Trustee, obtain credit information in the form of a "credit score" from a Credit Repository. (d) All costs incurred by the Master Servicer or by Subservicers in effecting the timely payment of taxes and assessments on the properties subject to the Mortgage Loans shall not, for the purpose of calculating monthly distributions to the Certificateholders, be added to the amount owing under the related Mortgage Loans, notwithstanding that the terms of such Mortgage Loan so permit, and such costs shall be recoverable to the extent permitted by Section 3.10(a)(ii). (e) The Master Servicer may enter into one or more agreements in connection with the offering of pass-through certificates evidencing interests in one or more of the Certificates providing for the payment by the Master Servicer of amounts received by the Master Servicer as servicing compensation hereunder and required to cover certain Prepayment Interest Shortfalls on the Mortgage Loans, which payment obligation will thereafter be an obligation of the Master Servicer hereunder. (f) The relationship of the Master Servicer (and of any successor to the Master Servicer) to the Depositor under this Agreement is intended by the parties to be that of an independent contractor and not that of a joint venturer, partner or agent. (g) The Master Servicer shall comply with the terms of Section 9 of the Assignment Agreement. Section 3.02. Subservicing Agreements Between Master Servicer and Subservicers; Enforcement of Subservicers' Obligations. (a) The Master Servicer may continue in effect Subservicing Agreements entered into by Residential Funding and Subservicers prior to the execution and delivery of this Agreement, and may enter into new Subservicing Agreements with Subservicers, for the servicing and administration of all or some of the Mortgage Loans. Each Subservicer shall be either (i) an institution the accounts of which are insured by the FDIC or (ii) another entity that engages in the business of originating or servicing mortgage loans, and in either case shall be authorized to transact business in the state or states in which the related Mortgaged Properties it is to service are situated, if and to the extent required by applicable law to enable the Subservicer to perform its obligations hereunder and under the Subservicing Agreement, and in either case shall be a Freddie Mac, Fannie Mae or HUD approved mortgage servicer. Each Subservicer of a Mortgage Loan shall be entitled to receive and retain, as provided in the related Subservicing Agreement and in Section 3.07, the related Subservicing Fee from payments of interest received on such Mortgage Loan after payment of all amounts required to be remitted to the Master Servicer in respect of such Mortgage Loan. For any Mortgage Loan that is a Nonsubserviced Mortgage Loan, the Master Servicer shall be entitled to receive and retain an amount equal to the Subservicing Fee from payments of interest. Unless the context otherwise requires, references in this Agreement to actions taken or to be taken by the Master Servicer in servicing the Mortgage Loans include actions taken or to be taken by a Subservicer on behalf of the Master Servicer. Each Subservicing Agreement will be upon such terms and conditions as are generally required by, permitted by or consistent with the Program Guide and are not inconsistent with this Agreement and as the Master Servicer and the Subservicer have agreed. With the approval of the Master Servicer, a Subservicer may delegate its servicing obligations to third-party servicers, but such Subservicer will remain obligated under the related Subservicing Agreement. The Master Servicer and a Subservicer may enter into amendments thereto or a different form of Subservicing Agreement, and the form referred to or included in the Program Guide is merely provided for information and shall not be deemed to limit in any respect the discretion of the Master Servicer to modify or enter into different Subservicing Agreements; provided, however, that any such amendments or different forms shall be consistent with and not violate the provisions of either this Agreement or the Program Guide in a manner which would materially and adversely affect the interests of the Certificateholders. The Program Guide and any other Subservicing Agreement entered into between the Master Servicer and any Subservicer shall require the Subservicer to accurately and fully report its borrower credit files to each of the Credit Repositories in a timely manner. (b) As part of its servicing activities hereunder, the Master Servicer, for the benefit of the Trustee and the Certificateholders, shall use its best reasonable efforts to enforce the obligations of each Subservicer under the related Subservicing Agreement and of each Seller under the related Seller's Agreement, to the extent that the non-performance of any such obligation would have a material and adverse effect on a Mortgage Loan, including, without limitation, the obligation to purchase a Mortgage Loan on account of defective documentation, as described in Section 2.02, or on account of a breach of a representation or warranty, as described in Section 2.04. Such enforcement, including, without limitation, the legal prosecution of claims, termination of Subservicing Agreements or Seller's Agreements, as appropriate, and the pursuit of other appropriate remedies, shall be in such form and carried out to such an extent and at such time as the Master Servicer would employ in its good faith business judgment and which are normal and usual in its general mortgage servicing activities. The Master Servicer shall pay the costs of such enforcement at its own expense, and shall be reimbursed therefor only (i) from a general recovery resulting from such enforcement to the extent, if any, that such recovery exceeds all amounts due in respect of the related Mortgage Loan or (ii) from a specific recovery of costs, expenses or attorneys fees against the party against whom such enforcement is directed. For purposes of clarification only, the parties agree that the foregoing is not intended to, and does not, limit the ability of the Master Servicer to be reimbursed for expenses that are incurred in connection with the enforcement of a Seller's obligations and are reimbursable pursuant to Section 3.10(a)(vii). Section 3.03. Successor Subservicers. The Master Servicer shall be entitled to terminate any Subservicing Agreement that may exist in accordance with the terms and conditions of such Subservicing Agreement and without any limitation by virtue of this Agreement; provided, however, that in the event of termination of any Subservicing Agreement by the Master Servicer or the Subservicer, the Master Servicer shall either act as servicer of the related Mortgage Loan or enter into a Subservicing Agreement with a successor Subservicer which will be bound by the terms of the related Subservicing Agreement. If the Master Servicer or any Affiliate of Residential Funding acts as servicer, it will not assume liability for the representations and warranties of the Subservicer which it replaces. If the Master Servicer enters into a Subservicing Agreement with a successor Subservicer, the Master Servicer shall use reasonable efforts to have the successor Subservicer assume liability for the representations and warranties made by the terminated Subservicer in respect of the related Mortgage Loans and, in the event of any such assumption by the successor Subservicer, the Master Servicer may, in the exercise of its business judgment, release the terminated Subservicer from liability for such representations and warranties. Section 3.04. Liability of the Master Servicer. Notwithstanding any Subservicing Agreement, any of the provisions of this Agreement relating to agreements or arrangements between the Master Servicer or a Subservicer or reference to actions taken through a Subservicer or otherwise, the Master Servicer shall remain obligated and liable to the Trustee, and Certificateholders for the servicing and administering of the Mortgage Loans in accordance with the provisions of Section 3.01 without diminution of such obligation or liability by virtue of such Subservicing Agreements or arrangements or by virtue of indemnification from the Subservicer or the Depositor and to the same extent and under the same terms and conditions as if the Master Servicer alone were servicing and administering the Mortgage Loans. The Master Servicer shall be entitled to enter into any agreement with a Subservicer or Seller for indemnification of the Master Servicer and nothing contained in this Agreement shall be deemed to limit or modify such indemnification. Section 3.05. No Contractual Relationship Between Subservicer and Trustee or Certificateholders. Any Subservicing Agreement that may be entered into and any other transactions or services relating to the Mortgage Loans involving a Subservicer in its capacity as such and not as an originator shall be deemed to be between the Subservicer and the Master Servicer alone, and the Trustee and Certificateholders shall not be deemed parties thereto and shall have no claims, rights, obligations, duties or liabilities with respect to the Subservicer in its capacity as such except as set forth in Section 3.06. The foregoing provision shall not in any way limit a Subservicer's obligation to cure an omission or defect or to repurchase a Mortgage Loan as referred to in Section 2.02 hereof. Section 3.06. Assumption or Termination of Subservicing Agreements by Trustee. (a) In the event the Master Servicer shall for any reason no longer be the master servicer (including by reason of an Event of Default), the Trustee, as successor Master Servicer, its designee or its successor shall thereupon assume all of the rights and obligations of the Master Servicer under each Subservicing Agreement that may have been entered into. The Trustee, its designee or the successor servicer for the Trustee shall be deemed to have assumed all of the Master Servicer's interest therein and to have replaced the Master Servicer as a party to the Subservicing Agreement to the same extent as if the Subservicing Agreement had been assigned to the assuming party except that the Master Servicer shall not thereby be relieved of any liability or obligations under the Subservicing Agreement. (b) The Master Servicer shall, upon request of the Trustee but at the expense of the Master Servicer, deliver to the assuming party all documents and records relating to each Subservicing Agreement and the Mortgage Loans then being serviced and an accounting of amounts collected and held by it and otherwise use its best efforts to effect the orderly and efficient transfer of each Subservicing Agreement to the assuming party. Section 3.07. Collection of Certain Mortgage Loan Payments; Deposits to Custodial Account. (a) The Master Servicer shall make reasonable efforts to collect all payments called for under the terms and provisions of the Mortgage Loans, and shall, to the extent such procedures shall be consistent with this Agreement and the terms and provisions of any related Primary Insurance Policy, follow such collection procedures as it would employ in its good faith business judgment and which are normal and usual in its general mortgage servicing activities. Consistent with the foregoing, the Master Servicer may in its discretion (subject to the terms and conditions of the Assignment Agreement) (i) waive any late payment charge or any prepayment charge or penalty interest in connection with the prepayment of a Mortgage Loan and (ii) extend the Due Date for payments due on a Mortgage Loan in accordance with the Program Guide, provided, however, that the Master Servicer shall first determine that any such waiver or extension will not impair the coverage of any related Primary Insurance Policy or materially adversely affect the lien of the related Mortgage. Notwithstanding anything in this Section to the contrary, the Master Servicer or any Subservicer shall not enforce any prepayment charge to the extent that such enforcement would violate any applicable law. In the event of any such arrangement, the Master Servicer shall make timely advances on the related Mortgage Loan during the scheduled period in accordance with the amortization schedule of such Mortgage Loan without modification thereof by reason of such arrangements unless otherwise agreed to by the Holders of the Classes of Certificates affected thereby; provided, however, that no such extension shall be made if any advance would be a Nonrecoverable Advance. Consistent with the terms of this Agreement, the Master Servicer may also waive, modify or vary any term of any Mortgage Loan or consent to the postponement of strict compliance with any such term or in any manner grant indulgence to any Mortgagor if in the Master Servicer's determination such waiver, modification, postponement or indulgence is not materially adverse to the interests of the Certificateholders (taking into account any estimated Realized Loss that might result absent such action), provided, however, that the Master Servicer may not modify materially or permit any Subservicer to modify any Mortgage Loan, including without limitation any modification that would change the Mortgage Rate, forgive the payment of any principal or interest (unless in connection with the liquidation of the related Mortgage Loan or except in connection with prepayments to the extent that such reamortization is not inconsistent with the terms of the Mortgage Loan), capitalize any amounts owing on the Mortgage Loan by adding such amount to the outstanding principal balance of the Mortgage Loan, or extend the final maturity date of such Mortgage Loan, unless such Mortgage Loan is in default or, in the judgment of the Master Servicer, such default is reasonably foreseeable. No such modification shall reduce the Mortgage Rate on a Mortgage Loan below the greater of (A) one-half of the Mortgage Rate as in effect on the Cut-off Date and (B) one-half of the Mortgage Rate as in effect on the date of such modification, but not less than the sum of the Servicing Fee Rate and the per annum rate at which the Subservicing Fee accrues. The final maturity date for any Mortgage Loan shall not be extended beyond the Maturity Date. Also, the aggregate principal balance of all Reportable Modified Mortgage Loans subject to Servicing Modifications (measured at the time of the Servicing Modification and after giving effect to any Servicing Modification) can be no more than five percent of the aggregate principal balance of the Mortgage Loans as of the Cut-off Date, provided, that such limit may be increased from time to time if each Rating Agency provides written confirmation that an increase in excess of that limit will not reduce the rating assigned to any Class of Certificates by such Rating Agency below the lower of the then-current rating or the rating assigned to such Certificates as of the Closing Date by such Rating Agency. In addition, any amounts owing on a Mortgage Loan added to the outstanding principal balance of such Mortgage Loan must be fully amortized over the term of such Mortgage Loan, and such amounts may be added to the outstanding principal balance of a Mortgage Loan only once during the life of such Mortgage Loan. Also, the addition of such amounts described in the preceding sentence shall be implemented in accordance with the Program Guide and may be implemented only by Subservicers that have been approved by the Master Servicer for such purposes. In connection with any Curtailment of a Mortgage Loan, the Master Servicer, to the extent not inconsistent with the terms of the Mortgage Note and local law and practice, may permit the Mortgage Loan to be re-amortized such that the Monthly Payment is recalculated as an amount that will fully amortize the remaining principal balance thereof by the original maturity date based on the original Mortgage Rate; provided, that such reamortization shall not be permitted if it would constitute a reissuance of the Mortgage Loan for federal income tax purposes. (b) The Master Servicer shall establish and maintain a Custodial Account in which the Master Servicer shall deposit or cause to be deposited on a daily basis, except as otherwise specifically provided herein, the following payments and collections remitted by Subservicers or received by it in respect of the Mortgage Loans subsequent to the Cut-off Date (other than in respect of Monthly Payments due before or in the month of the Cut-off Date): (i) All payments on account of principal, including Principal Prepayments made by Mortgagors on the Mortgage Loans and the principal component of any Subservicer Advance or of any REO Proceeds received in connection with an REO Property for which an REO Disposition has occurred; (ii) All payments on account of interest at the Adjusted Mortgage Rate on the Mortgage Loans, including the interest component of any Subservicer Advance or of any REO Proceeds received in connection with an REO Property for which an REO Disposition has occurred; (iii) Insurance Proceeds, Subsequent Recoveries and Liquidation Proceeds (net of any related expenses of the Subservicer); (iv) All proceeds of any Mortgage Loans purchased pursuant to Section 2.02, 2.03, 2.04 or 4.07 (including amounts received from Residential Funding pursuant to the last paragraph of Section 4 of the Assignment Agreement in respect of any liability, penalty or expense that resulted from a breach of the representation and warranty set forth in clause (xlvii) of Section 4 of the Assignment Agreement) and all amounts required to be deposited in connection with the substitution of a Qualified Substitute Mortgage Loan pursuant to Section 2.03 or 2.04; and (v) Any amounts required to be deposited pursuant to Section 3.07(c) and any payments or collections received in the nature of prepayment charges. The foregoing requirements for deposit in the Custodial Account shall be exclusive, it being understood and agreed that, without limiting the generality of the foregoing, payments on the Mortgage Loans which are not part of the Trust Fund (consisting of Monthly Payments due before or in the month of the Cut-off Date) and payments or collections consisting of late payment charges or assumption fees may but need not be deposited by the Master Servicer in the Custodial Account. In the event any amount not required to be deposited in the Custodial Account is so deposited, the Master Servicer may at any time withdraw such amount from the Custodial Account, any provision herein to the contrary notwithstanding. The Custodial Account may contain funds that belong to one or more trust funds created for mortgage pass-through certificates of other series and may contain other funds respecting payments on mortgage loans belonging to the Master Servicer or serviced or master serviced by it on behalf of others. Notwithstanding such commingling of funds, the Master Servicer shall keep records that accurately reflect the funds on deposit in the Custodial Account that have been identified by it as being attributable to the Mortgage Loans. With respect to Insurance Proceeds, Liquidation Proceeds, REO Proceeds, Subsequent Recoveries and the proceeds of the purchase of any Mortgage Loan pursuant to Sections 2.02, 2.03, 2.04 and 4.07 received in any calendar month, the Master Servicer may elect to treat such amounts as included in the Available Distribution Amount for the Distribution Date in the month of receipt, but is not obligated to do so. If the Master Servicer so elects, such amounts will be deemed to have been received (and any related Realized Loss shall be deemed to have occurred) on the last day of the month prior to the receipt thereof. (c) The Master Servicer shall use its best efforts to cause the institution maintaining the Custodial Account to invest the funds in the Custodial Account attributable to the Mortgage Loans in Permitted Investments which shall mature not later than the Certificate Account Deposit Date next following the date of such investment (with the exception of the Amount Held for Future Distribution) and which shall not be sold or disposed of prior to their maturities. All income and gain realized from any such investment shall be for the benefit of the Master Servicer as additional servicing compensation and shall be subject to its withdrawal or order from time to time. The amount of any losses incurred in respect of any such investments attributable to the investment of amounts in respect of the Mortgage Loans shall be deposited in the Custodial Account by the Master Servicer out of its own funds immediately as realized. (d) The Master Servicer shall give written notice to the Trustee and the Depositor of any change in the location of the Custodial Account and the location of the Certificate Account prior to the use thereof. Section 3.08. Subservicing Accounts; Servicing Accounts. (a) In those cases where a Subservicer is servicing a Mortgage Loan pursuant to a Subservicing Agreement, the Master Servicer shall cause the Subservicer, pursuant to the Subservicing Agreement, to establish and maintain one or more Subservicing Accounts which shall be an Eligible Account or, if such account is not an Eligible Account, shall generally satisfy the requirements of the Program Guide and be otherwise acceptable to the Master Servicer and each Rating Agency. The Subservicer will be required thereby to deposit into the Subservicing Account on a daily basis all proceeds of Mortgage Loans received by the Subservicer, less its Subservicing Fees and unreimbursed advances and expenses, to the extent permitted by the Subservicing Agreement. If the Subservicing Account is not an Eligible Account, the Master Servicer shall be deemed to have received such monies upon receipt thereof by the Subservicer. The Subservicer shall not be required to deposit in the Subservicing Account payments or collections in the nature of late charges or assumption fees, or payments or collections received in the nature of prepayment charges to the extent that the Subservicer is entitled to retain such amounts pursuant to the Subservicing Agreement. On or before the date specified in the Program Guide, but in no event later than the Determination Date, the Master Servicer shall cause the Subservicer, pursuant to the Subservicing Agreement, to remit to the Master Servicer for deposit in the Custodial Account all funds held in the Subservicing Account with respect to each Mortgage Loan serviced by such Subservicer that are required to be remitted to the Master Servicer. The Subservicer will also be required, pursuant to the Subservicing Agreement, to advance on such scheduled date of remittance amounts equal to any scheduled monthly installments of principal and interest less its Subservicing Fees on any Mortgage Loans for which payment was not received by the Subservicer. This obligation to advance with respect to each Mortgage Loan will continue up to and including the first of the month following the date on which the related Mortgaged Property is sold at a foreclosure sale or is acquired by the Trust Fund by deed in lieu of foreclosure or otherwise. All such advances received by the Master Servicer shall be deposited promptly by it in the Custodial Account. (b) The Subservicer may also be required, pursuant to the Subservicing Agreement, to remit to the Master Servicer for deposit in the Custodial Account interest at the Adjusted Mortgage Rate (or Modified Net Mortgage Rate plus the rate per annum at which the Servicing Fee accrues in the case of a Modified Mortgage Loan) on any Curtailment received by such Subservicer in respect of a Mortgage Loan from the related Mortgagor during any month that is to be applied by the Subservicer to reduce the unpaid principal balance of the related Mortgage Loan as of the first day of such month, from the date of application of such Curtailment to the first day of the following month. Any amounts paid by a Subservicer pursuant to the preceding sentence shall be for the benefit of the Master Servicer as additional servicing compensation and shall be subject to its withdrawal or order from time to time pursuant to Sections 3.10(a)(iv) and (v). (c) In addition to the Custodial Account and the Certificate Account, the Master Servicer shall for any Nonsubserviced Mortgage Loan, and shall cause the Subservicers for Subserviced Mortgage Loans to, establish and maintain one or more Servicing Accounts and deposit and retain therein all collections from the Mortgagors (or advances from Subservicers) for the payment of taxes, assessments, hazard insurance premiums, Primary Insurance Policy premiums, if applicable, or comparable items for the account of the Mortgagors. Each Servicing Account shall satisfy the requirements for a Subservicing Account and, to the extent permitted by the Program Guide or as is otherwise acceptable to the Master Servicer, may also function as a Subservicing Account. Withdrawals of amounts related to the Mortgage Loans from the Servicing Accounts may be made only to effect timely payment of taxes, assessments, hazard insurance premiums, Primary Insurance Policy premiums, if applicable, or comparable items, to reimburse the Master Servicer or Subservicer out of related collections for any payments made pursuant to Sections 3.11 (with respect to the Primary Insurance Policy) and 3.12(a) (with respect to hazard insurance), to refund to any Mortgagors any sums as may be determined to be overages, to pay interest, if required, to Mortgagors on balances in the Servicing Account or to clear and terminate the Servicing Account at the termination of this Agreement in accordance with Section 9.01 or in accordance with the Program Guide. As part of its servicing duties, the Master Servicer shall, and the Subservicers will, pursuant to the Subservicing Agreements, be required to pay to the Mortgagors interest on funds in this account to the extent required by law. (d) The Master Servicer shall advance the payments referred to in the preceding subsection that are not timely paid by the Mortgagors or advanced by the Subservicers on the date when the tax, premium or other cost for which such payment is intended is due, but the Master Servicer shall be required so to advance only to the extent that such advances, in the good faith judgment of the Master Servicer, will be recoverable by the Master Servicer out of Insurance Proceeds, Liquidation Proceeds or otherwise. Section 3.09. Access to Certain Documentation and Information Regarding the Mortgage Loans. In the event that compliance with this Section 3.09 shall make any Class of Certificates legal for investment by federally insured savings and loan associations, the Master Servicer shall provide, or cause the Subservicers to provide, to the Trustee, the Office of Thrift Supervision or the FDIC and the supervisory agents and examiners thereof access to the documentation regarding the Mortgage Loans required by applicable regulations of the Office of Thrift Supervision, such access being afforded without charge but only upon reasonable request and during normal business hours at the offices designated by the Master Servicer. The Master Servicer shall permit such representatives to photocopy any such documentation and shall provide equipment for that purpose at a charge reasonably approximating the cost of such photocopying to the Master Servicer. Section 3.10. Permitted Withdrawals from the Custodial Account. (a) The Master Servicer may, from time to time as provided herein, make withdrawals from the Custodial Account of amounts on deposit therein pursuant to Section 3.07 that are attributable to the Mortgage Loans for the following purposes: (i) to make deposits into the Certificate Account in the amounts and in the manner provided for in Section 4.01; (ii) to reimburse itself or the related Subservicer for previously unreimbursed Advances, Servicing Advances or other expenses made pursuant to Sections 3.01, 3.07(a), 3.08, 3.11, 3.12(a), 3.14 and 4.04 or otherwise reimbursable pursuant to the terms of this Agreement, such withdrawal right being limited to amounts received on the related Mortgage Loans (including, for this purpose, REO Proceeds, Insurance Proceeds, Liquidation Proceeds and proceeds from the purchase of a Mortgage Loan pursuant to Section 2.02, 2.03, 2.04 or 4.07) which represent (A) Late Collections of Monthly Payments for which any such advance was made in the case of Subservicer Advances or Advances pursuant to Section 4.04 and (B) recoveries of amounts in respect of which such advances were made in the case of Servicing Advances; (iii) to pay to itself or the related Subservicer (if not previously retained by such Subservicer) out of each payment received by the Master Servicer on account of interest on a Mortgage Loan as contemplated by Sections 3.14 and 3.16, an amount equal to that remaining portion of any such payment as to interest (but not in excess of the Servicing Fee and the Subservicing Fee, if not previously retained) which, when deducted, will result in the remaining amount of such interest being interest at a rate per annum equal to the Net Mortgage Rate (or Modified Net Mortgage Rate in the case of a Modified Mortgage Loan) on the amount specified in the amortization schedule of the related Mortgage Loan as the principal balance thereof at the beginning of the period respecting which such interest was paid after giving effect to any previous Curtailments; (iv) to pay to itself as additional servicing compensation any interest or investment income earned on funds and other property deposited in or credited to the Custodial Account that it is entitled to withdraw pursuant to Section 3.07(c); (v) to pay to itself as additional servicing compensation any Foreclosure Profits, and any amounts remitted by Subservicers as interest in respect of Curtailments pursuant to Section 3.08(b); (vi) to pay to itself, a Subservicer, a Seller, Residential Funding, the Depositor or any other appropriate Person, as the case may be, with respect to each Mortgage Loan or property acquired in respect thereof that has been purchased or otherwise transferred pursuant to Section 2.02, 2.03, 2.04, 4.07 or 9.01, all amounts received thereon and not required to be distributed to Certificateholders as of the date on which the related Stated Principal Balance or Purchase Price is determined; (vii) to reimburse itself or the related Subservicer for any Nonrecoverable Advance or Advances in the manner and to the extent provided in subsection (c) below, and any Advance or Servicing Advance made in connection with a modified Mortgage Loan that is in default or, in the judgment of the Master Servicer, default is reasonably foreseeable pursuant to Section 3.07(a), to the extent the amount of the Advance or Servicing Advance was added to the Stated Principal Balance of the Mortgage Loan in a prior calendar month; (viii) to reimburse itself or the Depositor for expenses incurred by and reimbursable to it or the Depositor pursuant to Section 3.01(a), 3.11, 3.13, 3.14(c), 6.03, 10.01 or otherwise, or in connection with enforcing any repurchase, substitution or indemnification obligation of any Seller (other than the Depositor or an Affiliate of the Depositor) pursuant to the related Seller's Agreement; (ix) to reimburse itself for amounts expended by it (a) pursuant to Section 3.14 in good faith in connection with the restoration of property damaged by an Uninsured Cause, and (b) in connection with the liquidation of a Mortgage Loan or disposition of an REO Property to the extent not otherwise reimbursed pursuant to clause (ii) or (viii) above; and (x) to withdraw any amount deposited in the Custodial Account that was not required to be deposited therein pursuant to Section 3.07, including any payoff fees or penalties or any other additional amounts payable to the Master Servicer or Subservicer pursuant to the terms of the Mortgage Note. (b) Since, in connection with withdrawals pursuant to clauses (ii), (iii), (v) and (vi), the Master Servicer's entitlement thereto is limited to collections or other recoveries on the related Mortgage Loan, the Master Servicer shall keep and maintain separate accounting, on a Mortgage Loan by Mortgage Loan basis, for the purpose of justifying any withdrawal from the Custodial Account pursuant to such clauses. (c) The Master Servicer shall be entitled to reimburse itself or the related Subservicer for any advance made in respect of a Mortgage Loan that the Master Servicer determines to be a Nonrecoverable Advance by withdrawal from the Custodial Account of amounts on deposit therein attributable to the Mortgage Loans on any Certificate Account Deposit Date succeeding the date of such determination. Such right of reimbursement in respect of a Nonrecoverable Advance relating to an Advance made pursuant to Section 4.04 on any such Certificate Account Deposit Date shall be limited to an amount not exceeding the portion of such advance previously paid to Certificateholders (and not theretofore reimbursed to the Master Servicer or the related Subservicer). Section 3.11. Maintenance of Primary Insurance Coverage. (a) The Master Servicer shall not take, or permit any Subservicer to take, any action which would result in noncoverage under any applicable Primary Insurance Policy of any loss which, but for the actions of the Master Servicer or Subservicer, would have been covered thereunder. To the extent coverage is available, the Master Servicer shall keep or cause to be kept in full force and effect each such Primary Insurance Policy until the principal balance of the related Mortgage Loan secured by a Mortgaged Property is reduced to 80% or less of the Appraised Value at origination in the case of such a Mortgage Loan having a Loan-to-Value Ratio at origination in excess of 80%, provided that such Primary Insurance Policy was in place as of the Cut-off Date and the Master Servicer had knowledge of such Primary Insurance Policy. The Master Servicer shall not cancel or refuse to renew any such Primary Insurance Policy applicable to a Nonsubserviced Mortgage Loan, or consent to any Subservicer canceling or refusing to renew any such Primary Insurance Policy applicable to a Mortgage Loan subserviced by it, that is in effect at the date of the initial issuance of the Certificates and is required to be kept in force hereunder unless the replacement Primary Insurance Policy for such canceled or non-renewed policy is maintained with an insurer whose claims-paying ability is acceptable to each Rating Agency for mortgage pass-through certificates having a rating equal to or better than the lower of the then-current rating or the rating assigned to the Certificates as of the Closing Date by such Rating Agency. (b) In connection with its activities as administrator and servicer of the Mortgage Loans, the Master Servicer agrees to present or to cause the related Subservicer to present, on behalf of the Master Servicer, the Subservicer, if any, the Trustee and Certificateholders, claims to the insurer under any Primary Insurance Policies, in a timely manner in accordance with such policies, and, in this regard, to take or cause to be taken such reasonable action as shall be necessary to permit recovery under any Primary Insurance Policies respecting defaulted Mortgage Loans. Pursuant to Section 3.07, any Insurance Proceeds collected by or remitted to the Master Servicer under any Primary Insurance Policies shall be deposited in the Custodial Account, subject to withdrawal pursuant to Section 3.10. Section 3.12. Maintenance of Fire Insurance and Omissions and Fidelity Coverage. (a) The Master Servicer shall cause to be maintained for each Mortgage Loan fire insurance with extended coverage in an amount which is equal to the lesser of the principal balance owing on such Mortgage Loan (together with the principal balance of any mortgage loan secured by a lien that is senior to the Mortgage Loan) or 100% of the insurable value of the improvements; provided, however, that such coverage may not be less than the minimum amount required to fully compensate for any loss or damage on a replacement cost BASIS. To the extent it may do so without breaching the related Subservicing Agreement, the Master Servicer shall replace any Subservicer that does not cause such insurance, to the extent it is available, to be maintained. The Master Servicer shall also cause to be maintained on property acquired upon foreclosure, or deed in lieu of foreclosure, of any Mortgage Loan, fire insurance with extended coverage in an amount which is at least equal to the amount necessary to avoid the application of any co-insurance clause contained in the related hazard insurance policy. Pursuant to Section 3.07, any amounts collected by the Master Servicer under any such policies (other than amounts to be applied to the restoration or repair of the related Mortgaged Property or property thus acquired or amounts released to the Mortgagor in accordance with the Master Servicer's normal servicing procedures) shall be deposited in the Custodial Account, subject to withdrawal pursuant to Section 3.10. Any cost incurred by the Master Servicer in maintaining any such insurance shall not, for the purpose of calculating monthly distributions to Certificateholders, be added to the amount owing under the Mortgage Loan, notwithstanding that the terms of the Mortgage Loan so permit. Such costs shall be recoverable by the Master Servicer out of related late payments by the Mortgagor or out of Insurance Proceeds and Liquidation Proceeds to the extent permitted by Section 3.10. It is understood and agreed that no earthquake or other additional insurance is to be required of any Mortgagor or maintained on property acquired in respect of a Mortgage Loan other than pursuant to such applicable laws and regulations as shall at any time be in force and as shall require such additional insurance. Whenever the improvements securing a Mortgage Loan are located at the time of origination of such Mortgage Loan in a federally designated special flood hazard area, the Master Servicer shall cause flood insurance (to the extent available) to be maintained in respect thereof. Such flood insurance shall be in an amount equal to the lesser of (i) the amount required to compensate for any loss or damage to the Mortgaged Property on a replacement cost basis and (ii) the maximum amount of such insurance available for the related Mortgaged Property under the national flood insurance program (assuming that the area in which such Mortgaged Property is located is participating in such program). In the event that the Master Servicer shall obtain and maintain a blanket fire insurance policy with extended coverage insuring against hazard losses on all of the Mortgage Loans, it shall conclusively be deemed to have satisfied its obligations as set forth in the first sentence of this Section 3.12(a), it being understood and agreed that such policy may contain a deductible clause, in which case the Master Servicer shall, in the event that there shall not have been maintained on the related Mortgaged Property a policy complying with the first sentence of this Section 3.12(a) and there shall have been a loss which would have been covered by such policy, deposit in the Certificate Account the amount not otherwise payable under the blanket policy because of such deductible clause. Any such deposit by the Master Servicer shall be made on the Certificate Account Deposit Date next preceding the Distribution Date which occurs in the month following the month in which payments under any such policy would have been deposited in the Custodial Account. In connection with its activities as administrator and servicer of the Mortgage Loans, the Master Servicer agrees to present, on behalf of itself, the Trustee and Certificateholders, claims under any such blanket policy. (b) The Master Servicer shall obtain and maintain at its own expense and keep in full force and effect throughout the term of this Agreement a blanket fidelity bond and an errors and omissions insurance policy covering the Master Servicer's officers and employees and other persons acting on behalf of the Master Servicer in connection with its activities under this Agreement. The amount of coverage shall be at least equal to the coverage that would be required by Fannie Mae or Freddie Mac, whichever is greater, with respect to the Master Servicer if the Master Servicer were servicing and administering the Mortgage Loans for Fannie Mae or Freddie Mac. In the event that any such bond or policy ceases to be in effect, the Master Servicer shall obtain a comparable replacement bond or policy from an issuer or insurer, as the case may be, meeting the requirements, if any, of the Program Guide and acceptable to the Depositor. Coverage of the Master Servicer under a policy or bond obtained by an Affiliate of the Master Servicer and providing the coverage required by this Section 3.12(b) shall satisfy the requirements of this Section 3.12(b). Section 3.13. Enforcement of Due-on-Sale Clauses; Assumption and Modification Agreements; Certain Assignments. (a) When any Mortgaged Property is conveyed by the Mortgagor, the Master Servicer or Subservicer, to the extent it has knowledge of such conveyance, shall enforce any due-on-sale clause contained in any Mortgage Note or Mortgage, to the extent permitted under applicable law and governmental regulations, but only to the extent that such enforcement will not adversely affect or jeopardize coverage under any Required Insurance Policy. Notwithstanding the foregoing: (i) the Master Servicer shall not be deemed to be in default under this Section 3.13(a) by reason of any transfer or assumption which the Master Servicer is restricted by law from preventing; and (ii) if the Master Servicer determines that it is reasonably likely that any Mortgagor will bring, or if any Mortgagor does bring, legal action to declare invalid or otherwise avoid enforcement of a due-on-sale clause contained in any Mortgage Note or Mortgage, the Master Servicer shall not be required to enforce the due-on-sale clause or to contest such action. (b) Subject to the Master Servicer's duty to enforce any due-on-sale clause to the extent set forth in Section 3.13(a), in any case in which a Mortgaged Property is to be conveyed to a Person by a Mortgagor, and such Person is to enter into an assumption or modification agreement or supplement to the Mortgage Note or Mortgage which requires the signature of the Trustee, or if an instrument of release signed by the Trustee is required releasing the Mortgagor from liability on the Mortgage Loan, the Master Servicer is authorized, subject to the requirements of the sentence next following, to execute and deliver, on behalf of the Trustee, the assumption agreement with the Person to whom the Mortgaged Property is to be conveyed and such modification agreement or supplement to the Mortgage Note or Mortgage or other instruments as are reasonable or necessary to carry out the terms of the Mortgage Note or Mortgage or otherwise to comply with any applicable laws regarding assumptions or the transfer of the Mortgaged Property to such Person; provided, however, none of such terms and requirements shall both constitute a "significant modification" effecting an exchange or reissuance of such Mortgage Loan under the Code (or final, temporary or proposed Treasury regulations promulgated thereunder) and cause any REMIC created hereunder to fail to qualify as a REMIC under the Code or the imposition of any tax on "prohibited transactions" or "contributions" after the Startup Date under the REMIC Provisions. The Master Servicer shall execute and deliver such documents only if it reasonably determines that (i) its execution and delivery thereof will not conflict with or violate any terms of this Agreement or cause the unpaid balance and interest on the Mortgage Loan to be uncollectible in whole or in part, (ii) any required consents of insurers under any Required Insurance Policies have been obtained and (iii) subsequent to the closing of the transaction involving the assumption or transfer (A) the Mortgage Loan will continue to be secured by a first mortgage lien (or, with respect to any junior lien, a junior lien of the same priority in relation to any senior lien on such Mortgage Loan) pursuant to the terms of the Mortgage, (B) such transaction will not adversely affect the coverage under any Required Insurance Policies, (C) the Mortgage Loan will fully amortize over the remaining term thereof, (D) no material term of the Mortgage Loan (including the interest rate on the Mortgage Loan) will be altered nor will the term of the Mortgage Loan be changed and (E) if the seller/transferor of the Mortgaged Property is to be released from liability on the Mortgage Loan, the buyer/transferee of the Mortgaged Property would be qualified to assume the Mortgage Loan based on generally comparable credit quality and such release will not (based on the Master Servicer's or Subservicer's good faith determination) adversely affect the collectability of the Mortgage Loan. Upon receipt of appropriate instructions from the Master Servicer in accordance with the foregoing, the Trustee shall execute any necessary instruments for such assumption or substitution of liability as directed by the Master Servicer. Upon the closing of the transactions contemplated by such documents, the Master Servicer shall cause the originals or true and correct copies of the assumption agreement, the release (if any), or the modification or supplement to the Mortgage Note or Mortgage to be delivered to the Trustee or the Custodian and deposited with the Mortgage File for such Mortgage Loan. Any fee collected by the Master Servicer or such related Subservicer for entering into an assumption or substitution of liability agreement will be retained by the Master Servicer or such Subservicer as additional servicing compensation. (c) The Master Servicer or the related Subservicer, as the case may be, shall be entitled to approve a request from a Mortgagor for a partial release of the related Mortgaged Property, the granting of an easement thereon in favor of another Person, any alteration or demolition of the related Mortgaged Property or other similar matters if it has determined, exercising its good faith business judgment in the same manner as it would if it were the owner of the related Mortgage Loan, that the security for, and the timely and full collectability of, such Mortgage Loan would not be adversely affected thereby and that any REMIC created hereunder would not fail to continue to qualify as a REMIC under the Code as a result thereof and (subject to Section 10.01(f)) that no tax on "prohibited transactions" or "contributions" after the Startup Date would be imposed on any REMIC created hereunder as a result thereof. Any fee collected by the Master Servicer or the related Subservicer for processing such a request will be retained by the Master Servicer or such Subservicer as additional servicing compensation. (d) Subject to any other applicable terms and conditions of this Agreement, the Trustee and Master Servicer shall be entitled to approve an assignment in lieu of satisfaction with respect to any Mortgage Loan, provided the obligee with respect to such Mortgage Loan following such proposed assignment provides the Trustee and Master Servicer with a "Lender Certification for Assignment of Mortgage Loan" in the form attached hereto as Exhibit M, in form and substance satisfactory to the Trustee and Master Servicer, providing the following: (i) that the Mortgage Loan is secured by Mortgaged Property located in a jurisdiction in which an assignment in lieu of satisfaction is required to preserve lien priority, minimize or avoid mortgage recording taxes or otherwise comply with, or facilitate a refinancing under, the laws of such jurisdiction; (ii) that the substance of the assignment is, and is intended to be, a refinancing of such Mortgage Loan and that the form of the transaction is solely to comply with, or facilitate the transaction under, such local laws; (iii) that the Mortgage Loan following the proposed assignment will have a rate of interest more than the greater of (A) 3% and (B) 5% of the annual yield of the unmodified Mortgage Loan, below or above the rate of interest on such Mortgage Loan prior to such proposed assignment; and (iv) that such assignment is at the request of the borrower under the related Mortgage Loan. Upon approval of an assignment in lieu of satisfaction with respect to any Mortgage Loan, the Master Servicer shall receive cash in an amount equal to the unpaid principal balance of and accrued interest on such Mortgage Loan, and the Master Servicer shall treat such amount as a Principal Prepayment in Full with respect to such Mortgage Loan for all purposes hereof. Section 3.14. Realization Upon Defaulted Mortgage Loans. (a) The Master Servicer shall foreclose upon or otherwise comparably convert (which may include an REO Acquisition) the ownership of properties securing such of the Mortgage Loans as come into and continue in default and as to which no satisfactory arrangements can be made for collection of delinquent payments pursuant to Section 3.07. Alternatively, the Master Servicer may take other actions in respect of a defaulted Mortgage Loan, which may include (i) accepting a short sale (a payoff of the Mortgage Loan for an amount less than the total amount contractually owed in order to facilitate a sale of the Mortgaged Property by the Mortgagor) or permitting a short refinancing (a payoff of the Mortgage Loan for an amount less than the total amount contractually owed in order to facilitate refinancing transactions by the Mortgagor not involving a sale of the Mortgaged Property), (ii) arranging for a repayment plan or (iii) agreeing to a modification in accordance with Section 3.07. In connection with such foreclosure or other conversion or action, the Master Servicer shall, consistent with Section 3.11, follow such practices and procedures as it shall deem necessary or advisable, as shall be normal and usual in its general mortgage servicing activities and as shall be required or permitted by the Program Guide; provided that the Master Servicer shall not be liable in any respect hereunder if the Master Servicer is acting in connection with any such foreclosure or other conversion or action in a manner that is consistent with the provisions of this Agreement. The Master Servicer, however, shall not be required to expend its own funds or incur other reimbursable charges in connection with any foreclosure, or attempted foreclosure which is not completed, or towards the correction of any default on a related senior mortgage loan, or towards the restoration of any property unless it shall determine (i) that such restoration and/or foreclosure will increase the proceeds of liquidation of the Mortgage Loan to Holders of Certificates of one or more Classes after reimbursement to itself for such expenses or charges and (ii) that such expenses and charges will be recoverable to it through Liquidation Proceeds, Insurance Proceeds, or REO Proceeds (respecting which it shall have priority for purposes of withdrawals from the Custodial Account pursuant to Section 3.10, whether or not such expenses and charges are actually recoverable from related Liquidation Proceeds, Insurance Proceeds or REO Proceeds). In the event of such a determination by the Master Servicer pursuant to this Section 3.14(a), the Master Servicer shall be entitled to reimbursement of its funds so expended pursuant to Section 3.10. In addition, the Master Servicer may pursue any remedies that may be available in connection with a breach of a representation and warranty with respect to any such Mortgage Loan in accordance with Sections 2.03 and 2.04. However, the Master Servicer is not required to continue to pursue both foreclosure (or similar remedies) with respect to the Mortgage Loans and remedies in connection with a breach of a representation and warranty if the Master Servicer determines in its reasonable discretion that one such remedy is more likely to result in a greater recovery as to the Mortgage Loan. Upon the occurrence of a Cash Liquidation or REO Disposition, following the deposit in the Custodial Account of all Insurance Proceeds, Liquidation Proceeds and other payments and recoveries referred to in the definition of "Cash Liquidation" or "REO Disposition," as applicable, upon receipt by the Trustee of written notification of such deposit signed by a Servicing Officer, the Trustee or any Custodian, as the case may be, shall release to the Master Servicer the related Mortgage File and the Trustee shall execute and deliver such instruments of transfer or assignment prepared by the Master Servicer, in each case without recourse, as shall be necessary to vest in the Master Servicer or its designee, as the case may be, the related Mortgage Loan, and thereafter such Mortgage Loan shall not be part of the Trust FUND. Notwithstanding the foregoing or any other provision of this Agreement, in the Master Servicer's sole discretion with respect to any defaulted Mortgage Loan or REO Property as to either of the following provisions, (i) a Cash Liquidation or REO Disposition may be deemed to have occurred if substantially all amounts expected by the Master Servicer to be received in connection with the related defaulted Mortgage Loan or REO Property have been received, and (ii) for purposes of determining the amount of any Liquidation Proceeds, Insurance Proceeds, REO Proceeds or other unscheduled collections or the amount of any Realized Loss, the Master Servicer may take into account minimal amounts of additional receipts expected to be received or any estimated additional liquidation expenses expected to be incurred in connection with the related defaulted Mortgage Loan or REO Property. (b) In the event that title to any Mortgaged Property is acquired by the Trust Fund as an REO Property by foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale shall be issued to the Trustee or to its nominee on behalf of Certificateholders. Notwithstanding any such acquisition of title and cancellation of the related Mortgage Loan, such REO Property shall (except as otherwise expressly provided herein) be considered to be an Outstanding Mortgage Loan held in the Trust Fund until such time as the REO Property shall be sold. Consistent with the foregoing for purposes of all calculations hereunder so long as such REO Property shall be considered to be an Outstanding Mortgage Loan it shall be assumed that, notwithstanding that the indebtedness evidenced by the related Mortgage Note shall have been discharged, such Mortgage Note and the related amortization schedule in effect at the time of any such acquisition of title (after giving effect to any previous Curtailments and before any adjustment thereto by reason of any bankruptcy or similar proceeding or any moratorium or similar waiver or grace period) remain in effect. (c) In the event that the Trust Fund acquires any REO Property as aforesaid or otherwise in connection with a default or imminent default on a Mortgage Loan, the Master Servicer on behalf of the Trust Fund shall dispose of such REO Property as soon as practicable, giving due consideration to the interests of the Certificateholders, but in all cases, within three full years after the taxable year of its acquisition by the Trust Fund for purposes of Section 860G(a)(8) of the Code (or such shorter period as may be necessary under applicable state (including any state in which such property is located) law to maintain the status of each REMIC created hereunder as a REMIC under applicable state law and avoid taxes resulting from such property failing to be foreclosure property under applicable state law) or, at the expense of the Trust Fund, request, more than 60 days before the day on which such grace period would otherwise expire, an extension of such grace period unless the Master Servicer (subject to Section 10.01(f)) obtains for the Trustee an Opinion of Counsel, addressed to the Trustee and the Master Servicer, to the effect that the holding by the Trust Fund of such REO Property subsequent to such period will not result in the imposition of taxes on "prohibited transactions" as defined in Section 860F of the Code or cause any REMIC created hereunder to fail to qualify as a REMIC (for federal (or any applicable State or local) income tax purposes) at any time that any Certificates are outstanding, in which case the Trust Fund may continue to hold such REO Property (subject to any conditions contained in such Opinion of Counsel). The Master Servicer shall be entitled to be reimbursed from the Custodial Account for any costs incurred in obtaining such Opinion of Counsel, as provided in Section 3.10. Notwithstanding any other provision of this Agreement, no REO Property acquired by the Trust Fund shall be rented (or allowed to continue to be rented) or otherwise used by or on behalf of the Trust Fund in such a manner or pursuant to any terms that would (i) cause such REO Property to fail to qualify as "foreclosure property" within the meaning of Section 860G(a)(8) of the Code or (ii) subject any REMIC created hereunder to the imposition of any federal income taxes on the income earned from such REO Property, including any taxes imposed by reason of Section 860G(c) of the Code, unless the Master Servicer has agreed to indemnify and hold harmless the Trust Fund with respect to the imposition of any such taxes. (d) The proceeds of any Cash Liquidation, REO Disposition or purchase or repurchase of any Mortgage Loan pursuant to the terms of this Agreement, as well as any recovery (other than Subsequent Recoveries) resulting from a collection of Liquidation Proceeds, Insurance Proceeds or REO Proceeds, will be applied in the following order of priority: first, to reimburse the Master Servicer or the related Subservicer in accordance with Section 3.10(a)(ii); second, to the Certificateholders to the extent of accrued and unpaid interest on the Mortgage Loan, and any related REO Imputed Interest, at the Net Mortgage Rate (or the Modified Net Mortgage Rate in the case of a Modified Mortgage Loan), to the Due Date in the related Due Period prior to the Distribution Date on which such amounts are to be distributed; third, to the Certificateholders as a recovery of principal on the Mortgage Loan (or REO Property); fourth, to all Servicing Fees and Subservicing Fees payable therefrom (and the Master Servicer and the Subservicer shall have no claims for any deficiencies with respect to such fees which result from the foregoing allocation); and fifth, to Foreclosure Profits. (e) In the event of a default on a Mortgage Loan one or more of whose obligors is not a United States Person, in connection with any foreclosure or acquisition of a deed in lieu of foreclosure (together, "foreclosure") in respect of such Mortgage Loan, the Master Servicer shall cause compliance with the provisions of Treasury Regulation Section 1.1445-2(d)(3) (or any successor thereto) necessary to assure that no withholding tax obligation arises with respect to the proceeds of such foreclosure except to the extent, if any, that proceeds of such foreclosure are required to be remitted to the obligors on such Mortgage Loan. Section 3.15. Trustee to Cooperate; Release of Mortgage Files. (a) Upon becoming aware of the payment in full of any Mortgage Loan, or upon the receipt by the Master Servicer of a notification that payment in full will be escrowed in a manner customary for such purposes, the Master Servicer shall immediately notify the Trustee (if it holds the related Mortgage File) or the Custodian by a certification of a Servicing Officer (which certification shall include a statement to the effect that all amounts received or to be received in connection with such payment which are required to be deposited in the Custodial Account pursuant to Section 3.07 have been or will be so deposited), substantially in the form attached hereto as Exhibit G, or, in the case of a Custodian, an electronic request in a form acceptable to the Custodian, requesting delivery to it of the Mortgage File. Upon receipt of such certification and request, the Trustee shall promptly release, or cause the Custodian to release, the related Mortgage File to the Master Servicer. The Master Servicer is authorized to execute and deliver to the Mortgagor the request for reconveyance, deed of reconveyance or release or satisfaction of mortgage or such instrument releasing the lien of the Mortgage, together with the Mortgage Note with, as appropriate, written evidence of cancellation thereon and to cause the removal from the registration on the MERS(R)System of such Mortgage and to execute and deliver, on behalf of the Trustee and the Certificateholders or any of them, any and all instruments of satisfaction or cancellation or of partial or full release, including any applicable UCC termination statements. No expenses incurred in connection with any instrument of satisfaction or deed of reconveyance shall be chargeable to the Custodial Account or the Certificate Account. (b) From time to time as is appropriate for the servicing or foreclosure of any Mortgage Loan, the Master Servicer shall deliver to the Custodian, with a copy to the Trustee, a certificate of a Servicing Officer substantially in the form attached as Exhibit G hereto, or, in the case of a Custodian, an electronic request in a form acceptable to the Custodian, requesting that possession of all, or any document constituting part of, the Mortgage File be released to the Master Servicer and certifying as to the reason for such release and that such release will not invalidate any insurance coverage provided in respect of the Mortgage Loan under any Required Insurance Policy. Upon receipt of the foregoing, the Trustee shall deliver, or cause the Custodian to deliver, the Mortgage File or any document therein to the Master Servicer. The Master Servicer shall cause each Mortgage File or any document therein so released to be returned to the Trustee, or the Custodian as agent for the Trustee when the need therefor by the Master Servicer no longer exists, unless (i) the Mortgage Loan has been liquidated and the Liquidation Proceeds relating to the Mortgage Loan have been deposited in the Custodial Account or (ii) the Mortgage File or such document has been delivered directly or through a Subservicer to an attorney, or to a public trustee or other public official as required by law, for purposes of initiating or pursuing legal action or other proceedings for the foreclosure of the Mortgaged Property either judicially or non-judicially, and the Master Servicer has delivered directly or through a Subservicer to the Trustee a certificate of a Servicing Officer certifying as to the name and address of the Person to which such Mortgage File or such document was delivered and the purpose or purposes of such delivery. In the event of the liquidation of a Mortgage Loan, the Trustee shall deliver the Request for Release with respect thereto to the Master Servicer upon the Trustee's receipt of notification from the Master Servicer of the deposit of the related Liquidation Proceeds in the Custodial Account. (c) The Trustee or the Master Servicer on the Trustee's behalf shall execute and deliver to the Master Servicer, if necessary, any court pleadings, requests for trustee's sale or other documents necessary to the foreclosure or trustee's sale in respect of a Mortgaged Property or to any legal action brought to obtain judgment against any Mortgagor on the Mortgage Note or Mortgage or to obtain a deficiency judgment, or to enforce any other remedies or rights provided by the Mortgage Note or Mortgage or otherwise available at law or in equity. Together with such documents or pleadings (if signed by the Trustee), the Master Servicer shall deliver to the Trustee a certificate of a Servicing Officer requesting that such pleadings or documents be executed by the Trustee and certifying as to the reason such documents or pleadings are required and that the execution and delivery thereof by the Trustee shall not invalidate any insurance coverage under any Required Insurance Policy or invalidate or otherwise affect the lien of the Mortgage, except for the termination of such a lien upon completion of the foreclosure or trustee's sale. Section 3.16. Servicing and Other Compensation; Compensating Interest. (a) The Master Servicer, as compensation for its activities hereunder, shall be entitled to receive on each Distribution Date the amounts provided for by clauses (iii), (iv), (v) and (vi) of Section 3.10(a), subject to clause (e) below. The amount of servicing compensation provided for in such clauses shall be accounted for on a Mortgage Loan-by-Mortgage Loan basis. In the event that Liquidation Proceeds, Insurance Proceeds and REO Proceeds (net of amounts reimbursable therefrom pursuant to Section 3.10(a)(ii)) in respect of a Cash Liquidation or REO Disposition exceed the unpaid principal balance of such Mortgage Loan plus unpaid interest accrued thereon (including REO Imputed Interest) at a per annum rate equal to the related Net Mortgage Rate (or the Modified Net Mortgage Rate in the case of a Modified Mortgage Loan), the Master Servicer shall be entitled to retain therefrom and to pay to itself and/or the related Subservicer, any Foreclosure Profits and any Servicing Fee or Subservicing Fee considered to be accrued but unpaid. (b) Additional servicing compensation in the form of assumption fees, late payment charges, investment income on amounts in the Custodial Account or the Certificate Account or otherwise shall be retained by the Master Servicer or the Subservicer to the extent provided herein, subject to clause (e) below. Prepayment charges shall be deposited into the Certificate Account and shall be paid on each Distribution Date to the holders of the Class SB Certificates. (c) The Master Servicer shall be required to pay, or cause to be paid, all expenses incurred by it in connection with its servicing activities hereunder (including payment of premiums for the Primary Insurance Policies, if any, to the extent such premiums are not required to be paid by the related Mortgagors, and the fees and expenses of the Trustee and any Custodian) and shall not be entitled to reimbursement therefor except as specifically provided in Sections 3.10 and 3.14. (d) The Master Servicer's right to receive servicing compensation may not be transferred in whole or in part except in connection with the transfer of all of its responsibilities and obligations of the Master Servicer under this Agreement. (e) Notwithstanding clauses (a) and (b) above, the amount of servicing compensation that the Master Servicer shall be entitled to receive for its activities hereunder for the period ending on each Distribution Date shall be reduced (but not below zero) by the amount of Compensating Interest (if any) for such Distribution Date used to cover Prepayment Interest Shortfalls as provided in Section 3.16(f) below. Such reduction shall be applied during such period as follows: first, to any Servicing Fee or Subservicing Fee to which the Master Servicer is entitled pursuant to Section 3.10(a)(iii); and second, to any income or gain realized from any investment of funds held in the Custodial Account or the Certificate Account to which the Master Servicer is entitled pursuant to Sections 3.07(c) or 4.01(c), respectively. In making such reduction, the Master Servicer shall not withdraw from the Custodial Account any such amount representing all or a portion of the Servicing Fee to which it is entitled pursuant to Section 3.10(a)(iii) and shall not withdraw from the Custodial Account or Certificate Account any such amount to which it is entitled pursuant to Section 3.07(c) or 4.01(c). (f) With respect to any Distribution Date, Prepayment Interest Shortfalls on the Mortgage Loans will be covered first, by the Master Servicer, but only to the extent such Prepayment Interest Shortfalls do not exceed Eligible Master Servicing Compensation. Section 3.17. Reports to the Trustee and the Depositor. Not later than fifteen days after it receives a written request from the Trustee or the Depositor, the Master Servicer shall forward to the Trustee and the Depositor a statement, certified by a Servicing Officer, setting forth the status of the Custodial Account as of the close of business on such Distribution Date as it relates to the Mortgage Loans and showing, for the period covered by such statement, the aggregate of deposits in or withdrawals from the Custodial Account in respect of the Mortgage Loans for each category of deposit specified in Section 3.07 and each category of withdrawal specified in Section 3.10. Section 3.18. Annual Statement as to Compliance and Servicing Assessment. The Master Servicer shall deliver to the Depositor and the Trustee on or before the earlier of (a) March 31 of each year or (b) with respect to any calendar year during which the Depositor's annual report on Form 10-K is required to be filed in accordance with the Exchange Act and the rules and regulations of the Commission, the date on which the annual report on Form 10-K is required to be filed in accordance with the Exchange Act and the rules and regulations of the Commission, (i) a servicing assessment as described in Section 4.03(f)(ii) and (ii) a servicer compliance statement, signed by an authorized officer of the Master Servicer, as described in Items 1122(a), 1122(b) and 1123 of Regulation AB, to the effect that: (A) A review of the Master Servicer's activities during the reporting period and of its performance under this Agreement has been made under such officer's supervision. (B) To the best of such officer's knowledge, based on such review, the Master Servicer has fulfilled all of its obligations under this Agreement in all material respects throughout the reporting period or, if there has been a failure to fulfill any such obligation in any material respect, specifying each such failure known to such officer and the nature and status thereof. The Master Servicer shall use commercially reasonable efforts to obtain from all other parties participating in the servicing function any additional certifications required under Item 1123 of Regulation AB to the extent required to be included in a Report on Form 10-K; provided, however, that a failure to obtain such certifications shall not be a breach of the Master Servicer's duties hereunder if any such party fails to deliver such a certification. Section 3.19. Annual Independent Public Accountants' Servicing Report. On or before the earlier of (a) March 31 of each year or (b) with respect to any calendar year during which the Depositor's annual report on Form 10-K is required to be filed in accordance with the Exchange Act and the rules and regulations of the Commission, the date on which the annual report is required to be filed in accordance with the Exchange Act and the rules and regulations of the Commission, the Master Servicer at its expense shall cause a firm of independent public accountants, which shall be members of the American Institute of Certified Public Accountants, to furnish to the Depositor and the Trustee the attestation required under Item 1122(b) of Regulation AB. In rendering such statement, such firm may rely, as to matters relating to the direct servicing of mortgage loans by Subservicers, upon comparable statements for examinations conducted by independent public accountants substantially in accordance with standards established by the American Institute of Certified Public Accountants (rendered within one year of such statement) with respect to such Subservicers. Section 3.20. Right of the Depositor in Respect of the Master Servicer. The Master Servicer shall afford the Depositor and the Trustee, upon reasonable notice, during normal business hours access to all records maintained by the Master Servicer in respect of its rights and obligations hereunder and access to officers of the Master Servicer responsible for such obligations. Upon request, the Master Servicer shall furnish the Depositor with its most recent financial statements and such other information as the Master Servicer possesses regarding its business, affairs, property and condition, financial or otherwise. The Master Servicer shall also cooperate with all reasonable requests for information including, but not limited to, notices, tapes and copies of files, regarding itself, the Mortgage Loans or the Certificates from any Person or Persons identified by the Depositor or Residential Funding. The Depositor may enforce the obligation of the Master Servicer hereunder and may, but it is not obligated to, perform or cause a designee to perform, any defaulted obligation of the Master Servicer hereunder or exercise the rights of the Master Servicer hereunder; provided that the Master Servicer shall not be relieved of any of its obligations hereunder by virtue of such performance by the Depositor or its designee. Neither the Depositor nor the Trustee shall have the responsibility or liability for any action or failure to act by the Master Servicer and they are not obligated to supervise the performance of the Master Servicer under this Agreement or otherwise. Section 3.21. [Reserved]. Section 3.22. Advance Facility. (a) The Master Servicer is hereby authorized to enter into a financing or other facility (any such arrangement, an "Advance Facility") under which (1) the Master Servicer sells, assigns or pledges to another Person (an "Advancing Person") the Master Servicer's rights under this Agreement to be reimbursed for any Advances or Servicing Advances and/or (2) an Advancing Person agrees to fund some or all Advances and/or Servicing Advances required to be made by the Master Servicer pursuant to this Agreement. No consent of the Depositor, the Trustee, the Certificateholders or any other party shall be required before the Master Servicer may enter into an Advance Facility. Notwithstanding the existence of any Advance Facility under which an Advancing Person agrees to fund Advances and/or Servicing Advances on the Master Servicer's behalf, the Master Servicer shall remain obligated pursuant to this Agreement to make Advances and Servicing Advances pursuant to and as required by this Agreement. If the Master Servicer enters into an Advance Facility, and for so long as an Advancing Person remains entitled to receive reimbursement for any Advances including Nonrecoverable Advances ("Advance Reimbursement Amounts") and/or Servicing Advances including Nonrecoverable Advances ("Servicing Advance Reimbursement Amounts" and together with Advance Reimbursement Amounts, "Reimbursement Amounts") (in each case to the extent such type of Reimbursement Amount is included in the Advance Facility), as applicable, pursuant to this Agreement, then the Master Servicer shall identify such Reimbursement Amounts consistent with the reimbursement rights set forth in Section 3.10(a)(ii) and (vii) and remit such Reimbursement Amounts in accordance with this Section 3.22 or otherwise in accordance with the documentation establishing the Advance Facility to such Advancing Person or to a trustee, agent or custodian (an "Advance Facility Trustee") designated by such Advancing Person in an Advance Facility Notice described below in Section 3.22(b). Notwithstanding the foregoing, if so required pursuant to the terms of the Advance Facility, the Master Servicer may direct, and if so directed in writing, the Trustee is hereby authorized to and shall pay to the Advance Facility Trustee the Reimbursement Amounts identified pursuant to the preceding sentence. An Advancing Person whose obligations hereunder are limited to the funding of Advances and/or Servicing Advances shall not be required to meet the qualifications of a Master Servicer or a Subservicer pursuant to Section 3.02(a) or 6.02(c) hereof and shall not be deemed to be a Subservicer under this Agreement. Notwithstanding anything to the contrary herein, in no event shall Advance Reimbursement Amounts or Servicing Advance Reimbursement Amounts be included in the Available Distribution Amount or distributed to Certificateholders. (b) If the Master Servicer enters into an Advance Facility and makes the election set forth in Section 3.22(a), the Master Servicer and the related Advancing Person shall deliver to the Trustee a written notice and payment instruction (an "Advance Facility Notice"), providing the Trustee with written payment instructions as to where to remit Advance Reimbursement Amounts and/or Servicing Advance Reimbursement Amounts (each to the extent such type of Reimbursement Amount is included within the Advance Facility) on subsequent Distribution Dates. The payment instruction shall require the applicable Reimbursement Amounts to be distributed to the Advancing Person or to an Advance Facility Trustee designated in the Advance Facility Notice. An Advance Facility Notice may only be terminated by the joint written direction of the Master Servicer and the related Advancing Person (and any related Advance Facility Trustee). (c) Reimbursement Amounts shall consist solely of amounts in respect of Advances and/or Servicing Advances made with respect to the Mortgage Loans for which the Master Servicer would be permitted to reimburse itself in accordance with Section 3.10(a)(ii) and (vii) hereof, assuming the Master Servicer or the Advancing Person had made the related Advance(s) and/or Servicing Advance(s). Notwithstanding the foregoing, except with respect to reimbursement of Nonrecoverable Advances as set forth in Section 3.10(c) of this Agreement, no Person shall be entitled to reimbursement from funds held in the Collection Account for future distribution to Certificateholders pursuant to this Agreement. Neither the Depositor nor the Trustee shall have any duty or liability with respect to the calculation of any Reimbursement Amount, nor shall the Depositor or the Trustee have any responsibility to track or monitor the administration of the Advance Facility and the Depositor shall not have any responsibility to track, monitor or verify the payment of Reimbursement Amounts to the related Advancing Person or Advance Facility Trustee. The Master Servicer shall maintain and provide to any successor master servicer a detailed accounting on a loan-by-loan basis as to amounts advanced by, sold, pledged or assigned to, and reimbursed to any Advancing Person. The successor master servicer shall be entitled to rely on any such information provided by the Master Servicer, and the successor master servicer shall not be liable for any errors in such information. (d) Upon the direction of and at the expense of the Master Servicer, the Trustee agrees to execute such acknowledgments, certificates, and other documents reasonably satisfactory to the Trustee provided by the Master Servicer and reasonably satisfactory to the Trustee recognizing the interests of any Advancing Person or Advance Facility Trustee in such Reimbursement Amounts as the Master Servicer may cause to be made subject to Advance Facilities pursuant to this Section 3.22, and such other documents in connection with such Advance Facility as may be reasonably requested from time to time by any Advancing Person or Advance Facility Trustee and reasonably satisfactory to the Trustee. (e) Reimbursement Amounts collected with respect to each Mortgage Loan shall be allocated to outstanding unreimbursed Advances or Servicing Advances (as the case may be) made with respect to that Mortgage Loan on a "first-in, first out" ("FIFO") basis, subject to the qualifications set forth below: (i) Any successor Master Servicer to Residential Funding (a "Successor Master Servicer") and the Advancing Person or Advance Facility Trustee shall be required to apply all amounts available in accordance with this Section 3.22(e) to the reimbursement of Advances and Servicing Advances in the manner provided for herein; provided, however, that after the succession of a Successor Master Servicer, (A) to the extent that any Advances or Servicing Advances with respect to any particular Mortgage Loan are reimbursed from payments or recoveries, if any, from the related Mortgagor, and Liquidation Proceeds or Insurance Proceeds, if any, with respect to that Mortgage Loan, reimbursement shall be made, first, to the Advancing Person or Advance Facility Trustee in respect of Advances and/or Servicing Advances related to that Mortgage Loan to the extent of the interest of the Advancing Person or Advance Facility Trustee in such Advances and/or Servicing Advances, second to the Master Servicer in respect of Advances and/or Servicing Advances related to that Mortgage Loan in excess of those in which the Advancing Person or Advance Facility Trustee Person has an interest, and third, to the Successor Master Servicer in respect of any other Advances and/or Servicing Advances related to that Mortgage Loan, from such sources as and when collected, and (B) reimbursements of Advances and Servicing Advances that are Nonrecoverable Advances shall be made pro rata to the Advancing Person or Advance Facility Trustee, on the one hand, and any such Successor Master Servicer, on the other hand, on the basis of the respective aggregate outstanding unreimbursed Advances and Servicing Advances that are Nonrecoverable Advances owed to the Advancing Person, Advance Facility Trustee or Master Servicer pursuant to this Agreement, on the one hand, and any such Successor Master Servicer, on the other hand, and without regard to the date on which any such Advances or Servicing Advances shall have been made. In the event that, as a result of the FIFO allocation made pursuant to this Section 3.22(e), some or all of a Reimbursement Amount paid to the Advancing Person or Advance Facility Trustee relates to Advances or Servicing Advances that were made by a Person other than Residential Funding or the Advancing Person or Advance Facility Trustee, then the Advancing Person or Advance Facility Trustee shall be required to remit any portion of such Reimbursement Amount to the Person entitled to such portion of such Reimbursement Amount. Without limiting the generality of the foregoing, Residential Funding shall remain entitled to be reimbursed by the Advancing Person or Advance Facility Trustee for all Advances and Servicing Advances funded by Residential Funding to the extent the related Reimbursement Amount(s) have not been assigned or pledged to an Advancing Person or Advance Facility Trustee. The documentation establishing any Advance Facility shall require Residential Funding to provide to the related Advancing Person or Advance Facility Trustee loan by loan information with respect to each Reimbursement Amount distributed to such Advancing Person or Advance Facility Trustee on each date of remittance thereof to such Advancing Person or Advance Facility Trustee, to enable the Advancing Person or Advance Facility Trustee to make the FIFO allocation of each Reimbursement Amount with respect to each Mortgage Loan. (ii) By way of illustration, and not by way of limiting the generality of the foregoing, if the Master Servicer resigns or is terminated at a time when the Master Servicer is a party to an Advance Facility, and is replaced by a Successor Master Servicer, and the Successor Master Servicer directly funds Advances or Servicing Advances with respect to a Mortgage Loan and does not assign or pledge the related Reimbursement Amounts to the related Advancing Person or Advance Facility Trustee, then all payments and recoveries received from the related Mortgagor or received in the form of Liquidation Proceeds with respect to such Mortgage Loan (including Insurance Proceeds collected in connection with a liquidation of such Mortgage Loan) will be allocated first to the Advancing Person or Advance Facility Trustee until the related Reimbursement Amounts attributable to such Mortgage Loan that are owed to the Master Servicer and the Advancing Person, which were made prior to any Advances or Servicing Advances made by the Successor Master Servicer, have been reimbursed in full, at which point the Successor Master Servicer shall be entitled to retain all related Reimbursement Amounts subsequently collected with respect to that Mortgage Loan pursuant to Section 3.10 of this Agreement. To the extent that the Advances or Servicing Advances are Nonrecoverable Advances to be reimbursed on an aggregate basis pursuant to Section 3.10 of this Agreement, the reimbursement paid in this manner will be made pro rata to the Advancing Person or Advance Facility Trustee, on the one hand, and the Successor Master Servicer, on the other hand, as described in clause (i)(B) above. (f) The Master Servicer shall remain entitled to be reimbursed for all Advances and Servicing Advances funded by the Master Servicer to the extent the related rights to be reimbursed therefor have not been sold, assigned or pledged to an Advancing Person. (g) Any amendment to this Section 3.22 or to any other provision of this Agreement that may be necessary or appropriate to effect the terms of an Advance Facility as described generally in this Section 3.22, including amendments to add provisions relating to a successor master servicer, may be entered into by the Trustee, the Depositor and the Master Servicer without the consent of any Certificateholder, with written confirmation from each Rating Agency that the amendment will not result in the reduction of the ratings on any class of the Certificates below the lesser of the then current or original ratings on such Certificates and delivery of an Opinion of Counsel as required under Section 11.01(c), notwithstanding anything to the contrary in Section 11.01 of or elsewhere in this Agreement. (h) Any rights of set-off that the Trust Fund, the Trustee, the Depositor, any Successor Master Servicer or any other Person might otherwise have against the Master Servicer under this Agreement shall not attach to any rights to be reimbursed for Advances or Servicing Advances that have been sold, transferred, pledged, conveyed or assigned to any Advancing Person. (i) At any time when an Advancing Person shall have ceased funding Advances and/or Servicing Advances (as the case may be) and the Advancing Person or related Advance Facility Trustee shall have received Reimbursement Amounts sufficient in the aggregate to reimburse all Advances and/or Servicing Advances (as the case may be) the right to reimbursement for which were assigned to the Advancing Person, then upon the delivery of a written notice signed by the Advancing Person and the Master Servicer or its successor or assign) to the Trustee terminating the Advance Facility Notice (the "Notice of Facility Termination"), the Master Servicer or its Successor Master Servicer shall again be entitled to withdraw and retain the related Reimbursement Amounts from the Custodial Account pursuant to Section 3.10. (j) After delivery of any Advance Facility Notice, and until any such Advance Facility Notice has been terminated by a Notice of Facility Termination, this Section 3.22 may not be amended or otherwise modified without the prior written consent of the related Advancing Person. -------------------------------------------------------------------------------- ARTICLE IV PAYMENTS TO CERTIFICATEHOLDERS Section 4.01. Certificate Account. (a) The Master Servicer acting as agent of the Trustee shall establish and maintain a Certificate Account in which the Master Servicer shall cause to be deposited on behalf of the Trustee on or before 2:00 P.M. New York time on each Certificate Account Deposit Date by wire transfer of immediately available funds an amount equal to the sum of (i) any Advance for the immediately succeeding Distribution Date, (ii) any amount required to be deposited in the Certificate Account pursuant to Section 3.12(a), (iii) any amount required to be deposited in the Certificate Account pursuant to Section 3.16(e) or Section 4.07, (iv) any amount required to be paid pursuant to Section 9.01, and (v) other amounts constituting the Available Distribution Amount for the immediately succeeding Distribution Date. (b) [Reserved]. (c) The Trustee shall, upon written request from the Master Servicer, invest or cause the institution maintaining the Certificate Account to invest the funds in the Certificate Account in Permitted Investments designated in the name of the Trustee for the benefit of the Certificateholders, which shall mature not later than the Business Day next preceding the Distribution Date next following the date of such investment (except that (i) if such Permitted Investment is an obligation of the institution that maintains such account or fund for which such institution serves as custodian, then such Permitted Investment may mature on such Distribution Date and (ii) any other investment may mature on such Distribution Date if the Trustee shall advance funds on such Distribution Date to the Certificate Account in the amount payable on such investment on such Distribution Date, pending receipt thereof to the extent necessary to make distributions on the Certificates) and shall not be sold or disposed of prior to maturity. All income and gain realized from any such investment shall be for the benefit of the Master Servicer and shall be subject to its withdrawal or order from time to time. The amount of any losses incurred in respect of any such investments shall be deposited in the Certificate Account by the Master Servicer out of its own funds immediately as realized. Section 4.02. Distributions. (a) On each Distribution Date, the Trustee (or the Paying Agent on behalf of the Trustee) shall allocate and distribute the Available Distribution Amount, if any, for such date to the interests issued in respect of REMIC I and REMIC II as specified in this Section. (b) (1) On each Distribution Date, the REMIC I Distribution Amount shall be distributed by REMIC I to REMIC II on account of the REMIC I Regular Interests and to the Holders of the Class R Certificates in the amounts and with the priorities set forth in the definition thereof. (2) Notwithstanding the distributions described in this Section 4.02(b), distribution of funds from the Certificate Account shall be made only in accordance with Section 4.02(c). (c) On each Distribution Date (x) the Master Servicer on behalf of the Trustee or (y) the Paying Agent appointed by the Trustee, shall distribute to each Certificateholder of record on the next preceding Record Date (other than as provided in Section 9.01 respecting the final distribution) either in immediately available funds (by wire transfer or otherwise) to the account of such Certificateholder at a bank or other entity having appropriate facilities therefor, if such Certificateholder has so notified the Master Servicer or the Paying Agent, as the case may be, or, if such Certificateholder has not so notified the Master Servicer or the Paying Agent by the Record Date, by check mailed to such Certificateholder at the address of such Holder appearing in the Certificate Register such Certificateholder's share (which share with respect to each Class of Certificates, shall be based on the aggregate of the Percentage Interests represented by Certificates of the applicable Class held by such Holder of the following amounts), in the following order of priority, in each case to the extent of the Available Distribution Amount on deposit in the Certificate Account (except, with respect to clauses (iii) through (x) below, to the extent of the remaining Available Distribution Amount plus the remaining Yield Maintenance Agreement Payment available for that purpose or, with respect to clause (x)(B) below, to the extent of prepayment charges on deposit in the Certificate Account): (i) to the Class A Certificateholders, the Accrued Certificate Interest payable on the Class A Certificates with respect to such Distribution Date, plus any related amounts accrued pursuant to this clause (i) but remaining unpaid from any prior Distribution Date being paid from and in reduction of the Available Distribution Amount for such Distribution Date; (ii) to the Class M Certificateholders, from the amount, if any, of the Available Distribution Amount remaining after the foregoing distributions, the Accrued Certificate Interest payable on the Class M Certificates with respect to such Distribution Date, plus any related amounts accrued pursuant to this clause (ii) but remaining unpaid from any prior Distribution Date, sequentially, to the Class M-1 Certificateholders, Class M-2 Certificateholders, Class M-3 Certificateholders, Class M-4 Certificateholders, Class M-5 Certificateholders, Class M-6 Certificateholders, Class M-7 Certificateholders, Class M-8 Certificateholders and Class M-9 Certificateholders, in that order, being paid from and in reduction of the Available Distribution Amount for such Distribution Date; (iii) [reserved]; (iv) the Principal Distribution Amount shall be distributed as follows, to be applied to reduce the Certificate Principal Balance of the applicable Certificates in each case to the extent of the remaining Principal Distribution Amount: (A) first, the Class A Principal Distribution Amount shall be distributed, sequentially, to the Class A-1 Certificateholders, Class A-2 Certificateholders, Class A-3 Certificateholders and Class A-4 Certificateholders, in that order, in each case until the aggregate Certificate Principal Balance thereof is reduced to zero; (B) second, to the Class M-1 Certificateholders, the Class M-1 Principal Distribution Amount, until the Certificate Principal Balance of the Class M-1 Certificates has been reduced to zero; (C) third, to the Class M-2 Certificateholders, the Class M-2 Principal Distribution Amount, until the Certificate Principal Balance of the Class M-2 Certificates has been reduced to zero; (D) fourth, to the Class M-3 Certificateholders, the Class M-3 Principal Distribution Amount, until the Certificate Principal Balance of the Class M-3 Certificates has been reduced to zero; (E) fifth, to the Class M-4 Certificateholders, the Class M-4 Principal Distribution Amount, until the Certificate Principal Balance of the Class M-4 Certificates has been reduced to zero; (F) sixth, to the Class M-5 Certificateholders, the Class M-5 Principal Distribution Amount, until the Certificate Principal Balance of the Class M-5 Certificates has been reduced to zero; (G) seventh, to the Class M-6 Certificateholders, the Class M-6 Principal Distribution Amount, until the Certificate Principal Balance of the Class M-6 Certificates has been reduced to zero; (H) eighth, to the Class M-7 Certificateholders, the Class M-7 Principal Distribution Amount, until the Certificate Principal Balance of the Class M-7 Certificates has been reduced to zero; (I) ninth, to the Class M-8 Certificateholders, the Class M-8 Principal Distribution Amount, until the Certificate Principal Balance of the Class M-8 Certificates has been reduced to zero; and (J) tenth, to the Class M-9 Certificateholders, the Class M-9 Principal Distribution Amount, until the Certificate Principal Balance of the Class M-9 Certificates has been reduced to zero; (v) to the Class A Certificateholders and Class M Certificateholders, the amount of any Prepayment Interest Shortfalls allocated thereto for such Distribution Date, on a pro rata basis based on Prepayment Interest Shortfalls allocated thereto to the extent not offset by Eligible Master Servicing Compensation on such Distribution Date; (vi) to the Class A Certificateholders and Class M Certificateholders, the amount of any Prepayment Interest Shortfalls previously allocated thereto remaining unpaid from prior Distribution Dates together with interest thereon at the Pass-Through Rate, on a pro rata basis based on unpaid Prepayment Interest Shortfalls previously allocated thereto; (vii) first, to the Class A Certificateholders, the amount of any unpaid Basis Risk Shortfalls allocated thereto, on a pro rata basis based on the amount of unpaid Basis Risk Shortfalls allocated thereto, and then, sequentially, to the Class M-1, Class M-2, Class M-3, Class M-4, Class M-5, Class M-6, Class M-7, Class M-8 and Class M-9 Certificateholders, in that order, the related Basis Risk Shortfall, as applicable, for such Class and that Distribution Date; (viii) to the Class A Certificateholders and Class M Certificateholders, Relief Act Shortfalls allocated thereto for such Distribution Date, on a pro rata basis based on Relief Act Shortfalls allocated thereto for such Distribution Date, (ix) first, to the Class A Certificateholders, the principal portion of any Realized Losses previously allocated to those Certificates and remaining unreimbursed, on a pro rata basis based on their respective principal portion of any Realized Losses previously allocated to those Certificates and remaining unreimbursed, and then, sequentially, to the Class M-1, Class M-2, Class M-3, Class M-4, Class M-5, Class M-6, Class M-7, Class M-8 and Class M-9 Certificateholders, in that order, the principal portion of any Realized Losses previously allocated to such Class and remaining unreimbursed; (x) to the Class SB Certificates, (A) from the amount, if any, of the Excess Cash Flow remaining after the foregoing distributions, the sum of (I) Accrued Certificate Interest thereon, (II) the amount of any Overcollateralization Reduction Amount for such Distribution Date, (III) the amount of any Yield Maintenance Agreement Shortfall Amount for such Distribution Date, (IV) the amount of any Yield Maintenance Agreement Shortfall Carry-Forward Amount for such Distribution Date and (V) for any Distribution Date after the Certificate Principal Balance of each Class of Class A Certificates and Class M Certificates has been reduced to zero, the Overcollateralization Amount and (B) from prepayment charges on deposit in the Certificate Account, any prepayment charges received on the Mortgage Loans during the related Prepayment Period; and (xi) to the Class R Certificateholders, the balance, if any, of the Excess Cash Flow. (d) Notwithstanding the foregoing clause (c), upon the reduction of the Certificate Principal Balance of a Class of Class A Certificates or Class M Certificates to zero, such Class of Certificates will not be entitled to further distributions pursuant to Section 4.02. (e) Each distribution with respect to a Book-Entry Certificate shall be paid to the Depository, as Holder thereof, and the Depository shall be responsible for crediting the amount of such distribution to the accounts of its Depository Participants in accordance with its normal procedures. Each Depository Participant shall be responsible for disbursing such distribution to the Certificate Owners that it represents and to each indirect participating brokerage firm (a "brokerage firm" or "indirect participating firm") for which it acts as agent. Each brokerage firm shall be responsible for disbursing funds to the Certificate Owners that it represents. None of the Trustee, the Certificate Registrar, the Depositor or the Master Servicer shall have any responsibility therefor except as otherwise provided by this Agreement or applicable law. (f) Except as otherwise provided in Section 9.01, if the Master Servicer anticipates that a final distribution with respect to any Class of Certificates will be made on a Distribution Date, the Master Servicer shall, no later than 40 days' prior to such Distribution Date, notify the Trustee and the Trustee shall, not earlier than the 15th day and not later than the 25th day of the month preceding such Distribution Date, distribute, or cause to be distributed, on such date to each Holder of such Class of Certificates a notice to the effect that: (i) the Trustee anticipates that the final distribution with respect to such Class of Certificates will be made on such Distribution Date but only upon presentation and surrender of such Certificates at the office of the Trustee or as otherwise specified therein, and (ii) no interest shall accrue on such Certificates from and after the end of the prior calendar month. In the event that Certificateholders required to surrender their Certificates pursuant to Section 9.01(c) do not surrender their Certificates for final cancellation, the Trustee shall cause funds distributable with respect to such Certificates to be withdrawn from the Certificate Account and credited to a separate escrow account for the benefit of such Certificateholders as provided in Section 9.01(d). Section 4.03. Statements to Certificateholders; Statements to Rating Agencies; Exchange Act Reporting. (a) Concurrently with each distribution charged to the Certificate Account and with respect to each Distribution Date the Master Servicer shall forward to the Trustee and the Trustee shall forward by mail or otherwise make available electronically on its website (which may be obtained by any Certificateholder by telephoning the Trustee at (800) 934-6802) to each Holder and the Depositor a statement setting forth the following information as to each Class of Certificates, in each case to the extent applicable: (i) the applicable Record Date, Determination Date and Distribution Date, and the date on which the applicable Interest Accrual Period commenced; (ii) the aggregate amount of payments received with respect to the Mortgage Loans, including prepayment amounts; (iii) the Servicing Fee and Subservicing Fee payable to the Master Servicer and the Subservicer; (iv) the amount of any other fees or expenses paid, and the identity of the party receiving such fees or expenses; (A) the amount of such distribution to the Certificateholders of such Class applied to reduce the Certificate Principal Balance thereof, and (B) the aggregate amount included therein representing Principal Prepayments; (v) the amount of such distribution to Holders of such Class of Certificates allocable to interest (including amounts payable as a portion of the Excess Cash Flow); (vi) if the distribution to the Holders of such Class of Certificates is less than the full amount that would be distributable to such Holders if there were sufficient funds available therefor, the amount of the shortfall; (vii) the Certificate Principal Balance of each Class of the Certificates, before and after giving effect to the amounts distributed on such Distribution Date, separately identifying any reduction thereof due to Realized Losses other than pursuant to an actual distribution of principal; (viii) the Certificate Principal Balance of each Class of Class A Certificates as of the Closing Date; (ix) the Certificate Principal Balance of each Class of Class M Certificates as of the Closing Date; (x) the number and Stated Principal Balance of the Mortgage Loans after giving effect to the distribution of principal on such Distribution Date and the number of Mortgage Loans at the beginning and end of the related Due Period; (xi) on the basis of the most recent reports furnished to it by Subservicers, (A) the number and Stated Principal Balances of Mortgage Loans that are Delinquent (1) 30-59 days, (2) 60-89 days and (3) 90 or more days and the number and Stated Principal Balance of Mortgage Loans that are in foreclosure, (B) the number and Stated Principal Balances of the Mortgage Loans in the aggregate that are Reportable Modified Mortgage Loans that are in foreclosure and are REO Property, indicating in each case capitalized Mortgage Loans, other Servicing Modifications and totals, and (C) for all Reportable Modified Mortgage Loans, the number and Stated Principal Balances of the Mortgage Loans in the aggregate that have been liquidated, the subject of pay-offs and that have been repurchased by the Master Servicer or Seller; (xii) the amount, terms and general purpose of any Advance by the Master Servicer pursuant to Section 4.04 and the amount of all Advances that have been reimbursed during the related Due Period; (xiii) any material modifications, extensions or waivers to the terms of the Mortgage Loans during the Due Period or that have cumulatively become material over time; (xiv) any material breaches of Mortgage Loan representations or warranties or covenants in the Agreement; (xv) the amount, if any, of the Yield Maintenance Agreement Payment for such Distribution Date and any shortfall in amounts previously required to be paid under the Yield Maintenance Agreement for prior Distribution Dates; (xvi) the number, aggregate principal balance and Stated Principal Balance of any REO Properties with respect to the Mortgage Loans; (xvii) the aggregate Accrued Certificate Interest remaining unpaid, if any, for each Class of Certificates, after giving effect to the distribution made on such Distribution Date; (xviii) the aggregate amount of Realized Losses with respect to the Mortgage Loans for such Distribution Date and the aggregate amount of Realized Losses with respect to the Mortgage Loans incurred since the Cut-off Date; (xix) the Pass-Through Rate on each Class of Certificates and the Net WAC Cap Rate; (xx) the Basis Risk Shortfalls and Prepayment Interest Shortfalls; (xxi) the Overcollateralization Amount and the Required Overcollateralization Amount following such Distribution Date; (xxii) the number and aggregate principal balance of the Mortgage Loans repurchased under Section 4.07; (xxiii) the aggregate amount of any recoveries with respect to the Mortgage Loans on previously foreclosed loans from Residential Funding; (xxiv) the weighted average remaining term to maturity of the Mortgage Loans after giving effect to the amounts distributed on such Distribution Date; (xxv) the weighted average Mortgage Rates of the Mortgage Loans after giving effect to the amounts distributed on such Distribution Date; (xxvi) the occurrence of the Stepdown Date; and (xxvii) the amount, if any, required to be paid under any Derivative Contract entered into pursuant to Section 4.09 hereof. In the case of information furnished pursuant to clauses (i) and (ii) above, the amounts shall be expressed as a dollar amount per Certificate with a $1,000 denomination. In addition to the statement provided to the Trustee as set forth in this Section 4.03(a), the Master Servicer shall provide to any manager of a trust fund consisting of some or all of the Certificates, upon reasonable request, such additional information as is reasonably obtainable by the Master Servicer at no additional expense to the Master Servicer. Also, at the request of a Rating Agency, the Master Servicer shall provide the information relating to the Reportable Modified Mortgage Loans substantially in the form attached hereto as Exhibit U to such Rating Agency within a reasonable period of time; provided, however, that the Master Servicer shall not be required to provide such information more than four times in a calendar year to any Rating Agency. (b) Within a reasonable period of time after it receives a written request from a Holder of a Certificate, other than a Class R Certificate, the Master Servicer shall prepare, or cause to be prepared, and shall forward, or cause to be forwarded to each Person who at any time during the calendar year was the Holder of a Certificate, other than a Class R Certificate, a statement containing the information set forth in clauses (iv) and (v) of subsection (a) above aggregated for such calendar year or applicable portion thereof during which such Person was a Certificateholder. Such obligation of the Master Servicer shall be deemed to have been satisfied to the extent that substantially comparable information shall be provided by the Master Servicer pursuant to any requirements of the Code. (c) Within a reasonable period of time after it receives a written request from any Holder of a Class R Certificate, the Master Servicer shall prepare, or cause to be prepared, and shall forward, or cause to be forwarded, to each Person who at any time during the calendar year was the Holder of a Class R Certificate, a statement containing the applicable distribution information provided pursuant to this Section 4.03 aggregated for such calendar year or applicable portion thereof during which such Person was the Holder of a Class R Certificate. Such obligation of the Master Servicer shall be deemed to have been satisfied to the extent that substantially comparable information shall be provided by the Master Servicer pursuant to any requirements of the Code. (d) Upon the written request of any Certificateholder, the Master Servicer, as soon as reasonably practicable, shall provide the requesting Certificateholder with such information as is necessary and appropriate, in the Master Servicer's sole discretion, for purposes of satisfying applicable reporting requirements under Rule 144A. (e) The Master Servicer shall, on behalf of the Depositor and in respect of the Trust Fund, sign and cause to be filed with the Commission any periodic reports required to be filed under the provisions of the Exchange Act, and the rules and regulations of the Commission thereunder, including without limitation, reports on Form 10-K, Form 10-D and Form 8-K. In connection with the preparation and filing of such periodic reports, the Trustee shall timely provide to the Master Servicer (I) a list of Certificateholders as shown on the Certificate Register as of the end of each calendar year, (II) copies of all pleadings, other legal process and any other documents relating to any claims, charges or complaints involving the Trustee, as trustee hereunder, or the Trust Fund that are received by a Responsible Officer of the Trustee, (III) notice of all matters that, to the actual knowledge of a Responsible Officer of the Trustee, have been submitted to a vote of the Certificateholders, other than those matters that have been submitted to a vote of the Certificateholders at the request of the Depositor or the Master Servicer, and (IV) notice of any failure of the Trustee to make any distribution to the Certificateholders as required pursuant to this Agreement. Neither the Master Servicer nor the Trustee shall have any liability with respect to the Master Servicer's failure to properly prepare or file such periodic reports resulting from or relating to the Master Servicer's inability or failure to obtain any information not resulting from the Master Servicer's own negligence or willful misconduct. (f) Any Form 10-K filed with the Commission in connection with this Section 4.03 shall include, with respect to the Certificates relating to such 10-K: (i) A certification, signed by the senior officer in charge of the servicing functions of the Master Servicer, in the form attached as Exhibit T-1 hereto or such other form as may be required or permitted by the Commission (the "Form 10-K Certification"), in compliance with Rules 13a-14 and 15d-14 under the Exchange Act and any additional directives of the Commission. (ii) A report regarding its assessment of compliance during the preceding calendar year with all applicable servicing criteria set forth in relevant Commission regulations with respect to mortgage-backed securities transactions taken as a whole involving the Master Servicer that are backed by the same types of assets as those backing the certificates, as well as similar reports on assessment of compliance received from other parties participating in the servicing function as required by relevant Commission regulations, as described in Item 1122(a) of Regulation AB. The Master Servicer shall obtain from all other parties participating in the servicing function any required assessments. (iii) With respect to each assessment report described immediately above, a report by a registered public accounting firm that attests to, and reports on, the assessment made by the asserting party, as set forth in relevant Commission regulations, as described in Regulation 1122(b) of Regulation AB and Section 3.19. (iv) The servicer compliance certificate required to be delivered pursuant Section 3.18. (g) In connection with the Form 10-K Certification, the Trustee shall provide the Master Servicer with a back-up certification substantially in the form attached hereto as Exhibit T-2. (h) This Section 4.03 may be amended in accordance with this Agreement without the consent of the Certificateholders. (i) The Trustee shall make available on the Trustee's internet website each of the reports filed with the Commission by or on behalf of the Depositor under the Exchange Act, as soon as reasonably practicable upon delivery of such report to the Trustee. Section 4.04. Distribution of Reports to the Trustee and the Depositor; Advances by the Master Servicer. (a) Prior to the close of business on the Business Day next succeeding each Determination Date, the Master Servicer shall furnish a written statement (which may be in a mutually agreeable electronic format) to the Trustee, any Paying Agent and the Depositor (the information in such statement to be made available to Certificateholders by the Master Servicer on request) (provided that the Master Servicer shall use its best efforts to deliver such written statement not later than 12:00 p.m. New York time on the second Business Day prior to the Distribution Date) setting forth (i) the Available Distribution Amount, (ii) the amounts required to be withdrawn from the Custodial Account and deposited into the Certificate Account on the immediately succeeding Certificate Account Deposit Date pursuant to clause (iii) of Section 4.01(a), (iii) the amount of Prepayment Interest Shortfalls and Basis Risk Shortfalls, (iv) the Yield Maintenance Agreement Payment, if any, for such Distribution Date and (v) the amount, if any, payable to the Trustee by a Derivative Counterparty. The determination by the Master Servicer of such amounts shall, in the absence of obvious error, be presumptively deemed to be correct for all purposes hereunder and the Trustee shall be protected in relying upon the same without any independent check or verification. (b) On or before 2:00 P.M. New York time on each Certificate Account Deposit Date, the Master Servicer shall either (i) remit to the Trustee for deposit in the Certificate Account from its own funds, or funds received therefor from the Subservicers, an amount equal to the Advances to be made by the Master Servicer in respect of the related Distribution Date, which shall be in an aggregate amount equal to the sum of (A) the aggregate amount of Monthly Payments other than Balloon Payments (with each interest portion thereof adjusted to a per annum rate equal to the Net Mortgage Rate), less the amount of any related Servicing Modifications, Debt Service Reductions or Relief Act Shortfalls, on the Outstanding Mortgage Loans as of the related Due Date in the related Due Period, which Monthly Payments were due during the related Due Period and not received as of the close of business as of the related Determination Date; provided that no Advance shall be made if it would be a Nonrecoverable Advance and (B) with respect to each Balloon Loan delinquent in respect of its Balloon Payment as of the close of business on the related Determination Date, an amount equal to the assumed Monthly Payment (with each interest portion thereof adjusted to a per annum rate equal to the Net Mortgage Rate) that would have been due on the related Due Date based on the original amortization schedule for such Balloon Loan until such Balloon Loan is finally liquidated, over any payments of interest or principal (with each interest portion thereof adjusted to a per annum rate equal to the Net Mortgage Rate) received from the related Mortgagor as of the close of business on the related Determination Date and allocable to the Due Date during the related Due Period for each month until such Balloon Loan is finally liquidated, (ii) withdraw from amounts on deposit in the Custodial Account and remit to the Trustee for deposit in the Certificate Account all or a portion of the Amount Held for Future Distribution in discharge of any such Advance, or (iii) make advances in the form of any combination of clauses (i) and (ii) aggregating the amount of such Advance. Any portion of the Amount Held for Future Distribution so used shall be replaced by the Master Servicer by deposit in the Certificate Account on or before 11:00 A.M. New York time on any future Certificate Account Deposit Date to the extent that funds attributable to the Mortgage Loans that are available in the Custodial Account for deposit in the Certificate Account on such Certificate Account Deposit Date shall be less than payments to Certificateholders required to be made on the following Distribution Date. The Master Servicer shall be entitled to use any Advance made by a Subservicer as described in Section 3.07(b) that has been deposited in the Custodial Account on or before such Distribution Date as part of the Advance made by the Master Servicer pursuant to this Section 4.04. The determination by the Master Servicer that it has made a Nonrecoverable Advance or that any proposed Advance, if made, would constitute a Nonrecoverable Advance, shall be evidenced by a certificate of a Servicing Officer delivered to the Depositor and the Trustee. In the event that the Master Servicer determines as of the Business Day preceding any Certificate Account Deposit Date that it will be unable to deposit in the Certificate Account an amount equal to the Advance required to be made for the immediately succeeding Distribution Date, it shall give notice to the Trustee of its inability to advance (such notice may be given by telecopy), not later than 3:00 P.M., New York time, on such Business Day, specifying the portion of such amount that it will be unable to deposit. Not later than 3:00 P.M., New York time, on the Certificate Account Deposit Date the Trustee shall, unless by 12:00 Noon, New York time, on such day the Trustee shall have been notified in writing (by telecopy) that the Master Servicer shall have directly or indirectly deposited in the Certificate Account such portion of the amount of the Advance as to which the Master Servicer shall have given notice pursuant to the preceding sentence, pursuant to Section 7.01, (a) terminate all of the rights and obligations of the Master Servicer under this Agreement in accordance with Section 7.01 and (b) assume the rights and obligations of the Master Servicer hereunder, including the obligation to deposit in the Certificate Account an amount equal to the Advance for the immediately succeeding Distribution Date. The Trustee shall deposit all funds it receives pursuant to this Section 4.04(b) into the Certificate Account. Section 4.05. Allocation of Realized Losses. (a) Prior to each Distribution Date, the Master Servicer shall determine the total amount of Realized Losses, if any, that resulted from any Cash Liquidation, Servicing Modifications, Debt Service Reduction, Deficient Valuation or REO Disposition that occurred during the related Prepayment Period or, in the case of a Servicing Modification that constitutes a reduction of the interest rate on a Mortgage Loan, the amount of the reduction in the interest portion of the Monthly Payment due in the month in which such Distribution Date occurs. The amount of each Realized Loss shall be evidenced by an Officers' Certificate. (b) All Realized Losses on the Mortgage Loans shall be allocated as follows: (i) first, to Excess Cash Flow in the amounts and priority as provided in Section 4.02; (ii) second, in reduction of the Overcollateralization Amount, until such amount has been reduced to zero; (iii) third, to the Class M-9 Certificates, until the aggregate Certificate Principal Balance thereof has been reduced to zero; (iv) fourth, to the Class M-8 Certificates, until the aggregate Certificate Principal Balance thereof has been reduced to zero; (v) fifth, to the Class M-7 Certificates, until the aggregate Certificate Principal Balance thereof has been reduced to zero; (vi) sixth, to the Class M-6 Certificates, until the aggregate Certificate Principal Balance thereof has been reduced to zero; (vii) seventh, to the Class M-5 Certificates, until the aggregate Certificate Principal Balance thereof has been reduced to zero; (viii) eighth, to the Class M-4 Certificates, until the aggregate Certificate Principal Balance thereof has been reduced to zero; (ix) ninth, to the Class M-3 Certificates, until the aggregate Certificate Principal Balance thereof has been reduced to zero; (x) tenth, to the Class M-2 Certificates, until the aggregate Certificate Principal Balance thereof has been reduced to zero; (xi) eleventh, to the Class M-1 Certificates, until the aggregate Certificate Principal Balance thereof has been reduced to zero; and (xii) twelfth, to the Class A-1, Class A-2, Class A-3 and Class A-4 Certificates on a pro rata basis, based on their then outstanding Certificate Principal Balances prior to giving effect to distributions to be made on such Distribution Date, until the aggregate Certificate Principal Balance of each such Class has been reduced to zero. (c) An allocation of a Realized Loss on a "pro rata basis" among two or more specified Classes of Certificates means an allocation on a pro rata basis, among the various Classes so specified, to each such Class of Certificates on the basis of their then outstanding Certificate Principal Balances prior to giving effect to distributions to be made on such Distribution Date in the case of the principal portion of a Realized Loss or based on the Accrued Certificate Interest thereon payable on such Distribution Date in the case of an interest portion of a Realized Loss. Any allocation of the principal portion of Realized Losses (other than Debt Service Reductions) to the Class A Certificates or Class M Certificates shall be made by reducing the Certificate Principal Balance thereof by the amount so allocated, which allocation shall be deemed to have occurred on such Distribution Date; provided, that no such reduction shall reduce the aggregate Certificate Principal Balance of the Certificates below the aggregate Stated Principal Balance of the Mortgage Loans. Allocations of the interest portions of Realized Losses (other than any interest rate reduction resulting from a Servicing Modification) shall be made by operation of the definition of "Accrued Certificate Interest" for each Class for such Distribution Date. Allocations of the interest portion of a Realized Loss resulting from an interest rate reduction in connection with a Servicing Modification shall be made by operation of the priority of payment provisions of Section 4.02(c). Allocations of the principal portion of Debt Service Reductions shall be made by operation of the priority of payment provisions of Section 4.02(c). All Realized Losses and all other losses allocated to a Class of Certificates hereunder will be allocated among the Certificates of such Class in proportion to the Percentage Interests evidenced thereby. (d) All Realized Losses on the Mortgage Loans shall be allocated on each Distribution Date to the REMIC I Regular Interests as provided in the definition of REMIC I Realized Losses. (e) Realized Losses allocated to the Excess Cash Flow or the Overcollateralization Amount pursuant to paragraphs (a), (b) or (c) of this Section, the definition of Accrued Certificate Interest and the operation of Section 4.02(c) shall be deemed allocated to the Class SB Certificates. Realized Losses allocated to the Class SB Certificates shall, to the extent such Realized Losses represent Realized Losses on an interest portion, be allocated to the REMIC II Regular Interest SB-IO. Realized Losses allocated to the Excess Cash Flow pursuant to paragraph (b) of this Section shall be deemed to reduce Accrued Certificate Interest on the REMIC II Regular Interest SB-IO. Realized Losses allocated to the Overcollateralization Amount pursuant to paragraph (b) of this Section shall be deemed first to reduce the principal balance of the REMIC II Regular Interest SB-PO until such principal balance shall have been reduced to zero and thereafter to reduce accrued and unpaid interest on the REMIC II Regular Interest SB-IO. Section 4.06. Reports of Foreclosures and Abandonment of Mortgaged Property. The Master Servicer or the Subservicers shall file information returns with respect to the receipt of mortgage interest received in a trade or business, the reports of foreclosures and abandonments of any Mortgaged Property and the informational returns relating to cancellation of indebtedness income with respect to any Mortgaged Property required by Sections 6050H, 6050J and 6050P of the Code, respectively, and deliver to the Trustee an Officers' Certificate on or before March 31 of each year, beginning with the first March 31 that occurs at least six months after the Cut-off Date, stating that such reports have been filed. Such reports shall be in form and substance sufficient to meet the reporting requirements imposed by such Sections 6050H, 6050J and 6050P of the Code. Section 4.07. Optional Purchase of Defaulted Mortgage Loans. (a) With respect to any Mortgage Loan which is delinquent in payment by 90 days or more, the Master Servicer may, at its option, purchase such Mortgage Loan from the Trustee at the Purchase Price therefor; provided, that such Mortgage Loan is 90 days or more delinquent at the time of repurchase. (b) If at any time the Master Servicer makes a payment to the Certificate Account covering the amount of the Purchase Price for such a Mortgage Loan as provided in clause (a) above, and the Master Servicer provides to the Trustee a certification signed by a Servicing Officer stating that the amount of such payment has been deposited in the Certificate Account, then the Trustee shall execute the assignment of such Mortgage Loan at the request of the Master Servicer without recourse to the Master Servicer which shall succeed to all the Trustee's right, title and interest in and to such Mortgage Loan, and all security and documents relative thereto. Such assignment shall be an assignment outright and not for security. The Master Servicer will thereupon own such Mortgage, and all such security and documents, free of any further obligation to the Trustee or the Certificateholders with respect thereto. Section 4.08. Limited Mortgage Loan Repurchase Right. The Limited Repurchase Right Holder will have the option at any time to purchase any of the Mortgage Loans from the Trustee at the Purchase Price, up to a maximum of five Mortgage Loans. In the event that this option is exercised as to any five Mortgage Loans in the aggregate, this option will thereupon terminate. If at any time the Limited Repurchase Right Holder makes a payment to the Certificate Account covering the amount of the Purchase Price for such a Mortgage Loan, and the Limited Repurchase Right Holder provides to the Trustee a certification signed by a Servicing Officer stating that the amount of such payment has been deposited in the Certificate Account, then the Trustee shall execute the assignment of such Mortgage Loan at the request of the Limited Repurchase Right Holder without recourse to the Limited Repurchase Right Holder which shall succeed to all the Trustee's right, title and interest in and to such Mortgage Loan, and all security and documents relative thereto. Such assignment shall be an assignment outright and not for security. The Limited Repurchase Right Holder will thereupon own such Mortgage, and all such security and documents, free of any further obligation to the Trustee or the Certificateholders with respect thereto. Any tax on "prohibited transactions" (as defined in Section 860F(a)(2) of the Code) imposed on any REMIC resulting from the exercise of the optional repurchase in this Section 4.08 shall in no event be payable by the Trustee. Section 4.09. Derivative Contracts. (a) The Trustee shall, at the written direction of the Master Servicer, on behalf of the Trust Fund, enter into Derivative Contracts, solely for the benefit of the Class SB Certificates. Any such Derivative Contract shall constitute a fully prepaid agreement. The Master Servicer shall determine, in its sole discretion, whether any Derivative Contract conforms to the requirements of clauses (b) and (c) of this Section 4.09. Any acquisition of a Derivative Contract shall be accompanied by an appropriate amendment to this Agreement, including an Opinion of Counsel, as provided in Section 11.01, and either (i) an Opinion of Counsel to the effect that the existence of the Derivative Contract will not adversely affect the availability of the exemptive relief afforded under ERISA by U.S. Department of Labor Prohibited Transaction Exemption ("PTE") 94-29, as most recently amended, 67 Fed. Reg. 54487 (Aug. 22, 2002), to the Holders of the Class A Certificates or the Class M Certificates, as of the date the Derivative Contract is acquired by the Trustee; or (ii) the consent of each holder of a Class A Certificate or Class M Certificate to the acquisition of such Derivative Contract. All collections, proceeds and other amounts in respect of the Derivative Contracts payable by the Derivative Counterparty shall be distributed to the Class SB Certificates on the Distribution Date following receipt thereof by the Trustee. In no event shall such an instrument constitute a part of any REMIC created hereunder. In addition, in the event any such instrument is deposited, the Trust Fund shall be deemed to be divided into two separate and discrete sub-trusts. The assets of one such sub-trust shall consist of all the assets of the Trust Fund other than such instrument and the assets of the other sub-trust shall consist solely of such instrument. (b) Any Derivative Contract that provides for any payment obligation on the part of the Trust Fund must (i) be without recourse to the assets of the Trust Fund, (ii) contain a non-petition covenant provision from the Derivative Counterparty, (iii) limit payment dates thereunder to Distribution Dates and (iv) contain a provision limiting any cash payments due to the Derivative Counterparty on any day under such Derivative Contract solely to funds available therefor in the Certificate Account to make payments to the Holders of the Class SB Certificates on such Distribution Date. (c) Each Derivative Contract must (i) provide for the direct payment of any amounts by the Derivative Counterparty thereunder to the Certificate Account at least one Business Day prior to the related Distribution Date, (ii) contain an assignment of all of the Trust Fund's rights (but none of its obligations) under such Derivative Contract to the Trustee on behalf the Class SB Certificates and shall include an express consent of the Derivative Counterparty to such assignment, (iii) provide that in the event of the occurrence of an Event of Default, such Derivative Contract shall terminate upon the direction of a majority Percentage Interest of the Class SB Certificates, and (iv) prohibit the Derivative Counterparty from "setting-off" or "netting" other obligations of the Trust Fund and its Affiliates against such Derivative Counterparty's payment obligations thereunder. Section 4.10. Yield Maintenance Agreement. (a) In the event that the Trustee does not receive by the Business Day preceding a Distribution Date the amount as specified by the Master Servicer pursuant to Section 4.04(a)(iv) hereof as the amount to be paid with respect to such Distribution Date by the Yield Maintenance Agreement Provider under the Yield Maintenance Agreement, the Trustee shall enforce the obligation of the Yield Maintenance Agreement Provider thereunder. The parties hereto acknowledge that the Yield Maintenance Agreement Provider shall be making all calculations, and determine the amounts to be paid, under the Yield Maintenance Agreement. Absent manifest error, the Trustee may conclusively rely on such calculations and determination and any notice received by it from the Master Servicer pursuant to Section 4.04(a)(iv) hereof. (b) The Trustee shall deposit or cause to be deposited any amount received under the Yield Maintenance Agreement into the Certificate Account on the date such amount is received from the Yield Maintenance Agreement Provider under the Yield Maintenance Agreement (including termination payments, if any). All payments received under the Yield Maintenance Agreement shall be distributed in accordance with the priorities set forth in Section 4.02(c) hereof. (c) In the event that the Yield Maintenance Agreement, or any replacement thereof, terminates prior to the Distribution Date in December 2010, the Master Servicer, but at no expense to the Master Servicer, on behalf of the Trustee, to the extent that the termination value under the Yield Maintenance Agreement is sufficient therefor and only to the extent of the termination payment received from the Yield Maintenance Agreement Provider, shall (i) cause a new yield maintenance agreement provider to assume the obligations of such terminated yield maintenance agreement provider or (ii) cause a new yield maintenance agreement provider to enter into a new yield maintenance agreement with the Trust Fund having substantially similar terms as those set forth in the Yield Maintenance Agreement. -------------------------------------------------------------------------------- ARTICLE V THE CERTIFICATES Section 5.01. The Certificates. (a) The Class A Certificates, Class M Certificates, Class SB Certificates and Class R Certificates shall be substantially in the forms set forth in Exhibits A, B, C, D and E, respectively, and shall, on original issue, be executed and delivered by the Trustee to the Certificate Registrar for authentication and delivery to or upon the order of the Depositor upon receipt by the Trustee or one or more Custodians of the documents specified in Section 2.01. Each Class of Class A Certificates and the Class M-1 Certificates, Class M-2 Certificates and Class M-3 Certificates shall be issuable in minimum dollar denominations of $100,000 and integral multiples of $1 in excess thereof. The Class M-4 Certificates, Class M-5 Certificates, Class M-6 Certificates, Class M-7 Certificates, Class M-8 Certificates and Class M-9 Certificates shall be issuable in minimum dollar denominations of $250,000 and integral multiples of $1 in excess thereof. The Class SB Certificates shall be issuable in registered, certificated form in minimum percentage interests of 5.00% and integral multiples of 0.01% in excess thereof. Each Class of Class R Certificates shall be issued in registered, certificated form in minimum percentage interests of 20.00% and integral multiples of 0.01% in excess thereof; provided, however, that one Class R Certificate of each Class will be issuable to the REMIC Administrator as "tax matters person" pursuant to Section 10.01(c) in a minimum denomination representing a Percentage Interest of not less than 0.01%. The Certificates shall be executed by manual or facsimile signature on behalf of an authorized officer of the Trustee. Certificates bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Trustee shall bind the Trustee, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Certificate or did not hold such offices at the date of such CERTIFICATES. No Certificate shall be entitled to any benefit under this Agreement, or be valid for any purpose, unless there appears on such Certificate a certificate of authentication substantially in the form provided for herein executed by the Certificate Registrar by manual signature, and such certificate upon any Certificate shall be conclusive evidence, and the only evidence, that such Certificate has been duly authenticated and delivered hereunder. All Certificates shall be dated the date of their authentication. (b) The Class A Certificates and Class M Certificates shall initially be issued as one or more Certificates registered in the name of the Depository or its nominee and, except as provided below, registration of such Certificates may not be transferred by the Trustee except to another Depository that agrees to hold such Certificates for the respective Certificate Owners with Ownership Interests therein. The Certificate Owners shall hold their respective Ownership Interests in and to each Class A Certificate and Class M Certificate through the book-entry facilities of the Depository and, except as provided below, shall not be entitled to Definitive Certificates in respect of such Ownership Interests. All transfers by Certificate Owners of their respective Ownership Interests in the Book-Entry Certificates shall be made in accordance with the procedures established by the Depository Participant or brokerage firm representing such Certificate Owner. Each Depository Participant shall transfer the Ownership Interests only in the Book-Entry Certificates of Certificate Owners it represents or of brokerage firms for which it acts as agent in accordance with the Depository's normal procedures. The Trustee, the Master Servicer and the Depositor may for all purposes (including the making of payments due on the respective Classes of Book-Entry Certificates) deal with the Depository as the authorized representative of the Certificate Owners with respect to the respective Classes of Book-Entry Certificates for purposes of exercising the rights of Certificateholders hereunder. The rights of Certificate Owners with respect to the respective Classes of Book-Entry Certificates shall be limited to those established by law and agreements between such Certificate Owners and the Depository Participants and brokerage firms representing such Certificate Owners. Multiple requests and directions from, and votes of, the Depository as Holder of any Class of Book-Entry Certificates with respect to any particular matter shall not be deemed inconsistent if they are made with respect to different Certificate Owners. The Trustee may establish a reasonable record date in connection with solicitations of consents from or voting by Certificateholders and shall give notice to the Depository of such record date. If with respect to any Book-Entry Certificate (i)(A) the Depositor advises the Trustee in writing that the Depository is no longer willing or able to properly discharge its responsibilities as Depository with respect to such Book-Entry Certificate and (B) the Depositor is unable to locate a qualified successor, or (ii) (A) the Depositor at its option advises the Trustee in writing that it elects to terminate the book-entry system for such Book-Entry Certificate through the Depository and (B) upon receipt of notice from the Depository of the Depositor's election to terminate the book-entry system for such Book-Entry Certificate, the Depository Participants holding beneficial interests in such Book-Entry Certificates agree to initiate such termination, the Trustee shall notify all Certificate Owners of such Book-Entry Certificate, through the Depository, of the occurrence of any such event and of the availability of Definitive Certificates to Certificate Owners requesting the same. Upon surrender to the Trustee of the Book-Entry Certificates by the Depository, accompanied by registration instructions from the Depository for registration of transfer, the Trustee shall issue the Definitive Certificates. In addition, if an Event of Default has occurred and is continuing, each Certificate Owner materially adversely affected thereby may at its option request a Definitive Certificate evidencing such Certificate Owner's Percentage Interest in the related Class of Certificates. In order to make such request, such Certificate Owner shall, subject to the rules and procedures of the Depository, provide the Depository or the related Depository Participant with directions for the Certificate Registrar to exchange or cause the exchange of the Certificate Owner's interest in such Class of Certificates for an equivalent Percentage Interest in fully registered definitive form. Upon receipt by the Certificate Registrar of instructions from the Depository directing the Certificate Registrar to effect such exchange (such instructions to contain information regarding the Class of Certificates and the Certificate Principal Balance being exchanged, the Depository Participant account to be debited with the decrease, the registered holder of and delivery instructions for the Definitive Certificate, and any other information reasonably required by the Certificate Registrar), (i) the Certificate Registrar shall instruct the Depository to reduce the related Depository Participant's account by the aggregate Certificate Principal Balance of the Definitive Certificate, (ii) the Trustee shall execute and the Certificate Registrar shall authenticate and deliver, in accordance with the registration and delivery instructions provided by the Depository, a Definitive Certificate evidencing such Certificate Owner's Percentage Interest in such Class of Certificates and (iii) the Trustee shall execute and the Certificate Registrar shall authenticate a new Book-Entry Certificate reflecting the reduction in the aggregate Certificate Principal Balance of such Class of Certificates by the amount of the Definitive Certificates. None of the Depositor, the Master Servicer or the Trustee shall be liable for any actions taken by the Depository or its nominee, including, without limitation, any delay in delivery of any instructions required under this Section 5.01 and may conclusively rely on, and shall be protected in relying on, such INSTRUCTIONS. Upon the issuance of Definitive Certificates, the Trustee and the Master Servicer shall recognize the Holders of the Definitive Certificates as Certificateholders hereunder. (c) Each of the Certificates is intended to be a "security" governed by Article 8 of the Uniform Commercial Code as in effect in the State of New York and any other applicable jurisdiction, to the extent that any of such laws may be applicable. Section 5.02. Registration of Transfer and Exchange of Certificates. (a) The Trustee shall cause to be kept at one of the offices or agencies to be appointed by the Trustee in accordance with the provisions of Section 8.12 a Certificate Register in which, subject to such reasonable regulations as it may prescribe, the Trustee shall provide for the registration of Certificates and of transfers and exchanges of Certificates as herein provided. The Trustee is initially appointed Certificate Registrar for the purpose of registering Certificates and transfers and exchanges of Certificates as herein provided. The Certificate Registrar, or the Trustee, shall provide the Master Servicer with a certified list of Certificateholders as of each Record Date prior to the related Determination Date. (b) Upon surrender for registration of transfer of any Certificate at any office or agency of the Trustee maintained for such purpose pursuant to Section 8.12 and, in the case of any Class SB Certificate or Class R Certificate, upon satisfaction of the conditions set forth below, the Trustee shall execute and the Certificate Registrar shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Certificates of a like Class and aggregate Percentage Interest. (c) At the option of the Certificateholders, Certificates may be exchanged for other Certificates of authorized denominations of a like Class and aggregate Percentage Interest, upon surrender of the Certificates to be exchanged at any such office or agency. Whenever any Certificates are so surrendered for exchange the Trustee shall execute and the Certificate Registrar shall authenticate and deliver the Certificates of such Class which the Certificateholder making the exchange is entitled to receive. Every Certificate presented or surrendered for transfer or exchange shall (if so required by the Trustee or the Certificate Registrar) be duly endorsed by, or be accompanied by a written instrument of transfer in form satisfactory to the Trustee and the Certificate Registrar duly executed by, the Holder thereof or his attorney duly authorized in writing. (d) No transfer, sale, pledge or other disposition of a Class SB Certificate or Class R Certificate shall be made unless such transfer, sale, pledge or other disposition is exempt from the registration requirements of the Securities Act of 1933, as amended (the "1933 Act"), and any applicable state securities laws or is made in accordance with said Act and laws. Except as otherwise provided in this Section 5.02(d), in the event that a transfer of a Class SB Certificate or Class R Certificate is to be made, (i) unless the Depositor directs the Trustee otherwise, the Trustee shall require a written Opinion of Counsel acceptable to and in form and substance satisfactory to the Trustee and the Depositor that such transfer may be made pursuant to an exemption, describing the applicable exemption and the basis therefor, from said Act and laws or is being made pursuant to said Act and laws, which Opinion of Counsel shall not be an expense of the Trustee, the Trust Fund, the Depositor or the Master Servicer, and (ii) the Trustee shall require the transferee to execute a representation letter, substantially in the form of Exhibit I hereto, and the Trustee shall require the transferor to execute a representation letter, substantially in the form of Exhibit J hereto, each acceptable to and in form and substance satisfactory to the Depositor and the Trustee certifying to the Depositor and the Trustee the facts surrounding such transfer, which representation letters shall not be an expense of the Trustee, the Trust Fund, the Depositor or the Master Servicer. In lieu of the requirements set forth in the preceding sentence, transfers of Class SB Certificates or Class R Certificates may be made in accordance with this Section 5.02(d) if the prospective transferee of such a Certificate provides the Trustee and the Master Servicer with an investment letter substantially in the form of Exhibit N attached hereto, which investment letter shall not be an expense of the Trustee, the Depositor, or the Master Servicer, and which investment letter states that, among other things, such transferee (i) is a "qualified institutional buyer" as defined under Rule 144A, acting for its own account or the accounts of other "qualified institutional buyers" as defined under Rule 144A, and (ii) is aware that the proposed transferor intends to rely on the exemption from registration requirements under the 1933 Act provided by Rule 144A. The Holder of a Class SB Certificate or Class R Certificate desiring to effect any transfer, sale, pledge or other disposition shall, and does hereby agree to, indemnify the Trustee, the Depositor, the Master Servicer and the Certificate Registrar against any liability that may result if the transfer, sale, pledge or other disposition is not so exempt or is not made in accordance with such federal and state laws and this Agreement. (e) (i) In the case of any Class SB Certificate or Class R Certificate presented for registration in the name of any Person, either (A) the Trustee shall require an Opinion of Counsel acceptable to and in form and substance satisfactory to the Trustee, the Depositor and the Master Servicer to the effect that the purchase or holding of such Class SB Certificate or Class R Certificate is permissible under applicable law, will not constitute or result in any non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code (or comparable provisions of any subsequent enactments), and will not subject the Trustee, the Depositor or the Master Servicer to any obligation or liability (including obligations or liabilities under ERISA or Section 4975 of the Code) in addition to those undertaken in this Agreement, which Opinion of Counsel shall not be an expense of the Trustee, the Depositor or the Master Servicer, or (B) the prospective transferee shall be required to provide the Trustee, the Depositor and the Master Servicer with a certification to the effect set forth in Exhibit P (with respect to a Class SB Certificate) or in paragraph fifteen of Exhibit H-1 (with respect to a Class R Certificate), which the Trustee may rely upon without further inquiry or investigation, or such other certifications as the Trustee may deem desirable or necessary in order to establish that such transferee or the Person in whose name such registration is requested is not an employee benefit plan or other plan or arrangement subject to the prohibited transaction provisions of ERISA or Section 4975 of the Code, or any Person (including an insurance company investing its general accounts, an investment manager, a named fiduciary or a trustee of any such plan) who is using "plan assets" of any such plan to effect such acquisition (each of the foregoing, a "Plan Investor"). (ii) Any Transferee of a Class M Certificate will be deemed to have represented by virtue of its purchase or holding of such Certificate (or interest therein) that either (a) such Transferee is not a Plan Investor, (b) it has acquired and is holding such Certificate in reliance on U.S. Department of Labor Prohibited Transaction Exemption ("PTE") 94-29, as most recently amended by PTE 2002-41, 67 Fed. Reg. 54487 (Aug. 22, 2002) (the "RFC Exemption"), and that it understands that there are certain conditions to the availability of the RFC Exemption, including that such Certificate must be rated, at the time of purchase, not lower than "BBB-" (or its equivalent) by Fitch, Standard & Poor's or Moody's or (c) (x) such Transferee is an insurance company, (y) the source of funds used to purchase or hold such Certificate (or interest therein) is an "insurance company general account" (as defined in Prohibited Transaction Class Exemption ("PTCE") 95-60), and (z) the conditions set forth in Sections I and III of PTCE 95-60 have been satisfied (each entity that satisfies this clause (c), a "Complying Insurance Company"). (iii) If any Class M Certificate (or any interest therein) is acquired or held by any Person that does not satisfy the conditions described in paragraph (ii) above, then the last preceding Transferee that either (x) is not a Plan Investor, (y) acquired such Certificate in compliance with the RFC Exemption or (z) is a Complying Insurance Company shall be restored, to the extent permitted by law, to all rights and obligations as Certificate Owner thereof retroactive to the date of such Transfer of such Class M Certificate. The Trustee shall be under no liability to any Person for making any payments due on such Certificate to such preceding Transferee. (iv) Any purported Certificate Owner whose acquisition or holding of any Class SB Certificate or Class M Certificate (or interest therein) was effected in violation of the restrictions in this Section 5.02(e) shall indemnify and hold harmless the Depositor, the Trustee, the Master Servicer, any Subservicer, any underwriter and the Trust Fund from and against any and all liabilities, claims, costs or expenses incurred by such parties as a result of such acquisition or holding. (f) (i) Each Person who has or who acquires any Ownership Interest in a Class R Certificate shall be deemed by the acceptance or acquisition of such Ownership Interest to have agreed to be bound by the following provisions and to have irrevocably authorized the Trustee or its designee under clause (iii)(A) below to deliver payments to a Person other than such Person and to negotiate the terms of any mandatory sale under clause (iii)(B) below and to execute all instruments of transfer and to do all other things necessary in connection with any such sale. The rights of each Person acquiring any Ownership Interest in a Class R Certificate are expressly subject to the following provisions: (A) Each Person holding or acquiring any Ownership Interest in a Class R Certificate shall be a Permitted Transferee and shall promptly notify the Trustee of any change or impending change in its status as a Permitted Transferee. (B) In connection with any proposed Transfer of any Ownership Interest in a Class R Certificate, the Trustee shall require delivery to it, and shall not register the Transfer of any Class R Certificate until its receipt of: (I) an affidavit and agreement (a "Transfer Affidavit and Agreement," in the form attached hereto as Exhibit H-1) from the proposed Transferee, in form and substance satisfactory to the Master Servicer, representing and warranting, among other things, that it is a Permitted Transferee, that it is not acquiring its Ownership Interest in the Class R Certificate that is the subject of the proposed Transfer as a nominee, trustee or agent for any Person who is not a Permitted Transferee, that for so long as it retains its Ownership Interest in a Class R Certificate, it will endeavor to remain a Permitted Transferee, and that it has reviewed the provisions of this Section 5.02(f) and agrees to be bound by them, and (II) a certificate, in the form attached hereto as Exhibit H-2, from the Holder wishing to transfer the Class R Certificate, in form and substance satisfactory to the Master Servicer, representing and warranting, among other things, that no purpose of the proposed Transfer is to impede the assessment or collection of tax. (C) Notwithstanding the delivery of a Transfer Affidavit and Agreement by a proposed Transferee under clause (B) above, if a Responsible Officer of the Trustee who is assigned to this Agreement has actual knowledge that the proposed Transferee is not a Permitted Transferee, no Transfer of an Ownership Interest in a Class R Certificate to such proposed Transferee shall be effected. (D) Each Person holding or acquiring any Ownership Interest in a Class R Certificate shall agree (x) to require a Transfer Affidavit and Agreement from any other Person to whom such Person attempts to transfer its Ownership Interest in a Class R Certificate and (y) not to transfer its Ownership Interest unless it provides a certificate to the Trustee in the form attached hereto as Exhibit H-2. (E) Each Person holding or acquiring an Ownership Interest in a Class R Certificate, by purchasing an Ownership Interest in such Certificate, agrees to give the Trustee written notice that it is a "pass-through interest holder" within the meaning of Temporary Treasury Regulations Section 1.67-3T(a)(2)(i)(A) immediately upon acquiring an Ownership Interest in a Class R Certificate, if it is, or is holding an Ownership Interest in a Class R Certificate on behalf of, a "pass-through interest holder." (ii) The Trustee shall register the Transfer of any Class R Certificate only if it shall have received the Transfer Affidavit and Agreement, a certificate of the Holder requesting such transfer in the form attached hereto as Exhibit H-2 and all of such other documents as shall have been reasonably required by the Trustee as a condition to such registration. Transfers of the Class R Certificates to Non-United States Persons and Disqualified Organizations (as defined in Section 860E(e)(5) of the Code) are prohibited. (A) If any Disqualified Organization shall become a holder of a Class R Certificate, then the last preceding Permitted Transferee shall be restored, to the extent permitted by law, to all rights and obligations as Holder thereof retroactive to the date of registration of such Transfer of such Class R Certificate. If a Non-United States Person shall become a holder of a Class R Certificate, then the last preceding United States Person shall be restored, to the extent permitted by law, to all rights and obligations as Holder thereof retroactive to the date of registration of such Transfer of such Class R Certificate. If a transfer of a Class R Certificate is disregarded pursuant to the provisions of Treasury Regulations Section 1.860E-1 or Section 1.860G-3, then the last preceding Permitted Transferee shall be restored, to the extent permitted by law, to all rights and obligations as Holder thereof retroactive to the date of registration of such Transfer of such Class R Certificate. The Trustee shall be under no liability to any Person for any registration of Transfer of a Class R Certificate that is in fact not permitted by this Section 5.02(f) or for making any payments due on such Certificate to the holder thereof or for taking any other action with respect to such holder under the provisions of this Agreement. (B) If any purported Transferee shall become a Holder of a Class R Certificate in violation of the restrictions in this Section 5.02(f) and to the extent that the retroactive restoration of the rights of the Holder of such Class R Certificate as described in clause (iii)(A) above shall be invalid, illegal or unenforceable, then the Master Servicer shall have the right, without notice to the holder or any prior holder of such Class R Certificate, to sell such Class R Certificate to a purchaser selected by the Master Servicer on such terms as the Master Servicer may choose. Such purported Transferee shall promptly endorse and deliver each Class R Certificate in accordance with the instructions of the Master Servicer. Such purchaser may be the Master Servicer itself or any Affiliate of the Master Servicer. The proceeds of such sale, net of the commissions (which may include commissions payable to the Master Servicer or its Affiliates), expenses and taxes due, if any, will be remitted by the Master Servicer to such purported Transferee. The terms and conditions of any sale under this clause (iii)(B) shall be determined in the sole discretion of the Master Servicer, and the Master Servicer shall not be liable to any Person having an Ownership Interest in a Class R Certificate as a result of its exercise of such discretion. (iii) The Master Servicer, on behalf of the Trustee, shall make available, upon written request from the Trustee, all information necessary to compute any tax imposed (A) as a result of the Transfer of an Ownership Interest in a Class R Certificate to any Person who is a Disqualified Organization, including the information regarding "excess inclusions" of such Class R Certificates required to be provided to the Internal Revenue Service and certain Persons as described in Treasury Regulations Sections 1.860D-1(b)(5) and 1.860E-2(a)(5), and (B) as a result of any regulated investment company, real estate investment trust, common trust fund, partnership, trust, estate or organization described in Section 1381 of the Code that holds an Ownership Interest in a Class R Certificate having as among its record holders at any time any Person who is a Disqualified Organization. Reasonable compensation for providing such information may be required by the Master Servicer from such Person. (iv) The provisions of this Section 5.02(f) set forth prior to this clause (iv) may be modified, added to or eliminated, provided that there shall have been delivered to the Trustee the following: (A) written notification from each Rating Agency to the effect that the modification, addition to or elimination of such provisions will not cause such Rating Agency to downgrade its then-current ratings, if any, of the Class A Certificates or Class M Certificates below the lower of the then-current rating or the rating assigned to such Certificates as of the Closing Date by such Rating Agency; and (B) a certificate of the Master Servicer stating that the Master Servicer has received an Opinion of Counsel, in form and substance satisfactory to the Master Servicer, to the effect that such modification, addition to or absence of such provisions will not cause any REMIC created hereunder to cease to qualify as a REMIC and will not cause (x) any REMIC created hereunder to be subject to an entity-level tax caused by the Transfer of any Class R Certificate to a Person that is a Disqualified Organization or (y) a Certificateholder or another Person to be subject to a REMIC-related tax caused by the Transfer of a Class R Certificate to a Person that is not a Permitted Transferee. (g) No service charge shall be made for any transfer or exchange of Certificates of any Class, but the Trustee may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer or exchange of Certificates. (h) All Certificates surrendered for transfer and exchange shall be destroyed by the Certificate Registrar. Section 5.03. Mutilated, Destroyed, Lost or Stolen Certificates. If (i) any mutilated Certificate is surrendered to the Certificate Registrar, or the Trustee and the Certificate Registrar receive evidence to their satisfaction of the destruction, loss or theft of any Certificate, and (ii) there is delivered to the Trustee and the Certificate Registrar such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Trustee or the Certificate Registrar that such Certificate has been acquired by a bona fide purchaser, the Trustee shall execute and the Certificate Registrar shall authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of like tenor, Class and Percentage Interest but bearing a number not contemporaneously outstanding. Upon the issuance of any new Certificate under this Section, the Trustee may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee and the Certificate Registrar) connected therewith. Any duplicate Certificate issued pursuant to this Section shall constitute complete and indefeasible evidence of ownership in the Trust Fund, as if originally issued, whether or not the lost, stolen or destroyed Certificate shall be found at any time. Section 5.04. Persons Deemed Owners. Prior to due presentation of a Certificate for registration of transfer, the Depositor, the Master Servicer, the Trustee, the Certificate Registrar and any agent of the Depositor, the Master Servicer, the Trustee or the Certificate Registrar may treat the Person in whose name any Certificate is registered as the owner of such Certificate for the purpose of receiving distributions pursuant to Section 4.02 and for all other purposes whatsoever, except as and to the extent provided in the definition of "Certificateholder," and neither the Depositor, the Master Servicer, the Trustee, the Certificate Registrar nor any agent of the Depositor, the Master Servicer, the Trustee or the Certificate Registrar shall be affected by notice to the contrary except as provided in Section 5.02(f). Section 5.05. Appointment of Paying Agent. The Trustee may appoint a Paying Agent for the purpose of making distributions to Certificateholders pursuant to Section 4.02. In the event of any such appointment, on or prior to each Distribution Date the Master Servicer on behalf of the Trustee shall deposit or cause to be deposited with the Paying Agent a sum sufficient to make the payments to Certificateholders in the amounts and in the manner provided for in Section 4.02, such sum to be held in trust for the benefit of Certificateholders. The Trustee shall cause each Paying Agent to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee that such Paying Agent will hold all sums held by it for the payment to Certificateholders in trust for the benefit of the Certificateholders entitled thereto until such sums shall be paid to such Certificateholders. Any sums so held by such Paying Agent shall be held only in Eligible Accounts to the extent such sums are not distributed to the Certificateholders on the date of receipt by such Paying Agent. -------------------------------------------------------------------------------- ARTICLE VI THE DEPOSITOR AND THE MASTER SERVICER Section 6.01. Respective Liabilities of the Depositor and the Master Servicer. The Depositor and the Master Servicer shall each be liable in accordance herewith only to the extent of the obligations specifically and respectively imposed upon and undertaken by the Depositor and the Master Servicer herein. By way of illustration and not limitation, the Depositor is not liable for the servicing and administration of the Mortgage Loans, nor is it obligated by Section 7.01 or Section 10.01 to assume any obligations of the Master Servicer or to appoint a designee to assume such obligations, nor is it liable for any other obligation hereunder that it may, but is not obligated to, assume unless it elects to assume such obligation in accordance herewith. Section 6.02. Merger or Consolidation of the Depositor or the Master Servicer; Assignment of Rights and Delegation of Duties by Master Servicer. (a) The Depositor and the Master Servicer shall each keep in full effect its existence, rights and franchises as a corporation under the laws of the state of its incorporation, and will each obtain and preserve its qualification to do business as a foreign corporation in each jurisdiction in which such qualification is or shall be necessary to protect the validity and enforceability of this Agreement, the Certificates or any of the Mortgage Loans and to perform its respective duties under this Agreement. (b) Any Person into which the Depositor or the Master Servicer may be merged or consolidated, or any corporation resulting from any merger or consolidation to which the Depositor or the Master Servicer shall be a party, or any Person succeeding to the business of the Depositor or the Master Servicer, shall be the successor of the Depositor or the Master Servicer, as the case may be, hereunder, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding; provided, however, that the successor or surviving Person to the Master Servicer shall be qualified to service mortgage loans on behalf of Fannie Mae or Freddie Mac; and provided further that each Rating Agency's ratings, if any, of any Class of Class A Certificates or Class M Certificates in effect immediately prior to such merger or consolidation will not be qualified, reduced or withdrawn as a result thereof (as evidenced by a letter to such effect from each Rating Agency). (c) Notwithstanding anything else in this Section 6.02 and Section 6.04 to the contrary, the Master Servicer may assign its rights and delegate its duties and obligations under this Agreement; provided that the Person accepting such assignment or delegation shall be a Person which is qualified to service mortgage loans on behalf of Fannie Mae or Freddie Mac, is reasonably satisfactory to the Trustee and the Depositor, is willing to service the Mortgage Loans and executes and delivers to the Depositor and the Trustee an agreement, in form and substance reasonably satisfactory to the Depositor and the Trustee, which contains an assumption by such Person of the due and punctual performance and observance of each covenant and condition to be performed or observed by the Master Servicer under this Agreement; provided further that each Rating Agency's rating of the Classes of Certificates that have been rated in effect immediately prior to such assignment and delegation will not be qualified, reduced or withdrawn as a result of such assignment and delegation (as evidenced by a letter to such effect from each Rating Agency). In the case of any such assignment and delegation, the Master Servicer shall be released from its obligations under this Agreement, except that the Master Servicer shall remain liable for all liabilities and obligations incurred by it as Master Servicer hereunder prior to the satisfaction of the conditions to such assignment and delegation set forth in the next preceding sentence. Notwithstanding the foregoing, in the event of a pledge or assignment by the Master Servicer solely of its rights to purchase all assets of the Trust Fund under Section 9.01(a) (or, if so specified in Section 9.01(a), its rights to purchase the Mortgage Loans and property acquired related to such Mortgage Loans or its rights to purchase the Certificates related thereto), the provisos of the first sentence of this paragraph will not apply. Section 6.03. Limitation on Liability of the Depositor, the Master Servicer and Others. None of the Depositor, the Master Servicer or any of the directors, officers, employees or agents of the Depositor or the Master Servicer shall be under any liability to the Trust Fund or the Certificateholders for any action taken or for refraining from the taking of any action in good faith pursuant to this Agreement, or for errors in judgment; provided, however, that this provision shall not protect the Depositor, the Master Servicer or any such Person against any breach of warranties, representations or covenants made herein or any liability which would otherwise be imposed by reason of willful misfeasance, bad faith or gross negligence in the performance of duties or by reason of reckless disregard of obligations and duties hereunder. The Depositor, the Master Servicer and any director, officer, employee or agent of the Depositor or the Master Servicer may rely in good faith on any document of any kind prima facie properly executed and submitted by any Person respecting any matters arising hereunder. The Depositor, the Master Servicer and any director, officer, employee or agent of the Depositor or the Master Servicer shall be indemnified by the Trust Fund and held harmless against any loss, liability or expense incurred in connection with any legal action relating to this Agreement or the Certificates, other than any loss, liability or expense related to any specific Mortgage Loan or Mortgage Loans (except as any such loss, liability or expense shall be otherwise reimbursable pursuant to this Agreement) and any loss, liability or expense incurred by reason of willful misfeasance, bad faith or gross negligence in the performance of duties hereunder or by reason of reckless disregard of obligations and duties hereunder. Neither the Depositor nor the Master Servicer shall be under any obligation to appear in, prosecute or defend any legal or administrative action, proceeding, hearing or examination that is not incidental to its respective duties under this Agreement and which in its opinion may involve it in any expense or liability; provided, however, that the Depositor or the Master Servicer may in its discretion undertake any such action, proceeding, hearing or examination that it may deem necessary or desirable in respect to this Agreement and the rights and duties of the parties hereto and the interests of the Certificateholders hereunder. In such event, the legal expenses and costs of such action, proceeding, hearing or examination and any liability resulting therefrom shall be expenses, costs and liabilities of the Trust Fund, and the Depositor and the Master Servicer shall be entitled to be reimbursed therefor out of amounts attributable to the Mortgage Loans on deposit in the Custodial Account as provided by Section 3.10 and, on the Distribution Date(s) following such reimbursement, the aggregate of such expenses and costs shall be allocated in reduction of the Accrued Certificate Interest on each Class entitled thereto in the same manner as if such expenses and costs constituted a Prepayment Interest Shortfall. Section 6.04. Depositor and Master Servicer Not to Resign. Subject to the provisions of Section 6.02, neither the Depositor nor the Master Servicer shall resign from its respective obligations and duties hereby imposed on it except upon determination that its duties hereunder are no longer permissible under applicable law. Any such determination permitting the resignation of the Depositor or the Master Servicer shall be evidenced by an Opinion of Counsel (at the expense of the resigning party) to such effect delivered to the Trustee. No such resignation by the Master Servicer shall become effective until the Trustee or a successor servicer shall have assumed the Master Servicer's responsibilities and obligations in accordance with Section 7.02. -------------------------------------------------------------------------------- ARTICLE VII DEFAULT Section 7.01. Events of Default. Event of Default, wherever used herein, means any one of the following events (whatever reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (i) the Master Servicer shall fail to distribute or cause to be distributed to Holders of Certificates of any Class any distribution required to be made under the terms of the Certificates of such Class and this Agreement and, in either case, such failure shall continue unremedied for a period of 5 days after the date upon which written notice of such failure, requiring such failure to be remedied, shall have been given to the Master Servicer by the Trustee or the Depositor or to the Master Servicer, the Depositor and the Trustee by the Holders of Certificates of such Class evidencing Percentage Interests aggregating not less than 25%; or (ii) the Master Servicer shall fail to observe or perform in any material respect any other of the covenants or agreements on the part of the Master Servicer contained in the Certificates of any Class or in this Agreement and such failure shall continue unremedied for a period of 30 days (except that such number of days shall be 15 in the case of a failure to pay the premium for any Required Insurance Policy) after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Master Servicer by the Trustee or the Depositor, or to the Master Servicer, the Depositor and the Trustee by the Holders of Certificates of any Class evidencing, as to such Class, Percentage Interests aggregating not less than 25%; or (iii) a decree or order of a court or agency or supervisory authority having jurisdiction in the premises in an involuntary case under any present or future federal or state bankruptcy, insolvency or similar law or appointing a conservator or receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings, or for the winding-up or liquidation of its affairs, shall have been entered against the Master Servicer and such decree or order shall have remained in force undischarged or unstayed for a period of 60 days; or (iv) the Master Servicer shall consent to the appointment of a conservator or receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities, or similar proceedings of, or relating to, the Master Servicer or of, or relating to, all or substantially all of the property of the Master Servicer; or (v) the Master Servicer shall admit in writing its inability to pay its debts generally as they become due, file a petition to take advantage of, or commence a voluntary case under, any applicable insolvency or reorganization statute, make an assignment for the benefit of its creditors, or voluntarily suspend payment of its obligations; or (vi) the Master Servicer shall notify the Trustee pursuant to Section 4.04(b) that it is unable to deposit in the Certificate Account an amount equal to the Advance. If an Event of Default described in clauses (i)-(v) of this Section shall occur, then, and in each and every such case, so long as such Event of Default shall not have been remedied, either the Depositor or the Trustee shall at the direction of Holders of Certificates entitled to at least 51% of the Voting Rights by notice in writing to the Master Servicer (and to the Depositor), terminate all of the rights and obligations of the Master Servicer under this Agreement and in and to the Mortgage Loans and the proceeds thereof, other than its rights as a Certificateholder hereunder; provided, however, that a successor to the Master Servicer is appointed pursuant to Section 7.02 and such successor Master Servicer shall have accepted the duties of Master Servicer effective upon the resignation of the Master Servicer. If an Event of Default described in clause (vi) hereof shall occur, the Trustee shall, by notice to the Master Servicer and the Depositor, immediately terminate all of the rights and obligations of the Master Servicer under this Agreement and in and to the Mortgage Loans and the proceeds thereof, other than its rights as a Certificateholder hereunder as provided in Section 4.04(b). On or after the receipt by the Master Servicer of such written notice, all authority and power of the Master Servicer under this Agreement, whether with respect to the Certificates (other than as a Holder thereof) or the Mortgage Loans or otherwise, shall subject to Section 7.02 pass to and be vested in the Trustee or the Trustee's designee appointed pursuant to Section 7.02; and, without limitation, the Trustee is hereby authorized and empowered to execute and deliver, on behalf of the Master Servicer, as attorney-in-fact or otherwise, any and all documents and other instruments, and to do or accomplish all other acts or things necessary or appropriate to effect the purposes of such notice of termination, whether to complete the transfer and endorsement or assignment of the Mortgage Loans and related documents, or otherwise. The Master Servicer agrees to cooperate with the Trustee in effecting the termination of the Master Servicer's responsibilities and rights hereunder, including, without limitation, the transfer to the Trustee or its designee for administration by it of all cash amounts which shall at the time be credited to the Custodial Account or the Certificate Account or thereafter be received with respect to the Mortgage Loans. No such termination shall release the Master Servicer for any liability that it would otherwise have hereunder for any act or omission prior to the effective time of such termination. Notwithstanding any termination of the activities of Residential Funding in its capacity as Master Servicer hereunder, Residential Funding shall be entitled to receive, out of any late collection of a Monthly Payment on a Mortgage Loan which was due prior to the notice terminating Residential Funding's rights and obligations as Master Servicer hereunder and received after such notice, that portion to which Residential Funding would have been entitled pursuant to Sections 3.10(a)(ii), (vi) and (vii) as well as its Servicing Fee in respect thereof, and any other amounts payable to Residential Funding hereunder the entitlement to which arose prior to the termination of its activities hereunder. Upon the termination of Residential Funding as Master Servicer hereunder the Depositor shall deliver to the Trustee, as successor Master Servicer, a copy of the Program Guide. Section 7.02. Trustee or Depositor to Act; Appointment of Successor. (a) On and after the time the Master Servicer receives a notice of termination pursuant to Section 7.01 or resigns in accordance with Section 6.04, the Trustee or, upon notice to the Depositor and with the Depositor's consent (which shall not be unreasonably withheld) a designee (which meets the standards set forth below) of the Trustee, shall be the successor in all respects to the Master Servicer in its capacity as servicer under this Agreement and the transactions set forth or provided for herein and shall be subject to all the responsibilities, duties and liabilities relating thereto placed on the Master Servicer (except for the responsibilities, duties and liabilities contained in Sections 2.02 and 2.03(a), excluding the duty to notify related Subservicers as set forth in such Sections, and its obligations to deposit amounts in respect of losses incurred prior to such notice or termination on the investment of funds in the Custodial Account or the Certificate Account pursuant to Sections 3.07(c) and 4.01(c) by the terms and provisions hereof); provided, however, that any failure to perform such duties or responsibilities caused by the preceding Master Servicer's failure to provide information required by Section 4.04 shall not be considered a default by the Trustee hereunder as successor Master Servicer. As compensation therefor, the Trustee as successor Master Servicer shall be entitled to all funds relating to the Mortgage Loans which the Master Servicer would have been entitled to charge to the Custodial Account or the Certificate Account if the Master Servicer had continued to act hereunder and, in addition, shall be entitled to the income from any Permitted Investments made with amounts attributable to the Mortgage Loans held in the Custodial Account or the Certificate ACCOUNT. If the Trustee has become the successor to the Master Servicer in accordance with Section 6.04 or Section 7.01, then notwithstanding the above, the Trustee may, if it shall be unwilling to so act, or shall, if it is unable to so act, appoint, or petition a court of competent jurisdiction to appoint, any established housing and home finance institution, which is also a Fannie Mae or Freddie Mac-approved mortgage servicing institution, having a net worth of not less than $10,000,000 as the successor to the Master Servicer hereunder in the assumption of all or any part of the responsibilities, duties or liabilities of the Master Servicer hereunder. Pending appointment of a successor to the Master Servicer hereunder, the Trustee shall become successor to the Master Servicer and shall act in such capacity as hereinabove provided. In connection with such appointment and assumption, the Trustee may make such arrangements for the compensation of such successor out of payments on Mortgage Loans as it and such successor shall agree; provided, however, that no such compensation shall be in excess of that permitted the initial Master Servicer hereunder. The Depositor, the Trustee, the Custodian and such successor shall take such action, consistent with this Agreement, as shall be necessary to effectuate any such succession. Any successor Master Servicer appointed pursuant to this Section 7.02 shall not receive a Servicing Fee with respect any Mortgage Loan not directly serviced by the Master Servicer on which the Subservicing Fee (i) accrues at a rate of less than 0.50% per annum and (ii) has to be increased to a rate of 0.50% per annum in order to hire a Subservicer. The Master Servicer shall pay the reasonable expenses of the Trustee in connection with any servicing transfer hereunder. (b) In connection with the termination or resignation of the Master Servicer hereunder, either (i) the successor Master Servicer, including the Trustee if the Trustee is acting as successor Master Servicer, shall represent and warrant that it is a member of MERS in good standing and shall agree to comply in all material respects with the rules and procedures of MERS in connection with the servicing of the Mortgage Loans that are registered with MERS, in which case the predecessor Master Servicer shall cooperate with the successor Master Servicer in causing MERS to revise its records to reflect the transfer of servicing to the successor Master Servicer as necessary under MERS' rules and regulations, or (ii) the predecessor Master Servicer shall cooperate with the successor Master Servicer in causing MERS to execute and deliver an assignment of Mortgage in recordable form to transfer the Mortgage from MERS to the Trustee and to execute and deliver such other notices, documents and other instruments as may be necessary or desirable to effect a transfer of such Mortgage Loan or servicing of such Mortgage Loan on the MERS(R)System to the successor Master Servicer. The predecessor Master Servicer shall file or cause to be filed any such assignment in the appropriate recording office. The predecessor Master Servicer shall bear any and all fees of MERS, costs of preparing any assignments of Mortgage, and fees and costs of filing any assignments of Mortgage that may be required under this subsection (b). The successor Master Servicer shall cause such assignment to be delivered to the Trustee or the Custodian promptly upon receipt of the original with evidence of recording thereon or a copy certified by the public recording office in which such assignment was recorded. Section 7.03. Notification to Certificateholders. (a) Upon any such termination or appointment of a successor to the Master Servicer, the Trustee shall give prompt written notice thereof to Certificateholders at their respective addresses appearing in the Certificate Register. (b) Within 60 days after the occurrence of any Event of Default, the Trustee shall transmit by mail to all Holders of Certificates notice of each such Event of Default hereunder known to the Trustee, unless such Event of Default shall have been cured or waived as provided in Section 7.04 hereof. Section 7.04. Waiver of Events of Default. The Holders representing at least 66% of the Voting Rights of Certificates affected by a default or Event of Default hereunder may waive any default or Event of Default; provided, however, that (a) a default or Event of Default under clause (i) of Section 7.01 may be waived only by all of the Holders of Certificates affected by such default or Event of Default and (b) no waiver pursuant to this Section 7.04 shall affect the Holders of Certificates in the manner set forth in Section 11.01(b)(i), (ii) or (iii). Upon any such waiver of a default or Event of Default by the Holders representing the requisite percentage of Voting Rights of Certificates affected by such default or Event of Default, such default or Event of Default shall cease to exist and shall be deemed to have been remedied for every purpose hereunder. No such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon except to the extent expressly so waived. -------------------------------------------------------------------------------- ARTICLE VIII CONCERNING THE TRUSTEE Section 8.01. Duties of Trustee. (a) The Trustee, prior to the occurrence of an Event of Default and after the curing of all Events of Default which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in this Agreement. In case an Event of Default has occurred (which has not been cured or waived), the Trustee shall exercise such of the rights and powers vested in it by this Agreement, and use the same degree of care and skill in their exercise as a prudent investor would exercise or use under the circumstances in the conduct of such investor's own affairs. (b) The Trustee, upon receipt of all resolutions, certificates, statements, opinions, reports, documents, orders or other instruments furnished to the Trustee which are specifically required to be furnished pursuant to any provision of this Agreement, shall examine them to determine whether they conform to the requirements of this Agreement. The Trustee shall notify the Certificateholders of any such documents which do not materially conform to the requirements of this Agreement in the event that the Trustee, after so requesting, does not receive satisfactorily corrected documents. The Trustee shall forward or cause to be forwarded in a timely fashion the notices, reports and statements required to be forwarded by the Trustee pursuant to Sections 4.03, 7.03, and 10.01. The Trustee shall furnish in a timely fashion to the Master Servicer such information as the Master Servicer may reasonably request from time to time for the Master Servicer to fulfill its duties as set forth in this Agreement. The Trustee covenants and agrees that it shall perform its obligations hereunder in a manner so as to maintain the status of each REMIC created hereunder as a REMIC under the REMIC Provisions and (subject to Section 10.01(f)) to prevent the imposition of any federal, state or local income, prohibited transaction, contribution or other tax on the Trust Fund to the extent that maintaining such status and avoiding such taxes are reasonably within the control of the Trustee and are reasonably within the scope of its duties under this Agreement. (c) No provision of this Agreement shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act or its own willful misconduct; provided, however, that: (i) Prior to the occurrence of an Event of Default, and after the curing or waiver of all such Events of Default which may have occurred, the duties and obligations of the Trustee shall be determined solely by the express provisions of this Agreement, the Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Agreement, no implied covenants or obligations shall be read into this Agreement against the Trustee and, in the absence of bad faith on the part of the Trustee, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Trustee by the Depositor or the Master Servicer and which on their face, do not contradict the requirements of this Agreement; (ii) The Trustee shall not be personally liable for an error of judgment made in good faith by a Responsible Officer or Responsible Officers of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; (iii) The Trustee shall not be personally liable with respect to any action taken, suffered or omitted to be taken by it in good faith in accordance with the direction of the Certificateholders holding Certificates which evidence, Percentage Interests aggregating not less than 25% of the affected Classes as to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Agreement; (iv) The Trustee shall not be charged with knowledge of any default (other than a default in payment to the Trustee) specified in clauses (i) and (ii) of Section 7.01 or an Event of Default under clauses (iii), (iv) and (v) of Section 7.01 unless a Responsible Officer of the Trustee assigned to and working in the Corporate Trust Office obtains actual knowledge of such failure or event or the Trustee receives written notice of such failure or event at its Corporate Trust Office from the Master Servicer, the Depositor or any Certificateholder; and (v) Except to the extent provided in Section 7.02, no provision in this Agreement shall require the Trustee to expend or risk its own funds (including, without limitation, the making of any Advance) or otherwise incur any personal financial liability in the performance of any of its duties as Trustee hereunder, or in the exercise of any of its rights or powers, if the Trustee shall have reasonable grounds for believing that repayment of funds or adequate indemnity against such risk or liability is not reasonably assured to it. (d) The Trustee shall timely pay, from its own funds, the amount of any and all federal, state and local taxes imposed on the Trust Fund or its assets or transactions including, without limitation, (A) "prohibited transaction" penalty taxes as defined in Section 860F of the Code, if, when and as the same shall be due and payable, (B) any tax on contributions to a REMIC after the Closing Date imposed by Section 860G(d) of the Code and (C) any tax on "net income from foreclosure property" as defined in Section 860G(c) of the Code, but only if such taxes arise out of a breach by the Trustee of its obligations hereunder, which breach constitutes negligence or willful misconduct of the Trustee. Section 8.02. Certain Matters Affecting the Trustee. (a) Except as otherwise provided in Section 8.01: (i) The Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, Officers' Certificate, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, appraisal, bond or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (ii) The Trustee may consult with counsel, and any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted by it hereunder in good faith and in accordance with such Opinion of Counsel; (iii) The Trustee shall be under no obligation to exercise any of the trusts or powers vested in it by this Agreement or to institute, conduct or defend any litigation hereunder or in relation hereto at the request, order or direction of any of the Certificateholders pursuant to the provisions of this Agreement, unless such Certificateholders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby; nothing contained herein shall, however, relieve the Trustee of the obligation, upon the occurrence of an Event of Default (which has not been cured), to exercise such of the rights and powers vested in it by this Agreement, and to use the same degree of care and skill in their exercise as a prudent investor would exercise or use under the circumstances in the conduct of such investor's own affairs; (iv) The Trustee shall not be personally liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Agreement; (v) Prior to the occurrence of an Event of Default hereunder and after the curing of all Events of Default which may have occurred, the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond or other paper or document, unless requested in writing to do so by the Holders of Certificates of any Class evidencing, as to such Class, Percentage Interests, aggregating not less than 50%; provided, however, that if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Agreement, the Trustee may require reasonable indemnity against such expense or liability as a condition to so proceeding. The reasonable expense of every such examination shall be paid by the Master Servicer, if an Event of Default shall have occurred and is continuing, and otherwise by the Certificateholder requesting the investigation; (vi) The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys provided that the Trustee shall remain liable for any acts of such agents or attorneys; and (vii) To the extent authorized under the Code and the regulations promulgated thereunder, each Holder of a Class R Certificate hereby irrevocably appoints and authorizes the Trustee to be its attorney-in-fact for purposes of signing any Tax Returns required to be filed on behalf of the Trust Fund. The Trustee shall sign on behalf of the Trust Fund and deliver to the Master Servicer in a timely manner any Tax Returns prepared by or on behalf of the Master Servicer that the Trustee is required to sign as determined by the Master Servicer pursuant to applicable federal, state or local tax laws, provided that the Master Servicer shall indemnify the Trustee for signing any such Tax Returns that contain errors or omissions. (b) Following the issuance of the Certificates (and except as provided for in Section 2.04), the Trustee shall not accept any contribution of assets to the Trust Fund unless (subject to Section 10.01(f)) it shall have obtained or been furnished with an Opinion of Counsel to the effect that such contribution will not (i) cause any REMIC created hereunder to fail to qualify as a REMIC at any time that any Certificates are outstanding or (ii) cause the Trust Fund to be subject to any federal tax as a result of such contribution (including the imposition of any federal tax on "prohibited transactions" imposed under Section 860F(a) of the Code). Section 8.03. Trustee Not Liable for Certificates or Mortgage Loans. The recitals contained herein and in the Certificates (other than the execution of the Certificates and relating to the acceptance and receipt of the Mortgage Loans) shall be taken as the statements of the Depositor or the Master Servicer as the case may be, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Agreement or of the Certificates (except that the Certificates shall be duly and validly executed and authenticated by it as Certificate Registrar) or of any Mortgage Loan or related document, or of MERS or the MERS(R)System. Except as otherwise provided herein, the Trustee shall not be accountable for the use or application by the Depositor or the Master Servicer of any of the Certificates or of the proceeds of such Certificates, or for the use or application of any funds paid to the Depositor or the Master Servicer in respect of the Mortgage Loans or deposited in or withdrawn from the Custodial Account or the Certificate Account by the Depositor or the Master Servicer. Section 8.04. Trustee May Own Certificates. The Trustee in its individual or any other capacity may become the owner or pledgee of Certificates with the same rights it would have if it were not Trustee. Section 8.05. Master Servicer to Pay Trustee's Fees and Expenses; Indemnification. (a) The Master Servicer covenants and agrees to pay to the Trustee and any co-trustee from time to time, and the Trustee and any co-trustee shall be entitled to, reasonable compensation (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust) for all services rendered by each of them in the execution of the trusts hereby created and in the exercise and performance of any of the powers and duties hereunder of the Trustee and any co-trustee, and the Master Servicer shall pay or reimburse the Trustee and any co-trustee upon request for all reasonable expenses, disbursements and advances incurred or made by the Trustee or any co-trustee in accordance with any of the provisions of this Agreement (including the reasonable compensation and the expenses and disbursements of its counsel and of all persons not regularly in its employ, and the expenses incurred by the Trustee or any co-trustee in connection with the appointment of an office or agency pursuant to Section 8.12) except any such expense, disbursement or advance as may arise from its negligence or bad faith. (b) The Master Servicer agrees to indemnify the Trustee for, and to hold the Trustee harmless against, any loss, liability or expense incurred without negligence or willful misconduct on its part, arising out of, or in connection with, the acceptance and administration of the Trust Fund, including its obligation to execute the DTC Letter in its individual capacity, and including the costs and expenses (including reasonable legal fees and expenses) of defending itself against any claim in connection with the exercise or performance of any of its powers or duties under this Agreement and the Yield Maintenance Agreement, provided that: (i) with respect to any such claim, the Trustee shall have given the Master Servicer written notice thereof promptly after the Trustee shall have actual knowledge thereof; (ii) while maintaining control over its own defense, the Trustee shall cooperate and consult fully with the Master Servicer in preparing such defense; and (iii) notwithstanding anything in this Agreement to the contrary, the Master Servicer shall not be liable for settlement of any claim by the Trustee entered into without the prior consent of the Master Servicer which consent shall not be unreasonably withheld. No termination of this Agreement shall affect the obligations created by this Section 8.05(b) of the Master Servicer to indemnify the Trustee under the conditions and to the extent set forth herein. Notwithstanding the foregoing, the indemnification provided by the Master Servicer in this Section 8.05(b) shall not pertain to any loss, liability or expense of the Trustee, including the costs and expenses of defending itself against any claim, incurred in connection with any actions taken by the Trustee at the direction of Certificateholders pursuant to the terms of this Agreement. Section 8.06. Eligibility Requirements for Trustee. The Trustee hereunder shall at all times be a national banking association or a New York banking corporation having its principal office in a state and city acceptable to the Depositor and organized and doing business under the laws of such state or the United States of America, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $50,000,000 and subject to supervision or examination by federal or state authority. If such corporation or national banking association publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for purposes of this Section the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, the Trustee shall resign immediately in the manner and with the effect specified in Section 8.07. Section 8.07. Resignation and Removal of the Trustee. (a) The Trustee may at any time resign and be discharged from the trusts hereby created by giving written notice thereof to the Depositor and the Master Servicer. Upon receiving such notice of resignation, the Depositor shall promptly appoint a successor trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the successor trustee. If no successor trustee shall have been so appointed and have accepted appointment within 30 days after the giving of such notice of resignation, then the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor trustee. (b) If at any time the Trustee shall cease to be eligible in accordance with the provisions of Section 8.06 and shall fail to resign after written request therefor by the Depositor, or if at any time the Trustee shall become incapable of acting, or shall be adjudged bankrupt or insolvent, or a receiver of the Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then the Depositor may remove the Trustee and appoint a successor trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee. In addition, in the event that the Depositor determines that the Trustee has failed (i) to distribute or cause to be distributed to Certificateholders any amount required to be distributed hereunder, if such amount is held by the Trustee or its Paying Agent (other than the Master Servicer or the Depositor) for distribution or (ii) to otherwise observe or perform in any material respect any of its covenants, agreements or obligations hereunder, and such failure shall continue unremedied for a period of 5 days (in respect of clause (i) above) or 30 days (in respect of clause (ii) above, other than any failure to comply with the provisions of Article XII, in which case no notice or grace period shall be applicable) after the date on which written notice of such failure, requiring that the same be remedied, shall have been given to the Trustee by the Depositor, then the Depositor may remove the Trustee and appoint a successor trustee by written instrument delivered as provided in the preceding sentence. In connection with the appointment of a successor trustee pursuant to the preceding sentence, the Depositor shall, on or before the date on which any such appointment becomes effective, obtain from each Rating Agency written confirmation that the appointment of any such successor trustee will not result in the reduction of the ratings on any Class of the Certificates below the lesser of the then current or original ratings on such Certificates. (c) The Holders of Certificates entitled to at least 51% of the Voting Rights may at any time remove the Trustee and appoint a successor trustee by written instrument or instruments, in triplicate, signed by such Holders or their attorneys-in-fact duly authorized, one complete set of which instruments shall be delivered to the Depositor, one complete set to the Trustee so removed and one complete set to the successor so appointed. (d) Any resignation or removal of the Trustee and appointment of a successor trustee pursuant to any of the provisions of this Section shall become effective upon acceptance of appointment by the successor trustee as provided in Section 8.08. Section 8.08. Successor Trustee. (a) Any successor trustee appointed as provided in Section 8.07 shall execute, acknowledge and deliver to the Depositor and to its predecessor trustee an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the predecessor trustee shall become effective and such successor trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become fully vested with all the rights, powers, duties and obligations of its predecessor hereunder, with the like effect as if originally named as trustee herein. The predecessor trustee shall deliver to the successor trustee all Mortgage Files and related documents and statements held by it hereunder (other than any Mortgage Files at the time held by a Custodian, which shall become the agent of any successor trustee hereunder), and the Depositor, the Master Servicer and the predecessor trustee shall execute and deliver such instruments and do such other things as may reasonably be required for more fully and certainly vesting and confirming in the successor trustee all such rights, powers, duties and obligations. (b) No successor trustee shall accept appointment as provided in this Section unless at the time of such acceptance such successor trustee shall be eligible under the provisions of Section 8.06. (c) Upon acceptance of appointment by a successor trustee as provided in this Section, the Depositor shall mail notice of the succession of such trustee hereunder to all Holders of Certificates at their addresses as shown in the Certificate Register. If the Depositor fails to mail such notice within 10 days after acceptance of appointment by the successor trustee, the successor trustee shall cause such notice to be mailed at the expense of the Depositor. Section 8.09. Merger or Consolidation of Trustee. Any corporation or national banking association into which the Trustee may be merged or converted or with which it may be consolidated or any corporation or national banking association resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation or national banking association succeeding to the business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation or national banking association shall be eligible under the provisions of Section 8.06, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding. The Trustee shall mail notice of any such merger or consolidation to the Certificateholders at their address as shown in the Certificate Register. Section 8.10. Appointment of Co-Trustee or Separate Trustee. (a) Notwithstanding any other provisions hereof, at any time, for the purpose of meeting any legal requirements of any jurisdiction in which any part of the Trust Fund or property securing the same may at the time be located, the Master Servicer and the Trustee acting jointly shall have the power and shall execute and deliver all instruments to appoint one or more Persons approved by the Trustee to act as co-trustee or co-trustees, jointly with the Trustee, or separate trustee or separate trustees, of all or any part of the Trust Fund, and to vest in such Person or Persons, in such capacity, such title to the Trust Fund, or any part thereof, and, subject to the other provisions of this Section 8.10, such powers, duties, obligations, rights and trusts as the Master Servicer and the Trustee may consider necessary or desirable. If the Master Servicer shall not have joined in such appointment within 15 days after the receipt by it of a request so to do, or in case an Event of Default shall have occurred and be continuing, the Trustee alone shall have the power to make such appointment. No co-trustee or separate trustee hereunder shall be required to meet the terms of eligibility as a successor trustee under Section 8.06 hereunder, and no notice to Holders of Certificates of the appointment of co-trustee(s) or separate trustee(s) shall be required under Section 8.08 hereof. (b) In the case of any appointment of a co-trustee or separate trustee pursuant to this Section 8.10, all rights, powers, duties and obligations conferred or imposed upon the Trustee shall be conferred or imposed upon and exercised or performed by the Trustee, and such separate trustee or co-trustee jointly, except to the extent that under any law of any jurisdiction in which any particular act or acts are to be performed (whether as Trustee hereunder or as successor to the Master Servicer hereunder), the Trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations (including the holding of title to the Trust Fund or any portion thereof in any such jurisdiction) shall be exercised and performed by such separate trustee or co-trustee at the direction of the Trustee. (c) Any notice, request or other writing given to the Trustee shall be deemed to have been given to each of the then separate trustees and co-trustees, as effectively as if given to each of them. Every instrument appointing any separate trustee or co-trustee shall refer to this Agreement and the conditions of this Article VIII. Each separate trustee and co-trustee, upon its acceptance of the trusts conferred, shall be vested with the estates or property specified in its instrument of appointment, either jointly with the Trustee or separately, as may be provided therein, subject to all the provisions of this Agreement, specifically including every provision of this Agreement relating to the conduct of, affecting the liability of, or affording protection to, the Trustee. Every such instrument shall be filed with the Trustee. (d) Any separate trustee or co-trustee may, at any time, constitute the Trustee, its agent or attorney-in-fact, with full power and authority, to the extent not prohibited by law, to do any lawful act under or in respect of this Agreement on its behalf and in its name. If any separate trustee or co-trustee shall die, become incapable of acting, resign or be removed, all of its estates, properties, rights, remedies and trusts shall vest in and be exercised by the Trustee, to the extent permitted by law, without the appointment of a new or successor trustee. Section 8.11. Appointment of Custodians. The Trustee may, with the consent of the Master Servicer and the Depositor, or shall, at the direction of the Master Servicer and the Depositor, appoint one or more Custodians who are not Affiliates of the Depositor or the Master Servicer to hold all or a portion of the Mortgage Files as agent for the Trustee, by entering into a Custodial Agreement. The Trustee is hereby directed to enter into a Custodial Agreement with Wells Fargo Bank, N.A. Subject to Article VIII, the Trustee agrees to comply with the terms of each Custodial Agreement and to enforce the terms and provisions thereof against the Custodian for the benefit of the Certificateholders. Each Custodian shall be a depository institution subject to supervision by federal or state authority, shall have a combined capital and surplus of at least $15,000,000 and shall be qualified to do business in the jurisdiction in which it holds any Mortgage File. Each Custodial Agreement may be amended only as provided in Section 11.01. The Trustee shall notify the Certificateholders of the appointment of any Custodian (other than the Custodian appointed as of the Closing Date) pursuant to this Section 8.11. Section 8.12. Appointment of Office or Agency. The Trustee shall maintain an office or agency in the City of St. Paul, Minnesota where Certificates may be surrendered for registration of transfer or exchange. The Trustee initially designates its offices located at the Corporate Trust Office for the purpose of keeping the Certificate Register. The Trustee shall maintain an office at the address stated in Section 11.05(c) hereof where notices and demands to or upon the Trustee in respect of this Agreement may be served. Section 8.13. DTC Letter of Representations. The Trustee is hereby authorized and directed to, and agrees that it shall, enter into the DTC Letter on behalf of the Trust Fund and in its individual capacity as agent thereunder. Section 8.14. Yield Maintenance Agreement. The Trustee is hereby authorized and directed to, and agrees that it shall, enter into the Yield Maintenance Agreement on behalf of the Trust Fund. -------------------------------------------------------------------------------- ARTICLE IX TERMINATION Section 9.01. Termination Upon Purchase or Liquidation of All Mortgage Loans. (a) Subject to Section 9.02, the respective obligations and responsibilities of the Depositor, the Master Servicer and the Trustee created hereby in respect of the Certificates (other than the obligation of the Trustee to make certain payments after the Final Distribution Date to Certificateholders and the obligation of the Depositor to send certain notices as hereinafter set forth) shall terminate upon the last action required to be taken by the Trustee on the Final Distribution Date pursuant to this Article IX following the earlier of: (i) the later of the final payment or other liquidation (or any Advance with respect thereto) of the last Mortgage Loan remaining in the Trust Fund or the disposition of all property acquired upon foreclosure or deed in lieu of foreclosure of any Mortgage Loan, or (ii) at the option of the Master Servicer, the purchase of all Mortgage Loans and all property acquired in respect of any Mortgage Loan remaining in the Trust Fund, at a price equal to 100% of the unpaid principal balance of each Mortgage Loan (or, if less than such unpaid principal balance, the fair market value of the related underlying property of such Mortgage Loan with respect to Mortgage Loans as to which title has been acquired if such fair market value is less than such unpaid principal balance) (and if such purchase is made by the Master Servicer only, net of any unreimbursed Advances attributable to principal) on the day of repurchase, plus accrued interest thereon at the Net Mortgage Rate (or Modified Net Mortgage Rate in the case of any Modified Mortgage Loan), to, but not including, the first day of the month in which such repurchase price is distributed; provided, however, that in no event shall the trust created hereby continue beyond the expiration of 21 years from the death of the last survivor of the descendants of Joseph P. Kennedy, the late ambassador of the United States to the Court of St. James, living on the date hereof; and provided further, that the purchase price set forth above shall be increased as is necessary, as determined by the Master Servicer, to avoid disqualification of any REMIC created hereunder as a REMIC. The purchase price paid by the Master Servicer pursuant to Section 9.01(a)(ii) shall also include any amounts owed by Residential Funding pursuant to the last paragraph of Section 4 of the Assignment Agreement in respect of any liability, penalty or expense that resulted from a breach of the representation and warranty set forth in clause (xlvii) of Section 4 of the Assignment Agreement that remain unpaid on the date of such purchase. The right of the Master Servicer to purchase all of the Mortgage Loans pursuant to clause (ii) above is conditioned upon the date of such purchase occurring on or after the Optional Termination Date. If such right is exercised by the Master Servicer, the Master Servicer shall be deemed to have been reimbursed for the full amount of any unreimbursed Advances theretofore made by it with respect to the Mortgage Loans being purchased. In addition, the Master Servicer shall provide to the Trustee the certification required by Section 3.15, and the Trustee and any Custodian shall, promptly following payment of the purchase price, release to the Master Servicer the Mortgage Files pertaining to the Mortgage Loans being purchased. In addition to the foregoing, on any Distribution Date on or after the Optional Termination Date, the Master Servicer shall have the right, at its option, to purchase the Class A Certificates, Class M Certificates and Class SB Certificates in whole, but not in part, at a price equal to the sum of the outstanding Certificate Principal Balance of such Certificates plus the sum of one month's Accrued Certificate Interest thereon, any previously unpaid Accrued Certificate Interest, and any unpaid Prepayment Interest Shortfalls previously allocated thereto and, in the case of Prepayment Interest Shortfalls, accrued interest thereon at the applicable Pass-Through Rate through the date of such optional termination. If the Master Servicer exercises this right to purchase the outstanding Class A Certificates, Class M Certificates and Class SB Certificates, the Master Servicer will promptly terminate the respective obligations and responsibilities created hereby in respect of these Certificates pursuant to this Article IX. (b) The Master Servicer shall give the Trustee not less than 40 days' prior notice of the Distribution Date on which (1) the Master Servicer anticipates that the final distribution will be made to Certificateholders as a result of the exercise by the Master Servicer of its right to purchase the Mortgage Loans or on which (2) the Master Servicer anticipates that the Certificates will be purchased as a result of the exercise by the Master Servicer to purchase the outstanding Certificates. Notice of any termination, specifying the anticipated Final Distribution Date (which shall be a date that would otherwise be a Distribution Date) upon which the Certificateholders may surrender their Certificates to the Trustee (if so required by the terms hereof) for payment of the final distribution and cancellation or notice of any purchase of the outstanding Certificates, specifying the Distribution Date upon which the Holders may surrender their Certificates to the Trustee for payment, shall be given promptly by the Master Servicer (if it is exercising the right to purchase the Mortgage Loans or to purchase the outstanding Certificates), or by the Trustee (in any other case) by letter to the Certificateholders (with a copy to the Certificate Registrar) mailed not earlier than the 15th day and not later than the 25th day of the month next preceding the month of such final distribution specifying: (i) the anticipated Final Distribution Date upon which final payment of the Certificates is anticipated to be made upon presentation and surrender of Certificates at the office or agency of the Trustee therein designated where required pursuant to this Agreement or, in the case of the purchase by the Master Servicer of the outstanding Certificates, the Distribution Date on which such purchase is made, (ii) the amount of any such final payment or, in the case of the purchase of the outstanding Certificates, the purchase price, in either case, if known, and (iii) that the Record Date otherwise applicable to such Distribution Date is not applicable, and that payment will be made only upon presentation and surrender of the Certificates at the office or agency of the Trustee therein specified. If the Master Servicer or the Trustee is obligated to give notice to Certificateholders as required above, it shall give such notice to the Certificate Registrar at the time such notice is given to Certificateholders. In the event of a purchase of the Mortgage Loans by the Master Servicer, the Master Servicer shall deposit in the Certificate Account before the Final Distribution Date in immediately available funds an amount equal to the purchase price computed as provided above. As a result of the exercise by the Master Servicer of its right to purchase the outstanding Certificates, the Master Servicer shall deposit in the Certificate Account, before the Distribution Date on which such purchase is to occur, in immediately available funds, an amount equal to the purchase price for the Certificates computed as provided above, and provide notice of such deposit to the Trustee. The Trustee shall withdraw from such account the amount specified in subsection (c) below and distribute such amount to the Certificateholders as specified in subsection (c) below. The Master Servicer shall provide to the Trustee written notification of any change to the anticipated Final Distribution Date as soon as practicable. If the Trust Fund is not terminated on the anticipated Final Distribution Date, for any reason, the Trustee shall promptly mail notice thereof to each affected Certificateholder. (c) Upon presentation and surrender of the Class A Certificates, Class M Certificates and Class SB Certificates by the Certificateholders thereof, the Trustee shall distribute to such Certificateholders (i) the amount otherwise distributable on such Distribution Date, if not in connection with the Master Servicer's election to repurchase the Mortgage Loans or the outstanding Class A Certificates, Class M Certificates and Class SB Certificates, or (ii) if the Master Servicer elected to so repurchase the Mortgage Loans or the outstanding Class A Certificates, Class M Certificates and Class SB Certificates, an amount equal to the price paid pursuant to Section 9.01(a) as follows: first, with respect to the Class A Certificates, pari passu, the outstanding Certificate Principal Balance thereof, plus Accrued Certificate Interest thereon for the related Interest Accrual Period and any previously unpaid Accrued Certificate Interest, second, with respect to the Class M-1 Certificates, the outstanding Certificate Principal Balance thereof, plus Accrued Certificate Interest thereon for the related Interest Accrual Period and any previously unpaid Accrued Certificate Interest, third, with respect to the Class M-2 Certificates, the outstanding Certificate Principal Balance thereof, plus Accrued Certificate Interest thereon for the related Interest Accrual Period and any previously unpaid Accrued Certificate Interest, fourth, with respect to the Class M-3 Certificates, the outstanding Certificate Principal Balance thereof, plus Accrued Certificate Interest thereon for the related Interest Accrual Period and any previously unpaid Accrued Certificate Interest, fifth, with respect to the Class M-4 Certificates, the outstanding Certificate Principal Balance thereof, plus Accrued Certificate Interest thereon for the related Interest Accrual Period and any previously unpaid Accrued Certificate Interest, sixth, with respect to the Class M-5 Certificates, the outstanding Certificate Principal Balance thereof, plus Accrued Certificate Interest thereon for the related Interest Accrual Period and any previously unpaid Accrued Certificate Interest, seventh, with respect to the Class M-6 Certificates, the outstanding Certificate Principal Balance thereof, plus Accrued Certificate Interest thereon for the related Interest Accrual Period and any previously unpaid Accrued Certificate Interest, eighth, with respect to the Class M-7 Certificates, the outstanding Certificate Principal Balance thereof, plus Accrued Certificate Interest thereon for the related Interest Accrual Period and any previously unpaid Accrued Certificate Interest, ninth, with respect to the Class M-8 Certificates, the outstanding Certificate Principal Balance thereof, plus Accrued Certificate Interest thereon for the related Interest Accrual Period and any previously unpaid Accrued Certificate Interest, tenth, with respect to the Class M-9 Certificates, the outstanding Certificate Principal Balance thereof, plus Accrued Certificate Interest thereon for the related Interest Accrual Period and any previously unpaid Accrued Certificate Interest, eleventh, with respect to the Class A Certificates and Class M Certificates, the amount of any Prepayment Interest Shortfalls allocated thereto for such Distribution Date or remaining unpaid from prior Distribution Dates and accrued interest thereon at the applicable Pass-Through Rate, on a pro rata basis based on Prepayment Interest Shortfalls allocated thereto for such Distribution Date or remaining unpaid from prior Distribution Dates, and twelfth, with respect to the Class SB Certificates, all remaining amounts. (d) In the event that any Certificateholders shall not surrender their Certificates for final payment and cancellation on or before the Final Distribution Date, the Master Servicer (if it exercised its right to purchase the Mortgage Loans) or the Trustee (in any other case), shall give a second written notice to the remaining Certificateholders to surrender their Certificates for cancellation and receive the final distribution with respect thereto. If within six months after the second notice any Certificate shall not have been surrendered for cancellation, the Trustee shall take appropriate steps as directed by the Master Servicer to contact the remaining Certificateholders concerning surrender of their Certificates. The costs and expenses of maintaining the Certificate Account and of contacting Certificateholders shall be paid out of the assets which remain in the Certificate Account. If within nine months after the second notice any Certificates shall not have been surrendered for cancellation, the Trustee shall pay to the Master Servicer all amounts distributable to the holders thereof and the Master Servicer shall thereafter hold such amounts until distributed to such Holders. No interest shall accrue or be payable to any Certificateholder on any amount held in the Certificate Account or by the Master Servicer as a result of such Certificateholder's failure to surrender its Certificate(s) for final payment thereof in accordance with this Section 9.01 and the Certificateholders shall look only to the Master Servicer for such payment. (e) If any Certificateholders do not surrender their Certificates on or before the Distribution Date on which a purchase of the outstanding Certificates is to be made, the Master Servicer shall give a second written notice to such Certificateholders to surrender their Certificates for payment of the purchase price therefor. If within six months after the second notice any Certificate shall not have been surrendered for cancellation, the Trustee shall take appropriate steps as directed by the Master Servicer to contact the Holders of such Certificates concerning surrender of their Certificates. The costs and expenses of maintaining the Certificate Account and of contacting Certificateholders shall be paid out of the assets which remain in the Certificate Account. If within nine months after the second notice any Certificates shall not have been surrendered for cancellation in accordance with this Section 9.01, the Trustee shall pay to the Master Servicer all amounts distributable to the Holders thereof and shall have no further obligation or liability therefor and the Master Servicer shall thereafter hold such amounts until distributed to such Holders. No interest shall accrue or be payable to any Certificateholder on any amount held in the Certificate Account or by the Master Servicer as a result of such Certificateholder's failure to surrender its Certificate(s) for payment in accordance with this Section 9.01. Any Certificate that is not surrendered on the Distribution Date on which a purchase pursuant to this Section 9.01 occurs as provided above will be deemed to have been purchased and the Holder as of such date will have no rights with respect thereto except to receive the purchase price therefor minus any costs and expenses associated with such Certificate Account and notices allocated thereto. Any Certificates so purchased or deemed to have been purchased on such Distribution Date shall remain outstanding hereunder. The Master Servicer shall be for all purposes the Holder thereof as of such date. Section 9.02. Additional Termination Requirements. (a) Each of REMIC I and REMIC II as the case may be, shall be terminated in accordance with the following additional requirements, unless the Trustee and the Master Servicer have received an Opinion of Counsel (which Opinion of Counsel shall not be an expense of the Trustee) to the effect that the failure of any REMIC created hereunder to comply with the requirements of this Section 9.02 will not (i) result in the imposition on the Trust Fund of taxes on "prohibited transactions," as described in Section 860F of the Code, or (ii) cause any REMIC created hereunder to fail to qualify as a REMIC at any time that any Certificate is outstanding: (i) The Master Servicer shall establish a 90-day liquidation period for each of REMIC I and REMIC II, and specify the first day of such period in a statement attached to the Trust Fund's final Tax Return pursuant to Treasury regulationsss.1.860F-1. The Master Servicer also shall satisfy all of the requirements of a qualified liquidation for each of REMIC I and REMIC II, under Section 860F of the Code and the regulations thereunder; (ii) The Master Servicer shall notify the Trustee at the commencement of such 90-day liquidation period and, at or prior to the time of making of the final payment on the Certificates, the Trustee shall sell or otherwise dispose of all of the remaining assets of the Trust Fund in accordance with the terms hereof; and (iii) If the Master Servicer is exercising its right to purchase the assets of the Trust Fund, the Master Servicer shall, during the 90-day liquidation period and at or prior to the Final Distribution Date, purchase all of the assets of the Trust Fund for cash; (b) Each Holder of a Certificate and the Trustee hereby irrevocably approves and appoints the Master Servicer as its attorney-in-fact to adopt a plan of complete liquidation for each of REMIC I and REMIC II at the expense of the Trust Fund in accordance with the terms and conditions of this Agreement. -------------------------------------------------------------------------------- ARTICLE X REMIC PROVISIONS Section 10.01. REMIC Administration. (a) The REMIC Administrator shall make an election to treat each of REMIC I and REMIC II as a REMIC under the Code and, if necessary, under applicable state law. Such election will be made on Form 1066 or other appropriate federal tax or information return (including Form 8811) or any appropriate state return for the taxable year ending on the last day of the calendar year in which the Certificates are issued. The REMIC I Regular Interests shall be designated as the "regular interests" and Component I of the Class R Certificates shall be designated as the sole Class of "residual interests" in REMIC I. The REMIC II Regular Interests shall be designated as the "regular interests" and Component II of the Class R Certificates shall be designated as the sole Class of "residual interests" in REMIC II. The REMIC Administrator and the Trustee shall not permit the creation of any "interests" (within the meaning of Section 860G of the Code) in the REMIC I or REMIC II other than the REMIC I Regular Interests, the REMIC II Regular Interests and the Certificates. (b) The Closing Date is hereby designated as the "startup day" of each of REMIC I, and REMIC II within the meaning of Section 860G(a)(9) of the Code (the "Startup Date"). (c) The REMIC Administrator shall hold a Class R Certificate in each REMIC representing a 0.01% Percentage Interest of the Class R Certificates in each REMIC and shall be designated as the "tax matters person" with respect to each of REMIC I and REMIC II in the manner provided under Treasury regulations Section 1.860F-4(d) and Treasury regulations Section 301.6231(a)(7)-1. The REMIC Administrator, as tax matters person, shall (i) act on behalf of each of REMIC I and REMIC II in relation to any tax matter or controversy involving the Trust Fund and (ii) represent the Trust Fund in any administrative or judicial proceeding relating to an examination or audit by any governmental taxing authority with respect thereto. The legal expenses, including without limitation attorneys' or accountants' fees, and costs of any such proceeding and any liability resulting therefrom shall be expenses of the Trust Fund and the REMIC Administrator shall be entitled to reimbursement therefor out of amounts attributable to the Mortgage Loans on deposit in the Custodial Account as provided by Section 3.10 unless such legal expenses and costs are incurred by reason of the REMIC Administrator's willful misfeasance, bad faith or gross negligence. If the REMIC Administrator is no longer the Master Servicer hereunder, at its option the REMIC Administrator may continue its duties as REMIC Administrator and shall be paid reasonable compensation not to exceed $3,000 per year by any successor Master Servicer hereunder for so acting as the REMIC Administrator. (d) The REMIC Administrator shall prepare or cause to be prepared all of the Tax Returns that it determines are required with respect to the REMICs created hereunder and deliver such Tax Returns in a timely manner to the Trustee and the Trustee shall sign and file such Tax Returns in a timely manner. The expenses of preparing such returns shall be borne by the REMIC Administrator without any right of reimbursement therefor. The REMIC Administrator agrees to indemnify and hold harmless the Trustee with respect to any tax or liability arising from the Trustee's signing of Tax Returns that contain errors or omissions. The Trustee and Master Servicer shall promptly provide the REMIC Administrator with such information as the REMIC Administrator may from time to time request for the purpose of enabling the REMIC Administrator to prepare Tax Returns. (e) The REMIC Administrator shall provide (i) to any Transferor of a Class R Certificate such information as is necessary for the application of any tax relating to the transfer of a Class R Certificate to any Person who is not a Permitted Transferee, (ii) to the Trustee and the Trustee shall forward to the Certificateholders such information or reports as are required by the Code or the REMIC Provisions including reports relating to interest, original issue discount, if any, and market discount or premium (using the Prepayment Assumption) and (iii) to the Internal Revenue Service the name, title, address and telephone number of the person who will serve as the representative of each REMIC created hereunder. (f) The Master Servicer and the REMIC Administrator shall take such actions and shall cause each REMIC created hereunder to take such actions as are reasonably within the Master Servicer's or the REMIC Administrator's control and the scope of its duties more specifically set forth herein as shall be necessary or desirable to maintain the status thereof as a REMIC under the REMIC Provisions (and the Trustee shall assist the Master Servicer and the REMIC Administrator, to the extent reasonably requested by the Master Servicer and the REMIC Administrator to do so). In performing their duties as more specifically set forth herein, the Master Servicer and the REMIC Administrator shall not knowingly or intentionally take any action, cause the Trust Fund to take any action or fail to take (or fail to cause to be taken) any action reasonably within their respective control and the scope of duties more specifically set forth herein, that, under the REMIC Provisions, if taken or not taken, as the case may be, could (i) endanger the status of any REMIC created hereunder as a REMIC or (ii) result in the imposition of a tax upon any REMIC created hereunder (including but not limited to the tax on prohibited transactions as defined in Section 860F(a)(2) of the Code (except as provided in Section 2.04) and the tax on contributions to a REMIC set forth in Section 860G(d) of the Code) (either such event, in the absence of an Opinion of Counsel or the indemnification referred to in this sentence, an "Adverse REMIC Event") unless the Master Servicer or the REMIC Administrator, as applicable, has received an Opinion of Counsel (at the expense of the party seeking to take such action or, if such party fails to pay such expense, and the Master Servicer or the REMIC Administrator, as applicable, determines that taking such action is in the best interest of the Trust Fund and the Certificateholders, at the expense of the Trust Fund, but in no event at the expense of the Master Servicer, the REMIC Administrator or the Trustee) to the effect that the contemplated action will not, with respect to the Trust Fund created hereunder, endanger such status or, unless the Master Servicer or the REMIC Administrator or both, as applicable, determine in its or their sole discretion to indemnify the Trust Fund against the imposition of such a tax, result in the imposition of such a tax. Wherever in this Agreement a contemplated action may not be taken because the timing of such action might result in the imposition of a tax on the Trust Fund, or may only be taken pursuant to an Opinion of Counsel that such action would not impose a tax on the Trust Fund, such action may nonetheless be taken provided that the indemnity given in the preceding sentence with respect to any taxes that might be imposed on the Trust Fund has been given and that all other preconditions to the taking of such action have been satisfied. The Trustee shall not take or fail to take any action (whether or not authorized hereunder) as to which the Master Servicer or the REMIC Administrator, as applicable, has advised it in writing that it has received an Opinion of Counsel to the effect that an Adverse REMIC Event could occur with respect to such action or inaction, as the case may be. In addition, prior to taking any action with respect to the Trust Fund or its assets, or causing the Trust Fund to take any action, which is not expressly permitted under the terms of this Agreement, the Trustee shall consult with the Master Servicer or the REMIC Administrator, as applicable, or its designee, in writing, with respect to whether such action could cause an Adverse REMIC Event to occur with respect to the Trust Fund and the Trustee shall not take any such action or cause the Trust Fund to take any such action as to which the Master Servicer or the REMIC Administrator, as applicable, has advised it in writing that an Adverse REMIC Event could occur. The Master Servicer or the REMIC Administrator, as applicable, may consult with counsel to make such written advice, and the cost of same shall be borne by the party seeking to take the action not expressly permitted by this Agreement, but in no event at the expense of the Master Servicer or the REMIC Administrator. At all times as may be required by the Code, the Master Servicer or the REMIC Administrator, as applicable, will to the extent within its control and the scope of its duties more specifically set forth herein, maintain substantially all of the assets of the REMIC as "qualified mortgages" as defined in Section 860G(a)(3) of the Code and "permitted investments" as defined in Section 860G(a)(5) of the Code. (g) In the event that any tax is imposed on "prohibited transactions" of any REMIC created hereunder as defined in Section 860F(a)(2) of the Code, on "net income from foreclosure property" of any REMIC as defined in Section 860G(c) of the Code, on any contributions to any REMIC after the Startup Date therefor pursuant to Section 860G(d) of the Code, or any other tax imposed by the Code or any applicable provisions of state or local tax laws, such tax shall be charged (i) to the Master Servicer, if such tax arises out of or results from a breach by the Master Servicer in its role as Master Servicer or REMIC Administrator of any of its obligations under this Agreement or the Master Servicer has in its sole discretion determined to indemnify the Trust Fund against such tax, (ii) to the Trustee, if such tax arises out of or results from a breach by the Trustee of any of its obligations under this Article X, or (iii) otherwise against amounts on deposit in the Custodial Account as provided by Section 3.10 and on the Distribution Date(s) following such reimbursement the aggregate of such taxes shall be allocated in reduction of the Accrued Certificate Interest on each Class entitled thereto in the same manner as if such taxes constituted a Prepayment Interest Shortfall. (h) The Trustee and the Master Servicer shall, for federal income tax purposes, maintain books and records with respect to each REMIC on a calendar year and on an accrual basis or as otherwise may be required by the REMIC Provisions. (i) Following the Startup Date, neither the Master Servicer nor the Trustee shall accept any contributions of assets to any REMIC unless (subject to Section 10.01(f)) the Master Servicer and the Trustee shall have received an Opinion of Counsel (at the expense of the party seeking to make such contribution) to the effect that the inclusion of such assets in any REMIC will not cause any REMIC created hereunder to fail to qualify as a REMIC at any time that any Certificates are outstanding or subject any such REMIC to any tax under the REMIC Provisions or other applicable provisions of federal, state and local law or ordinances. (j) Neither the Master Servicer nor the Trustee shall (subject to Section 10.01(f)) enter into any arrangement by which any REMIC created hereunder will receive a fee or other compensation for services nor permit any REMIC created hereunder to receive any income from assets other than "qualified mortgages" as defined in Section 860G(a)(3) of the Code or "permitted investments" as defined in Section 860G(a)(5) of the Code. (k) Solely for purposes of Section 1.860G-1(a)(4)(iii) of the Treasury Regulations, the "latest possible maturity date" by which the principal balance of each regular interest in each REMIC would be reduced to zero is June 25, 2036, which is the Distribution Date in the month following the last scheduled payment on any Mortgage Loan. (l) Within 30 days after the Closing Date, the REMIC Administrator shall prepare and file with the Internal Revenue Service Form 8811, "Information Return for Real Estate Mortgage Investment Conduits (REMIC) and Issuers of Collateralized Debt Obligations" for the Trust Fund. (m) Neither the Trustee nor the Master Servicer shall sell, dispose of or substitute for any of the Mortgage Loans (except in connection with (i) the default, imminent default or foreclosure of a Mortgage Loan, including but not limited to, the acquisition or sale of a Mortgaged Property acquired by deed in lieu of foreclosure, (ii) the bankruptcy of the Trust Fund, (iii) the termination of any REMIC pursuant to Article IX of this Agreement or (iv) a purchase of Mortgage Loans pursuant to Article II or III of this Agreement) or acquire any assets for any REMIC or sell or dispose of any investments in the Custodial Account or the Certificate Account for gain, or accept any contributions to any REMIC after the Closing Date unless it has received an Opinion of Counsel that such sale, disposition, substitution or acquisition will not (a) affect adversely the status of any REMIC created hereunder as a REMIC or (b) unless the Master Servicer has determined in its sole discretion to indemnify the Trust Fund against such tax, cause any REMIC to be subject to a tax on "prohibited transactions" or "contributions" pursuant to the REMIC Provisions. Section 10.02. Master Servicer, REMIC Administrator and Trustee Indemnification. (a) The Trustee agrees to indemnify the Trust Fund, the Depositor, the REMIC Administrator and the Master Servicer for any taxes and costs including, without limitation, any reasonable attorneys fees imposed on or incurred by the Trust Fund, the Depositor or the Master Servicer, as a result of a breach of the Trustee's covenants set forth in Article VIII or this Article X. In the event that Residential Funding is no longer the Master Servicer, the Trustee shall indemnify Residential Funding for any taxes and costs including, without limitation, any reasonable attorneys fees imposed on or incurred by Residential Funding as a result of a breach of the Trustee's covenants set forth in Article VIII or this Article X. (b) The REMIC Administrator agrees to indemnify the Trust Fund, the Depositor, the Master Servicer and the Trustee for any taxes and costs (including, without limitation, any reasonable attorneys' fees) imposed on or incurred by the Trust Fund, the Depositor, the Master Servicer or the Trustee, as a result of a breach of the REMIC Administrator's covenants set forth in this Article X with respect to compliance with the REMIC Provisions, including without limitation, any penalties arising from the Trustee's execution of Tax Returns prepared by the REMIC Administrator that contain errors or omissions; provided, however, that such liability will not be imposed to the extent such breach is a result of an error or omission in information provided to the REMIC Administrator by the Master Servicer in which case Section 10.02(c) will apply. (c) The Master Servicer agrees to indemnify the Trust Fund, the Depositor, the REMIC Administrator and the Trustee for any taxes and costs (including, without limitation, any reasonable attorneys' fees) imposed on or incurred by the Trust Fund, the Depositor, the REMIC Administrator or the Trustee, as a result of a breach of the Master Servicer's covenants set forth in this Article X or in Article III with respect to compliance with the REMIC Provisions, including without limitation, any penalties arising from the Trustee's execution of Tax Returns prepared by the Master Servicer that contain errors or omissions. -------------------------------------------------------------------------------- ARTICLE XI MISCELLANEOUS PROVISIONS Section 11.01. Amendment. (a) This Agreement or any Custodial Agreement may be amended from time to time by the Depositor, the Master Servicer and the Trustee, without the consent of any of the Certificateholders: (i) to cure any ambiguity, (ii) to correct or supplement any provisions herein or therein, which may be inconsistent with any other provisions herein or therein or to correct any error, (iii) to modify, eliminate or add to any of its provisions to such extent as shall be necessary or desirable to maintain the qualification of any REMIC created hereunder as a REMIC at all times that any Certificate is outstanding or to avoid or minimize the risk of the imposition of any tax on the Trust Fund pursuant to the Code that would be a claim against the Trust Fund, provided that the Trustee has received an Opinion of Counsel to the effect that (A) such action is necessary or desirable to maintain such qualification or to avoid or minimize the risk of the imposition of any such tax and (B) such action will not adversely affect in any material respect the interests of any Certificateholder, (iv) to change the timing and/or nature of deposits into the Custodial Account or the Certificate Account or to change the name in which the Custodial Account is maintained, provided that (A) the Certificate Account Deposit Date shall in no event be later than the related Distribution Date, (B) such change shall not, as evidenced by an Opinion of Counsel, adversely affect in any material respect the interests of any Certificateholder and (C) such change shall not result in a reduction of the rating assigned to any Class of Certificates below the lower of the then-current rating or the rating assigned to such Certificates as of the Closing Date, as evidenced by a letter from each Rating Agency to such effect, (v) to modify, eliminate or add to the provisions of Section 5.02(f) or any other provision hereof restricting transfer of the Class R Certificates by virtue of their being the "residual interests" in the Trust Fund provided that (A) such change shall not result in reduction of the rating assigned to any such Class of Certificates below the lower of the then-current rating or the rating assigned to such Certificates as of the Closing Date, as evidenced by a letter from each Rating Agency to such effect, and (B) such change shall not (subject to Section 10.01(f)), as evidenced by an Opinion of Counsel (at the expense of the party seeking so to modify, eliminate or add such provisions), cause the Trust Fund or any of the Certificateholders (other than the transferor) to be subject to a federal tax caused by a transfer to a Person that is not a Permitted Transferee, or (vi) to make any other provisions with respect to matters or questions arising under this Agreement or such Custodial Agreement which shall not be materially inconsistent with the provisions of this Agreement, provided that such action shall not, as evidenced by an Opinion of Counsel, adversely affect in any material respect the interests of any Certificateholder and is authorized or permitted under Section 11.01. (b) This Agreement or any Custodial Agreement may also be amended from time to time by the Depositor, the Master Servicer, the Trustee and the Holders of Certificates evidencing in the aggregate not less than 66% of the Percentage Interests of each Class of Certificates with a Certificate Principal Balance greater than zero affected thereby for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement or such Custodial Agreement or of modifying in any manner the rights of the Holders of Certificates of such Class; provided, however, that no such amendment shall: (i) reduce in any manner the amount of, or delay the timing of, payments which are required to be distributed on any Certificate without the consent of the Holder of such Certificate, (ii) adversely affect in any material respect the interest of the Holders of Certificates of any Class in a manner other than as described in clause (i) hereof without the consent of Holders of Certificates of such Class evidencing, as to such Class, Percentage Interests aggregating not less than 66%, or (iii) reduce the aforesaid percentage of Certificates of any Class the Holders of which are required to consent to any such amendment, in any such case without the consent of the Holders of all Certificates of such Class then outstanding. (c) Notwithstanding any contrary provision of this Agreement, the Trustee shall not consent to any amendment to this Agreement unless it shall have first received an Opinion of Counsel (at the expense of the party seeking such amendment) to the effect that such amendment or the exercise of any power granted to the Master Servicer, the Depositor or the Trustee in accordance with such amendment will not result in the imposition of a federal tax on the Trust Fund or cause any REMIC created hereunder to fail to qualify as a REMIC at any time that any Certificate is outstanding; provided, that if the indemnity described in Section 10.01(f) with respect to any taxes that might be imposed on the Trust Fund has been given, the Trustee shall not require the delivery to it of the Opinion of Counsel described in this Section 11.01(c). The Trustee may but shall not be obligated to enter into any amendment pursuant to this Section that affects its rights, duties and immunities and this Agreement or otherwise; provided, however, such consent shall not be unreasonably withheld. (d) Promptly after the execution of any such amendment the Trustee shall furnish written notification of the substance of such amendment to each Certificateholder. It shall not be necessary for the consent of Certificateholders under this Section 11.01 to approve the particular form of any proposed amendment, but it shall be sufficient if such consent shall approve the substance thereof. The manner of obtaining such consents and of evidencing the authorization of the execution thereof by Certificateholders shall be subject to such reasonable regulations as the Trustee may prescribe. (e) The Depositor shall have the option, in its sole discretion, to obtain and deliver to the Trustee any corporate guaranty, payment obligation, irrevocable letter of credit, surety bond, insurance policy or similar instrument or a reserve fund, or any combination of the foregoing, for the purpose of protecting the Holders of the Class SB Certificates against any or all Realized Losses or other shortfalls. Any such instrument or fund shall be held by the Trustee for the benefit of the Class SB Certificateholders, but shall not be and shall not be deemed to be under any circumstances included in any REMIC. To the extent that any such instrument or fund constitutes a reserve fund for federal income tax purposes, (i) any reserve fund so established shall be an outside reserve fund and not an asset of such REMIC, (ii) any such reserve fund shall be owned by the Depositor, and (iii) amounts transferred by such REMIC to any such reserve fund shall be treated as amounts distributed by such REMIC to the Depositor or any successor, all within the meaning of Treasury regulations Section 1.860G-2(h) in effect as of the Cut-off Date. In connection with the provision of any such instrument or fund, this Agreement and any provision hereof may be modified, added to, deleted or otherwise amended in any manner that is related or incidental to such instrument or fund or the establishment or administration thereof, such amendment to be made by written instrument executed or consented to by the Depositor and such related insurer but without the consent of any Certificateholder and without the consent of the Master Servicer or the Trustee being required unless any such amendment would impose any additional obligation on, or otherwise adversely affect the interests of the Certificateholders, the Master Servicer or the Trustee, as applicable; provided that the Depositor obtains an Opinion of Counsel (which need not be an opinion of Independent counsel) to the effect that any such amendment will not cause (a) any federal tax to be imposed on the Trust Fund, including without limitation, any federal tax imposed on "prohibited transactions" under Section 860F(a)(1) of the Code or on "contributions after the startup date" under Section 860G(d)(1) of the Code and (b) any REMIC created hereunder to fail to qualify as a REMIC at any time that any Certificate is outstanding. In the event that the Depositor elects to provide such coverage in the form of a limited guaranty provided by General Motors Acceptance Corporation, the Depositor may elect that the text of such amendment to this Agreement shall be substantially in the form attached hereto as Exhibit K (in which case Residential Funding's Subordinate Certificate Loss Obligation as described in such exhibit shall be established by Residential Funding's consent to such amendment) and that the limited guaranty shall be executed in the form attached hereto as Exhibit L, with such changes as the Depositor shall deem to be appropriate; it being understood that the Trustee has reviewed and approved the content of such forms and that the Trustee's consent or approval to the use thereof is not required. (f) In addition to the foregoing, any amendment of Section 4.08 of this Agreement shall require the consent of the Limited Repurchase Right Holder as a third-party beneficiary of Section 4.08 of this Agreement. Section 11.02. Recordation of Agreement; Counterparts. (a) To the extent permitted by applicable law, this Agreement is subject to recordation in all appropriate public offices for real property records in all the counties or other comparable jurisdictions in which any or all of the properties subject to the Mortgages are situated, and in any other appropriate public recording office or elsewhere, such recordation to be effected by the Master Servicer and at its expense on direction by the Trustee (pursuant to the request of the Holders of Certificates entitled to at least 25% of the Voting Rights), but only upon direction accompanied by an Opinion of Counsel to the effect that such recordation materially and beneficially affects the interests of the Certificateholders. (b) For the purpose of facilitating the recordation of this Agreement as herein provided and for other purposes, this Agreement may be executed simultaneously in any number of counterparts, each of which counterparts shall be deemed to be an original, and such counterparts shall constitute but one and the same instrument. Section 11.03. Limitation on Rights of Certificateholders. (a) The death or incapacity of any Certificateholder shall not operate to terminate this Agreement or the Trust Fund, nor entitle such Certificateholder's legal representatives or heirs to claim an accounting or to take any action or proceeding in any court for a partition or winding up of the Trust Fund, nor otherwise affect the rights, obligations and liabilities of any of the parties hereto. (b) No Certificateholder shall have any right to vote (except as expressly provided herein) or in any manner otherwise control the operation and management of the Trust Fund, or the obligations of the parties hereto, nor shall anything herein set forth, or contained in the terms of the Certificates, be construed so as to constitute the Certificateholders from time to time as partners or members of an association; nor shall any Certificateholder be under any liability to any third person by reason of any action taken by the parties to this Agreement pursuant to any provision hereof. (c) No Certificateholder shall have any right by virtue of any provision of this Agreement to institute any suit, action or proceeding in equity or at law upon or under or with respect to this Agreement, unless such Holder previously shall have given to the Trustee a written notice of default and of the continuance thereof, as hereinbefore provided, and unless also the Holders of Certificates of any Class evidencing in the aggregate not less than 25% of the related Percentage Interests of such Class, shall have made written request upon the Trustee to institute such action, suit or proceeding in its own name as Trustee hereunder and shall have offered to the Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby, and the Trustee, for 60 days after its receipt of such notice, request and offer of indemnity, shall have neglected or refused to institute any such action, suit or proceeding it being understood and intended, and being expressly covenanted by each Certificateholder with every other Certificateholder and the Trustee, that no one or more Holders of Certificates of any Class shall have any right in any manner whatever by virtue of any provision of this Agreement to affect, disturb or prejudice the rights of the Holders of any other of such Certificates of such Class or any other Class, or to obtain or seek to obtain priority over or preference to any other such Holder, or to enforce any right under this Agreement, except in the manner herein provided and for the common benefit of Certificateholders of such Class or all Classes, as the case may be. For the protection and enforcement of the provisions of this Section 11.03, each and every Certificateholder and the Trustee shall be entitled to such relief as can be given either at law or in equity. Section 11.04. Governing Law. This agreement and the Certificates shall be governed by and construed in accordance with the laws of the State of New York, without regard to the conflict of law principles thereof, other than Sections 5-1401 and 5-1402 of the New York General Obligations Law, and the obligations, rights and remedies of the parties hereunder shall be determined in accordance with such laws. Section 11.05. Notices. All demands and notices hereunder shall be in writing and shall be deemed to have been duly given if personally delivered at or mailed by registered mail, postage prepaid (except for notices to the Trustee which shall be deemed to have been duly given only when received), to (a) in the case of the Depositor, 8400 Normandale Lake Boulevard, Suite 250, Minneapolis, Minnesota 55437, Attention: President (RASC), or such other address as may hereafter be furnished to the Master Servicer and the Trustee in writing by the Depositor; (b) in the case of the Master Servicer, 2255 North Ontario Street, Burbank, California 91504-3120, Attention: Bond Administration or such other address as may be hereafter furnished to the Depositor and the Trustee by the Master Servicer in writing; (c) in the case of the Trustee, the Corporate Trust Office or such other address as may hereafter be furnished to the Depositor and the Master Servicer in writing by the Trustee; (d) in the case of Standard & Poor's, 55 Water Street, New York, New York 10041; Attention: Mortgage Surveillance or such other address as may be hereafter furnished to the Depositor, Trustee and Master Servicer by Standard & Poor's; (e) in the case of Moody's, 99 Church Street, New York, New York 10007, Attention: ABS Monitoring Department, or such other address as may be hereafter furnished to the Depositor, the Trustee and the Master Servicer in writing by Moody's, and (f) in the case of the Yield Maintenance Agreement Provider, Deutsche Bank AG, New York Branch, c/o Deutsche Bank AG, New York Branch, 60 Wall Street, 3rd Floor, New York, New York 10005, or such other address as may be hereafter furnished to the Depositor, the Trustee and the Master Servicer in writing by the Yield Maintenance Agreement Provider. Any notice required or permitted to be mailed to a Certificateholder shall be given by first class mail, postage prepaid, at the address of such holder as shown in the Certificate Register. Any notice so mailed within the time prescribed in this Agreement shall be conclusively presumed to have been duly given, whether or not the Certificateholder receives such notice. Section 11.06. Notices to Rating Agencies. The Depositor, the Master Servicer or the Trustee, as applicable, shall notify each Rating Agency and each Subservicer at such time as it is otherwise required pursuant to this Agreement to give notice of the occurrence of, any of the events described in clause (a), (b), (c), (d), (g), (h), (i) or (j) below or provide a copy to each Rating Agency and each Subservicer at such time as otherwise required to be delivered pursuant to this Agreement of any of the statements described in clauses (e) and (f) below: (a) a material change or amendment to this Agreement, (b) the occurrence of an Event of Default, (c) the termination or appointment of a successor Master Servicer or Trustee or a change in the majority ownership of the Trustee, (d) the filing of any claim under the Master Servicer's blanket fidelity bond and the errors and omissions insurance policy required by Section 3.12 or the cancellation or modification of coverage under any such instrument, (e) the statement required to be delivered to the Holders of each Class of Certificates pursuant to Section 4.03, (f) the statements required to be delivered pursuant to Sections 3.18 and 3.19, (g) a change in the location of the Custodial Account or the Certificate Account, (h) the occurrence of any monthly cash flow shortfall to the Holders of any Class of Certificates resulting from the failure by the Master Servicer to make an Advance pursuant to Section 4.04, (i) the occurrence of the Final Distribution Date, and (j) the repurchase of or substitution for any Mortgage Loan, provided, however, that with respect to notice of the occurrence of the events described in clauses (d), (g) or (h) above, the Master Servicer shall provide prompt written notice to each Rating Agency and each Subservicer of any such event known to the Master Servicer. Section 11.07. Severability of Provisions. If any one or more of the covenants, agreements, provisions or terms of this Agreement shall be for any reason whatsoever held invalid, then such covenants, agreements, provisions or terms shall be deemed severable from the remaining covenants, agreements, provisions or terms of this Agreement and shall in no way affect the validity or enforceability of the other provisions of this Agreement or of the Certificates or the rights of the Holders thereof. Section 11.08. Supplemental Provisions for Resecuritization. (a) This Agreement may be supplemented by means of the addition of a separate Article hereto (a "Supplemental Article") for the purpose of resecuritizing any of the Certificates issued hereunder, under the following circumstances. With respect to any Class or Classes of Certificates issued hereunder, or any portion of any such Class, as to which the Depositor or any of its Affiliates (or any designee thereof) is the registered Holder (the "Resecuritized Certificates"), the Depositor may deposit such Resecuritized Certificates into a new REMIC, grantor trust or custodial arrangement (a "Restructuring Vehicle") to be held by the Trustee pursuant to a Supplemental Article. The instrument adopting such Supplemental Article shall be executed by the Depositor, the Master Servicer and the Trustee; provided, that neither the Master Servicer nor the Trustee shall withhold their consent thereto if their respective interests would not be materially adversely affected thereby. To the extent that the terms of the Supplemental Article do not in any way affect any provisions of this Agreement as to any of the Certificates initially issued hereunder, the adoption of the Supplemental Article shall not constitute an "amendment" of this Agreement. Each Supplemental Article shall set forth all necessary provisions relating to the holding of the Resecuritized Certificates by the Trustee, the establishment of the Restructuring Vehicle, the issuing of various classes of new certificates by the Restructuring Vehicle and the distributions to be made thereon, and any other provisions necessary to the purposes thereof. In connection with each Supplemental Article, the Depositor shall deliver to the Trustee an Opinion of Counsel to the effect that (i) the Restructuring Vehicle will qualify as a REMIC, grantor trust or other entity not subject to taxation for federal income tax purposes and (ii) the adoption of the Supplemental Article will not endanger the status of any REMIC created hereunder as a REMIC or result in the imposition of a tax upon the Trust Fund (including but not limited to the tax on prohibited transaction as defined in Section 860F(a)(2) of the Code and the tax on contributions to a REMIC as set forth in Section 860G(d) of the Code. Section 11.09. Third-Party Beneficiary. The Limited Repurchase Right Holder is an express third-party beneficiary of Section 4.08 of this Agreement, and shall have the right to enforce the related provisions of Section 4.08 of this Agreement as if it were a party hereto. -------------------------------------------------------------------------------- ARTICLE XII COMPLIANCE WITH REGULATION AB Section 12.01. Intent of Parties; Reasonableness. The Depositor, the Trustee and the Master Servicer acknowledge and agree that the purpose of this Article XII is to facilitate compliance by the Depositor with the provisions of Regulation AB and related rules and regulations of the Commission. The Depositor shall not exercise its right to request delivery of information or other performance under these provisions other than in good faith, or for purposes other than compliance with the Securities Act, the Exchange Act and the rules and regulations of the Commission under the Securities Act and the Exchange Act. Each of the Master Servicer and the Trustee acknowledges that interpretations of the requirements of Regulation AB may change over time, whether due to interpretive guidance provided by the Commission or its staff, consensus among participants in the mortgage-backed securities markets, advice of counsel, or otherwise, and agrees to comply with requests made by the Depositor in good faith for delivery of information under these provisions on the basis of evolving interpretations of Regulation AB. Each of the Master Servicer and the Trustee shall cooperate reasonably with the Depositor to deliver to the Depositor (including any of its assignees or designees), any and all disclosure, statements, reports, certifications, records and any other information necessary in the reasonable, good faith determination of the Depositor to permit the Depositor to comply with the provisions of Regulation AB. Section 12.02. Additional Representations and Warranties of the Trustee. (a) The Trustee shall be deemed to represent to the Depositor as of the date hereof and on each date on which information is provided to the Depositor under Sections 12.01, 12.02(b) or 12.03 that, except as disclosed in writing to the Depositor prior to such date: (i) it is not aware and has not received notice that any default, early amortization or other performance triggering event has occurred as to any other Securitization Transaction due to any default of the Trustee; (ii) there are no aspects of its financial condition that could have a material adverse effect on the performance by it of its trustee obligations under this Agreement or any other Securitization Transaction as to which it is the trustee; (iii) there are no material legal or governmental proceedings pending (or known to be contemplated) against it that would be material to Certificateholders; (iv) there are no relationships or transactions relating to the Trustee with respect to the Depositor or any sponsor, issuing entity, servicer, trustee, originator, significant obligor, enhancement or support provider or other material transaction party (as such terms are used in Regulation AB) relating to the Securitization Transaction contemplated by the Agreement, as identified by the Depositor to the Trustee in writing as of the Closing Date (each, a "Transaction Party") that are outside the ordinary course of business or on terms other than would be obtained in an arm's length transaction with an unrelated third party, apart from the Securitization Transaction, and that are material to the investors' understanding of the Certificates; and (v) the Trustee is not an affiliate of any Transaction Party. The Depositor shall notify the Trustee of any change in the identity of a Transaction Party after the Closing Date. (b) If so requested by the Depositor on any date following the Closing Date, the Trustee shall, within five Business Days following such request, confirm in writing the accuracy of the representations and warranties set forth in paragraph (a) of this Section or, if any such representation and warranty is not accurate as of the date of such confirmation, provide the pertinent facts, in writing, to the Depositor. Any such request from the Depositor shall not be given more than once each calendar quarter, unless the Depositor shall have a reasonable basis for a determination that any of the representations and warranties may not be accurate. Section 12.03. Information to be Provided by the Trustee. For so long as the Certificates are outstanding, for the purpose of satisfying the Depositor's reporting obligation under the Exchange Act with respect to any class of Certificates, the Trustee shall provide to the Depositor a written description of (a) any litigation or governmental proceedings pending against the Trustee as of the last day of each calendar month that would be material to Certificateholders, and (b) any affiliations or relationships (as described in Item 1119 of Regulation AB) that develop following the Closing Date between the Trustee and any Transaction Party of the type described in Section 12.02(a)(iv) or 12.02(a)(v) as of the last day of each calendar year. Any descriptions required with respect to legal proceedings, as well as updates to previously provided descriptions, under this Section 12.03 shall be given no later than five Business Days prior to the Determination Date following the month in which the relevant event occurs, and any notices and descriptions required with respect to affiliations, as well as updates to previously provided descriptions, under this Section 12.03 shall be given no later than January 31 of the calendar year following the year in which the relevant event occurs. As of the date the Depositor or Master Servicer files each Report on Form 10-D and Report on Form 10-K with respect to the Certificates, the Trustee will be deemed to represent that any information previously provided under this Article XII is materially correct and does not have any material omissions unless the Trustee has provided an update to such information. The Depositor will allow the Trustee to review any disclosure relating to material litigation against the Trustee prior to filing such disclosure with the Commission to the extent the Depositor changes the information provided by the Trustee. Section 12.04. Report on Assessment of Compliance and Attestation. On or before March 15 of each calendar year, the Trustee shall: (a) deliver to the Depositor a report (in form and substance reasonably satisfactory to the Depositor) regarding the Trustee's assessment of compliance with the applicable Servicing Criteria during the immediately preceding calendar year, as required under Rules 13a-18 and 15d-18 of the Exchange Act and Item 1122 of Regulation AB. Such report shall be addressed to the Depositor and signed by an authorized officer of the Trustee, and shall address each of the Servicing Criteria specified on Exhibit S hereto; and (b) deliver to the Depositor a report of a registered public accounting firm reasonably acceptable to the Depositor that attests to, and reports on, the assessment of compliance made by the Trustee and delivered pursuant to the preceding paragraph. Such attestation shall be in accordance with Rules 1-02(a)(3) and 2-02(g) of Regulation S-X under the Securities Act and the Exchange Act. Section 12.05. Indemnification; Remedies. (a) The Trustee shall indemnify the Depositor, each affiliate of the Depositor, the Master Servicer and each broker dealer acting as underwriter, placement agent or initial purchaser of the Certificates or each Person who controls any of such parties (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act); and the respective present and former directors, officers, employees and agents of each of the foregoing, and shall hold each of them harmless from and against any losses, damages, penalties, fines, forfeitures, legal fees and expenses and related costs, judgments, and any other costs, fees and expenses that any of them may sustain arising out of or based upon: (i) (A) any untrue statement of a material fact contained or alleged to be contained in any information, report, certification, accountants' attestation or other material provided under this Article XII by or on behalf of the Trustee (collectively, the "Trustee Information"), or (B) the omission or alleged omission to state in the Trustee Information a material fact required to be stated in the Trustee Information or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, by way of clarification, that clause (B) of this paragraph shall be construed solely by reference to the Trustee Information and not to any other information communicated in connection with a sale or purchase of securities, without regard to whether the Trustee Information or any portion thereof is presented together with or separately from such other information; or (ii) any failure by the Trustee to deliver any information, report, certification, or other material when and as required under this Article XII, other than a failure by the Trustee to deliver the accountants' attestation. (b) In the case of any failure of performance described in clause (ii) of Section 12.05(a), the Trustee shall (i) promptly reimburse the Depositor for all costs reasonably incurred by the Depositor in order to obtain the information, report, certification, accountants' attestation or other material not delivered as required by the Trustee and (ii) cooperate with the Depositor to mitigate any damages that may result from such failure. (c) The Depositor and the Master Servicer shall indemnify the Trustee, each affiliate of the Trustee or each Person who controls the Trustee (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the respective present and former directors, officers, employees and agents of the Trustee, and shall hold each of them harmless from and against any losses, damages, penalties, fines, forfeitures, legal fees and expenses and related costs, judgments, and any other costs, fees and expenses that any of them may sustain arising out of or based upon (i) any untrue statement of a material fact contained or alleged to be contained in any information provided under this Agreement by or on behalf of the Depositor or Master Servicer for inclusion in any report filed with Commission under the Exchange Act (collectively, the "RFC Information"), or (ii) the omission or alleged omission to state in the RFC Information a material fact required to be stated in the RFC Information or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, by way of clarification, that clause (ii) of this paragraph shall be construed solely by reference to the RFC Information and not to any other information communicated in connection with a sale or purchase of securities, without regard to whether the RFC Information or any portion thereof is presented together with or separately from such other information. -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the Depositor, the Master Servicer and the Trustee have caused their names to be signed hereto by their respective officers thereunto duly authorized as of the day and year first above written. RESIDENTIAL ASSET SECURITIES CORPORATION By:_________________________________ Name: Title: Vice President RESIDENTIAL FUNDING CORPORATION By:_________________________________ Name: Title: Associate U.S. BANK NATIONAL ASSOCIATION as Trustee By:_________________________________ Name: Title: -------------------------------------------------------------------------------- STATE OF MINNESOTA ) ) ss.: COUNTY OF HENNEPIN ) On the ____ day of May 2006 before me, a notary public in and for said State, personally appeared _______________, known to me to be a Vice President of Residential Asset Securities Corporation, one of the corporations that executed the within instrument, and also known to me to be the person who executed it on behalf of said corporation, and acknowledged to me that such corporation executed the within instrument. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. Notary Public ________________________________________ [Notarial Seal] -------------------------------------------------------------------------------- STATE OF MINNESOTA ) ) ss.: COUNTY OF HENNEPIN ) On the ____ day of May 2006 before me, a notary public in and for said State, personally appeared _______________, known to me to be an Associate of Residential Funding Corporation, one of the corporations that executed the within instrument, and also known to me to be the person who executed it on behalf of said corporation, and acknowledged to me that such corporation executed the within instrument. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. Notary Public ________________________________ [Notarial Seal] -------------------------------------------------------------------------------- STATE OF MINNESOTA ) ) ss.: COUNTY OF RAMSEY ) On the ____ day of May 2006 before me, a notary public in and for said State, personally appeared _____________________, known to me to be a _____________________ of U.S. Bank National Association, a banking association organized under the laws of the United States that executed the within instrument, and also known to me to be the person who executed it on behalf of said banking association and acknowledged to me that such banking association executed the within instrument. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. Notary Public ____________________________________ [Notarial Seal] -------------------------------------------------------------------------------- EXHIBIT A FORM OF CLASS A-[_] CERTIFICATE SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE IS A "REGULAR INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT," AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL REVENUE CODE OF 1986 COUPLED WITH THE RIGHT TO RECEIVE PAYMENTS UNDER THE YIELD MAINTENANCE AGREEMENT. THE CERTIFICATE PRINCIPAL BALANCE OF THIS CERTIFICATE WILL BE DECREASED BY THE PRINCIPAL PAYMENTS HEREON AND REALIZED LOSSES ALLOCABLE HERETO. ACCORDINGLY, FOLLOWING THE INITIAL ISSUANCE OF THE CERTIFICATES, THE CERTIFICATE PRINCIPAL BALANCE OF THIS CERTIFICATE WILL BE DIFFERENT FROM THE DENOMINATION SHOWN BELOW. ANYONE ACQUIRING THIS CERTIFICATE MAY ASCERTAIN ITS CERTIFICATE PRINCIPAL BALANCE BY INQUIRY OF THE TRUSTEE NAMED HEREIN. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND ANY PAYMENT IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. -------------------------------------------------------------------------------- CUSIP: _____________________ Certificate No. A-[__]-[__] Date of Pooling and Servicing Agreement: May 1, 2006 Adjustable Pass-Through Rate Cut-off Date: May 1, 2006 First Distribution Date: June 26, 2006 Aggregate Initial Certificate Principal Balance of the Class A-[_] Certificates: $___________________________ Master Servicer: Initial Certificate Principal Balance of this Residential Funding Corporation Class A-[_] Certificate: $___________________________ Final Scheduled Distribution Date: __________ __, 20__ HOME EQUITY MORTGAGE ASSET-BACKED PASS-THROUGH CERTIFICATES SERIES 2006-EMX4 evidencing a percentage interest in the distributions allocable to the Class A-[_] Certificates with respect to a Trust Fund consisting primarily of a pool of fixed and adjustable interest rate, first and junior lien mortgage loans on one- to four-family residential properties sold by RESIDENTIAL ASSET SECURITIES CORPORATION This Certificate is payable solely from the assets of the Trust Fund, and does not represent an obligation of or interest in Residential Asset Securities Corporation, the Master Servicer, the Trustee referred to below or GMAC Mortgage Group, Inc. or any of their affiliates. Neither this Certificate nor the underlying mortgage loans are guaranteed or insured by any governmental agency or instrumentality or by Residential Asset Securities Corporation, the Master Servicer, the Trustee or GMAC Mortgage Group, Inc. or any of their affiliates. None of the Depositor, the Master Servicer, GMAC Mortgage Group, Inc. or any of their affiliates will have any obligation with respect to any certificate or other obligation secured by or payable from payments on the Certificates. This certifies that CEDE & CO. is the registered owner of the Percentage Interest evidenced by this Certificate in certain distributions with respect to the Trust Fund consisting primarily of an interest in a pool of fixed and adjustable interest rate, first and junior lien mortgage loans on one- to four- family residential properties (the "Mortgage Loans"), sold by Residential Asset Securities Corporation (hereinafter called the "Depositor," which term includes any successor entity under the Agreement referred to below). The Trust Fund was created pursuant to a Pooling and Servicing Agreement dated as specified above (the "Agreement") among the Depositor, the Master Servicer and U.S. Bank National Association, as trustee (the "Trustee"), a summary of certain of the pertinent provisions of which is set forth hereafter. To the extent not defined herein, the capitalized terms used herein have the meanings assigned in the Agreement. This Certificate is issued under and is subject to the terms, provisions and conditions of the Agreement, to which Agreement the Holder of this Certificate by virtue of the acceptance hereof assents and by which such Holder is bound. Pursuant to the terms of the Agreement, a distribution will be made on the 25th day of each month or, if such 25th day is not a Business Day, the Business Day immediately following (the "Distribution Date"), commencing as described in the Agreement, to the Person in whose name this Certificate is registered at the close of business on the Business Day immediately preceding that Distribution Date (the "Record Date"), from the related Available Distribution Amount in an amount equal to the product of the Percentage Interest evidenced by this Certificate and the amount of interest and principal, if any, required to be distributed to Holders of Class A-[_] Certificates on such Distribution Date. Distributions on this Certificate will be made either by the Master Servicer acting on behalf of the Trustee or by a Paying Agent appointed by the Trustee in immediately available funds (by wire transfer or otherwise) for the account of the Person entitled thereto if such Person shall have so notified the Master Servicer or such Paying Agent, or by check mailed to the address of the Person entitled thereto, as such name and address shall appear on the Certificate Register. Notwithstanding the above, the final distribution on this Certificate will be made after due notice of the pendency of such distribution and only upon presentation and surrender of, this Certificate at the office or agency appointed by the Trustee for that purpose in St. Paul, Minnesota. The Initial Certificate Principal Balance of this Certificate is set forth above. The Certificate Principal Balance hereof will be reduced from time to time pursuant to the Agreement. This Certificate is one of a duly authorized issue of Certificates issued in several Classes designated as Home Equity Mortgage Asset-Backed Pass-Through Certificates of the Series specified hereon (herein collectively called the "Certificates"). The Certificates are limited in right of payment to certain collections and recoveries respecting the Mortgage Loans, all as more specifically set forth herein and in the Agreement. In the event Master Servicer funds are advanced with respect to any Mortgage Loan, such advance is reimbursable to the Master Servicer, to the extent provided in the Agreement, from related recoveries on such Mortgage Loan or from other cash that would have been distributable to Certificateholders. As provided in the Agreement, withdrawals from the Custodial Account and/or the Certificate Account created for the benefit of Certificateholders may be made by the Master Servicer from time to time for purposes other than distributions to Certificateholders, such purposes including without limitation reimbursement to the Depositor and the Master Servicer of advances made, or certain expenses incurred, by either of them. The Agreement permits, with certain exceptions therein provided, the amendment of the Agreement and the modification of the rights and obligations of the Depositor, the Master Servicer and the Trustee and the rights of the Certificateholders under the Agreement from time to time by the Depositor, the Master Servicer and the Trustee with the consent of the Holders of Certificates evidencing in the aggregate not less than 66% of the Percentage Interests of each Class of Certificates affected thereby. Any such consent by the Holder of this Certificate shall be conclusive and binding on such Holder and upon all future holders of this Certificate and of any Certificate issued upon the transfer hereof or in exchange herefor or in lieu hereof whether or not notation of such consent is made upon the Certificate. The Agreement also permits the amendment thereof in certain circumstances without the consent of the Holders of any of the Certificates and, in certain additional circumstances, without the consent of the Holders of certain Classes of Certificates. As provided in the Agreement and subject to certain limitations therein set forth, the transfer of this Certificate is registrable in the Certificate Register upon surrender of this Certificate for registration of transfer at the offices or agencies appointed by the Trustee in St. Paul, Minnesota, duly endorsed by, or accompanied by an assignment in the form below or other written instrument of transfer in form satisfactory to the Trustee and the Certificate Registrar duly executed by the Holder hereof or such Holder's attorney duly authorized in writing, and there upon one or more new Certificates of authorized denominations evidencing the same Class and aggregate Percentage Interest will be issued to the designated transferee or transferees. The Certificates are issuable only as registered Certificates without coupons in Classes and in denominations specified in the Agreement. As provided in the Agreement and subject to certain limitations therein set forth, Certificates are exchangeable for new Certificates of authorized denominations evidencing the same Class and aggregate Percentage Interest, as requested by the Holder surrendering the same. No service charge will be made for any such registration of transfer or exchange, but the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. The Depositor, the Master Servicer, the Trustee, and the Certificate Registrar and any agent of the Depositor, the Master Servicer, the Trustee or the Certificate Registrar may treat the Person in whose name this Certificate is registered as the owner hereof for all purposes, and none of the Depositor, the Master Servicer, the Trustee or any such agent shall be affected by notice to the contrary. This Certificate shall be governed by and construed in accordance with the laws of the State of New York. The obligations created by the Agreement in respect of the Certificates and the Trust Fund created thereby shall terminate upon the payment to Certificateholders of all amounts held by or on behalf of the Trustee and required to be paid to them pursuant to the Agreement following the earlier of (i) the maturity or other liquidation of the last Mortgage Loan subject thereto or the disposition of all property acquired upon foreclosure or deed in lieu of foreclosure of any Mortgage Loan, and (ii) the purchase by the Master Servicer from the Trust Fund of all remaining Mortgage Loans and all property acquired in respect of such Mortgage Loans or the Certificates, in either case thereby effecting early retirement of the Certificates. The Agreement permits, but does not require the Master Servicer (i) to purchase, at a price determined as provided in the Agreement, all remaining Mortgage Loans and all property acquired in respect of any Mortgage Loan or (ii) to purchase in whole, but not in part, all of the Certificates from the Holders thereof, provided, that any such option may only be exercised if the Stated Principal Balance before giving effect to the distributions to be made on such Distribution Date of the Mortgage Loans, as of the Distribution Date upon which the proceeds of any such purchase are distributed is less than ten percent of the Cut-off Date Balance. Unless the certificate of authentication hereon has been executed by the Certificate Registrar, by manual signature, this Certificate shall not be entitled to any benefit under the Agreement or be valid for any purpose. -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly executed. U.S. BANK NATIONAL ASSOCIATION, as Trustee By: _____________________________________ Authorized Signatory Dated:_____________________ CERTIFICATE OF AUTHENTICATION This is one of the Class A-[_] Certificates referred to in the within-mentioned Agreement. U.S. BANK NATIONAL ASSOCIATION, as Certificate Registrar By: _______________________________ Authorized Signatory -------------------------------------------------------------------------------- ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto ___________________________________________________________________________________________________________________ (Please print or typewrite name and address including postal zip code of assignee) the beneficial interest evidenced by the within Trust Certificate and hereby authorizes the transfer of registration of such interest to assignee on the Certificate Register of the Trust Fund. I (We) further direct the Certificate Registrar to issue a new Certificate of a like denomination and Class, to the above named assignee and deliver such Certificate to the following address: _____________________________________________________________________________________________________________________ Dated:_____________________ ____________________________________ Signature by or on behalf of assignor ______________________________________ Signature Guaranteed DISTRIBUTION INSTRUCTIONS The assignee should include the following for purposes of distribution: Distributions shall be made, by wire transfer or otherwise, in immediately available fund to____________________________________________________________________________ for the account of ________________________________________________________________________________________________ account number ____________________________________________________________________________________________________ or, if mailed by check, to _______________________________________________________________________________________. Applicable statements should be mailed to:_______________________________________________________________ ___________________________________________________________________________________________________________________. This information is provided by ___________________________________, the assignee named above, or ______________________________, as its agent. -------------------------------------------------------------------------------- EXHIBIT B-1 FORM OF CLASS M-[_] CERTIFICATE THIS CERTIFICATE IS SUBORDINATED IN RIGHT OF PAYMENT TO THE CLASS A AND CLASS M-[_] CERTIFICATES AS DESCRIBED IN THE AGREEMENT (AS DEFINED HEREIN). THE CERTIFICATE PRINCIPAL BALANCE OF THIS CERTIFICATE WILL BE DECREASED BY THE PRINCIPAL PAYMENTS HEREON AND REALIZED LOSSES ALLOCABLE HERETO. ACCORDINGLY, FOLLOWING THE INITIAL ISSUANCE OF THE CERTIFICATES, THE CERTIFICATE PRINCIPAL BALANCE OF THIS CERTIFICATE WILL BE DIFFERENT FROM THE DENOMINATION SHOWN BELOW. ANYONE ACQUIRING THIS CERTIFICATE MAY ASCERTAIN ITS CERTIFICATE PRINCIPAL BALANCE BY INQUIRY OF THE TRUSTEE NAMED HEREIN. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE IS A "REGULAR INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT," AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL REVENUE CODE OF 1986 (THE "CODE") COUPLED WITH A RIGHT TO RECEIVE PAYMENTS UNDER THE YIELD MAINTENANCE AGREEMENT. ANY TRANSFEREE OF THIS CERTIFICATE WILL BE DEEMED TO HAVE REPRESENTED BY VIRTUE OF ITS PURCHASE OR HOLDING OF THIS CERTIFICATE (OR INTEREST THEREIN) THAT EITHER (A) SUCH TRANSFEREE IS NOT AN EMPLOYEE BENEFIT PLAN OR OTHER PLAN OR ARRANGEMENT SUBJECT TO THE PROHIBITED TRANSACTION PROVISIONS OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR SECTION 4975 OF THE CODE OR A PERSON (INCLUDING AN INSURANCE COMPANY INVESTING ITS GENERAL ACCOUNT, AN INVESTMENT MANAGER, A NAMED FIDUCIARY OR A TRUSTEE OF ANY SUCH PLAN) WHO IS USING "PLAN ASSETS" OF ANY SUCH PLAN TO EFFECT SUCH ACQUISITION (EACH OF THE FOREGOING, A "PLAN INVESTOR"), (B) IT HAS ACQUIRED AND IS HOLDING THIS CERTIFICATE IN RELIANCE ON U.S. DEPARTMENT OF LABOR PROHIBITED TRANSACTION EXEMPTION ("PTE") 94-29, 59 FED. REG. 14674 (MARCH 29, 1994), AS MOST RECENTLY AMENDED BY PTE 2002-41, 67 FED. REG. 54487 (AUGUST 22, 2002) (THE "RFC EXEMPTION"), AND THAT IT UNDERSTANDS THAT THERE ARE CERTAIN CONDITIONS TO THE AVAILABILITY OF THE RFC EXEMPTION INCLUDING THAT THIS CERTIFICATE MUST BE RATED, AT THE TIME OF PURCHASE, NOT LOWER THAN "BBB-" (OR ITS EQUIVALENT) BY STANDARD & POOR'S, FITCH OR MOODY'S OR (C) (I) THE TRANSFEREE IS AN INSURANCE COMPANY, (II) THE SOURCE OF FUNDS USED TO PURCHASE OR HOLD THIS CERTIFICATE IS AN "INSURANCE COMPANY GENERAL ACCOUNT" (AS DEFINED IN U.S. DEPARTMENT OF LABOR PROHIBITED TRANSACTION CLASS EXEMPTION ("PTCE") 95-60), AND (III) THE CONDITIONS SET FORTH IN SECTIONS I AND III OF PTCE 95-60 HAVE BEEN SATISFIED (EACH ENTITY THAT SATISFIES THIS CLAUSE (C), A "COMPLYING INSURANCE COMPANY"). IF THIS CERTIFICATE (OR ANY INTEREST THEREIN) IS ACQUIRED OR HELD BY ANY PERSON THAT DOES NOT SATISFY THE CONDITIONS DESCRIBED IN THE PRECEDING PARAGRAPH, THEN THE LAST PRECEDING TRANSFEREE THAT EITHER (I) IS NOT A PLAN INVESTOR, (II) ACQUIRED SUCH CERTIFICATE IN COMPLIANCE WITH THE RFC EXEMPTION, OR (III) IS A COMPLYING INSURANCE COMPANY SHALL BE RESTORED, TO THE EXTENT PERMITTED BY LAW, TO ALL RIGHTS AND OBLIGATIONS AS CERTIFICATE OWNER THEREOF RETROACTIVE TO THE DATE OF SUCH TRANSFER OF THIS CERTIFICATE. THE TRUSTEE SHALL BE UNDER NO LIABILITY TO ANY PERSON FOR MAKING ANY PAYMENTS DUE ON THIS CERTIFICATE TO SUCH PRECEDING TRANSFEREE. ANY PURPORTED CERTIFICATE OWNER WHOSE ACQUISITION OR HOLDING OF THIS CERTIFICATE (OR INTEREST THEREIN) WAS EFFECTED IN VIOLATION OF THE RESTRICTIONS IN SECTION 5.02(E)(II) OF THE POOLING AND SERVICING AGREEMENT SHALL INDEMNIFY AND HOLD HARMLESS THE DEPOSITOR, THE TRUSTEE, THE MASTER SERVICER, ANY SUBSERVICER, AND THE TRUST FUND FROM AND AGAINST ANY AND ALL LIABILITIES, CLAIMS, COSTS OR EXPENSES INCURRED BY SUCH PARTIES AS A RESULT OF SUCH ACQUISITION OR HOLDING. -------------------------------------------------------------------------------- CUSIP: _____________________ Certificate No. M-[__]-__ Date of Pooling and Servicing Agreement: May 1, 2006 Adjustable Pass-Through Rate Cut-off Date: May 1, 2006 First Distribution Date: June 26, 2006 Aggregate Initial Certificate Principal Balance of the Class M-[_] Certificates: $___________________________ Master Servicer: Initial Certificate Principal Balance of this Residential Funding Corporation Class M-[_] Certificate: $___________________________ Final Scheduled Distribution Date: __________ __, 20__ -------------------------------------------------------------------------------- HOME EQUITY MORTGAGE ASSET-BACKED PASS-THROUGH CERTIFICATES SERIES 2006-EMX4 evidencing a percentage interest in the distributions allocable to the Class M-[_] Certificates with respect to a Trust Fund consisting primarily of a pool of fixed and adjustable interest rate, first and junior lien mortgage loans on one- to four-family residential properties sold by RESIDENTIAL ASSET SECURITIES CORPORATION This Certificate is payable solely from the assets of the Trust Fund, and does not represent an obligation of or interest in Residential Asset Securities Corporation, the Master Servicer, the Trustee referred to below or GMAC Mortgage Group, Inc. or any of their affiliates. Neither this Certificate nor the underlying mortgage loans are guaranteed or insured by any governmental agency or instrumentality or by Residential Asset Securities Corporation, the Master Servicer, the Trustee or GMAC Mortgage Group, Inc. or any of their affiliates. None of the Depositor, the Master Servicer, GMAC Mortgage Group, Inc. or any of their affiliates will have any obligation with respect to any certificate or other obligation secured by or payable from payments on the Certificates. This certifies that CEDE & CO. is the registered owner of the Percentage Interest evidenced by this Certificate in certain distributions with respect to the Trust Fund consisting primarily of an interest in a pool of fixed and adjustable interest rate, first and junior lien mortgage loans on one- to four- family residential properties (the "Mortgage Loans"), sold by Residential Asset Securities Corporation (hereinafter called the "Depositor," which term includes any successor entity under the Agreement referred to below). The Trust Fund was created pursuant to a Pooling and Servicing Agreement dated as specified above (the "Agreement") among the Depositor, the Master Servicer and U.S. Bank National Association, as trustee (the "Trustee"), a summary of certain of the pertinent provisions of which is set forth hereafter. To the extent not defined herein, the capitalized terms used herein have the meanings assigned in the Agreement. This Certificate is issued under and is subject to the terms, provisions and conditions of the Agreement, to which Agreement the Holder of this Certificate by virtue of the acceptance hereof assents and by which such Holder is bound. Pursuant to the terms of the Agreement, a distribution will be made on the 25th day of each month or, if such 25th day is not a Business Day, the Business Day immediately following (the "Distribution Date"), commencing as described in the Agreement, to the Person in whose name this Certificate is registered at the close of business on the Business Day immediately preceding that Distribution Date (the "Record Date"), from the related Available Distribution Amount in an amount equal to the product of the Percentage Interest evidenced by this Certificate and the amount of interest and principal, if any, required to be distributed to Holders of Class M-[_] Certificates on such Distribution Date. Distributions on this Certificate will be made either by the Master Servicer acting on behalf of the Trustee or by a Paying Agent appointed by the Trustee in immediately available funds (by wire transfer or otherwise) for the account of the Person entitled thereto if such Person shall have so notified the Master Servicer or such Paying Agent, or by check mailed to the address of the Person entitled thereto, as such name and address shall appear on the Certificate Register. Notwithstanding the above, the final distribution on this Certificate will be made after due notice of the pendency of such distribution and only upon presentation and surrender of, this Certificate at the office or agency appointed by the Trustee for that purpose in St. Paul, Minnesota. The Initial Certificate Principal Balance of this Certificate is set forth above. The Certificate Principal Balance hereof will be reduced to the extent of distributions allocable to principal and any Realized Losses allocable hereto. Any Transferee of this Certificate will be deemed to have made representations relating to the permissibility of such transfer under ERISA and Section 4975 of the Code, as described in Section 5.02(e)(ii) of the Agreement. In addition, any purported Certificate Owner whose acquisition or holding of this Certificate (or interest therein) was effected in violation of the restrictions in Section 5.02(e)(ii) of the Agreement shall indemnify and hold harmless the Depositor, the Trustee, the Master Servicer, any Subservicer, any underwriter and the Trust Fund from and against any and all liabilities, claims, costs or expenses incurred by such parties as a result of such acquisition or holding. This Certificate is one of a duly authorized issue of Certificates issued in several Classes designated as Home Equity Mortgage Asset-Backed Pass-Through Certificates of the Series specified hereon (herein collectively called the "Certificates"). The Certificates are limited in right of payment to certain collections and recoveries respecting the Mortgage Loans, all as more specifically set forth herein and in the Agreement. In the event Master Servicer funds are advanced with respect to any Mortgage Loan, such advance is reimbursable to the Master Servicer, to the extent provided in the Agreement, from related recoveries on such Mortgage Loan or from other cash that would have been distributable to Certificateholders. As provided in the Agreement, withdrawals from the Custodial Account and/or the Certificate Account created for the benefit of Certificateholders may be made by the Master Servicer from time to time for purposes other than distributions to Certificateholders, such purposes including without limitation reimbursement to the Depositor and the Master Servicer of advances made, or certain expenses incurred, by either of them. The Agreement permits, with certain exceptions therein provided, the amendment of the Agreement and the modification of the rights and obligations of the Depositor, the Master Servicer and the Trustee and the rights of the Certificateholders under the Agreement from time to time by the Depositor, the Master Servicer and the Trustee with the consent of the Holders of Certificates evidencing in the aggregate not less than 66% of the Percentage Interests of each Class of Certificates affected thereby. Any such consent by the Holder of this Certificate shall be conclusive and binding on such Holder and upon all future holders of this Certificate and of any Certificate issued upon the transfer hereof or in exchange herefor or in lieu hereof whether or not notation of such consent is made upon the Certificate. The Agreement also permits the amendment thereof in certain circumstances without the consent of the Holders of any of the Certificates and, in certain additional circumstances, without the consent of the Holders of certain Classes of Certificates. As provided in the Agreement and subject to certain limitations therein set forth, the transfer of this Certificate is registrable in the Certificate Register upon surrender of this Certificate for registration of transfer at the offices or agencies appointed by the Trustee in St. Paul, Minnesota, duly endorsed by, or accompanied by an assignment in the form below or other written instrument of transfer in form satisfactory to the Trustee and the Certificate Registrar duly executed by the Holder hereof or such Holder's attorney duly authorized in writing, and there upon one or more new Certificates of authorized denominations evidencing the same Class and aggregate Percentage Interest will be issued to the designated transferee or transferees. The Certificates are issuable only as registered Certificates without coupons in Classes and in denominations specified in the Agreement. As provided in the Agreement and subject to certain limitations therein set forth, Certificates are exchangeable for new Certificates of authorized denominations evidencing the same Class and aggregate Percentage Interest, as requested by the Holder surrendering the same. No service charge will be made for any such registration of transfer or exchange, but the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. The Depositor, the Master Servicer, the Trustee, and the Certificate Registrar and any agent of the Depositor, the Master Servicer, the Trustee or the Certificate Registrar may treat the Person in whose name this Certificate is registered as the owner hereof for all purposes, and none of the Depositor, the Master Servicer, the Trustee or any such agent shall be affected by notice to the contrary. This Certificate shall be governed by and construed in accordance with the laws of the State of New York. The obligations created by the Agreement in respect of the Certificates and the Trust Fund created thereby shall terminate upon the payment to Certificateholders of all amounts held by or on behalf of the Trustee and required to be paid to them pursuant to the Agreement following the earlier of (i) the maturity or other liquidation of the last Mortgage Loan subject thereto or the disposition of all property acquired upon foreclosure or deed in lieu of foreclosure of any Mortgage Loan, and (ii) the purchase by the Master Servicer from the Trust Fund of all remaining Mortgage Loans and all property acquired in respect of such Mortgage Loans or the Certificates, in either case thereby effecting early retirement of the Certificates. The Agreement permits, but does not require the Master Servicer (i) to purchase, at a price determined as provided in the Agreement, all remaining Mortgage Loans and all property acquired in respect of any Mortgage Loan or (ii) to purchase in whole, but not in part, all of the Certificates from the Holders thereof, provided, that any such option may only be exercised if the Stated Principal Balance before giving effect to the distributions to be made on such Distribution Date of the Mortgage Loans, as of the Distribution Date upon which the proceeds of any such purchase are distributed is less than ten percent of the Cut-off Date Balance. Unless the certificate of authentication hereon has been executed by the Certificate Registrar, by manual signature, this Certificate shall not be entitled to any benefit under the Agreement or be valid for any purpose. -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly executed. U.S. BANK NATIONAL ASSOCIATION, as Trustee By: ___________________________________ Authorized Signatory Dated:_____________________ CERTIFICATE OF AUTHENTICATION This is one of the Class M-[_] Certificates referred to in the within-mentioned Agreement. U.S. BANK NATIONAL ASSOCIATION, as Certificate Registrar By: _______________________________ Authorized Signatory -------------------------------------------------------------------------------- ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto ___________________________________________________________________________________________________________________ (Please print or typewrite name and address including postal zip code of assignee) the beneficial interest evidenced by the within Trust Certificate and hereby authorizes the transfer of registration of such interest to assignee on the Certificate Register of the Trust Fund. I (We) further direct the Certificate Registrar to issue a new Certificate of a like denomination and Class, to the above named assignee and deliver such Certificate to the following address: _____________________________________________________________________________________________________________________ Dated:_____________________ ____________________________________ Signature by or on behalf of assignor ______________________________________ Signature Guaranteed DISTRIBUTION INSTRUCTIONS The assignee should include the following for purposes of distribution: Distributions shall be made, by wire transfer or otherwise, in immediately available fund to____________________________________________________________________________ for the account of ________________________________________________________________________________________________ account number ____________________________________________________________________________________________________ or, if mailed by check, to _______________________________________________________________________________________. Applicable statements should be mailed to:_______________________________________________________________ ___________________________________________________________________________________________________________________. This information is provided by ___________________________________, the assignee named above, or ______________________________, as its agent. -------------------------------------------------------------------------------- EXHIBIT C FORM OF CLASS SB CERTIFICATE THIS CERTIFICATE IS SUBORDINATED IN RIGHT OF PAYMENT TO THE CLASS A AND CLASS M CERTIFICATES AS DESCRIBED IN THE AGREEMENT (AS DEFINED HEREIN). SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE IS A "REGULAR INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT," AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL REVENUE CODE OF 1986 (THE "CODE") COUPLED WITH THE RIGHT TO RECEIVE PAYMENTS UNDER THE YIELD MAINTENANCE AGREEMENT. THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE RESOLD OR TRANSFERRED UNLESS IT IS REGISTERED PURSUANT TO SUCH ACT AND LAWS OR IS SOLD OR TRANSFERRED IN TRANSACTIONS WHICH ARE EXEMPT FROM REGISTRATION UNDER SUCH ACT AND UNDER APPLICABLE STATE LAW AND IS TRANSFERRED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 5.02 OF THE POOLING AND SERVICING AGREEMENT (THE "AGREEMENT"). NO TRANSFER OF THIS CERTIFICATE OR ANY INTEREST THEREIN SHALL BE MADE TO ANY EMPLOYEE BENEFIT PLAN OR OTHER PLAN OR ARRANGEMENT SUBJECT TO THE PROHIBITED TRANSACTION PROVISIONS OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR SECTION 4975 OF THE CODE, OR ANY PERSON (INCLUDING AN INSURANCE COMPANY INVESTING ITS GENERAL ACCOUNT, AN INVESTMENT MANAGER, A NAMED FIDUCIARY OR A TRUSTEE OF ANY SUCH PLAN) WHO IS USING "PLAN ASSETS" OF ANY SUCH PLAN TO EFFECT SUCH ACQUISITION (EACH OF THE FOREGOING, A "PLAN INVESTOR") UNLESS THE TRUSTEE, THE DEPOSITOR AND THE MASTER SERVICER ARE PROVIDED WITH EITHER (I) A CERTIFICATION PURSUANT TO SECTION 5.02(E)(I)(B) OF THE AGREEMENT OR (II) AN OPINION OF COUNSEL ACCEPTABLE TO AND IN FORM AND SUBSTANCE SATISFACTORY TO THE TRUSTEE, THE DEPOSITOR AND THE MASTER SERVICER TO THE EFFECT THAT THE PURCHASE OR HOLDING OF THIS CERTIFICATE IS PERMISSIBLE UNDER APPLICABLE LAW, WILL NOT CONSTITUTE OR RESULT IN ANY NON-EXEMPT PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE (OR COMPARABLE PROVISIONS OF ANY SUBSEQUENT ENACTMENTS), AND WILL NOT SUBJECT THE TRUSTEE, THE DEPOSITOR OR THE MASTER SERVICER TO ANY OBLIGATION OR LIABILITY (INCLUDING OBLIGATIONS OR LIABILITIES UNDER ERISA OR SECTION 4975 OF THE CODE) IN ADDITION TO THOSE UNDERTAKEN IN THE AGREEMENT, WHICH OPINION OF COUNSEL SHALL NOT BE AN EXPENSE OF THE TRUSTEE, THE DEPOSITOR OR THE MASTER SERVICER. -------------------------------------------------------------------------------- CUSIP: _____________________ Certificate No. SB-1 Date of Pooling and Servicing Agreement: May 1, 2006 Percentage Interest: 100.00% Cut-off Date: May 1, 2006 First Distribution Date: June 26, 2006 Aggregate Initial Notional Balance of the Class SB Certificates: $___________________________ Master Servicer: Initial Notional Balance Residential Funding Corporation of this Class SB Certificate: $___________________________ Maturity Date: __________ __, 20__ HOME EQUITY MORTGAGE ASSET-BACKED PASS-THROUGH CERTIFICATES SERIES 2006-EMX4 evidencing a percentage interest in the distributions allocable to the Class SB Certificates with respect to a Trust Fund consisting primarily of a pool of fixed and adjustable interest rate, first and junior lien mortgage loans on one- to four-family residential properties sold by RESIDENTIAL ASSET SECURITIES CORPORATION This Certificate is payable solely from the assets of the Trust Fund, and does not represent an obligation of or interest in Residential Asset Securities Corporation, the Master Servicer, the Trustee referred to below or any of their affiliates. Neither this Certificate nor the underlying mortgage loans are guaranteed or insured by any governmental agency or instrumentality or by Residential Asset Securities Corporation, the Master Servicer, the Trustee or any of their affiliates. None of the Depositor, the Master Servicer or any of their affiliates will have any obligation with respect to any certificate or other obligation secured by or payable from payments on the Certificates. This certifies that [__________] is the registered owner of the Percentage Interest evidenced by this Certificate in certain distributions with respect to the Trust Fund consisting primarily of an interest in a pool of adjustable interest rate, first and junior lien mortgage loans on one- to four-family residential properties (the "Mortgage Loans"), sold by Residential Asset Securities Corporation (hereinafter called the "Depositor," which term includes any successor entity under the Agreement referred to below). The Trust Fund was created pursuant to a Pooling and Servicing Agreement dated as specified above (the "Agreement") among the Depositor, the Master Servicer and U.S. Bank National Association, as trustee (the "Trustee"), a summary of certain of the pertinent provisions of which is set forth hereafter. To the extent not defined herein, the capitalized terms used herein have the meanings assigned in the Agreement. This Certificate is issued under and is subject to the terms, provisions and conditions of the Agreement, to which Agreement the Holder of this Certificate by virtue of the acceptance hereof, assents and by which such Holder is bound. Pursuant to the terms of the Agreement, a distribution will be made on the 25th day of each month or, if such 25th day is not a Business Day, the Business Day immediately following (the "Distribution Date"), commencing as described in the Agreement, to the Person in whose name this Certificate is registered at the close of business on the last Business Day of the month immediately preceding the month of such distribution (the "Record Date"), from the Available Distribution Amount in an amount equal to the product of the Percentage Interest evidenced by this Certificate and the amount of interest and principal, if any, required to be distributed to Holders of Class SB Certificates on such Distribution Date. Distributions on this Certificate will be made either by the Master Servicer acting on behalf of the Trustee or by a Paying Agent appointed by the Trustee in immediately available funds (by wire transfer or otherwise) for the account of the Person entitled thereto if such Person shall have so notified the Master Servicer or such Paying Agent, or by check mailed to the address of the Person entitled thereto, as such name and address shall appear on the Certificate Register. Notwithstanding the above, the final distribution on this Certificate will be made after due notice of the pendency of such distribution and only upon presentation and surrender of this Certificate at the office or agency appointed by the Trustee for that purpose in St. Paul, Minnesota. No transfer of this Certificate will be made unless such transfer is exempt from the registration requirements of the Securities Act of 1933, as amended, and any applicable state securities laws or is made in accordance with said Act and laws. In the event that such a transfer is to be made, (i) the Trustee or the Depositor may require an opinion of counsel acceptable to and in form and substance satisfactory to the Trustee and the Depositor that such transfer is exempt (describing the applicable exemption and the basis therefor) from or is being made pursuant to the registration requirements of the Securities Act of 1933, as amended, and of any applicable statute of any state and (ii) the transferee shall execute an investment letter in the form described by the Agreement. The Holder hereof desiring to effect such transfer shall, and does hereby agree to, indemnify the Trustee, the Depositor, the Master Servicer and the Certificate Registrar acting on behalf of the Trustee against any liability that may result if the transfer is not so exempt or is not made in accordance with such Federal and state laws. No transfer of this Certificate or any interest therein shall be made to any employee benefit plan or other plan or arrangement subject to the prohibited transaction provisions of ERISA or Section 4975 of the Code, or any person (including an insurance company investing its general account, an investment manager, a named fiduciary or a trustee of any such plan) who is using "plan assets" of any such plan to effect such acquisition (each of the foregoing, a "Plan Investor") unless the Trustee, the Depositor and the Master Servicer are provided with either (i) a certification pursuant to Section 5.02(e)(i)(B) of the Agreement or (ii) an Opinion of Counsel acceptable to and in form and substance satisfactory to the Trustee, the Depositor and the Master Servicer to the effect that the purchase or holding of this Certificate is permissible under applicable law, will not constitute or result in any non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code (or comparable provisions of any subsequent enactments), and will not subject the Trustee, the Depositor or the Master Servicer to any obligation or liability (including obligations or liabilities under ERISA or Section 4975 of the Code) in addition to those undertaken in the Agreement, which Opinion of Counsel shall not be an expense of the Trustee, the Depositor or the Master Servicer. This Certificate is one of a duly authorized issue of Certificates issued in several Classes designated as Home Equity Mortgage Asset-Backed Pass-Through Certificates of the Series specified hereon (herein collectively called the "Certificates"). The Certificates are limited in right of payment to certain collections and recoveries respecting the Mortgage Loans, all as more specifically set forth herein and in the Agreement. In the event Master Servicer funds are advanced with respect to any Mortgage Loan, such advance is reimbursable to the Master Servicer, to the extent provided in the Agreement, from related recoveries on such Mortgage Loan or from other cash that would have been distributable to Certificateholders. As provided in the Agreement, withdrawals from the Custodial Account and/or the Certificate Account created for the benefit of Certificateholders may be made by the Master Servicer from time to time for purposes other than distributions to Certificateholders, such purposes including without limitation reimbursement to the Depositor and the Master Servicer of advances made, or certain expenses incurred, by either of them. The Agreement permits, with certain exceptions therein provided, the amendment of the Agreement and the modification of the rights and obligations of the Depositor, the Master Servicer and the Trustee and the rights of the Certificateholders under the Agreement from time to time by the Depositor, the Master Servicer and the Trustee with the consent of the Holders of Certificates evidencing in the aggregate not less than 66% of the Percentage Interests of each Class of Certificates affected thereby. Any such consent by the Holder of this Certificate shall be conclusive and binding on such Holder and upon all future holders of this Certificate and of any Certificate issued upon the transfer hereof or in exchange herefor or in lieu hereof whether or not notation of such consent is made upon the Certificate. The Agreement also permits the amendment thereof in certain circumstances without the consent of the Holders of any of the Certificates and, in certain additional circumstances, without the consent of the Holders of certain Classes of Certificates. As provided in the Agreement and subject to certain limitations therein set forth, the transfer of this Certificate is registrable in the Certificate Register upon surrender of this Certificate for registration of transfer at the offices or agencies appointed by the Trustee in St. Paul, Minnesota, duly endorsed by, or accompanied by an assignment in the form below or other written instrument of transfer in form satisfactory to the Trustee and the Certificate Registrar duly executed by the Holder hereof or such Holder's attorney duly authorized in writing, and thereupon one or more new Certificates of authorized denominations evidencing the same Class and aggregate Percentage Interest will be issued to the designated transferee or transferees. The Certificates are issuable only as registered Certificates without coupons in Classes and in denominations specified in the Agreement. As provided in the Agreement and subject to certain limitations therein set forth, Certificates are exchangeable for new Certificates of authorized denominations evidencing the same Class and aggregate Percentage Interest, as requested by the Holder surrendering the same. No service charge will be made for any such registration of transfer or exchange, but the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. The Depositor, the Master Servicer, the Trustee, the Certificate Registrar and any agent of the Depositor, the Master Servicer, the Trustee or the Certificate Registrar may treat the Person in whose name this Certificate is registered as the owner hereof for all purposes, and none of the Depositor, the Master Servicer, the Trustee or any such agent shall be affected by notice to the contrary. This Certificate shall be governed by and construed in accordance with the laws of the State of New York. The obligations created by the Agreement in respect of the Certificates and the Trust Fund created thereby shall terminate upon the payment to Certificateholders of all amounts held by or on behalf of the Trustee and required to be paid to them pursuant to the Agreement following the earlier of (i) the maturity or other liquidation of the last Mortgage Loan subject thereto or the disposition of all property acquired upon foreclosure or deed in lieu of foreclosure of any Mortgage Loan, and (ii) the purchase by the Master Servicer from the Trust Fund of all remaining Mortgage Loans and all property acquired in respect of such Mortgage Loans or the Certificates, in either case thereby effecting early retirement of the Certificates. The Agreement permits, but does not require the Master Servicer (i) to purchase, at a price determined as provided in the Agreement, all remaining Mortgage Loans and all property acquired in respect of any Mortgage Loan or (ii) to purchase in whole, but not in part, all of the Certificates from the Holders thereof, provided, that any such option may only be exercised if the Stated Principal Balance before giving effect to the distributions to be made on such Distribution Date of the Mortgage Loans, as of the Distribution Date upon which the proceeds of any such purchase are distributed is less than ten percent of the Cut-off Date Balance. Unless the certificate of authentication hereon has been executed by the Certificate Registrar by manual signature, this Certificate shall not be entitled to any benefit under the Agreement or be valid for any purpose. -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly executed. U.S. BANK NATIONAL ASSOCIATION, as Trustee By: _________________________________ Authorized Signatory Dated:_____________________ CERTIFICATE OF AUTHENTICATION This is one of the Class SB Certificates referred to in the within-mentioned Agreement. U.S. BANK NATIONAL ASSOCIATION, as Certificate Registrar By: _______________________________ Authorized Signatory -------------------------------------------------------------------------------- ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto ___________________________________________________________________________________________________________________ (Please print or typewrite name and address including postal zip code of assignee) the beneficial interest evidenced by the within Trust Certificate and hereby authorizes the transfer of registration of such interest to assignee on the Certificate Register of the Trust Fund. I (We) further direct the Certificate Registrar to issue a new Certificate of a like denomination and Class, to the above named assignee and deliver such Certificate to the following address: _____________________________________________________________________________________________________________________ Dated:_____________________ ____________________________________ Signature by or on behalf of assignor ______________________________________ Signature Guaranteed DISTRIBUTION INSTRUCTIONS The assignee should include the following for purposes of distribution: Distributions shall be made, by wire transfer or otherwise, in immediately available fund to____________________________________________________________________________ for the account of ________________________________________________________________________________________________ account number ____________________________________________________________________________________________________ or, if mailed by check, to _______________________________________________________________________________________. Applicable statements should be mailed to:_______________________________________________________________ ___________________________________________________________________________________________________________________. This information is provided by ___________________________________, the assignee named above, or ______________________________, as its agent. -------------------------------------------------------------------------------- EXHIBIT D FORM OF CLASS R CERTIFICATE THE CLASS R CERTIFICATE WILL NOT BE ENTITLED TO PAYMENTS CONSTITUTING THE AVAILABLE DISTRIBUTION AMOUNT UNTIL SUCH TIME AS DESCRIBED IN THE POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN (THE "AGREEMENT"). THIS CLASS R CERTIFICATE IS SUBORDINATE TO THE CLASS A, CLASS M AND CLASS SB CERTIFICATES, TO THE EXTENT DESCRIBED HEREIN AND IN THE AGREEMENT. THIS CERTIFICATE MAY NOT BE HELD BY OR TRANSFERRED TO A NON-UNITED STATES PERSON OR A DISQUALIFIED ORGANIZATION (AS DEFINED BELOW). SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE IS A "RESIDUAL INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT" AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL REVENUE CODE OF 1986 (THE "CODE"). THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE RESOLD OR TRANSFERRED UNLESS IT IS REGISTERED PURSUANT TO SUCH ACT AND LAWS OR IS SOLD OR TRANSFERRED IN TRANSACTIONS WHICH ARE EXEMPT FROM REGISTRATION UNDER SUCH ACT AND UNDER APPLICABLE STATE LAW AND IS TRANSFERRED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 5.02 OF THE POOLING AND SERVICING AGREEMENT (THE "AGREEMENT"). NO TRANSFER OF THIS CERTIFICATE OR ANY INTEREST THEREIN SHALL BE MADE TO ANY EMPLOYEE BENEFIT PLAN OR OTHER PLAN OR ARRANGEMENT SUBJECT TO THE PROHIBITED TRANSACTION PROVISIONS OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR SECTION 4975 OF THE CODE, OR ANY PERSON (INCLUDING AN INSURANCE COMPANY INVESTING ITS GENERAL ACCOUNT, AN INVESTMENT MANAGER, A NAMED FIDUCIARY OR A TRUSTEE OF ANY SUCH PLAN) WHO IS USING "PLAN ASSETS" OF ANY SUCH PLAN TO EFFECT SUCH ACQUISITION (EACH OF THE FOREGOING, A "PLAN INVESTOR") UNLESS THE TRUSTEE, THE DEPOSITOR AND THE MASTER SERVICER ARE PROVIDED WITH EITHER (I) A CERTIFICATION PURSUANT TO SECTION 5.02(E)(I)(B) OF THE AGREEMENT OR (II) AN OPINION OF COUNSEL ACCEPTABLE TO AND IN FORM AND SUBSTANCE SATISFACTORY TO THE TRUSTEE, THE DEPOSITOR AND THE MASTER SERVICER TO THE EFFECT THAT THE PURCHASE OR HOLDING OF THIS CERTIFICATE IS PERMISSIBLE UNDER APPLICABLE LAW, WILL NOT CONSTITUTE OR RESULT IN ANY NON-EXEMPT PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE (OR COMPARABLE PROVISIONS OF ANY SUBSEQUENT ENACTMENTS), AND WILL NOT SUBJECT THE TRUSTEE, THE DEPOSITOR OR THE MASTER SERVICER TO ANY OBLIGATION OR LIABILITY (INCLUDING OBLIGATIONS OR LIABILITIES UNDER ERISA OR SECTION 4975 OF THE CODE) IN ADDITION TO THOSE UNDERTAKEN IN THE AGREEMENT, WHICH OPINION OF COUNSEL SHALL NOT BE AN EXPENSE OF THE TRUSTEE, THE DEPOSITOR OR THE MASTER SERVICER. ANY RESALE, TRANSFER OR OTHER DISPOSITION OF THIS CERTIFICATE MAY BE MADE ONLY IF THE PROPOSED TRANSFEREE PROVIDES A TRANSFER AFFIDAVIT TO THE MASTER SERVICER AND THE TRUSTEE THAT (1) SUCH TRANSFEREE IS NOT (A) THE UNITED STATES, ANY STATE OR POLITICAL SUBDIVISION THEREOF, ANY POSSESSION OF THE UNITED STATES, OR ANY AGENCY OR INSTRUMENTALITY OF ANY OF THE FOREGOING (OTHER THAN AN INSTRUMENTALITY WHICH IS A CORPORATION IF ALL OF ITS ACTIVITIES ARE SUBJECT TO TAX AND EXCEPT FOR FREDDIE MAC, A MAJORITY OF ITS BOARD OF DIRECTORS IS NOT SELECTED BY SUCH GOVERNMENTAL UNIT), (B) A FOREIGN GOVERNMENT, ANY INTERNATIONAL ORGANIZATION, OR ANY AGENCY OR INSTRUMENTALITY OF EITHER OF THE FOREGOING, (C) ANY ORGANIZATION (OTHER THAN CERTAIN FARMERS' COOPERATIVES DESCRIBED IN SECTION 521 OF THE CODE) WHICH IS EXEMPT FROM THE TAX IMPOSED BY CHAPTER 1 OF THE CODE UNLESS SUCH ORGANIZATION IS SUBJECT TO THE TAX IMPOSED BY SECTION 511 OF THE CODE (INCLUDING THE TAX IMPOSED BY SECTION 511 OF THE CODE ON UNRELATED BUSINESS TAXABLE INCOME), (D) RURAL ELECTRIC AND TELEPHONE COOPERATIVES DESCRIBED IN SECTION 1381(A)(2)(C) OF THE CODE, (E) AN ELECTING LARGE PARTNERSHIP UNDER SECTION 775(A) OF THE CODE (ANY SUCH PERSON DESCRIBED IN THE FOREGOING CLAUSES (A), (B), (C), (D) OR (E) BEING HEREIN REFERRED TO AS A "DISQUALIFIED ORGANIZATION"), OR (F) AN AGENT OF A DISQUALIFIED ORGANIZATION, (2) NO PURPOSE OF SUCH TRANSFER IS TO IMPEDE THE ASSESSMENT OR COLLECTION OF TAX AND (3) SUCH TRANSFEREE SATISFIES CERTAIN ADDITIONAL CONDITIONS RELATING TO THE FINANCIAL CONDITION OF THE PROPOSED TRANSFEREE. NOTWITHSTANDING THE REGISTRATION IN THE CERTIFICATE REGISTER OR ANY TRANSFER, SALE OR OTHER DISPOSITION OF THIS CERTIFICATE TO A DISQUALIFIED ORGANIZATION OR AN AGENT OF A DISQUALIFIED ORGANIZATION, SUCH REGISTRATION SHALL BE DEEMED TO BE OF NO LEGAL FORCE OR EFFECT WHATSOEVER AND SUCH PERSON SHALL NOT BE DEEMED TO BE A CERTIFICATEHOLDER FOR ANY PURPOSE HEREUNDER, INCLUDING, BUT NOT LIMITED TO, THE RECEIPT OF DISTRIBUTIONS ON THIS CERTIFICATE. EACH HOLDER OF THIS CERTIFICATE BY ACCEPTANCE OF THIS CERTIFICATE SHALL BE DEEMED TO HAVE CONSENTED TO THE PROVISIONS OF THIS PARAGRAPH. Certificate No. R-1 Percentage Interest: 100.00% Date of Pooling and Servicing Agreement: May 1, 2006 Master Servicer: Residential Funding Corporation Cut-off Date: May 1, 2006 HOME EQUITY MORTGAGE ASSET-BACKED PASS-THROUGH CERTIFICATES SERIES 2006-EMX4 evidencing a percentage interest in the distributions allocable to the Class R Certificates with respect to a Trust Fund consisting primarily of a pool of fixed and adjustable interest rate, first and junior lien mortgage loans on one- to four-family residential properties sold by RESIDENTIAL ASSET SECURITIES CORPORATION This Certificate is payable solely from the assets of the Trust Fund and does not represent an obligation of or interest in Residential Asset Securities Corporation, the Master Servicer, the Trustee referred to below or any of their affiliates. Neither this Certificate nor the underlying mortgage loans are guaranteed or insured by any governmental agency or instrumentality or by Residential Asset Securities Corporation, the Master Servicer, the Trustee or any of their affiliates. None of the Depositor, the Master Servicer or any of their affiliates will have any obligation with respect to any certificate or other obligation secured by or payable from payments on the Certificates. This certifies that [________________] is the registered owner of the Percentage Interest evidenced by this Certificate in certain distributions with respect to the Trust Fund consisting primarily of a pool of fixed and adjustable interest rate, first and junior lien mortgage loans on one- to four-family residential properties (the "Mortgage Loans"), sold by Residential Asset Securities Corporation (hereinafter called the "Depositor," which term includes any successor entity under the Agreement referred to below). The Trust Fund was created pursuant to a Pooling and Servicing Agreement dated as specified above (the "Agreement) among the Depositor, the Master Servicer and U.S. Bank National Association, as trustee (the "Trustee"), a summary of certain of the pertinent provisions of which is set forth hereafter. To the extent not defined herein, the capitalized terms used herein have the meanings assigned in the Agreement. This Certificate is issued under and is subject to the terms, provisions and conditions of the Agreement, to which Agreement the Holder of this Certificate by virtue of the acceptance hereof assents and by which such Holder is bound. Pursuant to the terms of the Agreement, a distribution will be made on the 25th day of each month or, if such 25th day is not a Business Day, the Business Day immediately following (the "Distribution Date"), commencing as described in the Agreement, to the Person in whose name this Certificate is registered at the close of business on the last Business Day of the month immediately preceding the month of such distribution (the "Record Date"), from the related Available Distribution Amount in an amount equal to the product of the Percentage Interest evidenced by this Certificate and, the amount of interest and principal, if any, required to be distributed to the Holders of Class R Certificates on such Distribution Date. Each Holder of this Certificate will be deemed to have agreed to be bound by the restrictions set forth in the Agreement to the effect that (i) each person holding or acquiring any Ownership Interest in this Certificate must be a United States Person and a Permitted Transferee, (ii) the transfer of any Ownership Interest in this Certificate will be conditioned upon the delivery to the Trustee of, among other things, an affidavit to the effect that it is a United States Person and Permitted Transferee, (ii) any attempted or purported transfer of any Ownership Interest in this Certificate in violation of such restrictions will be absolutely null and void and will vest no rights in the purported transferee, and (iv) if any person other than a United States Person and a Permitted Transferee acquires any Ownership Interest in this Certificate in violation of such restrictions, then the Master Servicer will have the right, in its sole discretion and without notice to the Holder of this Certificate, to sell this Certificate to a purchaser selected by the Master Servicer, which purchaser may be the Master Servicer, or any affiliate of the Master Servicer, on such terms and conditions as the Master Servicer may choose. Notwithstanding the above, the final distribution on this Certificate will be made after due notice of the pendency of such distribution and only upon presentation and surrender of this Certificate at the office or agency appointed by the Trustee for that purpose in St. Paul, Minnesota. The Holder of this Certificate may have additional obligations with respect to this Certificate, including tax liabilities. No transfer of this Certificate will be made unless such transfer is exempt from the registration requirements of the Securities Act of 1933, as amended, and any applicable state securities laws or is made in accordance with said Act and laws. In the event that such a transfer is to be made, (i) the Trustee or the Depositor may require an opinion of counsel acceptable to and in form and substance satisfactory to the Trustee and the Depositor that such transfer is exempt (describing the applicable exemption and the basis therefor) from or is being made pursuant to the registration requirements of the Securities Act of 1933, as amended, and of any applicable statute of any state and (ii) the transferee shall execute an investment letter in the form described by the Agreement. The Holder hereof desiring to effect such transfer shall, and does hereby agree to, indemnify the Trustee, the Depositor, the Master Servicer and the Certificate Registrar acting on behalf of the Trustee against any liability that may result if the transfer is not so exempt or is not made in accordance with such Federal and state laws. No transfer of this Certificate or any interest therein shall be made to any employee benefit plan or other plan or arrangement subject to the prohibited transaction provisions of ERISA or Section 4975 of the Code, or any person (including an insurance company investing its general account, an investment manager, a named fiduciary or a trustee of any such plan) who is using "plan assets" of any such plan to effect such acquisition (each of the foregoing, a "Plan Investor") unless the Trustee, the Depositor and the Master Servicer are provided with either (i) a certification pursuant to Section 5.02(e)(i)(B) of the Agreement or (ii) an Opinion of Counsel acceptable to and in form and substance satisfactory to the Trustee, the Depositor and the Master Servicer to the effect that the purchase or holding of this Certificate is permissible under applicable law, will not constitute or result in any non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code (or comparable provisions of any subsequent enactments), and will not subject the Trustee, the Depositor or the Master Servicer to any obligation or liability (including obligations or liabilities under ERISA or Section 4975 of the Code) in addition to those undertaken in the Agreement, which Opinion of Counsel shall not be an expense of the Trustee, the Depositor or the Master Servicer. This Certificate is one of a duly authorized issue of Certificates issued in several Classes designated as Home Equity Mortgage Asset-Backed Pass-Through Certificates of the Series specified hereon (herein collectively called the "Certificates"). The Certificates are limited in right of payment to certain collections and recoveries respecting the Mortgage Loans, all as more specifically set forth herein and in the Agreement. In the event Master Servicer funds are advanced with respect to any Mortgage Loan, such advance is reimbursable to the Master Servicer, to the extent provided in the Agreement, from related recoveries on such Mortgage Loan or from other cash that would have been distributable to Certificateholders. As provided in the Agreement, withdrawals from the Custodial Account and/or the Certificate Account created for the benefit of Certificateholders may be made by the Master Servicer from time to time for purposes other than distributions to Certificateholders, such purposes including without limitation reimbursement to the Depositor and the Master Servicer of advances made, or certain expenses incurred, by either of them. The Agreement permits, with certain exceptions therein provided, the amendment of the Agreement and the modification of the rights and obligations of the Depositor, the Master Servicer and the Trustee and the rights of the Certificateholders under the Agreement from time to time by the Depositor, the Master Servicer and the Trustee with the consent of the Holders of Certificates evidencing in the aggregate not less than 66% of the Percentage Interests of each Class of Certificates affected thereby. Any such consent by the Holder of this Certificate shall be conclusive and binding on such Holder and upon all future holders of this Certificate and of any Certificate issued upon the transfer hereof or in exchange herefor or in lieu hereof whether or not notation of such consent is made upon the Certificate. The Agreement also permits the amendment thereof in certain circumstances without the consent of the Holders of any of the Certificates and, in certain additional circumstances, without the consent of the Holders of certain Classes of Certificates. As provided in the Agreement and subject to certain limitations therein set forth, the transfer of this Certificate is registrable in the Certificate Register upon surrender of this Certificate for registration of transfer at the offices or agencies appointed by the Trustee in St. Paul, Minnesota, duly endorsed by, or accompanied by an assignment in the form below or other written instrument of transfer in form satisfactory to the Trustee and the Certificate Registrar duly executed by the Holder hereof or such Holder's attorney duly authorized in writing, and thereupon one or more new Certificates of authorized denominations evidencing the same Class and aggregate Percentage Interest will be issued to the designated transferee or transferees. The Certificates are issuable only as registered Certificates without coupons in Classes and in denominations specified in the Agreement. As provided in the Agreement and subject to certain limitations therein set forth, Certificates are exchangeable for new Certificates of authorized denominations evidencing the same Class and aggregate Percentage Interest, as requested by the Holder surrendering the same. No service charge will be made for any such registration of transfer or exchange, but the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. The Depositor, the Master Servicer, the Trustee, the Certificate Registrar and any agent of the Depositor, the Master Servicer, the Trustee or the Certificate Registrar may treat the Person in whose name this Certificate is registered as the owner hereof for all purposes, and none of the Depositor, the Master Servicer, the Trustee or any such agent shall be affected by notice to the contrary. This Certificate shall be governed by and construed in accordance with the laws of the State of New York. The obligations created by the Agreement in respect of the Certificates and the Trust Fund created thereby shall terminate upon the payment to Certificateholders of all amounts held by or on behalf of the Trustee and required to be paid to them pursuant to the Agreement. Unless the certificate of authentication hereon has been executed by the Certificate Registrar, by manual signature, this Certificate shall not be entitled to any benefit under the Agreement or be valid for any purpose. -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly executed. U.S. BANK NATIONAL ASSOCIATION, as Trustee By: __________________________________ Authorized Signatory Dated:_____________________ CERTIFICATE OF AUTHENTICATION This is one of the Class R Certificates referred to in the within-mentioned Agreement. U.S. BANK NATIONAL ASSOCIATION, as Certificate Registrar By: _______________________________ Authorized Signatory -------------------------------------------------------------------------------- ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto ___________________________________________________________________________________________________________________ (Please print or typewrite name and address including postal zip code of assignee) the beneficial interest evidenced by the within Trust Certificate and hereby authorizes the transfer of registration of such interest to assignee on the Certificate Register of the Trust Fund. I (We) further direct the Certificate Registrar to issue a new Certificate of a like denomination and Class, to the above named assignee and deliver such Certificate to the following address: _____________________________________________________________________________________________________________________ Dated:_____________________ ____________________________________ Signature by or on behalf of assignor ______________________________________ Signature Guaranteed DISTRIBUTION INSTRUCTIONS The assignee should include the following for purposes of distribution: Distributions shall be made, by wire transfer or otherwise, in immediately available fund to____________________________________________________________________________ for the account of ________________________________________________________________________________________________ account number ____________________________________________________________________________________________________ or, if mailed by check, to _______________________________________________________________________________________. Applicable statements should be mailed to:_______________________________________________________________ ___________________________________________________________________________________________________________________. This information is provided by ___________________________________, the assignee named above, or ______________________________, as its agent. -------------------------------------------------------------------------------- EXHIBIT E FORM OF CUSTODIAL AGREEMENT ..................THIS CUSTODIAL AGREEMENT (as amended and supplemented from time to time, the "Agreement"), dated as of May 1, 2006, by and among U.S. BANK NATIONAL ASSOCIATION, as Trustee (including its successors under the Pooling Agreement defined below, the "Trustee"), RESIDENTIAL ASSET SECURITIES CORPORATION (together with any successor in interest, the "Company"), RESIDENTIAL FUNDING CORPORATION, as master servicer (together with any successor in interest or successor under the Pooling Agreement referred to below, the "Master Servicer"), and WELLS FARGO BANK, NATIONAL ASSOCIATION (together with any successor in interest or any successor appointed hereunder, the "Custodian"). W I T N E S S E T H T H A T : .........WHEREAS, the Company, the Master Servicer, and the Trustee have entered into a Pooling and Servicing Agreement, dated as of May 1, 2006, relating to the issuance of Residential Asset Securities Corporation, Home Equity Mortgage Asset-Backed Pass-Through Certificates, Series 2006-EMX4 (as in effect on the date of this Agreement, the "Original Pooling Agreement," and as amended and supplemented from time to time, the "Pooling Agreement"); and .........WHEREAS, the Custodian has agreed to act as agent for the Trustee for the purposes of receiving and holding certain documents and other instruments delivered by the Company and the Master Servicer under the Pooling Agreement, all upon the terms and conditions and subject to the limitations hereinafter set forth; .........NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements hereinafter set forth, the Trustee, the Company, the Master Servicer and the Custodian hereby agree as follows: ARTICLE I Definitions .........Capitalized terms used in this Agreement and not defined herein shall have the meanings assigned in the Original Pooling Agreement, unless otherwise required by the context herein. ARTICLE II Custody of Mortgage Documents .........Section 2.1. Custodian to Act as Agent; Acceptance of Mortgage Files. The Company and the Master Servicer hereby direct the Trustee to appoint Wells Fargo Bank National Association as the Custodian hereunder. The Custodian, as the duly appointed agent of the Trustee for these purposes, acknowledges receipt of the Mortgage Files relating to the Mortgage Loans identified on the schedule attached hereto (the "Mortgage Files") and declares that it holds and will hold the Mortgage Files as agent for the Trustee, in trust, for the use and benefit of all present and future Certificateholders. .........Section 2.2. Recordation of Assignments. If any Mortgage File includes one or more assignments of the related Mortgages to the Trustee that have not been recorded, each such assignment shall be delivered by the Custodian to the Company for the purpose of recording it in the appropriate public office for real property records, and the Company, at no expense to the Custodian, shall promptly cause to be recorded in the appropriate public office for real property records each such assignment and, upon receipt thereof from such public office, shall return each such assignment to the Custodian. .........Section 2.3. Review of Mortgage Files. .........(a) On or prior to the Closing Date, the Custodian shall deliver to the Trustee an Initial Certification in the form annexed hereto as Exhibit One evidencing receipt of a Mortgage File for each Mortgage Loan listed on the Schedule attached hereto (the "Mortgage Loan Schedule"). The parties hereto acknowledge that certain documents referred to in Subsection 2.01(b)(i) of the Pooling Agreement may be missing on or prior to the Closing Date and such missing documents shall be listed as a Schedule to Exhibit One. .........(b) Within 45 days after the Closing Date, the Custodian agrees, for the benefit of Certificateholders, to review each Mortgage File and to deliver to the Trustee an Interim Certification in the form annexed hereto as Exhibit Two to the effect that all documents required to be delivered pursuant to Section 2.01(b) of the Pooling Agreement have been executed and received and that such documents relate to the Mortgage Loans identified on the Mortgage Loan Schedule, except for any exceptions listed on Schedule A attached to such Interim Certification. For purposes of such review, the Custodian shall compare the following information in each Mortgage File to the corresponding information in the Mortgage Loan Schedule: (i) the loan number, (ii) the borrower name and (iii) the original principal balance. In the event that any Mortgage Note or Assignment of Mortgage has been delivered to the Custodian by the Company in blank, the Custodian, upon the direction of the Company, shall cause each such Mortgage Note to be endorsed to the Trustee and each such Assignment of Mortgage to be completed in the name of the Trustee prior to the date on which such Interim Certification is delivered to the Trustee. Within 45 days of receipt of the documents required to be delivered pursuant to Section 2.01(c) of the Pooling Agreement, the Custodian agrees, for the benefit of the Certificateholders, to review each such document, and upon the written request of the Trustee to deliver to the Trustee an updated Schedule A to the Interim Certification. The Custodian shall be under no duty or obligation to inspect, review or examine said documents, instruments, certificates or other papers to determine that the same are genuine, enforceable, or appropriate for the represented purpose or that they have actually been recorded or that they are other than what they purport to be on their face, or that the MIN is accurate. If in performing the review required by this Section 2.3 the Custodian finds any document or documents constituting a part of a Mortgage File to be missing or defective in respect of the items reviewed as described in this Section 2.3(b), the Custodian shall promptly so notify the Company, the Master Servicer and the Trustee. .........(c) Upon receipt of all documents required to be in the Mortgage Files the Custodian shall deliver to the Trustee a Final Certification in the form annexed hereto as Exhibit Three evidencing the completeness of the Mortgage Files. .........Upon receipt of written request from the Trustee, the Company or the Master Servicer, the Custodian shall as soon as practicable supply the Trustee with a list of all of the documents relating to the Mortgage Loans required to be delivered pursuant to Section 2.01(b) of the Pooling Agreement not then contained in the Mortgage Files. .........Section 2.4. Notification of Breaches of Representations and Warranties. If the Custodian discovers, in the course of performing its custodial functions, a breach of a representation or warranty made by the Master Servicer or the Company as set forth in the Pooling Agreement with respect to a Mortgage Loan relating to a Mortgage File, the Custodian shall give prompt written notice to the Company, the Master Servicer and the Trustee. .........Section 2.5. Custodian to Cooperate; Release of Mortgage Files. Upon the repurchase or substitution of any Mortgage Loan pursuant to Article II of the Pooling Agreement or payment in full of any Mortgage Loan, or the receipt by the Master Servicer of a notification that payment in full will be escrowed in a manner customary for such purposes, the Master Servicer shall immediately notify the Custodian by delivering to the Custodian a Request for Release (in the form of Exhibit Four attached hereto or a mutually acceptable electronic form) and shall request delivery to it of the Mortgage File. The Custodian agrees, upon receipt of such Request for Release, promptly to release to the Master Servicer the related Mortgage File. .........Upon receipt of a Request for Release from the Master Servicer, signed by a Servicing Officer, that (i) the Master Servicer or a Subservicer, as the case may be, has made a deposit into the Certificate Account in payment for the purchase of the related Mortgage Loan in an amount equal to the Purchase Price for such Mortgage Loan or (ii) the Company has chosen to substitute a Qualified Substitute Mortgage Loan for such Mortgage Loan, the Custodian shall release to the Master Servicer the related Mortgage File. ......... .........Upon written notification of a substitution, the Master Servicer shall deliver to the Custodian and the Custodian agrees to accept the Mortgage Note and other documents constituting the Mortgage File with respect to any Qualified Substitute Mortgage Loan, upon receiving written notification from the Master Servicer of such substitution. .........From time to time as is appropriate for the servicing or foreclosures of any Mortgage Loan, including, for this purpose, collection under any Primary Insurance Policy or any Mortgage Pool Insurance Policy, the Master Servicer shall deliver to the Custodian a Request for Release certifying as to the reason for such release. Upon receipt of the foregoing, the Custodian shall deliver the Mortgage File or such document to the Master Servicer. All Mortgage Files so released to the Master Servicer shall be held by it in trust for the Trustee for the use and benefit of all present and future Certificateholders. The Master Servicer shall cause each Mortgage File or any document therein so released to be returned to the Custodian when the need therefor by the Master Servicer no longer exists, unless (i) the Mortgage Loan has been liquidated and the Liquidation Proceeds relating to the Mortgage Loan have been deposited in the Custodial Account or (ii) the Mortgage File or such document has been delivered to an attorney, or to a public trustee or other public official as required by law, for purposes of initiating or pursuing legal action or other proceedings for the foreclosure of the Mortgaged Property either judicially or non-judicially, and the Master Servicer has delivered to the Custodian an updated Request for Release signed by a Servicing Officer certifying as to the name and address of the Person to which such Mortgage File or such document was delivered and the purpose or purposes of such delivery. Immediately upon receipt of any Mortgage File returned to the Custodian by the Master Servicer, the Custodian shall deliver a signed acknowledgement to the Master Servicer, confirming receipt of such Mortgage File. .........Upon the written request of the Master Servicer, the Custodian will send to the Master Servicer copies of any documents contained in the Mortgage File. .........Section 2.6. Assumption Agreements. In the event that any assumption agreement or substitution of liability agreement is entered into with respect to any Mortgage Loan subject to this Agreement in accordance with the terms and provisions of the Pooling Agreement, the Master Servicer shall notify the Custodian that such assumption or substitution agreement has been completed by forwarding to the Custodian the original of such assumption or substitution agreement, which shall be added to the related Mortgage File and, for all purposes, shall be considered a part of such Mortgage File to the same extent as all other documents and instruments constituting parts thereof. ARTICLE III Concerning the Custodian .........Section 3.1. Custodian a Bailee and Agent of the Trustee. With respect to each Mortgage Note, Mortgage and other documents constituting each Mortgage File which are delivered to the Custodian, the Custodian is exclusively the bailee and agent of the Trustee and has no instructions to hold any Mortgage Note or Mortgage for the benefit of any person other than the Trustee, holds such documents for the benefit of Certificateholders and undertakes to perform such duties and only such duties as are specifically set forth in this Agreement. Except upon compliance with the provisions of Section 2.5 of this Agreement, no Mortgage Note, Mortgage or other document constituting a part of a Mortgage File shall be delivered by the Custodian to the Company or the Master Servicer or otherwise released from the possession of the Custodian. .........The Master Servicer shall promptly notify the Custodian in writing if it shall no longer be a member of MERS, or if it otherwise shall no longer be capable of registering and recording Mortgage Loans using MERS. In addition, the Master Servicer shall (i) promptly notify the Custodian in writing when a MERS Mortgage Loan is no longer registered with and recorded under MERS and (ii) concurrently with any such deregistration of a MERS Mortgage Loan, prepare, execute and record an original assignment from MERS to the Trustee and deliver such assignment to the Custodian. .........Section 3.2. Indemnification. The Company hereby agrees to indemnify and hold the Custodian harmless from and against all claims, liabilities, losses, actions, suits or proceedings at law or in equity, or any other expenses, fees or charges of any character or nature, which the Custodian may incur or with which the Custodian may be threatened by reason of its acting as custodian under this Agreement, including indemnification of the Custodian against any and all expenses, including attorney's fees if counsel for the Custodian has been approved by the Company, and the cost of defending any action, suit or proceedings or resisting any claim. Notwithstanding the foregoing, it is specifically understood and agreed that in the event any such claim, liability, loss, action, suit or proceeding or other expense, fee or charge shall have been caused by reason of any negligent act, negligent failure to act or willful misconduct on the part of the Custodian, or which shall constitute a willful breach of its duties hereunder, the indemnification provisions of this Agreement shall not apply. .........Section 3.3. Custodian May Own Certificates. The Custodian in its individual or any other capacity may become the owner or pledgee of Certificates with the same rights it would have if it were not Custodian. .........Section 3.4. Master Servicer to Pay Custodian's Fees and Expenses. The Master Servicer covenants and agrees to pay to the Custodian from time to time, and the Custodian shall be entitled to, reasonable compensation for all services rendered by it in the exercise and performance of any of the powers and duties hereunder of the Custodian, and the Master Servicer shall pay or reimburse the Custodian upon its request for all reasonable expenses, disbursements and advances incurred or made by the Custodian in accordance with any of the provisions of this Agreement (including the reasonable compensation and the expenses and disbursements of its counsel and of all persons not regularly in its employ), except any such expense, disbursement or advance as may arise from its negligence or bad faith. .........Section 3.5. Custodian May Resign; Trustee May Remove Custodian. The Custodian may resign from the obligations and duties hereby imposed upon it as such obligations and duties relate to its acting as Custodian of the Mortgage Loans. Upon receiving such notice of resignation, the Trustee shall either take custody of the Mortgage Files itself and give prompt notice thereof to the Company, the Master Servicer and the Custodian, or promptly appoint a successor Custodian by written instrument, in duplicate, one copy of which instrument shall be delivered to the resigning Custodian and one copy to the successor Custodian. If the Trustee shall not have taken custody of the Mortgage Files and no successor Custodian shall have been so appointed and have accepted appointment within 30 days after the giving of such notice of resignation, the resigning Custodian may petition any court of competent jurisdiction for the appointment of a successor Custodian. .........The Trustee, at the direction of the Master Servicer and the Company, may remove the Custodian at any time. In such event, the Trustee shall appoint, or petition a court of competent jurisdiction to appoint, a successor Custodian hereunder. Any successor Custodian shall be a depository institution subject to supervision or examination by federal or state authority and shall be able to satisfy the other requirements contained in Section 3.7 and shall be unaffiliated with the Master Servicer or the Company. .........Any resignation or removal of the Custodian and appointment of a successor Custodian pursuant to any of the provisions of this Section 3.5 shall become effective upon acceptance of appointment by the successor Custodian. The Trustee shall give prompt notice to the Company and the Master Servicer of the appointment of any successor Custodian. No successor Custodian shall be appointed by the Trustee without the prior approval of the Company and the Master Servicer. .........Section 3.6. Merger or Consolidation of Custodian. Any Person into which the Custodian may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, conversion or consolidation to which the Custodian shall be a party, or any Person succeeding to the business of the Custodian, shall be the successor of the Custodian hereunder, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding; provided that such successor is a depository institution subject to supervision or examination by federal or state authority and is able to satisfy the other requirements contained in Section 3.7 and is unaffiliated with the Master Servicer or the Company. .........Section 3.7. Representations of the Custodian. The Custodian hereby represents that it is a depository institution subject to supervision or examination by a federal or state authority, has a combined capital and surplus of at least $15,000,000 and is qualified to do business in the jurisdictions in which it will hold any Mortgage File. ARTICLE IV Compliance with Regulation AB .........Section 4.1. Intent of the Parties; Reasonableness. The parties hereto acknowledge and agree that the purpose of this Article IV is to facilitate compliance by the Company with the provisions of Regulation AB and related rules and regulations of the Commission. The Company shall not exercise its right to request delivery of information or other performance under these provisions other than in good faith, or for purposes other than compliance with the Securities Act, the Exchange Act and the rules and regulations of the Commission under the Securities Act and the Exchange Act. Each of the parties hereto acknowledges that interpretations of the requirements of Regulation AB may change over time, whether due to interpretive guidance provided by the Commission or its staff, consensus among participants in the mortgage-backed securities markets, advice of counsel, or otherwise, and agrees to comply with requests made by the Company in good faith for delivery of information under these provisions on the basis of evolving interpretations of Regulation AB. The Custodian shall cooperate reasonably with the Company to deliver to the Company (including any of its assignees or designees), any and all disclosure, statements, reports, certifications, records and any other information necessary in the reasonable, good faith determination of the Company to permit the Company to comply with the provisions of Regulation AB. .........Section 4.2. Additional Representations and Warranties of the Custodian. .........(a) The Custodian hereby represents and warrants that the information set forth under the caption "Pooling and Servicing Agreement - Custodial Arrangements" (the "Custodian Disclosure") does not contain any untrue statement of a material fact or omit to state a material required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. .........(b) The Custodian shall be deemed to represent to the Company as of the date hereof and on each date on which information is provided to the Company under Section 4.3 that, except as disclosed in writing to the Company prior to such date: (i) there are no aspects of its financial condition that could have a material adverse effect on the performance by it of its Custodian obligations under this Agreement or any other Securitization Transaction as to which it is the custodian; (ii) there are no material legal or governmental proceedings pending (or known to be contemplated) against it; and (iii) there are no affiliations, relationships or transactions relating to the Custodian with respect to the Company or any sponsor, issuing entity, servicer, trustee, originator, significant obligor, enhancement or support provider or other material transaction party (as such terms are used in Regulation AB) relating to the Securitization Transaction contemplated by the Agreement, as identified by the Company to the Custodian in writing as of the Closing Date (each, a "Transaction Party"). .........(c) If so requested by the Company on any date following the Closing Date, the Custodian shall, within five Business Days following such request, confirm in writing the accuracy of the representations and warranties set forth in paragraph (a) of this Section or, if any such representation and warranty is not accurate as of the date of such confirmation, provide reasonably adequate disclosure of the pertinent facts, in writing, to the requesting party. Any such request from the Company shall not be given more than once each calendar quarter, unless the Company shall have a reasonable basis for a determination that any of the representations and warranties may not be accurate. .........Section 4.3. Additional Information to Be Provided by the Custodian. For so long as the Certificates are outstanding, for the purpose of satisfying the Company's reporting obligation under the Exchange Act with respect to any class of Certificates, the Custodian shall (a) notify the Company in writing of any material litigation or governmental proceedings pending against the Custodian that would be material to Certificateholders, and (b) provide to the Company a written description of such proceedings. Any notices and descriptions required under this Section 4.3 shall be given no later than five Business Days prior to the Determination Date following the month in which the Custodian has knowledge of the occurrence of the relevant event. As of the date the Company or Master Servicer files each Report on Form 10-D or Form 10-K with respect to the Certificates, the Custodian will be deemed to represent that any information previously provided under this Section 4.3, if any, is materially correct and does not have any material omissions unless the Custodian has provided an update to such information. .........Section 4.4. Report on Assessment of Compliance and Attestation. On or before March 15 of each calendar year, the Custodian shall: .........(a) deliver to the Company a report (in form and substance reasonably satisfactory to the Company) regarding the Custodian's assessment of compliance with the Servicing Criteria during the immediately preceding calendar year, as required under Rules 13a-18 and 15d-18 of the Exchange Act and Item 1122 of Regulation AB. Such report shall be addressed to the Company and signed by an authorized officer of the Custodian, and shall address each of the Servicing Criteria specified on a certification substantially in the form of Exhibit Five hereto; and .........(b) deliver to the Company a report of a registered public accounting firm reasonably acceptable to the Company that attests to, and reports on, the assessment of compliance made by the Custodian and delivered pursuant to the preceding paragraph. Such attestation shall be in accordance with Rules 1-02(a)(3) and 2-02(g) of Regulation S-X under the Securities Act and the Exchange Act. .........Section 4.5. Indemnification; Remedies. .........(a) The Custodian shall indemnify the Company, each affiliate of the Company, the Master Servicer and each broker dealer acting as underwriter, placement agent or initial purchaser of the Certificates or each Person who controls any of such parties (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act); and the respective present and former directors, officers, employees and agents of each of the foregoing, and shall hold each of them harmless from and against any losses, damages, penalties, fines, forfeitures, legal fees and expenses and related costs, judgments, and any other costs, fees and expenses that any of them may sustain arising out of or based upon: .........(i)(A) any untrue statement of a material fact contained or alleged to be contained in the Custodian Disclosure and any information, report, certification, accountants' attestation or other material provided under this Article IV by or on behalf of the Custodian (collectively, the "Custodian Information"), or (B) the omission or alleged omission to state in the Custodian Information a material fact required to be stated in the Custodian Information or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; or (ii).....any failure by the Custodian to deliver any information, report, certification, accountants' attestation or other material when and as required under this Article IV. .........(b) In the case of any failure of performance described in clause (ii) of Section 4.5(a), the Custodian shall promptly reimburse the Company for all costs reasonably incurred by the Company in order to obtain the information, report, certification, accountants' letter or other material not delivered as required by the Custodian. ARTICLE V Miscellaneous Provisions .........Section 5.1. Notices. All notices, requests, consents and demands and other communications required under this Agreement or pursuant to any other instrument or document delivered hereunder shall be in writing and, unless otherwise specifically provided, may be delivered personally, by telegram or telex, or by registered or certified mail, postage prepaid, return receipt requested, at the addresses specified on the signature page hereof (unless changed by the particular party whose address is stated herein by similar notice in writing), in each case the notice will be deemed delivered when received. .........Section 5.2. Amendments. No modification or amendment of or supplement to this Agreement shall be valid or effective unless the same is in writing and signed by all parties hereto, and none of the Company, the Master Servicer or the Trustee shall enter into any amendment of or supplement to this Agreement except as permitted by the Pooling Agreement. The Trustee shall give prompt notice to the Custodian of any amendment or supplement to the Pooling Agreement and furnish the Custodian with written copies thereof. .........Section 5.3. Governing Law. This Agreement shall be deemed a contract made under the laws of the State of New York and shall be construed and enforced in accordance with and governed by the laws of the State of New York. .........Section 5.4. Recordation of Agreement. To the extent permitted by applicable law, this Agreement is subject to recordation in all appropriate public offices for real property records in all the counties or other comparable jurisdictions in which any or all of the properties subject to the Mortgages are situated, and in any other appropriate public recording office or elsewhere, such recordation to be effected by the Master Servicer and at its expense on direction by the Trustee (pursuant to the request of holders of Certificates evidencing undivided interests in the aggregate of not less than 25% of the Trust Fund), but only upon direction accompanied by an Opinion of Counsel reasonably satisfactory to the Master Servicer to the effect that the failure to effect such recordation is likely to materially and adversely affect the interests of the Certificateholders. .........For the purpose of facilitating the recordation of this Agreement as herein provided and for other purposes, this Agreement may be executed simultaneously in any number of counterparts, each of which counterparts shall be deemed to be an original, and such counterparts shall constitute but one and the same instrument. .........Section 5.5. Severability of Provisions. If any one or more of the covenants, agreements, provisions or terms of this Agreement shall be for any reason whatsoever held invalid, then such covenants, agreements, provisions or terms shall be deemed severable from the remaining covenants, agreements, provisions or terms of this Agreement and shall in no way affect the validity or enforceability of the other provisions of this Agreement or of the Certificates or the rights of the holders thereof. [SIGNATURE PAGE FOLLOWS] -------------------------------------------------------------------------------- IN WITNESS WHEREOF, this Agreement is executed as of the date first above written. Address: U.S. BANK NATIONAL ASSOCIATION, as Trustee U.S. Bank National Association 60 Livingston Avenue EP-MN-WS3D ....... By: St. Paul, MN 55107 Name: Attention: Structured Finance, Title: RASC 2006-EMX4 ......... ......... Address: RESIDENTIAL ASSET SECURITIES CORPORATION 8400 Normandale Lake Boulevard Minneapolis, Minnesota 55437 By: Name: Title: Address: RESIDENTIAL FUNDING CORPORATION, as Master Servicer 8400 Normandale Lake Boulevard Suite 250 Minneapolis, Minnesota 55437 By: Name: Title: Address: WELLS FARGO BANK, NATIONAL ASSOCIATION Mortgage Document Custody One Meridian Crossings, Lower Level Richfield, Minnesota 55423 By: Name: Title: -------------------------------------------------------------------------------- STATE OF MINNESOTA ) ) ss.: COUNTY OF RAMSEY ) On the ______ day of May 2006, before me, a notary public in and for said State, personally appeared ________________, known to me to be a(n) _____________ of U.S. Bank National Association, a national banking association that executed the within instrument, and also known to me to be the person who executed it on behalf of said national banking association and acknowledged to me that such national banking association executed the within instrument. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. Notary Public [Notarial Seal] -------------------------------------------------------------------------------- STATE OF MINNESOTA ) ) ss.: COUNTY OF HENNEPIN ) On the ______ day of May 2006, before me, a notary public in and for said State, personally appeared ________________, known to me to be a(n) Assistant Vice President of Wells Fargo Bank, National Association, a national banking association that executed the within instrument, and also known to me to be the person who executed it on behalf of said national banking association, and acknowledged to me that such national banking association executed the within instrument. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. Notary Public [Notarial Seal] -------------------------------------------------------------------------------- STATE OF MINNESOTA ) ) ss: COUNTY OF HENNEPIN ) On the ______ day of May 2006, before me, a notary public in and for said State, personally appeared [________________], known to me to be a(n) Vice President of Residential Asset Securities Corporation, one of the corporations that executed the within instrument, and also known to me to be the person who executed it on behalf of said corporation, and acknowledged to me that such corporation executed the within instrument. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. Notary Public [Notarial Seal] STATE OF MINNESOTA ) ) ss: COUNTY OF HENNEPIN ) On the______ day of May 2006, before me, a notary public in and for said State, personally appeared [________________], known to me to be a(n) Associate of Residential Funding Corporation, one of the corporations that executed the within instrument, and also known to me to be the person who executed it on behalf of said corporation, and acknowledged to me that such corporation executed the within instrument. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. Notary Public [Notarial Seal] -------------------------------------------------------------------------------- EXHIBIT ONE FORM OF CUSTODIAN INITIAL CERTIFICATION May _____, 2006 U.S. Bank National Association 60 Livingston Avenue EP-MN-WS3D St. Paul, MN 55107 Attention: Structured Finance, RASC 2006-EMX4 Re: Custodial Agreement, dated as of May 1, 2006, by and among U.S. Bank National Association, Residential Asset Securities Corporation, Residential Funding Corporation and Wells Fargo Bank, National Association, relating to Home Equity Mortgage Asset-Backed Pass-Through Certificates Series 2006-EMX4 Ladies and Gentlemen: In accordance with Section 2.3 of the above-captioned Custodial Agreement, and subject to Section 2.02 of the Pooling Agreement, the undersigned, as Custodian, hereby certifies that it has received a Mortgage File (which contains an original Mortgage Note or an original Lost Note Affidavit with a copy of the related Mortgage Note) to the extent required in Section 2.01(b) of the Pooling Agreement with respect to each Mortgage Loan listed in the Mortgage Loan Schedule, with any exceptions listed on Schedule A attached hereto. Capitalized words and phrases used herein shall have the respective meanings assigned to them in the above-captioned Custodial Agreement. WELLS FARGO BANK, NATIONAL ASSOCIATION By: __________________________________ Name: Title: -------------------------------------------------------------------------------- EXHIBIT TWO FORM OF CUSTODIAN INTERIM CERTIFICATION May _____, 2006 U.S. Bank National Association 60 Livingston Avenue EP-MN-WS3D St. Paul, MN 55107 Attention: Structured Finance, RASC 2006-EMX4 Re: Custodial Agreement, dated as of May 1, 2006, by and among U.S. Bank National Association, Residential Asset Securities Corporation, Residential Funding Corporation and Wells Fargo Bank, National Association, relating to Home Equity Mortgage Asset-Backed Pass-Through Certificates Series 2006-EMX4 Ladies and Gentlemen: In accordance with Section 2.3 of the above-captioned Custodial Agreement, the undersigned, as Custodian, hereby certifies that it has received a Mortgage File to the extent required pursuant to Section 2.01(b) of the Pooling Agreement with respect to each Mortgage Loan listed in the Mortgage Loan Schedule, and it has reviewed the Mortgage File and the Mortgage Loan Schedule and has determined that: all required documents have been executed and received and that such documents relate to the Mortgage Loans identified on the Mortgage Loan Schedule, with any exceptions listed on Schedule A attached hereto. Capitalized words and phrases used herein shall have the respective meanings assigned to them in the above-captioned Custodial Agreement. WELLS FARGO BANK, NATIONAL ASSOCIATION By: ________________________________ Name: Title: -------------------------------------------------------------------------------- EXHIBIT THREE FORM OF CUSTODIAN FINAL CERTIFICATION May_____, 2006 U.S. Bank National Association 60 Livingston Avenue EP-MN-WS3D St. Paul, MN 55107 Attention: Structured Finance, RASC 2006-EMX4 Re: Custodial Agreement, dated as of May 1, 2006, by and among U.S. Bank National Association, Residential Asset Securities Corporation, Residential Funding Corporation and Wells Fargo Bank, National Association, relating to Home Equity Mortgage Asset-Backed Pass-Through Certificates Series 2006-EMX4 Ladies and Gentlemen: In accordance with Section 2.3 of the above-captioned Custodial Agreement, the undersigned, as Custodian, hereby certifies that it has received a Mortgage File with respect to each Mortgage Loan listed in the Mortgage Loan Schedule and it has reviewed the Mortgage File and the Mortgage Loan Schedule and has determined that: all required documents referred to in Section 2.01(b) of the Pooling Agreement have been executed and received and that such documents relate to the Mortgage Loans identified on the Mortgage Loan Schedule. Capitalized words and phrases used herein shall have the respective meanings assigned to them in the above-captioned Custodial Agreement. WELLS FARGO BANK, NATIONAL ASSOCIATION By: _________________________________ Name: Title: -------------------------------------------------------------------------------- EXHIBIT FOUR FORM OF REQUEST FOR RELEASE DATE: TO: RE: REQUEST FOR RELEASE OF DOCUMENTS In connection with the administration of the pool of Mortgage Loans held by you for the referenced pool, we request the release of the Mortgage Loan File described below. Pooling and Servicing Agreement Dated: Series#: Account#: Pool#: Loan#: MIN#: Borrower Name(s): Reason for Document Request: (circle one) Mortgage Loan Prepaid in Full Mortgage Loan Repurchased "We hereby certify that all amounts received or to be received in connection with such payments which are required to be deposited have been or will be so deposited as provided in the Pooling and Servicing Agreement." Residential Funding Corporation Authorized Signature ****************************************************************************** TO CUSTODIAN/TRUSTEE: Please acknowledge this request, and check off documents being enclosed with a copy of this form. You should retain this form for your files in accordance with the terms of the Pooling and Servicing Agreement. Enclosed Documents: [ ] Promissory Note [ ] Primary Insurance Policy [ ] Mortgage or Deed of Trust [ ] Assignment(s) of Mortgage or Deed of Trust [ ] Title Insurance Policy [ ] Other: Name: _____________________________ Title: Date: -------------------------------------------------------------------------------- EXHIBIT FIVE SERVICING CRITERIA TO BE ADDRESSED IN ASSESSMENT OF COMPLIANCE The assessment of compliance to be delivered by the Custodian shall address, at a minimum, the criteria identified as below as "Applicable Servicing Criteria": ------------------------------------------------------------------------------------------ ---------------------- APPLICABLE SERVICING SERVICING CRITERIA CRITERIA ------------------------------------------------------------------------------------------ ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- REFERENCE CRITERIA -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- GENERAL SERVICING CONSIDERATIONS -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(1)(i) Policies and procedures are instituted to monitor any performance or other triggers and events of default in accordance with the transaction agreements. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(1)(ii) If any material servicing activities are outsourced to third parties, policies and procedures are instituted to monitor the third party's performance and compliance with such servicing activities. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(1)(iii) Any requirements in the transaction agreements to maintain a back-up servicer for the pool assets are maintained. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(1)(iv) A fidelity bond and errors and omissions policy is in effect on the party participating in the servicing function throughout the reporting period in the amount of coverage required by and otherwise in accordance with the terms of the transaction agreements. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- CASH COLLECTION AND ADMINISTRATION -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(2)(i) Payments on pool assets are deposited into the appropriate custodial bank accounts and related bank clearing accounts no more than two business days following receipt, or such other number of days specified in the transaction agreements. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(2)(ii) Disbursements made via wire transfer on behalf of an obligor or to an investor are made only by authorized personnel. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(2)(iii) Advances of funds or guarantees regarding collections, cash flows or distributions, and any interest or other fees charged for such advances, are made, reviewed and approved as specified in the transaction agreements. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- The related accounts for the transaction, such as cash reserve accounts or accounts established as a form of overcollateralization, are separately maintained (e.g., with respect to commingling of cash) as set forth in the transaction 1122(d)(2)(iv) agreements. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(2)(v) Each custodial account is maintained at a federally insured depository institution as set forth in the transaction agreements. For purposes of this criterion, "federally insured depository institution" with respect to a foreign financial institution means a foreign financial institution that meets the requirements of Rule 13k-1(b)(1) of the Securities Exchange Act. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(2)(vi) Unissued checks are safeguarded so as to prevent unauthorized access. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(2)(vii) Reconciliations are prepared on a monthly basis for all asset-backed securities related bank accounts, including custodial accounts and related bank clearing accounts. These reconciliations are (A) mathematically accurate; (B) prepared within 30 calendar days after the bank statement cutoff date, or such other number of days specified in the transaction agreements; (C) reviewed and approved by someone other than the person who prepared the reconciliation; and (D) contain explanations for reconciling items. These reconciling items are resolved within 90 calendar days of their original identification, or such other number of days specified in the transaction agreements. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- INVESTOR REMITTANCES AND REPORTING -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(3)(i) Reports to investors, including those to be filed with the Commission, are maintained in accordance with the transaction agreements and applicable Commission requirements. Specifically, such reports (A) are prepared in accordance with timeframes and other terms set forth in the transaction agreements; (B) provide information calculated in accordance with the terms specified in the transaction agreements; (C) are filed with the Commission as required by its rules and regulations; and (D) agree with investors' or the trustee's records as to the total unpaid principal balance and number of pool assets serviced by the servicer. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(3)(ii) Amounts due to investors are allocated and remitted in accordance with timeframes, distribution priority and other terms set forth in the transaction agreements. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- Disbursements made to an investor are posted within two business days to the servicer's investor records, or such other number of 1122(d)(3)(iii) days specified in the transaction agreements. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- Amounts remitted to investors per the investor reports agree with cancelled checks, or other form of payment, or custodial bank 1122(d)(3)(iv) statements. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- POOL ASSET ADMINISTRATION -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(4)(i) Collateral or security on pool assets is maintained as required by |X| the transaction agreements or related asset pool documents. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- Pool assets and related documents are safeguarded as required by |X| 1122(d)(4)(ii) the transaction agreements -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(4)(iii) Any additions, removals or substitutions to the asset pool are made, reviewed and approved in accordance with any conditions or requirements in the transaction agreements. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(4)(iv) Payments on pool assets, including any payoffs, made in accordance with the related pool asset documents are posted to the servicer's obligor records maintained no more than two business days after receipt, or such other number of days specified in the transaction agreements, and allocated to principal, interest or other items (e.g., escrow) in accordance with the related pool asset documents. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(4)(v) The servicer's records regarding the pool assets agree with the servicer's records with respect to an obligor's unpaid principal balance. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(4)(vi) Changes with respect to the terms or status of an obligor's pool asset (e.g., loan modifications or re-agings) are made, reviewed and approved by authorized personnel in accordance with the transaction agreements and related pool asset documents. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(4)(vii) Loss mitigation or recovery actions (e.g., forbearance plans, modifications and deeds in lieu of foreclosure, foreclosures and repossessions, as applicable) are initiated, conducted and concluded in accordance with the timeframes or other requirements established by the transaction agreements. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(4)(viii) Records documenting collection efforts are maintained during the period a pool asset is delinquent in accordance with the transaction agreements. Such records are maintained on at least a monthly basis, or such other period specified in the transaction agreements, and describe the entity's activities in monitoring delinquent pool assets including, for example, phone calls, letters and payment rescheduling plans in cases where delinquency is deemed temporary (e.g., illness or unemployment). -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(4)(ix) Adjustments to interest rates or rates of return for pool assets with variable rates are computed based on the related pool asset documents. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(4)(x) Regarding any funds held in trust for an obligor (such as escrow accounts): (A) such funds are analyzed, in accordance with the obligor's pool asset documents, on at least an annual basis, or such other period specified in the transaction agreements; (B) interest on such funds is paid, or credited, to obligors in accordance with applicable pool asset documents and state laws; and (C) such funds are returned to the obligor within 30 calendar days of full repayment of the related pool asset, or such other number of days specified in the transaction agreements. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(4)(xi) Payments made on behalf of an obligor (such as tax or insurance payments) are made on or before the related penalty or expiration dates, as indicated on the appropriate bills or notices for such payments, provided that such support has been received by the servicer at least 30 calendar days prior to these dates, or such other number of days specified in the transaction agreements. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(4)(xii) Any late payment penalties in connection with any payment to be made on behalf of an obligor are paid from the servicer's funds and not charged to the obligor, unless the late payment was due to the obligor's error or omission. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- Disbursements made on behalf of an obligor are posted within two business days to the obligor's records maintained by the servicer, or such other number of days specified in the transaction 1122(d)(4)(xiii) agreements. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(4)(xiv) Delinquencies, charge-offs and uncollectible accounts are recognized and recorded in accordance with the transaction agreements. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- Any external enhancement or other support, identified in Item 1114(a)(1) through (3) or Item 1115 of Regulation AB, is maintained 1122(d)(4)(xv) as set forth in the transaction agreements. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- -------------------------------------------------------------------------------- EXHIBIT F MORTGAGE LOAN SCHEDULE [FILED WITH THE SECURITIES AND EXCHANGE COMMISSION BY FORM 8-K] -------------------------------------------------------------------------------- EXHIBIT G FORM OF REQUEST FOR RELEASE DATE: TO: RE: REQUEST FOR RELEASE OF DOCUMENTS In connection with the administration of the pool of Mortgage Loans held by you for the referenced pool, we request the release of the Mortgage Loan File described below. Pooling and Servicing Agreement, Dated: Series#: Account#: Pool#: Loan#: MIN#: Borrower Name(s): Reason for Document Request: (circle one) Mortgage Loan Prepaid in Full Mortgage Loan Repurchased "We hereby certify that all amounts received or to be received in connection with such payments which are required to be deposited have been or will be so deposited as provided in the Pooling and Servicing Agreement." ______________________________ Residential Funding Corporation Authorized Signature **************************************************************** TO CUSTODIAN/TRUSTEE: Please acknowledge this request, and check off documents being enclosed with a copy of this form. You should retain this form for your files in accordance with the terms of the Pooling and Servicing Agreement. Enclosed Documents: [ ] Promissory Note [ ] Primary Insurance Policy [ ] Mortgage or Deed of Trust [ ] Assignment(s) of Mortgage or Deed of Trust [ ] Title Insurance Policy [ ] Other: ________________________ ___________________________ Name ___________________________ Title ___________________________ Date -------------------------------------------------------------------------------- EXHIBIT H-1 FORM OF TRANSFER AFFIDAVIT AND AGREEMENT STATE OF ) )ss.: COUNTY OF ) [NAME OF OFFICER], being first duly sworn, deposes and says: 1. That he is [Title of Officer] of [Name of Owner] (record or beneficial owner of the Home Equity Mortgage Asset-Backed Pass-Through Certificates, Series 2006-EMX4, Class R (the "Owner")), a [savings institution] [corporation] duly organized and existing under the laws of [the State of ________________] [the United States], on behalf of which he makes this affidavit and agreement. 2. That the Owner (i) is not and will not be a "disqualified organization" or an electing large partnership as of [date of transfer] within the meaning of Section 860E(e)(5) and 775, respectively, of the Internal Revenue Code of 1986, as amended (the "Code") or an electing large partnership under Section 775(a) of the Code, (ii) will endeavor to remain other than a disqualified organization for so long as it retains its ownership interest in the Class R Certificates, and (iii) is acquiring the Class R Certificates for its own account or for the account of another Owner from which it has received an affidavit and agreement in substantially the same form as this affidavit and agreement. (For this purpose, a "disqualified organization" means an electing large partnership under Section 775 of the Code, the United States, any state or political subdivision thereof, any agency or instrumentality of any of the foregoing (other than an instrumentality all of the activities of which are subject to tax and, except for the Federal Home Loan Mortgage Corporation, a majority of whose board of directors is not selected by any such governmental entity) or any foreign government, international organization or any agency or instrumentality of such foreign government or organization, any rural electric or telephone cooperative, or any organization (other than certain farmers' cooperatives) that is generally exempt from federal income tax unless such organization is subject to the tax on unrelated business taxable income). 3. That the Owner is aware (i) of the tax that would be imposed on transfers of Class R Certificates to disqualified organizations or an electing large partnership under the Code, that applies to all transfers of Class R Certificates after March 31, 1988; (ii) that such tax would be on the transferor (or, with respect to transfers to electing large partnerships, on each such partnership), or, if such transfer is through an agent (which person includes a broker, nominee or middleman) for a disqualified organization, on the agent; (iii) that the person (other than with respect to transfers to electing large partnerships) otherwise liable for the tax shall be relieved of liability for the tax if the transferee furnishes to such person an affidavit that the transferee is not a disqualified organization and, at the time of transfer, such person does not have actual knowledge that the affidavit is false; and (iv) that the Class R Certificates may be "noneconomic residual interests" within the meaning of Treasury regulations promulgated pursuant to the Code and that the transferor of a noneconomic residual interest will remain liable for any taxes due with respect to the income on such residual interest, unless no significant purpose of the transfer was to impede the assessment or collection of tax. 4. That the Owner is aware of the tax imposed on a "pass-through entity" holding Class R Certificates if either the pass-through entity is an electing large partnership under Section 775 of the Code or if at any time during the taxable year of the pass-through entity a disqualified organization is the record holder of an interest in such entity. (For this purpose, a "pass through entity" includes a regulated investment company, a real estate investment trust or common trust fund, a partnership, trust or estate, and certain cooperatives.) 5. That the Owner is aware that the Trustee will not register the transfer of any Class R Certificates unless the transferee, or the transferee's agent, delivers to it an affidavit and agreement, among other things, in substantially the same form as this affidavit and agreement. The Owner expressly agrees that it will not consummate any such transfer if it knows or believes that any of the representations contained in such affidavit and agreement are false. 6. That the Owner has reviewed the restrictions set forth on the face of the Class R Certificates and the provisions of Section 5.02(f) of the Pooling and Servicing Agreement under which the Class R Certificates were issued (in particular, clause (iii)(A) and (iii)(B) of Section 5.02(f) which authorize the Trustee to deliver payments to a person other than the Owner and negotiate a mandatory sale by the Trustee in the event the Owner holds such Certificates in violation of Section 5.02(f)). The Owner expressly agrees to be bound by and to comply with such restrictions and provisions. 7. That the Owner consents to any additional restrictions or arrangements that shall be deemed necessary upon advice of counsel to constitute a reasonable arrangement to ensure that the Class R Certificates will only be owned, directly or indirectly, by an Owner that is not a disqualified organization. 8. The Owner's Taxpayer Identification Number is ____________________. 9. This affidavit and agreement relates only to the Class R Certificates held by the Owner and not to any other holder of the Class R Certificates. The Owner understands that the liabilities described herein relate only to the Class R Certificates. 10. That no purpose of the Owner relating to the transfer of any of the Class R Certificates by the Owner is or will be to impede the assessment or collection of any tax; in making this representation, the Owner warrants that the Owner is familiar with (i) Treasury Regulation 1.860E-1(c) and recent amendments thereto, effective as of July 19, 2002, and (ii) the preamble describing the adoption of the amendments to such regulation, which is attached hereto as Annex I. 11. That the Owner has no present knowledge or expectation that it will be unable to pay any United States taxes owed by it so long as any of the Certificates remain outstanding. In this regard, the Owner hereby represents to and for the benefit of the person from whom it acquired the Class R Certificate that the Owner intends to pay taxes associated with holding such Class R Certificate as they become due, fully understanding that it may incur tax liabilities in excess of any cash flows generated by the Class R Certificate. 12. That the Owner has no present knowledge or expectation that it will become insolvent or subject to a bankruptcy proceeding for so long as any of the Class R Certificates remain outstanding. 13. The Owner is either (i) a citizen or resident of the United States, (ii) a corporation, partnership or other entity treated as a corporation or a partnership for U.S. federal income tax purposes and created or organized in, or under the laws of, the United States, any state thereof or the District of Columbia (other than a partnership that is not treated as a United States person under any applicable Treasury regulations), (iii) an estate that is described in Section 7701(a)(30)(D) of the Code, or (iv) a trust that is described in Section 7701(a)(30)(E) of the Code. 14. The Owner hereby agrees that it will not cause income from the Class R Certificates to be attributable to a foreign permanent establishment or fixed base (within the meaning of an applicable income tax treaty) of the Owner or another United States taxpayer. 15. The Owner hereby certifies, represents and warrants to, and covenants with the Depositor, the Trustee and the Master Servicer that the following statements in (a) or (b) are accurate: (a) The Certificates are not being acquired by, and will not be transferred to, any employee benefit plan or other plan or arrangement subject to the prohibited transaction provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code"), or any person (including an insurance company investing its general account, an investment manager, a named fiduciary or a trustee of any such plan) who is using "plan assets" of any such plan to effect such acquisition (each of the foregoing, a "Plan Investor"); or (b) The Owner has provided the Trustee, the Depositor and the Master Servicer with an Opinion of Counsel acceptable to and in form and substance satisfactory to the Trustee, the Depositor and the Master Servicer to the effect that the purchase or holding of Certificates is permissible under applicable law, will not constitute or result in any non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code (or comparable provisions of any subsequent enactments), and will not subject the Trustee, the Depositor, or the Master Servicer to any obligation or liability (including obligations or liabilities under ERISA or Section 4975 of the Code) in addition to those undertaken in the Pooling and Servicing Agreement, which Opinion of Counsel shall not be at the expense of the Trustee, the Depositor or the Master Servicer. In addition, the Owner hereby certifies, represents and warrants to, and covenants with, the Depositor, the Trustee and the Master Servicer that the Owner will not transfer such Certificates to any Plan Investor or person unless either such Plan Investor or person meets the requirements set forth in either (a) or (b) above. Capitalized terms used but not defined herein shall have the meanings assigned in the Pooling and Servicing Agreement. -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the Owner has caused this instrument to be executed on its behalf, pursuant to the authority of its Board of Directors, by its [Title of Officer] and its corporate seal to be hereunto attached, attested by its [Assistant] Secretary, this ____ day of ______________ 200__. [NAME OF OWNER] By: ___________________________________ [Name of Officer] [Title of Officer] [Corporate Seal] ATTEST: ______________________________ [Assistant] Secretary Personally appeared before me the above-named [Name of Officer], known or proved to me to be the same person who executed the foregoing instrument and to be the [Title of Officer] of the Owner, and acknowledged to me that he executed the same as his free act and deed and the free act and deed of the Owner. Subscribed and sworn before me this ________ day of _________, 200_. __________________________________________ NOTARY PUBLIC COUNTY OF ______________________________ STATE OF ________________________________ My Commission expires the ___ day of __________, 20__ -------------------------------------------------------------------------------- ANNEX I TO EXHIBIT H-1 DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Parts 1 and 602 [TD 9004] RIN 1545-AW98 Real Estate Mortgage Investment Conduits AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Final regulations. ----------------------------------------------------------------------- SUMMARY: This document contains final regulations relating to safe harbor transfers of noneconomic residual interests in real estate mortgage investment conduits (REMICs). The final regulations provide additional limitations on the circumstances under which transferors may claim safe harbor treatment. DATES: Effective Date: These regulations are effective July 19, 2002. Applicability Date: For dates of applicability, see Sec. 1.860E-(1)(c)(10). FOR FURTHER INFORMATION CONTACT: Courtney Shepardson at (202) 622-3940 (not a toll-free number). SUPPLEMENTARY INFORMATION: Paperwork Reduction Act The collection of information in this final rule has been reviewed and, pending receipt and evaluation of public comments, approved by the Office of Management and Budget (OMB) under 44 U.S.C. 3507 and assigned control number 1545-1675. The collection of information in this regulation is in Sec. 1.860E-1(c)(5)(ii). This information is required to enable the IRS to verify that a taxpayer is complying with the conditions of this regulation. The collection of information is mandatory and is required. Otherwise, the taxpayer will not receive the benefit of safe harbor treatment as provided in the regulation. The likely respondents are businesses and other for-profit institutions. Comments on the collection of information should be sent to the Office of Management and Budget, Attn: Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC, 20503, with copies to the Internal Revenue Service, Attn: IRS Reports Clearance Officer, W:CAR:MP:FP:S, Washington, DC 20224. Comments on the collection of information should be received by September 17, 2002. Comments are specifically requested concerning: o Whether the collection of information is necessary for the proper performance of the functions of the Internal Revenue Service, including whether the information will have practical utility; o The accuracy of the estimated burden associated with the collection of information (see below); o How the quality, utility, and clarity of the information to be collected may be enhanced; o How the burden of complying with the collection of information may be minimized, including through the application of automated collection techniques or other forms of information technology; and o Estimates of capital or start-up costs and costs of operation, maintenance, and purchase of service to provide information. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number assigned by the Office of Management and Budget. The estimated total annual reporting burden is 470 hours, based on an estimated number of respondents of 470 and an estimated average annual burden hours per respondent of one hour. Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103. Background This document contains final regulations regarding the proposed amendments to 26 CFR part 1 under section 860E of the Internal Revenue Code (Code). The regulations provide the circumstances under which a transferor of a noneconomic REMIC residual interest meeting the investigation and representation requirements may avail itself of the safe harbor by satisfying either the formula test or the asset test. Final regulations governing REMICs, issued in 1992, contain rules governing the transfer of noneconomic REMIC residual interests. In general, a transfer of a noneconomic residual interest is disregarded for all tax purposes if a significant purpose of the transfer is to enable the transferor to impede the assessment or collection of tax. A purpose to impede the assessment or collection of tax (a wrongful purpose) exists if the transferor, at the time of the transfer, either knew or should have known that the transferee would be unwilling or unable to pay taxes due on its share of the REMIC's taxable income. Under a safe harbor, the transferor of a REMIC noneconomic residual interest is presumed not to have a wrongful purpose if two requirements are satisfied: (1) the transferor conducts a reasonable investigation of the transferee's financial condition (the investigation requirement); and (2) the transferor secures a representation from the transferee to the effect that the transferee understands the tax obligations associated with holding a residual interest and intends to pay those taxes (the representation requirement). The IRS and Treasury have been concerned that some transferors of noneconomic residual interests claim they satisfy the safe harbor even in situations where the economics of the transfer clearly indicate the transferee is unwilling or unable to pay the tax associated with holding the interest. For this reason, on February 7, 2000, the IRS published in the Federal Register (65 FR 5807) a notice of proposed rulemaking (REG-100276-97; REG-122450-98) designed to clarify the safe harbor by adding the "formula test," an economic test. The proposed regulation provides that the safe harbor is unavailable unless the present value of the anticipated tax liabilities associated with holding the residual interest does not exceed the sum of: (1) The present value of any consideration given to the transferee to acquire the interest; (2) the present value of the expected future distributions on the interest; and (3) the present value of the anticipated tax savings associated with holding the interest as the REMIC generates losses. The notice of proposed rulemaking also contained rules for FASITs. Section 1.860H-6(g) of the proposed regulations provides requirements for transfers of FASIT ownership interests and adopts a safe harbor by reference to the safe harbor provisions of the REMIC regulations. In January 2001, the IRS published Rev. Proc. 2001-12 (2001-3 I.R.B. 335) to set forth an alternative safe harbor that taxpayers could use while the IRS and the Treasury considered comments on the proposed regulations. Under the alternative safe harbor, if a transferor meets the investigation requirement and the representation requirement but the transfer fails to meet the formula test, the transferor may invoke the safe harbor if the transferee meets a two-prong test (the asset test). A transferee generally meets the first prong of this test if, at the time of the transfer, and in each of the two years preceding the year of transfer, the transferee's gross assets exceed $100 million and its net assets exceed $10 million. A transferee generally meets the second prong of this test if it is a domestic, taxable corporation and agrees in writing not to transfer the interest to any person other than another domestic, taxable corporation that also satisfies the requirements of the asset test. A transferor cannot rely on the asset test if the transferor knows, or has reason to know, that the transferee will not comply with its written agreement to limit the restrictions on subsequent transfers of the residual interest. Rev. Proc. 2001-12 provides that the asset test fails to be satisfied in the case of a transfer or assignment of a noneconomic residual interest to a foreign branch of an otherwise eligible transferee. If such a transfer or assignment were permitted, a corporate taxpayer might seek to claim that the provisions of an applicable income tax treaty would resource excess inclusion income as foreign source income, and that, as a consequence, any U.S. tax liability attributable to the excess inclusion income could be offset by foreign tax credits. Such a claim would impede the assessment or collection of U.S. tax on excess inclusion income, contrary to the congressional purpose of assuring that such income will be taxable in all events. See, e.g., sections 860E(a)(1), (b), (e) and 860G(b) of the Code. The Treasury and the IRS have learned that certain taxpayers transferring noneconomic residual interests to foreign branches have attempted to rely on the formula test to obtain safe harbor treatment in an effort to impede the assessment or collection of U.S. tax on excess inclusion income. Accordingly, the final regulations provide that if a noneconomic residual interest is transferred to a foreign permanent establishment or fixed base of a U.S. taxpayer, the transfer is not eligible for safe harbor treatment under either the asset test or the formula test. The final regulations also require a transferee to represent that it will not cause income from the noneconomic residual interest to be attributable to a foreign permanent establishment or fixed base. Section 1.860E-1(c)(8) provides computational rules that a taxpayer may use to qualify for safe harbor status under the formula test. Section 1.860E-1(c)(8)(i) provides that the transferee is presumed to pay tax at a rate equal to the highest rate of tax specified in section 11(b). Some commentators were concerned that this presumed rate of taxation was too high because it does not take into consideration taxpayers subject to the alternative minimum tax rate. In light of the comments received, this provision has been amended in the final regulations to allow certain transferees that compute their taxable income using the alternative minimum tax rate to use the alternative minimum tax rate applicable to corporations. Additionally, Sec. 1.860E-1(c)(8)(iii) provides that the present values in the formula test are to be computed using a discount rate equal to the applicable Federal short-term rate prescribed by section 1274(d). This is a change from the proposed regulation and Rev. Proc. 2001-12. In those publications the provision stated that "present values are computed using a discount rate equal to the applicable Federal rate prescribed in section 1274(d) compounded semiannually" and that "[a] lower discount rate may be used if the transferee can demonstrate that it regularly borrows, in the course of its trade or business, substantial funds at such lower rate from an unrelated third party." The IRS and the Treasury Department have learned that, based on this provision, certain taxpayers have been attempting to use unrealistically low or zero interest rates to satisfy the formula test, frustrating the intent of the test. Furthermore, the Treasury Department and the IRS believe that a rule allowing for a rate other than a rate based on an objective index would add unnecessary complexity to the safe harbor. As a result, the rule in the proposed regulations that permits a transferee to use a lower discount rate, if the transferee can demonstrate that it regularly borrows substantial funds at such lower rate, is not included in the final regulations; and the Federal short-term rate has been substituted for the applicable Federal rate. To simplify taxpayers' computations, the final regulations allow use of any of the published short-term rates, provided that the present values are computed with a corresponding period of compounding. With the exception of the provisions relating to transfers to foreign branches, these changes generally have the proposed applicability date of February 4, 2000, but taxpayers may choose to apply the interest rate formula set forth in the proposed regulation and Rev. Proc. 2001-12 for transfers occurring before August 19, 2002. It is anticipated that when final regulations are adopted with respect to FASITs, Sec. 1.860H-6(g) of the proposed regulations will be adopted in substantially its present form, with the result that the final regulations contained in this document will also govern transfers of FASIT ownership interests with substantially the same applicability date as is contained in this document. Effect on Other Documents Rev. Proc. 2001-12 (2001-3 I.R.B. 335) is obsolete for transfers of noneconomic residual interests in REMICs occurring on or after August 19, 2002. Special Analyses It is hereby certified that these regulations will not have a significant economic impact on a substantial number of small entities. This certification is based on the fact that it is unlikely that a substantial number of small entities will hold REMIC residual interests. Therefore, a Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been determined that sections 553(b) and 553(d) of the Administrative Procedure Act (5 U.S.C. chapter 5) do not apply to these regulations. Drafting Information The principal author of these regulations is Courtney Shepardson. However, other personnel from the IRS and Treasury Department participated in their development. List of Subjects 26 CFR Part 1 Income taxes, Reporting and record keeping requirements. 26 CFR Part 602 Reporting and record keeping requirements. Adoption of Amendments to the Regulations Accordingly, 26 CFR parts 1 and 602 are amended as follows: PART 1--INCOME TAXES Paragraph 1. The authority citation for part 1 continues to read in part as follows: Authority: 26 U.S.C. 7805 * * * -------------------------------------------------------------------------------- EXHIBIT H-2 FORM OF TRANSFEROR CERTIFICATE ______________, 20__ U.S. Bank National Association EP-MN-WS3D 60 Livingston Avenue St. Paul, MN 55107 Attention: Structured Finance/RASC, Series 2006-EMX4 Re: Mortgage Asset-Backed Pass-Through Certificates, Series 2006-EMX4 Ladies and Gentlemen: This letter is delivered to you in connection with the transfer by ________________________ (the "Seller") to ______________________ (the "Purchaser") of $___________ Initial Certificate Principal Balance of Mortgage Asset-Backed Pass-Through Certificates, Series 2006-EMX4, Class R (the "Certificates"), pursuant to Section 5.02 of the Pooling and Servicing Agreement (the "Pooling and Servicing Agreement"), dated as of May 1, 2006 among Residential Asset Securities Corporation, as depositor (the "Depositor"), Residential Funding Corporation, as master servicer, and U.S. Bank National Association, as trustee (the "Trustee"). All terms used herein and not otherwise defined shall have the meanings set forth in the Pooling and Servicing Agreement. The Seller hereby certifies, represents and warrants to, and covenants with, the Depositor and the Trustee that: 1. No purpose of the Seller relating to the transfer of the Certificate by the Seller to the Purchaser is or will be to impede the assessment or collection of any tax. 2. The Seller understands that the Purchaser has delivered to the Trustee and the Master Servicer a transfer affidavit and agreement in the form attached to the Pooling and Servicing Agreement as Exhibit H-1. The Seller does not know or believe that any representation contained therein is false. 3. The Seller has at the time of the transfer conducted a reasonable investigation of the financial condition of the Purchaser as contemplated by Treasury Regulations Section 1.860E-1(c)(4)(i) and, as a result of that investigation, the Seller has determined that the Purchaser has historically paid its debts as they become due and has found no significant evidence to indicate that the Purchaser will not continue to pay its debts as they become due in the future. The Seller understands that the transfer of a Class R Certificate may not be respected for United States income tax purposes (and the Seller may continue to be liable for United States income taxes associated therewith) unless the Seller has conducted such an investigation. 4. The Seller has no actual knowledge that the proposed Transferee is not both a United States Person and a Permitted Transferee. Very truly yours, _______________________________________ (Seller) By: ____________________________________ Name: __________________________________ Title: ___________________________________ -------------------------------------------------------------------------------- EXHIBIT I FORM OF INVESTOR REPRESENTATION LETTER ______________, 20__ Residential Asset Securities Corporation 8400 Normandale Lake Boulevard Suite 250 Minneapolis, MN 55437 U.S. Bank National Association EP-MN-WS3D 60 Livingston Avenue St. Paul, MN 55107 Attn: Structured Finance/RASC 2006-EMX4 Residential Funding Corporation 8400 Normandale Lake Boulevard Suite 250 Minneapolis, MN 55437 Attention: Residential Funding Corporation Series 2006-EMX4 Re: Home Equity Mortgage Asset-Backed Pass-Through Certificates, Series 2006-EMX4, Class [SB] [R-[__]] Ladies and Gentlemen: _________________________ (the "Purchaser") intends to purchase from ___________________________ (the "Seller") $_____________ Initial Certificate Principal Balance of Home Equity Mortgage Asset-Backed Pass-Through Certificates, Series 2006-EMX4, Class [SB] [R-[__]] (the "Certificates"), issued pursuant to the Pooling and Servicing Agreement (the "Pooling and Servicing Agreement"), dated as of May 1, 2006 among Residential Asset Securities Corporation, as depositor (the "Depositor"), Residential Funding Corporation, as master servicer (the "Master Servicer"), and U.S. Bank National Association, as trustee (the "Trustee"). All terms used herein and not otherwise defined shall have the meanings set forth in the Pooling and Servicing Agreement. The Purchaser hereby certifies, represents and warrants to, and covenants with, the Depositor, the Trustee and the Master Servicer that: 1. The Purchaser understands that (a) the Certificates have not been and will not be registered or qualified under the Securities Act of 1933, as amended (the "Act") or any state securities law, (b) the Depositor is not required to so register or qualify the Certificates, (c) the Certificates may be resold only if registered and qualified pursuant to the provisions of the Act or any state securities law, or if an exemption from such registration and qualification is available, (d) the Pooling and Servicing Agreement contains restrictions regarding the transfer of the Certificates and (e) the Certificates will bear a legend to the foregoing effect. 2. The Purchaser is acquiring the Certificates for its own account for investment only and not with a view to or for sale in connection with any distribution thereof in any manner that would violate the Act or any applicable state securities laws. 3. The Purchaser is (a) a substantial, sophisticated institutional investor having such knowledge and experience in financial and business matters, and, in particular, in such matters related to securities similar to the Certificates, such that it is capable of evaluating the merits and risks of investment in the Certificates, (b) able to bear the economic risks of such an investment and (c) an "accredited investor" within the meaning of Rule 501(a) promulgated pursuant to the Act. 4. The Purchaser has been furnished with, and has had an opportunity to review (a) [a copy of the Private Placement Memorandum, dated ___________________, 20__, relating to the Certificates (b)] a copy of the Pooling and Servicing Agreement and [b] [c] such other information concerning the Certificates, the Mortgage Loans and the Depositor as has been requested by the Purchaser from the Depositor or the Seller and is relevant to the Purchaser's decision to purchase the Certificates. The Purchaser has had any questions arising from such review answered by the Depositor or the Seller to the satisfaction of the Purchaser. [If the Purchaser did not purchase the Certificates from the Seller in connection with the initial distribution of the Certificates and was provided with a copy of the Private Placement Memorandum (the "Memorandum") relating to the original sale (the "Original Sale") of the Certificates by the Depositor, the Purchaser acknowledges that such Memorandum was provided to it by the Seller, that the Memorandum was prepared by the Depositor solely for use in connection with the Original Sale and the Depositor did not participate in or facilitate in any way the purchase of the Certificates by the Purchaser from the Seller, and the Purchaser agrees that it will look solely to the Seller and not to the Depositor with respect to any damage, liability, claim or expense arising out of, resulting from or in connection with (a) error or omission, or alleged error or omission, contained in the Memorandum, or (b) any information, development or event arising after the date of the Memorandum.] 5. The Purchaser has not and will not nor has it authorized or will it authorize any person to (a) offer, pledge, sell, dispose of or otherwise transfer any Certificate, any interest in any Certificate or any other similar security to any person in any manner, (b) solicit any offer to buy or to accept a pledge, disposition of other transfer of any Certificate, any interest in any Certificate or any other similar security from any person in any manner, (c) otherwise approach or negotiate with respect to any Certificate, any interest in any Certificate or any other similar security with any person in any manner, (d) make any general solicitation by means of general advertising or in any other manner or (e) take any other action, that (as to any of (a) through (e) above) would constitute a distribution of any Certificate under the Act, that would render the disposition of any Certificate a violation of Section 5 of the Act or any state securities law, or that would require registration or qualification pursuant thereto. The Purchaser will not sell or otherwise transfer any of the Certificates, except in compliance with the provisions of the Pooling and Servicing Agreement. 6. The Purchaser hereby certifies, represents and warrants to, and covenants with the Depositor, the Trustee and the Master Servicer that the following statements in (a) or (b) are correct: (a) The Purchaser is not an employee benefit plan or other plan or arrangement subject to the prohibited transaction provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code"), or any person (including an insurance company investing its general account, an investment manager, a named fiduciary or a trustee of any such plan) who is using "plan assets" of any such plan to effect such acquisition (each of the foregoing, a "Plan Investor"); or (b) the Purchaser has provided the Trustee, the Depositor and the Master Servicer with an Opinion of Counsel acceptable to and in form and substance satisfactory to the Trustee, the Depositor and the Master Servicer to the effect that the purchase or holding of Certificates is permissible under applicable law, will not constitute or result in any non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code (or comparable provisions of any subsequent enactments), and will not subject the Trustee, the Depositor or the Master Servicer to any obligation or liability (including obligations or liabilities under ERISA or Section 4975 of the Code) in addition to those undertaken in the Pooling and Servicing Agreement, which Opinion of Counsel shall not be an expense of the Trustee, the Depositor or the Master Servicer. -------------------------------------------------------------------------------- In addition, the Purchaser hereby certifies, represents and warrants to, and covenants with, the Depositor, the Trustee and the Master Servicer that the Purchaser will not transfer such Certificates to any Plan Investor or person unless either such Plan Investor or person meets the requirements set forth in either (a) or (b) above. Very truly yours, (Purchaser) By:.................................................. Name:................................................ Title:............................................... -------------------------------------------------------------------------------- EXHIBIT J FORM OF TRANSFEROR REPRESENTATION LETTER ______________, 20__ Residential Asset Securities Corporation 8400 Normandale Lake Boulevard Suite 250 Minneapolis, Minnesota 55437 U.S. Bank National Association EP-MN-WS3D 60 Livingston Avenue St. Paul, MN 55107 Attn: Structured Finance/RASC 2006-EMX4 Attention: Residential Funding Corporation Series 2006-EMX4 Re: Home Equity Mortgage Asset-Backed Pass-Through Certificates, Series 2006-EMX4, Class [SB] [R-[__]] Ladies and Gentlemen: In connection with the sale by __________ (the "Seller") to __________ (the "Purchaser") of $__________ Initial Certificate Principal Balance of Home Equity Mortgage Asset- Backed Pass-Through Certificates, Series 2006-EMX4, Class [SB] [R-[__]] (the "Certificates"), issued pursuant to the Pooling and Servicing Agreement (the "Pooling and Servicing Agreement"), dated as of May 1, 2006 among Residential Asset Securities Corporation, as depositor (the "Depositor"), Residential Funding Corporation, as master servicer, and U.S. Bank National Association, as trustee (the "Trustee"). The Seller hereby certifies, represents and warrants to, and covenants with, the Depositor and the Trustee that: Neither the Seller nor anyone acting on its behalf has (a) offered, pledged, sold, disposed of or otherwise transferred any Certificate, any interest in any Certificate or any other similar security to any person in any manner, (b) has solicited any offer to buy or to accept a pledge, disposition or other transfer of any Certificate, any interest in any Certificate or any other similar security from any person in any manner, (c) has otherwise approached or negotiated with respect to any Certificate, any interest in any Certificate or any other similar security with any person in any manner, (d) has made any general solicitation by means of general advertising or in any other manner, or (e) has taken any other action, that (as to any of (a) through (e) above) would constitute a distribution of the Certificates under the Securities Act of 1933 (the "Act"), that would render the disposition of any Certificate a violation of Section 5 of the Act or any state securities law, or that would require registration or qualification pursuant thereto. The Seller will not act, in any manner set forth in the foregoing sentence with respect to any Certificate. The Seller has not and will not sell or otherwise transfer any of the Certificates, except in compliance with the provisions of the Pooling and Servicing Agreement. Very truly yours, (Purchaser) By:.................................................. Name:................................................ Title:............................................... -------------------------------------------------------------------------------- EXHIBIT K TEXT OF AMENDMENT TO POOLING AND SERVICING AGREEMENT PURSUANT TO SECTION 11.01(e) FOR A LIMITED GUARANTY ARTICLE XIII Subordinate Certificate Loss Coverage; Limited Guaranty Section 13.01. Subordinate Certificate Loss Coverage; Limited Guaranty. (a) Subject to subsection (c) below, prior to the later of the third Business Day prior to each Distribution Date or the related Determination Date, the Master Servicer shall determine whether it or any Subservicer will be entitled to any reimbursement pursuant to Section 3.10 on such Distribution Date for Advances or Subservicer Advances previously made, (which will not be Advances or Subservicer Advances that were made with respect to delinquencies which were subsequently determined to be Excess Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses or Extraordinary Losses) and, if so, the Master Servicer shall demand payment from Residential Funding of an amount equal to the amount of any Advances or Subservicer Advances reimbursed pursuant to Section 3.10, to the extent such Advances or Subservicer Advances have not been included in the amount of the Realized Loss in the related Mortgage Loan, and shall distribute the same to the Class SB Certificateholders in the same manner as if such amount were to be distributed pursuant to Section 4.02. (b) Subject to subsection (c) below, prior to the later of the third Business Day prior to each Distribution Date or the related Determination Date, the Master Servicer shall determine whether any Realized Losses (other than Excess Special Hazard Losses, Excess Bankruptcy Losses, Excess Fraud Losses and Extraordinary Losses) will be allocated to the Class SB Certificates on such Distribution Date pursuant to Section 4.05, and, if so, the Master Servicer shall demand payment from Residential Funding of the amount of such Realized Loss and shall distribute the same to the Class SB Certificateholders in the same manner as if such amount were to be distributed pursuant to Section 4.02; provided, however, that the amount of such demand in respect of any Distribution Date shall in no event be greater than the sum of (i) the additional amount of Accrued Certificate Interest that would have been paid for the Class SB Certificateholders on such Distribution Date had such Realized Loss or Losses not occurred plus (ii) the amount of the reduction in the Certificate Principal Balances of the Class SB Certificates on such Distribution Date due to such Realized Loss or Losses. Notwithstanding such payment, such Realized Losses shall be deemed to have been borne by the Certificateholders for purposes of Section 4.05. Excess Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses and Extraordinary Losses allocated to the Class SB Certificates will not be covered by the Subordinate Certificate Loss Obligation. (c) Demands for payments pursuant to this Section shall be made prior to the later of the third Business Day prior to each Distribution Date or the related Determination Date by the Master Servicer with written notice thereof to the Trustee. The maximum amount that Residential Funding shall be required to pay pursuant to this Section on any Distribution Date (the "Amount Available") shall be equal to the lesser of (X) ________ minus the sum of (i) all previous payments made under subsections (a) and (b) hereof and (ii) all draws under the Limited Guaranty made in lieu of such payments as described below in subsection (d) and (Y) the then outstanding Certificate Principal Balances of the Class SB Certificates, or such lower amount as may be established pursuant to Section 13.02. Residential Funding's obligations as described in this Section are referred to herein as the "Subordinate Certificate Loss Obligation." (d) The Trustee will promptly notify General Motors Acceptance Corporation of any failure of Residential Funding to make any payments hereunder and shall demand payment pursuant to the limited guaranty (the "Limited Guaranty"), executed by General Motors Acceptance Corporation, of Residential Funding's obligation to make payments pursuant to this Section, in an amount equal to the lesser of (i) the Amount Available and (ii) such required payments, by delivering to General Motors Acceptance Corporation a written demand for payment by wire transfer, not later than the second Business Day prior to the Distribution Date for such month, with a copy to the Master Servicer. (e) All payments made by Residential Funding pursuant to this Section or amounts paid under the Limited Guaranty shall be deposited directly in the Certificate Account, for distribution on the Distribution Date for such month to the Class SB Certificateholders. (f) The Depositor shall have the option, in its sole discretion, to substitute for either or both of the Limited Guaranty or the Subordinate Certificate Loss Obligation another instrument in the form of a corporate guaranty, an irrevocable letter of credit, a surety bond, insurance policy or similar instrument or a reserve fund; provided that (i) the Depositor obtains (subject to the provisions of Section 10.01(f) as if the Depositor was substituted for the Master Servicer solely for the purposes of such provision) an Opinion of Counsel (which need not be an opinion of independent counsel) to the effect that obtaining such substitute corporate guaranty, irrevocable letter of credit, surety bond, insurance policy or similar instrument or reserve fund will not cause either (a) any federal tax to be imposed on the Trust Fund, including without limitation, any federal tax imposed on "prohibited transactions" under Section 860(F)(a)(1) of the Code or on "contributions after the startup date" under Section 860(G)(d)(1) of the Code or (b) the Trust Fund to fail to qualify as a REMIC at any time that any Certificate is outstanding, and (ii) no such substitution shall be made unless (A) the substitute Limited Guaranty or Subordinate Certificate Loss Obligation is for an initial amount not less than the then current Amount Available and contains provisions that are in all material respects equivalent to the original Limited Guaranty or Subordinate Certificate Loss Obligation (including that no portion of the fees, reimbursements or other obligations under any such instrument will be borne by the Trust Fund), (B) the long term debt obligations of any obligor of any substitute Limited Guaranty or Subordinate Certificate Loss Obligation (if not supported by the Limited Guaranty) shall be rated at least the lesser of (a) the rating of the long term debt obligations of General Motors Acceptance Corporation as of the date of issuance of the Limited Guaranty and (b) the rating of the long term debt obligations of General Motors Acceptance Corporation at the date of such substitution and (C) if the Class SB Certificates have been rated, the Depositor obtains written confirmation from each Rating Agency that rated the Class SB Certificates at the request of the Depositor that such substitution shall not lower the rating on the Class SB Certificates below the lesser of (a) the then-current rating assigned to the Class SB Certificates by such Rating Agency and (b) the original rating assigned to the Class SB Certificates by such Rating Agency. Any replacement of the Limited Guaranty or Subordinate Certificate Loss Obligation pursuant to this Section shall be accompanied by a written Opinion of Counsel to the substitute guarantor or obligor, addressed to the Master Servicer and the Trustee, that such substitute instrument constitutes a legal, valid and binding obligation of the substitute guarantor or obligor, enforceable in accordance with its terms, and concerning such other matters as the Master Servicer and the Trustee shall reasonably request. Neither the Depositor, the Master Servicer nor the Trustee shall be obligated to substitute for or replace the Limited Guaranty or Subordinate Certificate Loss Obligation under any circumstance. Section 13.02. Amendments Relating to the Limited Guaranty. Notwithstanding Sections 11.01 or 13.01: (i) the provisions of this Article XIII may be amended, superseded or deleted, (ii) the Limited Guaranty or Subordinate Certificate Loss Obligation may be amended, reduced or canceled, and (iii) any other provision of this Agreement which is related or incidental to the matters described in this Article XIII may be amended in any manner; in each case by written instrument executed or consented to by the Depositor and Residential Funding but without the consent of any Certificateholder and without the consent of the Master Servicer or the Trustee being required unless any such amendment would impose any additional obligation on, or otherwise adversely affect the interests of, the Master Servicer or the Trustee, as applicable; provided that the Depositor shall also obtain a letter from each Rating Agency that rated the Class SB Certificates at the request of the Depositor to the effect that such amendment, reduction, deletion or cancellation will not lower the rating on the Class SB Certificates below the lesser of (a) the then-current rating assigned to the Class SB Certificates by such Rating Agency and (b) the original rating assigned to the Class SB Certificates by such Rating Agency, unless (A) the Holder of 100% of the Class SB Certificates is Residential Funding or an Affiliate of Residential Funding, or (B) such amendment, reduction, deletion or cancellation is made in accordance with Section 11.01(e) and, provided further that the Depositor obtains (subject to the provisions of Section 10.01(f) as if the Depositor was substituted for the Master Servicer solely for the purposes of such provision), in the case of a material amendment or supersession (but not a reduction, cancellation or deletion of the Limited Guaranty or the Subordinate Certificate Loss Obligation), an Opinion of Counsel (which need not be an opinion of independent counsel) to the effect that any such amendment or supersession will not cause either (a) any federal tax to be imposed on the Trust Fund, including without limitation, any federal tax imposed on "prohibited transactions" under Section 860F(a)(1) of the Code or on "contributions after the startup date" under Section 860G(d)(1) of the Code or (b) the Trust Fund to fail to qualify as a REMIC at any time that any Certificate is outstanding. A copy of any such instrument shall be provided to the Trustee and the Master Servicer together with an Opinion of Counsel that such amendment complies with this Section 13.02. -------------------------------------------------------------------------------- EXHIBIT L FORM OF LIMITED GUARANTY RESIDENTIAL ASSET SECURITIES CORPORATION Home Equity Mortgage Asset-Backed Pass-Through Certificates Series 2006-EMX4 __________, 20__ U.S. Bank National Association EP-MN-WS3D 60 Livingston Avenue St. Paul, MN 55107 Attn: Structured Finance/RASC 2006-EMX4 Ladies and Gentlemen: WHEREAS, Residential Funding Corporation, a Delaware corporation ("Residential Funding"), an indirect wholly-owned subsidiary of General Motors Acceptance Corporation, a New York corporation ("GMAC"), plans to incur certain obligations as described under Section 13.01 of the Pooling and Servicing Agreement dated as of May 1, 2006 (the "Servicing Agreement"), among Residential Asset Securities Corporation (the "Depositor"), Residential Funding and U.S. Bank National Association (the "Trustee") as amended by Amendment No. ___ thereto, dated as of ________, with respect to the Home Equity Mortgage Asset-Backed Pass-Through Certificates, Series 2006-EMX4 (the "Certificates"); and WHEREAS, pursuant to Section 13.01 of the Servicing Agreement, Residential Funding agrees to make payments to the Holders of the Class SB Certificates with respect to certain losses on the Mortgage Loans as described in the Servicing Agreement; and WHEREAS, GMAC desires to provide certain assurances with respect to the ability of Residential Funding to secure sufficient funds and faithfully to perform its Subordinate Certificate Loss Obligation; NOW THEREFORE, in consideration of the premises herein contained and certain other good and valuable consideration, the receipt of which is hereby acknowledged, GMAC agrees as follows: 1. Provision of Funds. (a) GMAC agrees to contribute and deposit in the Certificate Account on behalf of Residential Funding (or otherwise provide to Residential Funding, or to cause to be made available to Residential Funding), either directly or through a subsidiary, in any case prior to the related Distribution Date, such moneys as may be required by Residential Funding to perform its Subordinate Certificate Loss Obligation when and as the same arises from time to time upon the demand of the Trustee in accordance with Section 13.01 of the Servicing Agreement. (b) The agreement set forth in the preceding clause (a) shall be absolute, irrevocable and unconditional and shall not be affected by the transfer by GMAC or any other person of all or any part of its or their interest in Residential Funding, by any insolvency, bankruptcy, dissolution or other proceeding affecting Residential Funding or any other person, by any defense or right of counterclaim, set-off or recoupment that GMAC may have against Residential Funding or any other person or by any other fact or circumstance. Notwithstanding the foregoing, GMAC's obligations under clause (a) shall terminate upon the earlier of (x) substitution for this Limited Guaranty pursuant to Section 13.01(f) of the Servicing Agreement, or (y) the termination of the Trust Fund pursuant to the Servicing Agreement. 2. Waiver. GMAC hereby waives any failure or delay on the part of Residential Funding, the Trustee or any other person in asserting or enforcing any rights or in making any claims or demands hereunder. Any defective or partial exercise of any such rights shall not preclude any other or further exercise of that or any other such right. GMAC further waives demand, presentment, notice of default, protest, notice of acceptance and any other notices with respect to this Limited Guaranty, including, without limitation, those of action or non-action on the part of Residential Funding or the Trustee. 3. Modification, Amendment and Termination. This Limited Guaranty may be modified, amended or terminated only by the written agreement of GMAC and the Trustee and only if such modification, amendment or termination is permitted under Section 13.02 of the Servicing Agreement. The obligations of GMAC under this Limited Guaranty shall continue and remain in effect so long as the Servicing Agreement is not modified or amended in any way that might affect the obligations of GMAC under this Limited Guaranty without the prior written consent of GMAC. 4. Successor. Except as otherwise expressly provided herein, the guarantee herein set forth shall be binding upon GMAC and its respective successors. 5. Governing Law. This Limited Guaranty shall be governed by the laws of the State of New York. 6. Authorization and Reliance. GMAC understands that a copy of this Limited Guaranty shall be delivered to the Trustee in connection with the execution of Amendment No. __ to the Servicing Agreement and GMAC hereby authorizes the Depositor and the Trustee to rely on the covenants and agreements set forth herein. 7. Definitions. Capitalized terms used but not otherwise defined herein shall have the meaning given them in the Servicing Agreement. 8. Counterparts. This Limited Guaranty may be executed in any number of counterparts, each of which shall be deemed to be an original and such counterparts shall constitute but one and the same instrument. -------------------------------------------------------------------------------- IN WITNESS WHEREOF, GMAC has caused this Limited Guaranty to be executed and delivered by its respective officers thereunto duly authorized as of the day and year first above written. GENERAL MOTORS ACCEPTANCE CORPORATION By:.................................................. Name:................................................ Title:............................................... Acknowledged by: U.S. BANK NATIONAL ASSOCIATION, as Trustee By:.................................................. Name:................................................ Title:............................................... RESIDENTIAL ASSET SECURITIES CORPORATION By:.................................................. Name:................................................ Title:............................................... -------------------------------------------------------------------------------- EXHIBIT M FORM OF LENDER CERTIFICATION FOR ASSIGNMENT OF MORTGAGE LOAN __________, 20__ Residential Asset Securities Corporation 8400 Normandale Lake Boulevard Suite 250 Minneapolis, Minnesota 55437 U.S. Bank National Association EP-MN-WS3D 60 Livingston Avenue St. Paul, MN 55107 Attn: Structured Finance/RASC 2006-EMX4 Re: Home Equity Mortgage Asset-Backed Pass-Through Certificates, Series 2006-EMX4 Assignment of Mortgage Loan Ladies and Gentlemen: This letter is delivered to you in connection with the assignment by U.S Bank National Association (the "Trustee") to _______________________ (the "Lender") of _______________ (the "Mortgage Loan") pursuant to Section 3.13(d) of the Pooling and Servicing Agreement (the "Pooling and Servicing Agreement"), dated as of May 1, 2006 among Residential Asset Securities Corporation, as depositor (the "Depositor"), Residential Funding Corporation, as master servicer, and the Trustee. All terms used herein and not otherwise defined shall have the meanings set forth in the Pooling and Servicing Agreement. The Lender hereby certifies, represents and warrants to, and covenants with, the Master Servicer and the Trustee that: (ii) the Mortgage Loan is secured by Mortgaged Property located in a jurisdiction in which an assignment in lieu of satisfaction is required to preserve lien priority, minimize or avoid mortgage recording taxes or otherwise comply with, or facilitate a refinancing under, the laws of such jurisdiction; (iii) the substance of the assignment is, and is intended to be, a refinancing of such Mortgage Loan and the form of the transaction is solely to comply with, or facilitate the transaction under, such local laws; (iv) the Mortgage Loan following the proposed assignment will be modified to have a rate of interest at least 0.25 percent below or above the rate of interest on such Mortgage Loan prior to such proposed assignment; and (v) such assignment is at the request of the borrower under the related Mortgage Loan. Very truly yours, (Lender) By:.................................................. Name:................................................ Title:............................................... -------------------------------------------------------------------------------- EXHIBIT N FORM OF RULE 144A INVESTMENT REPRESENTATION Description of Rule 144A Securities, including numbers: _______________________________________________ _______________________________________________ _______________________________________________ _______________________________________________ The undersigned seller, as registered holder (the "Seller"), intends to transfer the Rule 144A Securities described above to the undersigned buyer (the "Buyer"). 1. In connection with such transfer and in accordance with the agreements pursuant to which the Rule 144A Securities were issued, the Seller hereby certifies the following facts: Neither the Seller nor anyone acting on its behalf has offered, transferred, pledged, sold or otherwise disposed of the Rule 144A Securities, any interest in the Rule 144A Securities or any other similar security to, or solicited any offer to buy or accept a transfer, pledge or other disposition of the Rule 144A Securities, any interest in the Rule 144A Securities or any other similar security from, or otherwise approached or negotiated with respect to the Rule 144A Securities, any interest in the Rule 144A Securities or any other similar security with, any person in any manner, or made any general solicitation by means of general advertising or in any other manner, or taken any other action, that would constitute a distribution of the Rule 144A Securities under the Securities Act of 1933, as amended (the "1933 Act"), or that would render the disposition of the Rule 144A Securities a violation of Section 5 of the 1933 Act or require registration pursuant thereto, and that the Seller has not offered the Rule 144A Securities to any person other than the Buyer or another "qualified institutional buyer" as defined in Rule 144A under the 1933 Act. 2. The Buyer, pursuant to Section 5.02 of the Pooling and Servicing Agreement (the "Agreement"), dated as of May 1, 2006 among Residential Funding Corporation, as master servicer (the "Master Servicer"), Residential Asset Securities Corporation, as depositor (the "Depositor"), and U.S. Bank National Association, as trustee (the "Trustee") warrants and represents to, and covenants with, the Seller, the Trustee and the Master Servicer as follows: a. The Buyer understands that the Rule 144A Securities have not been registered under the 1933 Act or the securities laws of any state. b. The Buyer considers itself a substantial, sophisticated institutional investor having such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of investment in the Rule 144A Securities. c. The Buyer has been furnished with all information regarding the Rule 144A Securities that it has requested from the Seller, the Trustee or the Servicer. d. Neither the Buyer nor anyone acting on its behalf has offered, transferred, pledged, sold or otherwise disposed of the Rule 144A Securities, any interest in the Rule 144A Securities or any other similar security to, or solicited any offer to buy or accept a transfer, pledge or other disposition of the Rule 144A Securities, any interest in the Rule 144A Securities or any other similar security from, or otherwise approached or negotiated with respect to the Rule 144A Securities, any interest in the Rule 144A Securities or any other similar security with, any person in any manner, or made any general solicitation by means of general advertising or in any other manner, or taken any other action, that would constitute a distribution of the Rule 144A Securities under the 1933 Act or that would render the disposition of the Rule 144A Securities a violation of Section 5 of the 1933 Act or require registration pursuant thereto, nor will it act, nor has it authorized or will it authorize any person to act, in such manner with respect to the Rule 144A Securities. e. The Buyer is a "qualified institutional buyer" as that term is defined in Rule 144A under the 1933 Act and has completed either of the forms of certification to that effect attached hereto as Annex I or Annex II. The Buyer is aware that the sale to it is being made in reliance on Rule 144A. The Buyer is acquiring the Rule 144A Securities for its own account or the accounts of other qualified institutional buyers, understands that such Rule 144A Securities may be resold, pledged or transferred only (i) to a person reasonably believed to be a qualified institutional buyer that purchases for its own account or for the account of a qualified institutional buyer to whom notice is given that the resale, pledge or transfer is being made in reliance on Rule 144A, or (ii) pursuant to another exemption from registration under the 1933 Act. 3. The Buyer of Class SB Certificates or Class R Certificates a. is not an employee benefit plan or other plan or arrangement subject to the prohibited transaction provisions of ERISA or Section 4975 of the Code, or any person (including an insurance company investing its general account, an investment manager, a named fiduciary or a trustee of any such plan) who is using "plan assets" of any such plan to effect such acquisition; or b. has provided the Trustee, the Depositor and the Master Servicer with the Opinion of Counsel described in Section 5.02(e)(i) of the Agreement, which shall be acceptable to and in form and substance satisfactory to the Trustee, the Depositor, and the Master Servicer to the effect that the purchase or holding of this Certificate is permissible under applicable law, will not constitute or result in any non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code (or comparable provisions of any subsequent enactments), and will not subject the Trustee, the Depositor, or the Master Servicer to any obligation or liability (including obligations or liabilities under ERISA or Section 4975 of the Code) in addition to those undertaken in the Agreement, which Opinion of Counsel shall not be an expense of the Trustee, the Depositor or the Master Servicer. 4. This document may be executed in one or more counterparts and by the different parties hereto on separate counterparts, each of which, when so executed, shall be deemed to be an original; such counterparts, together, shall constitute one and the same document. -------------------------------------------------------------------------------- IN WITNESS WHEREOF, each of the parties has executed this document as of the date set forth below. ______________________________ ______________________________ Print Name of Seller Print Name of Purchaser By: ................................................... By: ................................................... Name: Name: Title: Title: Taxpayer Identification: Taxpayer Identification: No...................................................... No...................................................... Date:................................................... Date:................................................... -------------------------------------------------------------------------------- ANNEX I TO EXHIBIT N QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A [For Buyers Other Than Registered Investment Companies] The undersigned hereby certifies as follows in connection with the Rule 144A Investment Representation to which this Certification is attached: 1........As indicated below, the undersigned is the President, Chief Financial Officer, Senior Vice President or other executive officer of the Buyer. 2. In connection with purchases by the Buyer, the Buyer is a "qualified institutional buyer" as that term is defined in Rule 144A under the Securities Act of 1933 ("Rule 144A") because (i) the Buyer owned and/or invested on a discretionary basis $______________________ in securities (except for the excluded securities referred to below) as of the end of the Buyer's most recent fiscal year (such amount being calculated in accordance with Rule 144A) and (ii) the Buyer satisfies the criteria in the category marked below. ___ Corporation, etc. The Buyer is a corporation (other than a bank, savings and loan association or similar institution), Massachusetts or similar business trust, partnership, or charitable organization described in Section 501(c)(3) of the Internal Revenue Code. ___ Bank. The Buyer (a) is a national bank or banking institution organized under the laws of any State, territory or the District of Columbia, the business of which is substantially confined to banking and is supervised by the State or territorial banking commission or similar official or is a foreign bank or equivalent institution, and (b) has an audited net worth of at least $25,000,000 as demonstrated in its latest annual financial statements, a copy of which is attached hereto. ___ Savings and Loan. The Buyer (a) is a savings and loan association, building and loan association, cooperative bank, homestead association or similar institution, which is supervised and examined by a State or Federal authority having supervision over any such institutions or is a foreign savings and loan association or equivalent institution and (b) has an audited net worth of at least $25,000,000 as demonstrated in its latest annual financial statements. ___ Broker-Dealer. The Buyer is a dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934. ___ Insurance Company. The Buyer is an insurance company whose primary and predominant business activity is the writing of insurance or the reinsuring of risks underwritten by insurance companies and which is subject to supervision by the insurance commissioner or a similar official or agency of a State or territory or the District of Columbia. ___ State or Local Plan. The Buyer is a plan established and maintained by a State, its political subdivisions, or any agency or instrumentality of the State or its political subdivisions, for the benefit of its employees. ___ Investment Adviser. The Buyer is an investment adviser registered under the Investment Advisers Act of 1940. ___ SBIC. The Buyer is a Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958. ___ Business Development Company. The Buyer is a business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940. ___ Trust Fund. The Buyer is a trust fund whose trustee is a bank or trust company and whose participants are exclusively (a) plans established and maintained by a State, its political subdivisions, or any agency or instrumentality of the State or its political subdivisions, for the benefit of its employees, or (b) employee benefit plans within the meaning of Title I of the Employee Retirement Income Security Act of 1974, but is not a trust fund that includes as participants individual retirement accounts or H.R. 10 plans. 3. The term "securities" as used herein does not include (i) securities of issuers that are affiliated with the Buyer, (ii) securities that are part of an unsold allotment to or subscription by the Buyer, if the Buyer is a dealer, (iii) bank deposit notes and certificates of deposit, (iv) loan participations, (v) repurchase agreements, (vi) securities owned but subject to a repurchase agreement and (vii) currency, interest rate and commodity swaps. 4. For purposes of determining the aggregate amount of securities owned and/or invested on a discretionary basis by the Buyer, the Buyer used the cost of such securities to the Buyer and did not include any of the securities referred to in the preceding paragraph. Further, in determining such aggregate amount, the Buyer may have included securities owned by subsidiaries of the Buyer, but only if such subsidiaries are consolidated with the Buyer in its financial statements prepared in accordance with generally accepted accounting principles and if the investments of such subsidiaries are managed under the Buyer's direction. However, such securities were not included if the Buyer is a majority-owned, consolidated subsidiary of another enterprise and the Buyer is not itself a reporting company under the Securities Exchange Act of 1934. 5. The Buyer acknowledges that it is familiar with Rule 144A and understands that the seller to it and other parties related to the Certificates are relying and will continue to rely on the statements made herein because one or more sales to the Buyer may be in reliance on Rule 144A. ____ ___ Will the Buyer be purchasing the Rule 144A Yes No Securities for the Buyer's own account? 6. If the answer to the foregoing question is "no", the Buyer agrees that, in connection with any purchase of securities sold to the Buyer for the account of a third party (including any separate account) in reliance on Rule 144A, the Buyer will only purchase for the account of a third party that at the time is a "qualified institutional buyer" within the meaning of Rule 144A. In addition, the Buyer agrees that the Buyer will not purchase securities for a third party unless the Buyer has obtained a current representation letter from such third party or taken other appropriate steps contemplated by Rule 144A to conclude that such third party independently meets the definition of "qualified institutional buyer" set forth in Rule 144A. 7. The Buyer will notify each of the parties to which this certification is made of any changes in the information and conclusions herein. Until such notice is given, the Buyer's purchase of Rule 144A Securities will constitute a reaffirmation of this certification as of the date of such purchase. Print Name of Buyer By: ..................................................... Name: Title: Date: ..................................................... -------------------------------------------------------------------------------- ANNEX II TO EXHIBIT N QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A [For Buyers That Are Registered Investment Companies] The undersigned hereby certifies as follows in connection with the Rule 144A Investment Representation to which this Certification is attached: 8. As indicated below, the undersigned is the President, Chief Financial Officer or Senior Vice President of the Buyer or, if the Buyer is a "qualified institutional buyer" as that term is defined in Rule 144A under the Securities Act of 1933 ("Rule 144A") because Buyer is part of a Family of Investment Companies (as defined below), is such an officer of the Adviser. 9. In connection with purchases by Buyer, the Buyer is a "qualified institutional buyer" as defined in SEC Rule 144A because (i) the Buyer is an investment company registered under the Investment Company Act of 1940, and (ii) as marked below, the Buyer alone, or the Buyer's Family of Investment Companies, owned at least $100,000,000 in securities (other than the excluded securities referred to below) as of the end of the Buyer's most recent fiscal year. For purposes of determining the amount of securities owned by the Buyer or the Buyer's Family of Investment Companies, the cost of such securities was used. ____ The Buyer owned $___________________ in securities (other than the excluded securities referred to below) as of the end of the Buyer's most recent fiscal year (such amount being calculated in accordance with Rule 144A). ____ The Buyer is part of a Family of Investment Companies which owned in the aggregate $______________ in securities (other than the excluded securities referred to below) as of the end of the Buyer's most recent fiscal year (such amount being calculated in accordance with Rule 144A). 10. The term "Family of Investment Companies" as used herein means two or more registered investment companies (or series thereof) that have the same investment adviser or investment advisers that are affiliated (by virtue of being majority owned subsidiaries of the same parent or because one investment adviser is a majority owned subsidiary of the other). 11. The term "securities" as used herein does not include (i) securities of issuers that are affiliated with the Buyer or are part of the Buyer's Family of Investment Companies, (ii) bank deposit notes and certificates of deposit, (iii) loan participations, (iv) repurchase agreements, (v) securities owned but subject to a repurchase agreement and (vi) currency, interest rate and commodity swaps. 12. The Buyer is familiar with Rule 144A and understands that each of the parties to which this certification is made are relying and will continue to rely on the statements made herein because one or more sales to the Buyer will be in reliance on Rule 144A. In addition, the Buyer will only purchase for the Buyer's own account. 13. The undersigned will notify each of the parties to which this certification is made of any changes in the information and conclusions herein. Until such notice, the Buyer's purchase of Rule 144A Securities will constitute a reaffirmation of this certification by the undersigned as of the date of such purchase. Print Name of Buyer By: ..................................................... Name: Title: IF AN ADVISER: Print Name of Buyer Date: ..................................................... -------------------------------------------------------------------------------- EXHIBIT O [RESERVED] -------------------------------------------------------------------------------- EXHIBIT P FORM OF ERISA REPRESENTATION LETTER __________, 20__ Residential Asset Securities Corporation 8400 Normandale Lake Boulevard Suite 250 Minneapolis, Minnesota 55437 U.S. Bank National Association EP-MN-WS3D 60 Livingston Avenue St. Paul, MN 55107 Attn: Structured Finance/RASC 2006-EMX4 Residential Funding Corporation 8400 Normandale Lake Boulevard Suite 250 Minneapolis, Minnesota 55437 Re: Home Equity Mortgage Asset-Backed Pass-Through Certificates, Series 2006-EMX4, Class SB Ladies and Gentlemen: [____________________________________] (the "Purchaser") intends to purchase from [______________________________] (the "Seller") $[____________] Initial Certificate Principal Balance of Home Equity Mortgage Asset-Backed Pass-Through Certificates, Series 2006-EMX4, Class ____ (the "Certificates"), issued pursuant to the Pooling and Servicing Agreement (the "Pooling and Servicing Agreement"), dated as of May 1, 2006 among Residential Asset Securities Corporation, as the depositor (the "Depositor"), Residential Funding Corporation, as master servicer (the "Master Servicer") and U.S. Bank National Association, as trustee (the "Trustee"). All terms used herein and not otherwise defined shall have the meanings set forth in the Pooling and Servicing Agreement. The Purchaser hereby certifies, represents and warrants to, and covenants with, the Depositor, the Trustee and the Master Servicer that: (a) The Purchaser is not an employee benefit plan or other plan or arrangement subject to the prohibited transaction provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code"), or any person (including an insurance company investing its general account, an investment manager, a named fiduciary or a trustee of any such plan) who is using "plan assets" of any such plan to effect such acquisition (each of the foregoing, a "Plan Investor"); or (b) The Purchaser has provided the Trustee, the Depositor and the Master Servicer with the Opinion of Counsel described in Section 5.02(e)(i) of the Agreement, which shall be acceptable to and in form and substance satisfactory to the Trustee, the Depositor and the Master Servicer to the effect that the purchase or holding of Certificates is permissible under applicable law, will not constitute or result in any non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code (or comparable provisions of any subsequent enactments), and will not subject the Trustee, the Depositor or the Master Servicer to any obligation or liability (including obligations or liabilities under ERISA or Section 4975 of the Code) in addition to those undertaken in the Pooling and Servicing Agreement, which Opinion of Counsel shall not be at the expense of the Trustee, the Depositor or the Master Servicer. In addition, the Purchaser hereby certifies, represents and warrants to, and covenants with, the Depositor, the Trustee and the Master Servicer that the Purchaser will not transfer such Certificates to any Plan Investor or person unless such Plan Investor or person meets the requirements set forth in either (a) or (b) above. Very truly yours, _______________________________________ (Purchaser) By: ____________________________________ Name: __________________________________ Title: ___________________________________ -------------------------------------------------------------------------------- EXHIBIT Q [RESERVED] -------------------------------------------------------------------------------- EXHIBIT R ASSIGNMENT AGREEMENT [ON FILE WITH THE TRUSTEE] -------------------------------------------------------------------------------- EXHIBIT S SERVICING CRITERIA TO BE ADDRESSED IN ASSESSMENT OF COMPLIANCE The assessment of compliance to be delivered by the Trustee shall address, at a minimum, the criteria identified as below as "Applicable Servicing Criteria": ------------------------------------------------------------------------------------------ ---------------------- APPLICABLE SERVICING SERVICING CRITERIA CRITERIA ------------------------------------------------------------------------------------------ ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- REFERENCE CRITERIA -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- GENERAL SERVICING CONSIDERATIONS -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(1)(i) Policies and procedures are instituted to monitor any performance or other triggers and events of default in accordance with the transaction agreements. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(1)(ii) If any material servicing activities are outsourced to third parties, policies and procedures are instituted to monitor the third party's performance and compliance with such servicing activities. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(1)(iii) Any requirements in the transaction agreements to maintain a back-up servicer for the pool assets are maintained. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(1)(iv) A fidelity bond and errors and omissions policy is in effect on the party participating in the servicing function throughout the reporting period in the amount of coverage required by and otherwise in accordance with the terms of the transaction agreements. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- CASH COLLECTION AND ADMINISTRATION -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(2)(i) Payments on pool assets are deposited into the appropriate |X| (as to accounts custodial bank accounts and related bank clearing accounts no more than two business days following receipt, or such other number of days specified in the transaction agreements. held by Trustee) -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(2)(ii) Disbursements made via wire transfer on behalf of an obligor or to |X| (as to investors an investor are made only by authorized personnel. only) -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(2)(iii) Advances of funds or guarantees regarding collections, cash flows or distributions, and any interest or other fees charged for such advances, are made, reviewed and approved as specified in the transaction agreements. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- The related accounts for the transaction, such as cash reserve accounts or accounts established as a form of overcollateralization, are separately maintained (e.g., with |X| (as to accounts respect to commingling of cash) as set forth in the transaction held by Trustee) 1122(d)(2)(iv) agreements. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(2)(v) Each custodial account is maintained at a federally insured depository institution as set forth in the transaction agreements. For purposes of this criterion, "federally insured depository institution" with respect to a foreign financial institution means a foreign financial institution that meets the requirements of Rule 13k-1(b)(1) of the Securities Exchange Act. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(2)(vi) Unissued checks are safeguarded so as to prevent unauthorized access. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(2)(vii) Reconciliations are prepared on a monthly basis for all asset-backed securities related bank accounts, including custodial accounts and related bank clearing accounts. These reconciliations are (A) mathematically accurate; (B) prepared within 30 calendar days after the bank statement cutoff date, or such other number of days specified in the transaction agreements; (C) reviewed and approved by someone other than the person who prepared the reconciliation; and (D) contain explanations for reconciling items. These reconciling items are resolved within 90 calendar days of their original identification, or such other number of days specified in the transaction agreements. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- INVESTOR REMITTANCES AND REPORTING -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(3)(i) Reports to investors, including those to be filed with the Commission, are maintained in accordance with the transaction agreements and applicable Commission requirements. Specifically, such reports (A) are prepared in accordance with timeframes and other terms set forth in the transaction agreements; (B) provide information calculated in accordance with the terms specified in the transaction agreements; (C) are filed with the Commission as required by its rules and regulations; and (D) agree with investors' or the trustee's records as to the total unpaid principal balance and number of pool assets serviced by the servicer. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(3)(ii) Amounts due to investors are allocated and remitted in accordance |X| with timeframes, distribution priority and other terms set forth in the transaction agreements. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- Disbursements made to an investor are posted within two business days to the servicer's investor records, or such other number of |X| 1122(d)(3)(iii) days specified in the transaction agreements. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- Amounts remitted to investors per the investor reports agree with cancelled checks, or other form of payment, or custodial bank |X| 1122(d)(3)(iv) statements. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- POOL ASSET ADMINISTRATION -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(4)(i) Collateral or security on pool assets is maintained as required by the transaction agreements or related asset pool documents. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- Pool assets and related documents are safeguarded as required by 1122(d)(4)(ii) the transaction agreements -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(4)(iii) Any additions, removals or substitutions to the asset pool are made, reviewed and approved in accordance with any conditions or requirements in the transaction agreements. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(4)(iv) Payments on pool assets, including any payoffs, made in accordance with the related pool asset documents are posted to the servicer's obligor records maintained no more than two business days after receipt, or such other number of days specified in the transaction agreements, and allocated to principal, interest or other items (e.g., escrow) in accordance with the related pool asset documents. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(4)(v) The servicer's records regarding the pool assets agree with the servicer's records with respect to an obligor's unpaid principal balance. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(4)(vi) Changes with respect to the terms or status of an obligor's pool asset (e.g., loan modifications or re-agings) are made, reviewed and approved by authorized personnel in accordance with the transaction agreements and related pool asset documents. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(4)(vii) Loss mitigation or recovery actions (e.g., forbearance plans, modifications and deeds in lieu of foreclosure, foreclosures and repossessions, as applicable) are initiated, conducted and concluded in accordance with the timeframes or other requirements established by the transaction agreements. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(4)(viii) Records documenting collection efforts are maintained during the period a pool asset is delinquent in accordance with the transaction agreements. Such records are maintained on at least a monthly basis, or such other period specified in the transaction agreements, and describe the entity's activities in monitoring delinquent pool assets including, for example, phone calls, letters and payment rescheduling plans in cases where delinquency is deemed temporary (e.g., illness or unemployment). -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(4)(ix) Adjustments to interest rates or rates of return for pool assets with variable rates are computed based on the related pool asset documents. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(4)(x) Regarding any funds held in trust for an obligor (such as escrow accounts): (A) such funds are analyzed, in accordance with the obligor's pool asset documents, on at least an annual basis, or such other period specified in the transaction agreements; (B) interest on such funds is paid, or credited, to obligors in accordance with applicable pool asset documents and state laws; and (C) such funds are returned to the obligor within 30 calendar days of full repayment of the related pool asset, or such other number of days specified in the transaction agreements. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(4)(xi) Payments made on behalf of an obligor (such as tax or insurance payments) are made on or before the related penalty or expiration dates, as indicated on the appropriate bills or notices for such payments, provided that such support has been received by the servicer at least 30 calendar days prior to these dates, or such other number of days specified in the transaction agreements. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(4)(xii) Any late payment penalties in connection with any payment to be made on behalf of an obligor are paid from the servicer's funds and not charged to the obligor, unless the late payment was due to the obligor's error or omission. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- Disbursements made on behalf of an obligor are posted within two business days to the obligor's records maintained by the servicer, or such other number of days specified in the transaction 1122(d)(4)(xiii) agreements. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- 1122(d)(4)(xiv) Delinquencies, charge-offs and uncollectible accounts are recognized and recorded in accordance with the transaction agreements. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- Any external enhancement or other support, identified in Item 1114(a)(1) through (3) or Item 1115 of Regulation AB, is maintained |X| 1122(d)(4)(xv) as set forth in the transaction agreements. -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- -------------------- --------------------------------------------------------------------- ---------------------- -------------------------------------------------------------------------------- EXHIBIT T-1 FORM OF FORM 10-K CERTIFICATION I, [identify the certifying individual], certify that: 1. I have reviewed the annual report on Form 10-K for the fiscal year [____], and all reports on Form 8-K containing distribution or servicing reports filed in respect of periods included in the year covered by that annual report, of the trust (the "Trust") created pursuant to the Pooling and Servicing Agreement dated as of May 1, 2006 (the "P&S Agreement") among Residential Asset Securities Corporation (the "Depositor"), Residential Funding Corporation (the "Master Servicer") and U.S. Bank National Association (the "Trustee"); 2. Based on my knowledge, the information in these reports, taken as a whole, does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading as of the last day of the period covered by this annual report; 3. Based on my knowledge, the servicing information required to be provided to the Trustee by the Master Servicer under the P&S Agreement for inclusion in these reports is included in these reports; 4. I am responsible for reviewing the activities performed by the Master Servicer under the P&S Agreement and based upon my knowledge and the annual compliance review required under the P&S Agreement, and, except as disclosed in the reports, the Master Servicer has fulfilled its obligations under the P&S Agreement; and 5. The reports disclose all significant deficiencies relating to the Master Servicer's compliance with the minimum servicing standards based upon the report provided by an independent public accountant, after conducting a review in compliance with the Uniform Single Attestation Program for Mortgage Bankers as set forth in the P&S Agreement, that is included in these reports. In giving the certifications above, I have reasonably relied on the information provided to me by the following unaffiliated parties: [the Trustee]. IN WITNESS WHEREOF, I have duly executed this certificate as of _________, 20__. ____________________________ Name: Title: * to be signed by the senior officer in charge of the servicing functions of the Master Servicer -------------------------------------------------------------------------------- EXHIBIT T-2 FORM OF BACK-UP CERTIFICATE TO FORM 10-K CERTIFICATION The undersigned, a Responsible Officer of [______________] (the "Trustee") certifies that: 1. The Trustee has performed all of the duties specifically required to be performed by it pursuant to the provisions of the Pooling and Servicing Agreement dated as of May 1, 2006 (the "Agreement") by and among Residential Asset Securities Corporation, as depositor, Residential Funding Corporation, as master servicer, and the Trustee in accordance with the standards set forth therein. 2. Based on my knowledge, the list of Certificateholders as shown on the Certificate Register as of the end of each calendar year that is provided by the Trustee pursuant to Section 4.03(e)(I) of the Agreement is accurate as of the last day of the 20[ ] calendar year. Capitalized terms used and not defined herein shall have the meanings given such terms in the Agreement. IN WITNESS WHEREOF, I have duly executed this certificate as of _________, 20__. ____________________________ Name: Title: -------------------------------------------------------------------------------- EXHIBIT U INFORMATION TO BE PROVIDED BY THE MASTER SERVICER TO THE RATING AGENCIES RELATING TO REPORTABLE MODIFIED MORTGAGE LOANS Account number Transaction Identifier Unpaid Principal Balance prior to Modification Next Due Date Monthly Principal and Interest Payment Total Servicing Advances Current Interest Rate Original Maturity Date Original Term to Maturity (Months) Remaining Term to Maturity (Months) Trial Modification Indicator Mortgagor Equity Contribution Total Servicer Advances Trial Modification Term (Months) Trial Modification Start Date Trial Modification End Date Trial Modification Period Principal and Interest Payment Trial Modification Interest Rate Trial Modification Term Rate Reduction Indicator Interest Rate Post Modification Rate Reduction Start Date Rate Reduction End Date Rate Reduction Term Term Modified Indicator Modified Amortization Period Modified Final Maturity Date Total Advances Written Off Unpaid Principal Balance Written Off Other Past Due Amounts Written Off Write Off Date Unpaid Principal Balance Post Write Off Capitalization Indicator Mortgagor Contribution Total Capitalized Amount Modification Close Date Unpaid Principal Balance Post Capitalization Modification Next Payment Due Date per Modification Plan Principal and Interest Payment Post Modification Interest Rate Post Modification Payment Made Post Capitalization Delinquency Status to Modification Plan

Exhibit 10.3 TABLE OF CONTENTS     Page         ARTICLE I. DEFINITIONS   1         Section 1.1 Definitions   1         ARTICLE II. PURCHASE AND SALE OF SERVICES   2         Section 2.1 Purchase and Sale of Services   2         Section 2.2 Additional Services   3         Section 2.3 Force Majeure   3         ARTICLE III. SERVICE CHARGES   3         Section 3.1 Service Charges   3         ARTICLE IV. Indemnification AND EXCULPATION   3         Section 4.1 Company Indemnification   3         Section 4.2 Lone Star Indemnification   4         Section 4.3 Welspun Indemnification   4         Section 4.4 Disclaimer of Warranties   4         Section 4.5 Limitation of Liability   4         Section 4.6 Insurance   4         Section 4.7 Waiver of Subrogation   5         Section 4.8 Certificate of Insurance   5         ARTICLE V. TERM AND TERMINATION   5         Section 5.1 Term   5         Section 5.2 Termination   6         Section 5.3 Effect of Termination   6         ARTICLE VI. Miscellaneous   6         Section 6.1 No Agency   6         Section 6.2 Company as Sole Beneficiary   6         Section 6.3 Confidentiality   7         Section 6.4 Entire Agreement; Conflicts   7         Section 6.5 Information   7         Section 6.6 Notices   7         Section 6.7 Assignment   8   i --------------------------------------------------------------------------------       Page         Section 6.8 Governing Law   9         Section 6.9 Severability   9         Section 6.10 Headings   9         Section 6.11 Amendment   9         Section 6.12 Counterparts   9         Section 6.13 Arbitration   9         Section 6.14 Word Meanings   10         Section 6.15 No Third Party Rights   10 ii -------------------------------------------------------------------------------- MUTUAL SERVICES AGREEMENT This Mutual Services Agreement (this “Agreement”), dated as of December 20, 2006, is by and among Lone Star Technologies, Inc., a corporation organized under the laws of the State of Delaware (“Lone Star”), Welspun Pipes Inc., a Delaware corporation (“Welspun”), and Welspun-Lone Star Tubulars LLC, a limited liability company organized under the laws of the State of Delaware (the “Company”). RECITALS WHEREAS, Lone Star and Welspun have caused the Company to be formed and Lone Star owns 40% and Welspun owns 60% of the outstanding interest in the Company; WHEREAS, each of Lone Star and Welspun is willing to provide to the Company, on the terms and conditions set forth herein, certain services; and WHEREAS, capitalized terms used herein and not otherwise defined shall have the meanings ascribed to such terms in the Limited Liability Company Agreement, dated as of the date hereof (“JV Agreement”), by and between Lone Star and Welspun. AGREEMENTS NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements set forth herein, Lone Star, Welspun and the Company hereby agree as follows: ARTICLE I. DEFINITIONS SECTION 1.1             DEFINITIONS.  AS USED IN THIS AGREEMENT AND THE SCHEDULES ATTACHED HERETO THE FOLLOWING TERMS WILL HAVE THE FOLLOWING MEANINGS, APPLICABLE BOTH TO THE SINGULAR AND THE PLURAL FORMS OF THE TERMS DESCRIBED: “Agreement” has the meaning ascribed thereto in the preamble hereto. “Arbitration” has the meaning ascribed thereto in Section 6.13. “Company” has the meaning ascribed thereto in the recitals to this Agreement. “Company Indemnified Person” has the meaning ascribed thereto in Section 4.2. “Confidential Information” shall mean non-public information about the disclosing party’s or any of its Affiliates’ businesses or activities that is proprietary and confidential, which shall include all business, financial, technical and other information of the disclosing party or its Affiliates that is marked or designated “confidential” or “proprietary” or that by its nature or the circumstances surrounding its disclosure should reasonably be regarded as confidential or proprietary.  Confidential Information includes not only written or other tangible information, but also information transferred orally, visually, electronically or by any other means.  Confidential Information shall not include information that (i) is in or enters the   -------------------------------------------------------------------------------- public domain without breach of this Agreement, (ii) the receiving party lawfully receives from a third party without restriction on disclosure and, to the receiving party’s knowledge, without breach of a nondisclosure obligation, or (iii) is independently developed by the receiving party. “Event of Force Majeure” has the meaning ascribed thereto in Section 2.3. “JV Agreement” has the meaning ascribed thereto in the recitals to this Agreement. “LCIA” has the meaning ascribed thereto in Section 6.13. “Lone Star” has the meaning ascribed thereto in the recitals to this Agreement. “Losses” has the meaning ascribed thereto in Section 4.1. “Provider” means Lone Star or Welspun, as the case may be, which is providing the Services to the Company, pursuant to Section 2.1. “Provider Entities” means Provider and its subsidiaries and Affiliates providing Services hereunder and “Provider Entity” shall mean any of the Provider Entities. “Provider Indemnified Person” has the meaning ascribed thereto in Section 4.1. “Services” has the meaning ascribed thereto in Section 2.1. “Sole Arbitrator” has the meaning ascribed thereto in Section 6.13. “Term” has the meaning ascribed thereto in Section 5.1. “UNCITRAL” has the meaning ascribed thereto in Section 6.13. “Welspun” has the meaning ascribed thereto in the recitals to this Agreement. ARTICLE II. PURCHASE AND SALE OF SERVICES SECTION 2.1             PURCHASE AND SALE OF SERVICES. (A)           ON THE TERMS AND SUBJECT TO THE CONDITIONS OF THIS AGREEMENT, LONE STAR AGREES TO PROVIDE OR CAUSE TO BE PROVIDED TO THE COMPANY, DURING THE TERM OF THIS AGREEMENT, THE SERVICES DESCRIBED IN SCHEDULE I IN A COMMERCIALLY REASONABLE MANNER AND LEVEL OF SERVICE. (B)           ON THE TERMS AND SUBJECT TO THE CONDITIONS OF THIS AGREEMENT, WELSPUN AGREES TO PROVIDE TO THE COMPANY, DURING THE TERM OF THIS AGREEMENT, THE SERVICES DESCRIBED IN SCHEDULE II IN A COMMERCIALLY REASONABLE MANNER AND LEVEL OF SERVICE (TOGETHER WITH THE SERVICES DESCRIBED IN SCHEDULE I, THE “SERVICES”). 2 -------------------------------------------------------------------------------- (C)           AT ITS OPTION, A PROVIDER MAY CAUSE ANY SERVICE IT IS REQUIRED TO PROVIDE HEREUNDER TO BE PROVIDED BY ANY OTHER PROVIDER ENTITY. SECTION 2.2             ADDITIONAL SERVICES.  IN ADDITION TO THE SERVICES TO BE PROVIDED BY A PROVIDER PURSUANT TO SECTION 2.1, IF REQUESTED BY THE COMPANY, AND TO THE EXTENT THAT THE PARTIES HERETO AGREE BY SIGNING AN ADDENDUM TO SCHEDULE I OR SCHEDULE II AS APPLICABLE, PROVIDER SHALL PROVIDE ADDITIONAL SERVICES TO THE COMPANY. THE SCOPE OF ANY SUCH SERVICES, AND OTHER TERMS AND CONDITIONS APPLICABLE TO SUCH SERVICES, SHALL BE AS MUTUALLY AGREED BY THE PARTIES HERETO.  NOTHING HEREIN SHALL CREATE ANY OBLIGATION ON THE PART OF PROVIDER TO PROVIDE ANY ADDITIONAL SERVICES. SECTION 2.3             FORCE MAJEURE.  NO PROVIDER SHALL BE REQUIRED TO PROVIDE ANY SERVICE TO THE EXTENT THE PERFORMANCE OF SUCH SERVICE BECOMES IMPRACTICABLE AS A RESULT OF A CAUSE OR CAUSES OUTSIDE THE REASONABLE CONTROL OF PROVIDER OR TO THE EXTENT THE PROVISION OF SUCH SERVICE WOULD REQUIRE PROVIDER TO VIOLATE ANY APPLICABLE LAWS, RULES OR REGULATIONS.  NO PROVIDER SHALL HAVE ANY OBLIGATION TO PERFORM OR CAUSE THE SERVICES TO BE PERFORMED IF ITS FAILURE TO DO SO IS CAUSED BY OR RESULTS FROM ANY ACT OF GOD, GOVERNMENTAL ACTION, CIVIL DISTURBANCE, WAR, NATURAL DISASTER, STRIKE, FAILURE OF ESSENTIAL EQUIPMENT OR ANY OTHER CAUSE OR CIRCUMSTANCE BEYOND THE CONTROL OF PROVIDER OR, IF APPLICABLE, THIRD-PARTY PROVIDERS OF SERVICES TO PROVIDER, AND SUCH FAILURE TO PERFORM CONTINUES FOR MORE THAN THREE (3) CONSECUTIVE DAYS (EACH, AN “EVENT OF FORCE MAJEURE”).  PROVIDER WILL NOTIFY THE COMPANY, PROMPTLY UPON BECOMING AWARE THEREOF, OF ANY EVENT OF FORCE MAJEURE AFFECTING THE PROVISION OF ITS SERVICES TO THE COMPANY.  PROVIDER AGREES THAT FOLLOWING ANY EVENT OF FORCE MAJEURE, PROVIDER WILL USE ITS COMMERCIALLY REASONABLE EFFORTS TO RESTORE SUCH SERVICES AS SOON AS REASONABLY PRACTICABLE. ARTICLE III. SERVICE CHARGES SECTION 3.1             SERVICE CHARGES.  NEITHER LONE STAR NOR WELSPUN SHALL BE ENTITLED TO CHARGE THE COMPANY FOR THE SERVICES PROVIDED TO THE COMPANY HEREUNDER OTHER THAN OUT-OF-POCKET THIRD PARTY CHARGES REASONABLY INCURRED IN CONNECTION PERFORMING THE SERVICES. ARTICLE IV. INDEMNIFICATION AND EXCULPATION SECTION 4.1             COMPANY INDEMNIFICATION.  THE COMPANY SHALL INDEMNIFY AND HOLD HARMLESS EACH PROVIDER ENTITY AND THEIR RESPECTIVE PARENT ENTITIES, DIRECTORS, OFFICERS, AGENTS AND EMPLOYEES (EACH, A “PROVIDER INDEMNIFIED PERSON”) FROM AND AGAINST ANY CLAIMS, DAMAGES, LOSSES, OBLIGATIONS, LIABILITIES, COSTS AND EXPENSES (INCLUDING, WITHOUT LIMITATION, REASONABLE ATTORNEYS’ FEES) (COLLECTIVELY, “LOSSES”), SUFFERED BY PROVIDER INDEMNIFIED PERSON AND ARISING OUT OF OR IN CONNECTION WITH (I) SERVICES RENDERED OR TO BE RENDERED BY ANY PROVIDER INDEMNIFIED PERSON PURSUANT TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY EXCEPT TO THE EXTENT THAT SUCH LOSSES ARE THE RESULT OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY EMPLOYEE OF PROVIDER OR (II) ANY DEFECT IN A PRODUCT PRODUCED BY THE COMPANY OR OTHER PRODUCT LIABILITY ARISING FROM OR IN CONNECTION WITH THE COMPANY’S PRODUCTS. 3 -------------------------------------------------------------------------------- SECTION 4.2             LONE STAR INDEMNIFICATION.  LONE STAR SHALL INDEMNIFY AND HOLD HARMLESS THE COMPANY AND ITS RESPECTIVE PARENT ENTITIES, DIRECTORS, OFFICERS, AGENTS AND EMPLOYEES (EACH, A “COMPANY INDEMNIFIED PERSON”) FROM AND AGAINST ANY LOSSES SUFFERED BY A COMPANY INDEMNIFIED PERSON AND ARISING OUT OF OR IN CONNECTION WITH THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY EMPLOYEE OF LONE STAR OR ANY OF ITS SUBSIDIARIES IN CONNECTION WITH PROVIDING THE SERVICES. SECTION 4.3             WELSPUN INDEMNIFICATION.  WELSPUN SHALL INDEMNIFY AND HOLD HARMLESS THE COMPANY INDEMNIFIED PERSONS FROM AND AGAINST ANY LOSSES SUFFERED BY A COMPANY INDEMNIFIED PERSON AND ARISING OUT OF OR IN CONNECTION WITH THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY EMPLOYEE OF WELSPUN OR ANY OF ITS SUBSIDIARIES OR AFFILIATES IN CONNECTION WITH PROVIDING THE SERVICES. SECTION 4.4             DISCLAIMER OF WARRANTIES.  PROVIDER DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY OF FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO OR IN CONNECTION WITH THE SERVICES.  PROVIDER MAKES NO REPRESENTATIONS AND WARRANTIES AS TO THE QUALITY, SUITABILITY OR ADEQUACY OF THE SERVICES FOR ANY PURPOSE OR USE. SECTION 4.5             LIMITATION OF LIABILITY.  NO PROVIDER ENTITY SHALL HAVE ANY LIABILITY TO THE COMPANY OR ANY PERSON ASSERTING CLAIMS ON BEHALF OF OR IN RIGHT OF THE COMPANY IN CONNECTION WITH, OR AS A RESULT OF, ANY ACTIONS OR OMISSIONS OF ANY PROVIDER ENTITY WITH RESPECT TO THIS AGREEMENT OR THE SUBJECT MATTER HEREOF, INCLUDING THE PROVISION OF SERVICES (OTHER THAN LOSSES ATTRIBUTABLE TO THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY EMPLOYEE, OFFICER OR DIRECTOR OF SUCH PROVIDER ENTITY OR ITS SUBSIDIARIES IN CONNECTION WITH PROVIDING THE SERVICES). SECTION 4.6             INSURANCE. (i)            Throughout the Term of this Agreement (and, with respect to clause (d), for a period of two (2) years thereafter), the Company will maintain the following insurances, each provided by an insurance company with A.M. Best rating of at least “A”, and licensed to sell insurance in the juridisction where the Spiral Weld Mill is located: (A)           “ALL RISKS” PROPERTY INSURANCE WITH POLICY LIMITS SUFFICIENT TO COVER THE TOTAL REPLACEMENT COST VALUES OF PROPERTY, PLANT, AND EQUIPMENT AT THE SPIRAL WELD MILL, INCLUDING BOILER AND MACHINERY, FLOOD, AND EARTHQUAKE COVERAGE.  DEDUCTIBLES SHOULD NOT EXCEED $100,000 (OR, IF LESSER, THE AMOUNT REQUIRED BY THE COMPANY’S LENDERS). (B)           WORKERS COMPENSATION INSURANCE PROVIDING COVERAGE FOR STATUTORY LIMITS OF THE WORKERS COMPENSATION LAWS OF THE APPLICABLE JURISDICTION, WITH COVERAGE B — EMPLOYERS LIABILITY, TO LIMITS OF NOT LESS THAN $1,000,000. (C)           AUTOMOBILE LIABILITY INSURANCE COVERING ALL OWNED, NON-OWNED AND HIRED AUTOMOBILES, TRUCKS AND TRAILERS USED IN ITS OPERATIONS.  SUCH INSURANCE SHALL PROVIDE COVERAGE NOT LESS THAT THAT OF THE STANDARD COMPREHENSIVE AUTOMOBILE LIABILITY POLICY, WITH A COMBINED SINGLE LIMIT NOT LESS THAN $1,000,000 EACH OCCURRENCE FOR BODILY INJURY AND PROPERTY DAMAGE. 4 -------------------------------------------------------------------------------- (D)           PRODUCT LIABILITY INSURANCE (I) PROVIDING FOR NOT LESS THAN $3,000,000 IN COVERAGE WITH RESPECT TO ALL SPIRAL WELD TUBULAR PRODUCTS AND COATING AND BENDING OPERATIONS, HAVING A DEDUCTIBLE NO GREATER THAN $100,000, (II) NAMING EACH OF LONE STAR AND WELSPUN AS AN ADDITIONAL INSURED, AND (III) CONTAINING A POLICY ENDORSEMENT PROVIDING THAT SUCH POLICY CANNOT BE CANCELLED OR MODIFIED IN ANY MATERIAL ASPECT WITHOUT 30 DAYS PRIOR WRITTEN NOTICE TO LONE STAR AND WELSPUN.   THE POLICY SHALL ALSO PROVIDE COMPREHENSIVE GENERAL LIABILITY COVERAGE NOT LESS THAN THAT OF THE STANDARD COMMERCIAL GENERAL LIABILITY INSURANCE POLICY (OCCURRENCE FORM) WITH TOTAL AVAILABLE LIMITS NOT LESS THAN $1,000,000 FOR PERSONAL INJURY, BODILY INJURY AND PROPERTY DAMAGE. DEDUCTIBLES SHOULD NOT EXCEED $100,000 (OR, IF LESSER, THE AMOUNT REQUIRED BY THE COMPANY’S LENDERS). (ii)           The foregoing shall not limit the insurance that the Company may purchase with coverages, limits, and such other endorsements as may be required by Contract or as the Board of Managers shall determine necessary from time to time. (iii)          Lone Star and Welspun shall, without exception, be given not less than 30 days notice prior to cancellation for other than non-payment of premium or for material change of any Insurance required by this contract.  Non-Payment of premium shall require 10 days notice of cancellation. (iv)          All insurance policies required by this contract shall be endorsed to include Lone Star and Welspun as Additional Insured.  These insurance policies shall stipulate that they are primary and that any insurance carried by Lone Star and Welspun shall be excess and not contributory. SECTION 4.7             WAIVER OF SUBROGATION.  THE COMPANY SHALL REQUIRE FOR ALL POLICIES OF INSURANCE UNDER THIS AGREEMENT THAT EACH UNDERWRITER SHALL WAIVE ALL OF ITS RIGHTS OF RECOVERY, UNDER SUBROGATION OR OTHERWISE, AGAINST LONE STAR AND WELSPUN. SECTION 4.8             CERTIFICATE OF INSURANCE.  AS SOON AS REASONABLY PRACTICAL AFTER THE EXECUTION OF THIS AGREEMENT, AND AS AND WHEN POLICIES ARE RENEWED, THE COMPANY SHALL FURNISH CERTIFICATES OF INSURANCE EVIDENCING THAT ALL INSURANCE POLICIES ARE IN FULL FORCE AND EFFECT.  EACH CERTIFICATE SHALL INCLUDE LONE STAR AND WELSPUN AS ADDITIONAL INSURED, WITH WAIVER OF SUBROGATION, FOR ALL LIABILITY COVERAGES, AND LOSS PAYEE FOR PROPERTY INSURANCE, AND EVIDENCE A THIRTY DAY (30) NOTICE OF CANCELLATION. ARTICLE V. TERM AND TERMINATION SECTION 5.1             TERM.  EXCEPT AS OTHERWISE PROVIDED IN THIS ARTICLE V OR AS OTHERWISE AGREED TO BY THE PARTIES IN WRITING, THIS AGREEMENT SHALL REMAIN IN EFFECT AS LONG AS LONE STAR AND WELSPUN (OR ANY CONTROLLED AFFILIATE THEREOF) ARE MEMBERS OF THE COMPANY AND BOTH (INCLUDING ANY OF THEIR AFFILIATES) HAVE A PERCENTAGE INTEREST (AS DEFINED IN THE JV AGREEMENT) IN THE COMPANY OF MORE THAN 20% (THE “TERM”), OR SUCH SHORTER OR LONGER PERIOD AS MAY BE PROVIDED IN SCHEDULES I AND II ATTACHED HERETO (AS SUCH SCHEDULES MAY BE MODIFIED FROM TIME TO TIME IN ACCORDANCE HEREWITH) WITH RESPECT TO PARTICULAR SERVICES DESCRIBED THEREIN.  FOR PURPOSES OF CLARIFICATION, THIS AGREEMENT TERMINATES IF EITHER LONE STAR OR WELSPUN (INCLUDING, IN 5 -------------------------------------------------------------------------------- EACH CASE, THEIR AFFILIATES) HAVE A PERCENTAGE INTEREST (AS DEFINED IN THE JV AGREEMENT) IN THE COMPANY OF 20% OR LESS. SECTION 5.2             TERMINATION.  NOTWITHSTANDING THE TERM OF THIS AGREEMENT: (A)           EXCEPT WHERE INDICATED TO THE CONTRARY IN SCHEDULE I OR II, THE COMPANY MAY AT ANY TIME TERMINATE ONE OR MORE OF THE SERVICES, IN WHOLE OR IN PART, UPON GIVING AT LEAST 30 DAYS PRIOR WRITTEN NOTICE TO PROVIDER; AND (B)           PROVIDER MAY TERMINATE THIS AGREEMENT WITH RESPECT TO ANY ONE OR MORE OF THE SERVICES (X) BY WRITTEN NOTICE TO THE COMPANY IN THE EVENT THAT (I) THE COMPANY SHALL HAVE FAILED TO PERFORM, IN ALL MATERIAL RESPECTS, ANY OF ITS MATERIAL OBLIGATIONS UNDER THIS AGREEMENT RELATING TO SUCH SERVICE, (II) PROVIDER HAS NOTIFIED THE COMPANY IN WRITING OF SUCH FAILURE AND (III) SUCH FAILURE SHALL HAVE CONTINUED FOR A PERIOD OF THIRTY (30) DAYS AFTER RECEIPT BY THE COMPANY OF NOTICE OF SUCH FAILURE OR (Y) IN ACCORDANCE WITH SECTION 6.2. SECTION 5.3             EFFECT OF TERMINATION.  OTHER THAN AS REQUIRED BY LAW, UPON TERMINATION OF ANY SERVICE PURSUANT TO SECTION 5.2, PROVIDER WILL HAVE NO FURTHER OBLIGATION TO PROVIDE THE TERMINATED SERVICE (OR ANY SERVICE, IN THE CASE OF TERMINATION OF THIS AGREEMENT); PROVIDED THAT NOTWITHSTANDING SUCH TERMINATION, THE PROVISIONS OF ARTICLES IV, V AND VI SHALL SURVIVE ANY SUCH TERMINATION.  NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, THE TERMINATION OF THIS AGREEMENT BY THE PROVIDER OR THE COMPANY WITH RESPECT TO ONE OR MORE SERVICES SHALL NOT AFFECT THE RIGHT OR OBLIGATION OF SUCH PROVIDER OR COMPANY TO CONTINUE TO PROVIDE OR RECEIVE OTHER SERVICES AS A PROVIDER OR COMPANY, RESPECTIVELY, UNLESS OR UNTIL THE EARLIER OF (I) THE TERMINATION OF THIS AGREEMENT PURSUANT TO SECTION 5.2 AND (II) THE EXPRESS TERMINATION OF A SERVICE OR SERVICES. ARTICLE VI. MISCELLANEOUS SECTION 6.1             NO AGENCY.  NOTHING IN THIS AGREEMENT SHALL CONSTITUTE OR BE DEEMED TO CONSTITUTE A PARTNERSHIP OR JOINT VENTURE BETWEEN THE PARTIES HERETO OR CONSTITUTE OR BE DEEMED TO CONSTITUTE ANY PARTY THE AGENT OR EMPLOYEE OF THE OTHER PARTY FOR ANY PURPOSE WHATSOEVER AND NEITHER PARTY SHALL HAVE AUTHORITY OR POWER TO BIND THE OTHER OR TO CONTRACT IN THE NAME OF, OR CREATE A LIABILITY AGAINST, THE OTHER IN ANY WAY OR FOR ANY PURPOSE, UNLESS EXPRESSLY PROVIDED IN A SCHEDULE. SECTION 6.2             COMPANY AS SOLE BENEFICIARY.  THE SERVICES SHALL BE PROVIDED ONLY FOR THE BENEFIT OF THE COMPANY.  THE COMPANY REPRESENTS AND AGREES THAT THE COMPANY WILL USE THE SERVICES ONLY IN ACCORDANCE WITH APPLICABLE FEDERAL, STATE AND LOCAL LAWS AND REGULATIONS.  PROVIDER RESERVES THE RIGHT TO TAKE ALL ACTIONS, INCLUDING TERMINATION OF ANY PARTICULAR SERVICE, THAT PROVIDER REASONABLY BELIEVES TO BE NECESSARY TO ENSURE COMPLIANCE WITH APPLICABLE LAWS AND REGULATIONS.  PROVIDER WILL NOTIFY THE COMPANY OF THE REASONS FOR ANY SUCH TERMINATION OF SERVICES. 6 -------------------------------------------------------------------------------- SECTION 6.3             CONFIDENTIALITY. (a)           Nondisclosure.  Each of Lone Star and Welspun agrees that (i) it will not, and will cause each of the Provider Entities, not to, disclose to any third party or use any Confidential Information disclosed hereunder to such Person, except as expressly permitted in this Agreement or in the exercise of its rights hereunder, and (ii) it will take reasonable measures to maintain the confidentiality of all Confidential Information of any other party in its or the Provider Entities’ possession or control, which will in no event be less than the measures it uses to maintain the confidentiality of its own information of similar type and importance. (b)           Permitted Disclosure.  Notwithstanding the foregoing, each of Lone Star and Welspun may disclose Confidential Information of any other party (i) to the extent required by a court of competent jurisdiction or other Governmental Body or otherwise as required by law, provided that such party has given such other party prior notice of such requirement when legally permissible and to the extent reasonably possible to permit such other party to take such legal action to prevent the disclosure as it deems reasonable, appropriate or necessary or (ii) to its or any Provider Entity’s employees, agents, representatives, legal counsel, auditors, accountants and advisors; provided, however, that such persons shall be specifically informed of the confidential character of such Confidential Information and that by receiving such information they are agreeing to be bound by the terms of this Agreement relating to the confidential treatment of such Confidential Information. (c)           Ownership of Confidential Information.  All Confidential Information disclosed hereunder shall be and shall remain the sole and exclusive property of the disclosing party. SECTION 6.4             ENTIRE AGREEMENT; CONFLICTS.  THIS AGREEMENT, TOGETHER WITH ALL SCHEDULES AND EXHIBITS HERETO, THE JV AGREEMENT, THE ANCILLARY AGREEMENTS AND THE CONFIDENTIALITY AGREEMENT CONTAIN THE ENTIRE AGREEMENT BETWEEN THE PARTIES AND SUPERSEDES ALL PRIOR WRITINGS OR AGREEMENTS WITH RESPECT TO THE SUBJECT MATTER HEREOF.  IN THE EVENT ANY PROVISION CONTAINED IN THIS AGREEMENT CONFLICTS WITH THE PROVISIONS OF THE JV AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT RELATED THERETO, THE PROVISIONS OF THIS AGREEMENT CONTROL. SECTION 6.5             INFORMATION.  SUBJECT TO APPLICABLE LAW AND PRIVILEGES, EACH PARTY HERETO COVENANTS AND AGREES TO PROVIDE THE OTHER PARTY WITH ALL INFORMATION REGARDING ITSELF AND THE TRANSACTIONS UNDER THIS AGREEMENT THAT THE OTHER PARTY REASONABLY BELIEVES IS REQUIRED TO COMPLY WITH ALL APPLICABLE FEDERAL, STATE, COUNTY AND LOCAL LAWS, ORDINANCES, REGULATIONS AND CODES, INCLUDING SECURITIES LAWS AND REGULATIONS. SECTION 6.6             NOTICES.  ALL NOTICES AND OTHER COMMUNICATIONS UNDER THIS AGREEMENT SHALL BE IN WRITING AND SHALL BE DEEMED GIVEN (I) WHEN DELIVERED PERSONALLY BY HAND (WITH WRITTEN CONFIRMATION OF RECEIPT), (II) WHEN SENT BY FACSIMILE (WITH WRITTEN CONFIRMATION OF TRANSMISSION) OR (III) ONE BUSINESS DAY FOLLOWING THE DAY SENT BY OVERNIGHT COURIER (WITH WRITTEN CONFIRMATION OF RECEIPT), IN EACH CASE AT THE FOLLOWING ADDRESSES AND FACSIMILE NUMBERS (OR TO SUCH OTHER ADDRESS OR FACSIMILE NUMBER AS A PARTY MAY HAVE SPECIFIED BY NOTICE GIVEN TO THE OTHER PARTY PURSUANT TO THIS PROVISION): 7 -------------------------------------------------------------------------------- (a)           If to Welspun, to: Welspun Gujarat Stahl Rohren Limited Village Vadadla Taluka Vagra Dahej Road Dist. Bharuch Gujarat, India Facsimile: +91 22 2490-8020/21 Attn: Executive Director With a copy to: Majmudar & Co. 96 Free Press House Free Press Journal Road Nariman Point Mumbai (Bombay) 400 021 India Facsimile: +91 22 6630-7252 Attn: Akil Hirani If to Lone Star, to: Lone Star Technologies, Inc. 15660 N. Dallas Pkwy., Suite 500 Dallas, TX 75248 United States of America Facsimile:  +1 972-770-6471 Attn:  General Counsel With a copy to: Weil, Gotshal & Manges LLP 200 Crescent Court, Suite 300 Dallas, Texas 75201 Facsimile:  +1 214-746-7777 Attn: Mary R. Korby or to such other addresses or telecopy numbers as may be specified by like notice to the other party. SECTION 6.7             ASSIGNMENT.  THIS AGREEMENT SHALL BE BINDING UPON AND INURE TO THE BENEFIT OF THE PARTIES AND THEIR RESPECTIVE SUCCESSORS AND PERMITTED ASSIGNS.  NO ASSIGNMENT OF THIS AGREEMENT OR OF ANY RIGHTS OR OBLIGATIONS HEREUNDER MAY BE MADE BY ANY OF THE PARTIES HERETO WITHOUT THE PRIOR WRITTEN CONSENT OF THE OTHER PARTIES HERETO AND ANY ATTEMPTED ASSIGNMENT WITHOUT THE REQUIRED CONSENTS SHALL BE VOID; PROVIDED, HOWEVER, THAT EITHER WELSPUN OR LONE STAR 8 -------------------------------------------------------------------------------- MAY ASSIGN THIS AGREEMENT TO ANY OF THEIR RESPECTIVE CONTROLLED AFFILIATES WITHOUT PRIOR WRITTEN CONSENT SO LONG AS (I) THE PARTY ASSIGNING THIS AGREEMENT OR ANY OF ITS LIABILITIES HEREUNDER SHALL REMAIN LIABLE HEREUNDER NOTWITHSTANDING SUCH ASSIGNMENT AND (II) THE OTHER PARTIES HERETO SHALL BE PROVIDED WITH PROMPT NOTICE OF SUCH ASSIGNMENT. SECTION 6.8             GOVERNING LAW.  THIS AGREEMENT, THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT, AND ANY CLAIM OR CONTROVERSY DIRECTLY OR INDIRECTLY BASED UPON OR ARISING OUT OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT (WHETHER BASED UPON CONTACT, TORT OR ANY OTHER THEORY), INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO ANY CONFLICT OF LAWS PROVISION THAT WOULD REQUIRE THE APPLICATION OF THE LAW OF ANY OTHER JURISDICTION. SECTION 6.9             SEVERABILITY.  IN THE EVENT ANY PROVISION OF THIS AGREEMENT IS HELD TO BE ILLEGAL, INVALID OR UNENFORCEABLE TO ANY EXTENT, THE LEGALITY, VALIDITY AND ENFORCEABILITY OF THE REMAINDER OF THIS AGREEMENT SHALL NOT BE AFFECTED THEREBY AND SHALL REMAIN IN FULL FORCE AND EFFECT AND SHALL BE ENFORCED TO THE GREATEST EXTENT PERMITTED BY LAW. SECTION 6.10           HEADINGS.  THE HEADINGS OF THE ARTICLES AND SECTIONS OF THIS AGREEMENT ARE FOR CONVENIENCE ONLY AND SHALL NOT BE CONSIDERED IN CONSTRUING OR INTERPRETING ANY OF THE TERMS OR PROVISIONS HEREOF. SECTION 6.11           AMENDMENT.  THIS AGREEMENT MAY ONLY BE AMENDED BY A WRITTEN AGREEMENT EXECUTED BY ALL THE PARTIES HERETO. SECTION 6.12           COUNTERPARTS.  THIS AGREEMENT MAY BE EXECUTED IN SEVERAL COUNTERPARTS, ALL OF WHICH TOGETHER SHALL CONSTITUTE ONE AGREEMENT BINDING ON ALL PARTIES HERETO, NOTWITHSTANDING THAT ALL THE PARTIES HAVE NOT SIGNED THE SAME COUNTERPART. SECTION 6.13           ARBITRATION.  EXCEPT AS PROVIDED IN THIS SECTION 6.13, ANY DISPUTE ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE BREACH, TERMINATION OR VALIDITY HEREOF SHALL BE RESOLVED EXCLUSIVELY BY BINDING ARBITRATION (THE “ARBITRATION”) CONDUCTED BEFORE A SINGLE ARBITRATOR (THE “SOLE ARBITRATOR”) IN LONDON, ENGLAND, PURSUANT TO THE UNITED NATIONS COMMISSION ON INTERNATIONAL TRADE LAW (“UNCITRAL”) RULES AND ADMINISTERED BY THE LONDON COURT OF INTERNATIONAL ARBITRATION (“LCIA”).  THE LANGUAGE OF THE ARBITRATION SHALL BE ENGLISH.  EACH PERSON INVOLVED IN SUCH ARBITRATION SHALL PAY ITS OWN LEGAL FEES AND EXPENSES IN CONNECTION WITH ANY SUCH ARBITRATION AND THE PERSONS INVOLVED THEREIN SHALL SHARE EQUALLY THE FEES AND EXPENSES OF THE LCIA AND THE SOLE ARBITRATOR.  THE SOLE ARBITRATOR SHALL BE AN ATTORNEY MUTUALLY AGREED UPON BY THE PARTIES TO THE ARBITRATION OR, IF NO AGREEMENT CAN BE REACHED, TO BE DETERMINED BY THE LCIA.  ALL ARBITRATION PROCEEDINGS AND SESSIONS SHALL BE PRIVATE AND CONFIDENTIAL, AND NO ONE OTHER THAN THE PARTIES AND THEIR LEGAL REPRESENTATIVES MAY ATTEND WITHOUT THE CONSENT OF THE PARTIES OR BY ORDER OF THE SOLE 9 -------------------------------------------------------------------------------- ARBITRATOR.  ALL INFORMATION DISCLOSED IN THE COURSE OF ANY AND ALL ARBITRATION PROCEEDINGS AND SESSIONS SHALL BE MAINTAINED IN STRICT CONFIDENCE EXCEPT TO THE EXTENT DISCLOSURE OF ANY SUCH INFORMATION IS REQUIRED BY LAW.  THE PREVAILING PARTY SHALL BE ENTITLED TO ANY APPROPRIATE RELIEF (INCLUDING MONETARY DAMAGES, IF ANY), AS WELL AS REIMBURSEMENT OF ALL ITS ACTUAL COSTS (INCLUDING SOLE ARBITRATOR’S FEES AND FEES PAYABLE TO THE LCIA) AND ATTORNEYS’ FEES FROM THE OPPOSING PARTY OR PARTIES.  THE DECISION OF THE SOLE ARBITRATOR, AND ANY AWARD PURSUANT THERETO, SHALL BE FINAL, BINDING AND CONCLUSIVE ON THE PERSONS INVOLVED THEREIN AND NOT BE APPEALABLE ON THE MERITS.  FINAL JUDGMENT ON ANY SUCH DECISION AND ANY AWARD MAY BE ENTERED BY A COURT OF COMPETENT JURISDICTION.  NOTWITHSTANDING THE FOREGOING, THIS SECTION 6.13 SHALL NOT PROHIBIT ANY PERSON FROM PURSUING EQUITABLE RELIEF (INCLUDING IMMEDIATE, PRELIMINARY AND PERMANENT INJUNCTIVE RELIEF) TO WHICH IT MAY BE ENTITLED IN ANY COURT OF COMPETENT JURISDICTION IN ORDER TO PRESERVE THE STATUS QUO PENDING RESOLUTION OF THE DISPUTE AT ISSUE. SECTION 6.14           WORD MEANINGS. (a)           The words such as “herein,” “hereinafter,” “hereof,” and “hereunder” refer to this Agreement as a whole and not merely to a subdivision in which such words appear unless the context otherwise requires.  The word “including” or any variation thereof means (unless the context of its usage otherwise requires) “including, without limitation” and shall not be construed to limit any general statement that it follows to the specific or similar items or matters immediately following it. (b)           The singular shall include the plural, and vice versa, unless the context otherwise requires. (c)           Any reference in this Agreement to $ shall mean U.S. dollars.  All monetary amounts referenced herein shall be, unless otherwise specifically referenced, U.S. dollar mounts. (d)           When calculating the period of time before which, within which or following which any act is to be done or step taken pursuant to this Agreement, the date that is the reference date in calculating such period shall be excluded.  If the last day of such period is a non-Business Day, the period in question shall end on the next succeeding Business Day. SECTION 6.15           NO THIRD PARTY RIGHTS.  NONE OF THE PROVISIONS CONTAINED IN THIS AGREEMENT SHALL BE FOR THE BENEFIT OF OR ENFORCEABLE BY ANY THIRD PARTIES, INCLUDING CREDITORS OF THE COMPANY.  THE PARTIES HERETO EXPRESSLY RETAIN ANY AND ALL RIGHTS TO AMEND THIS AGREEMENT AS HEREIN PROVIDED. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.] 10 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by their duly authorized representatives. THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES.   LONE STAR TECHNOLOGIES, INC.                 By: /s/ Rhys J. Best         Name: Rhys J. Best       Title: Chairman/CEO   SIGNATURE PAGE TO MUTUAL SERVICES AGREEMENT -------------------------------------------------------------------------------- THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES.   WELSPUN PIPES, INC.                 By: /s/ Akhil Jindal         Name:  Akhil Jindal       Title: Authorized Signatory   -------------------------------------------------------------------------------- THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES.   WELSPUN-LONE STAR TUBULARS LLC                 By: /s/ Nikhil Amin         Name:Nikhil Amin       Title:Acting President   --------------------------------------------------------------------------------

Exhibit 10.1 Execution AMENDMENT NO. 4 TO CREDIT AGREEMENT This AMENDMENT NO. 4 TO CREDIT AGREEMENT (this “Amendment”), dated as of March 17, 2006, is entered into by and among WINN-DIXIE STORES, INC., Debtor and Debtor-in-Possession, a Florida corporation (“Winn-Dixie”), WINN-DIXIE MONTGOMERY, INC., Debtor and Debtor-in-Possession, a Florida corporation (“W-D Montgomery”), WINN-DIXIE PROCUREMENT, INC., Debtor and Debtor-in-Possession, a Florida corporation (“W-D Procurement”), WINN-DIXIE RALEIGH, INC., Debtor and Debtor-in-Possession, a Florida corporation (“W-D Raleigh”), WINN-DIXIE SUPERMARKETS, INC., Debtor and Debtor-in-Possession, a Florida corporation (“W-D Supermarkets”), DIXIE STORES, INC., Debtor and Debtor-in-Possession, a New York corporation (“Dixie Stores” and together with Winn-Dixie, W-D Montgomery, W-D Procurement, W-D Raleigh and W-D Supermarkets, each a “Borrower” and, collectively, “Borrowers”), the various financial institutions and other Persons from time to time parties to the Credit Agreement (“Lenders”), WACHOVIA BANK, NATIONAL ASSOCIATION, as administrative agent and collateral monitoring agent for the Lenders (in such capacities, “Agent”), GENERAL ELECTRIC CAPITAL CORPORATION and THE CIT GROUP/BUSINESS CREDIT, INC., as syndication agents for the Lenders (in such capacities, “Syndication Agents”), and BANK OF AMERICA, NA , MERRILL LYNCH CAPITAL, A DIVISION OF MERRILL LYNCH BUSINESS FINANCIAL SERVICES, INC., GMAC COMMERCIAL FINANCE LLC and WELLS FARGO FOOTHILL, LLC, as documentation agents for the Lenders (in such capacities, “Documentation Agents”). W I T N E S S E T H: WHEREAS, Agent and Lenders have entered into financing arrangements with Borrowers and Guarantors pursuant to which Agent and Lenders may, upon certain terms and conditions, make loans and advances and provide other financial accommodations to Borrowers as set forth in Credit Agreement, dated February 23, 2005, as amended by Amendment No. 1 to Credit Agreement, dated March 31, 2005, Amendment No. 2 and Consent to Credit Agreement, dated as of July 29, 2005, and Amendment No. 3 to Credit Agreement, dated as of January 31, 2006, among Agent, Syndication Agents, Documentation Agents, Lenders, Wachovia Capital Markets, LLC, as sole lead arranger and sole bookrunner, and Borrowers (as the same now exists and may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced, the “Credit Agreement”) and the other agreements, documents and instruments referred to therein or any time executed and/or delivered in connection therewith or related thereto, including this Amendment (all of the foregoing, together with the Credit Agreement, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced, being collectively referred to herein as the “Loan Documents”); WHEREAS, Borrowers have requested that the Agent and the Lenders make certain amendments to the Credit Agreement, and the Agent and the Lenders are willing to agree to such amendments, subject to the terms and conditions contained herein; and WHEREAS, the parties hereto desire to enter into this Amendment to evidence and effectuate such amendments, subject to the terms and conditions and to the extent set forth herein; -------------------------------------------------------------------------------- NOW, THEREFORE, in consideration of the premises and covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Definitions. (a) Additional Definitions. As used herein, in the Credit Agreement or in any of the other Loan Documents, the following terms shall have the meanings given to them below, and the Credit Agreement shall be deemed and is hereby amended to include, in addition and not in limitation, the following definitions in their proper alphabetical order: (i) “Bubble Stores” means the approximately 35 retail stores leased by Borrowers and/or Guarantors which are located in core areas and are unprofitable. (ii) “Bubble Store Disposition Documents” means the Bubble Store GOB Order, the Bubble Store Lease Disposition Orders and the other agreements, documents and instruments to be executed and/or delivered by any Borrower or Guarantor in connection therewith or related thereto and all exhibits and schedules thereto, as the same now exist and may hereafter be amended, modified or supplemented. (iii) “Bubble Store GOB Order” means the order entered by the Bankruptcy Court approving, among other things, the liquidation of certain assets of the Borrowers and Guarantors from the Bubble Stores. (iv) “Bubble Store Lease Disposition Orders” means, collectively, the orders entered by the Bankruptcy Court approving, among other things, the sale, assumption and assignment of the Leasehold Properties with respect to certain Bubble Stores and the rejection of the Leasehold Properties with respect to the remaining Bubble Stores (and the closure of such remaining Bubble Stores). (b) Amendments to Definitions (i) GOB Sale Documents. The definition of “GOB Sale Documents” set forth in the Credit Agreement is hereby amended by deleting such definition in its entirety and replacing it with the following: “ ‘GOB Sale Documents’ means the GOB Sale Order, the Bubble Store GOB Order, the GOB Agency Agreement, and the other agreements, documents and instruments to be executed and/or delivered by any Borrower or Guarantor in connection therewith or related thereto and all exhibits and schedules thereto, as the same now exist and may hereafter be amended, modified or supplemented.” (ii) Restructuring Plan. The definition of “Restructuring Plan” set forth in the Credit Agreement is hereby amended by deleting such definition in its entirety and replacing it with the following: “ ‘Restructuring Plan’ means the strategic plan of Winn-Dixie dated May 31, 2005 as described in Schedule VI to the Credit Agreement, as supplemented by the GOB Sale Documents, the Pharmacy Scripts Sale Documents, the Retail Store Sale Documents and the Bubble Store Disposition Documents.” (c) Interpretation. Capitalized terms used herein which are not otherwise defined herein shall have the respective meanings ascribed thereto in the Credit Agreement. 2. Schedules to Credit Agreement — Restructuring Plan. Schedule VI to the Credit Agreement is hereby deleted in its entirety and replaced with Schedule VI to this Amendment.   2 -------------------------------------------------------------------------------- 3. Conditions Precedent. (a) The provisions contained herein (other than Sections 1(b)(ii) and 2 hereof) shall be effective as of the date hereof, but only upon the satisfaction of each of the following conditions precedent, in a manner satisfactory to Agent: (i) The Agent shall have received an original of this Amendment, duly authorized, executed and delivered by the Borrowers and the Required Lenders; (ii) The Agent shall have received true, correct and complete copies of the Bubble Store GOB Order and each of the Bubble Store Disposition Documents executed and/or delivered in connection therewith or related thereto, each of which shall be in form and substance satisfactory to the Agent in its discretion; (iii) The Borrowers and the Guarantors shall have complied in full with the notice and all other requirements as provided for under the Bubble Store GOB Order; (iv) The Bubble Store GOB Order (i) shall have been entered by the Bankruptcy Court, (ii) shall be in full force and effect and (iii) shall not have been reversed, stayed, modified or amended without the express written consent of the Agent; (v) Except as otherwise consented to by the Agent at any time, no application or motion shall have been made to the Bankruptcy Court for any stay, modification or amendment of the Bubble Store GOB Order and no stay or motion for a stay with respect to same shall have been entered or made; (vi) Agent shall have received, in form and substance satisfactory to Agent, all consents, waivers, acknowledgments and other agreements from third persons which Agent may deem necessary or desirable in order to effectuate the provisions or purposes of this Amendment; and (vii) as of the date of this Amendment and after giving effect hereto, no Default or Event of Default shall have occurred and be continuing. (b) The provisions contained in Section 1(b)(ii) and 2 hereof shall be effective upon the satisfaction of each of the following conditions precedent, in a manner satisfactory to Agent: (i) The Agent shall have received true, correct and complete copies of the Bubble Store Lease Disposition Orders and each of the Bubble Store Disposition Documents executed and/or delivered in connection therewith or related thereto, each of which shall be in form and substance satisfactory to the Agent in its discretion; (ii) The Borrowers and the Guarantors shall have complied in full with the notice and all other requirements as provided for under the Bubble Store Lease Disposition Orders; (iii) The Bubble Store Lease Disposition Orders (i) shall have been entered by the Bankruptcy Court, (ii) shall be in full force and effect and (iii) shall not have been reversed, stayed, modified or amended without the express written consent of the Agent; (iv) Except as otherwise consented to by the Agent at any time, no application or motion shall have been made to the Bankruptcy Court for any stay, modification or amendment of the Bubble Store Lease Disposition Orders and no stay or motion for a stay with respect to same shall have been entered or made; and   3 -------------------------------------------------------------------------------- (v) as of the date of the entry of the Bubble Store Lease Disposition Orders and after giving effect thereto, no Default or Event of Default shall have occurred and be continuing. 4. Additional Representations, Warranties and Covenants. Each Borrower, jointly and severally, represents, warrants and covenants with and to Agent and Lenders as follows, which representations, warranties and covenants are continuing and shall survive the execution and delivery hereof, and the truth and accuracy of, or compliance with each, together with the representations, warranties and covenants in the other Loan Documents, being a continuing condition of the making of Loans by Lenders to Borrowers: (a) Borrowers and Guarantors shall not, directly or indirectly, amend, modify, alter or change the terms of any of the Bubble Store Disposition Documents, or enter into any Bubble Store Disposition Documents not in effect as of the date hereof without in each case the prior written consent of the Agent; (b) Borrowers and Guarantors shall furnish to Agent all notices or demands in connection with the Bubble Store Disposition Documents either received by any Borrower or Guarantor or on its behalf promptly after the receipt thereof, or sent by any Borrower or Guarantor or on its behalf concurrently with the sending thereof, as the case may be; (c) this Amendment and the other agreements, documents and instruments to be executed and/or delivered by any Borrower in connection herewith or related hereto (together with this Amendment, collectively, the “Amendment Documents”) have been duly authorized, executed and delivered by all necessary action on the part of each Borrower which is a party hereto and thereto and, if necessary, its stockholders and the agreements and obligations of Borrowers contained herein and therein constitute legal, valid and binding obligations of each Borrower enforceable against such Borrower in accordance with their respective terms; (d) neither the execution and delivery of this Amendment, nor the consummation of the transactions herein contemplated, nor compliance with the provisions hereof (i) does or shall conflict with or result in the breach of, or constitute a default in any respect under, any mortgage, deed of trust, security agreement, agreement or instrument to which any Borrower is a party or may be bound, or (ii) shall violate any provision of the Certificate of Incorporation or By-Laws of any Borrower; and (e) as of the date of this Amendment, no Default or Event of Default exists or has occurred. 5. Effect of this Amendment; Entire Agreement. Except as modified pursuant hereto, no other changes or modifications to the Loan Documents are intended or implied, and in all other respects the Loan Documents are hereby specifically ratified, restated and confirmed by all parties hereto as of the date hereof. This Amendment represent the entire agreement and understanding concerning the subject matter hereof and thereof between the parties hereto, and supersede all other prior agreements, understandings, negotiations and discussions, representations, warranties, commitments, proposals, offers and contracts concerning the subject matter hereof, whether oral or written. To the extent of conflict between the terms of this Amendment and the other Loan Documents, the terms of this Amendment shall control. The Credit Agreement and this Amendment shall be read and construed as one agreement.   4 -------------------------------------------------------------------------------- 6. Further Assurances. The parties hereto shall execute and deliver such additional documents and take such additional action as may be reasonably necessary or desirable to effectuate the provisions and purposes of this Amendment. 7. Governing Law. This Amendment will be deemed to be a contract made under and governed by the laws of the State of New York (including for such purpose sections 5-1401 and 5-1402 of the General Obligations Law of the State of New York) but excluding any principles of conflicts of law or other rule of law that would cause the application of the law of any jurisdiction other than the laws of the State of New York and the Bankruptcy Code. 8. Binding Effect. This Amendment shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors and assigns. 9. Headings. The headings listed herein are for convenience only and do not constitute matters to be construed in interpreting this Amendment. 10. Counterparts. This Amendment may be executed in any number of counterparts, but all of such counterparts shall together constitute but one and the same agreement. In making proof of this Amendment, it shall not be necessary to produce or account for more than one counterpart thereof signed by each of the parties hereto. This Amendment may be executed and delivered by telecopier with the same force and effect as if it were a manually executed and delivered counterpart.   5 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized as of the day and year first above written.   BORROWERS:   WINN-DIXIE STORES, INC.,     Debtor and Debtor-in-Possession, as the     Administrative Borrower and a Borrower   By:       Title:     WINN-DIXIE SUPERMARKETS, INC.,       Debtor and Debtor-in-Possession,       as a Borrower   By:       Title:     WINN-DIXIE MONTGOMERY, INC.,       Debtor and Debtor-in-Possession,       as a Borrower   By:       Title:     WINN-DIXIE PROCUREMENT, INC.,       Debtor and Debtor-in-Possession,       as a Borrower   By:       Title:     WINN-DIXIE RALEIGH, INC.,       Debtor and Debtor-in-Possession,       as a Borrower   By:       Title:     DIXIE STORES, INC.,     Debtor and Debtor-in-Possession,     as a Borrower       By:       Title:     -------------------------------------------------------------------------------- AGENTS AND LENDERS:   WACHOVIA BANK, NATIONAL ASSOCIATION,       as the Administrative Agent, the Collateral       Monitoring Agent, the Issuer, a Lender and the Swing       Line Lender   By:       Title:     GENERAL ELECTRIC CAPITAL CORPORATION,       as a Syndication Agent and a Lender   By:       Title:     THE CIT GROUP/BUSINESS CREDIT, INC.,     as a Syndication Agent and a Lender   By:       Title:     BANK OF AMERICA, NA,       as a Documentation Agent and a Lender   By:       Title:     MERRILL LYNCH CAPITAL, A DIVISION OF MERRILL LYNCH BUSINESS FINANCIAL SERVICES, INC., as a Documentation Agent and a Lender   By:       Title:     GMAC COMMERCIAL FINANCE LLC,       as a Documentation Agent and a Lender   By:       Title:     WELLS FARGO FOOTHILL, LLC,       as a Documentation Agent and a Lender   By:       Title:     LASALLE RETAIL FINANCE, A DIVISION OF LASALLE BUSINESS CREDIT, INC., AS AGENT FOR STANDARD FEDERAL BANK, as a Lender   By:       Title:     WESTERNBANK PUERTO RICO, as a Lender   By:       Title:   --------------------------------------------------------------------------------   NATIONAL CITY BUSINESS CREDIT, INC.,       as a Lender   By:       Title:     UBS AG, STAMFORD BRANCH,       as a Lender   By:       Title:     PNC BANK, NATIONAL ASSOCIATION,       as a Lender   By:       Title:     STATE OF CALIFORNIA PUBLIC EMPLOYEES’ RETIREMENT SYSTEM, as a Lender   By:       Title:     AMSOUTH BANK, as a Lender   By:       Title:     WEBSTER BUSINESS CREDIT CORP., as a Lender   By:       Title:     ISRAEL DISCOUNT BANK OF NEW YORK,       as a Lender   By:       Title:     By:       Title:     MARATHON STRUCTURED FINANCE FUND, L.P.,       as a Lender   By:   Marathon Asset Management, L.L.C.   Its:   Investment Manager and Authorized Signatory --------------------------------------------------------------------------------   By:       Title:     RZB FINANCE LLC, as a Lender   By:       Title:     By:       Title:     SOVEREIGN BANK, as a Lender   By:       Title:     ERSTE BANK, as a Lender   By:       Title:     By:       Title:     AZURE FUNDING, as a Lender   By:       Title:     SENIOR DEBT PORTFOLIO, as a Lender   By:       Title:     GRAYSON & CO., as a Lender   By:       Title:     EATON VANCE INSTITUTIONAL SENIOR LOAN FUND, as a Lender   By:       Title:   -------------------------------------------------------------------------------- SCHEDULE VI TO CREDIT AGREEMENT Restructuring Plan 1. The first phase of the Restructuring Plan includes the sale and/or closure of approximately 329 retail stores leased by Borrowers and/or Guarantors which are located in noncore areas or are unprofitable, including (a) the sale of approximately 79 retail stores as going concerns, (b) the closure of the remaining retail stores not sold as going concerns, (c) the sale and/or closure of certain manufacturing facilities and certain distribution centers, and (d) the liquidation of the Inventory, Pharmacy Scripts, furniture, fixtures, equipment, Leasehold Properties and other assets of the Borrowers and Guarantors from the closed retail stores and manufacturing facilities not sold as going concerns. 2. The second phase of the Restructuring Plan includes the disposition of the Bubble Stores, including (a) the liquidation of the Inventory, Pharmacy Scripts, furniture, fixtures, equipment and other assets of the Borrowers and Guarantors from each of the Bubble Stores, and (b) the sale, assumption and assignment of the Leasehold Properties with respect to certain Bubble Stores and the rejection of the Leasehold Properties with respect to the remaining Bubble Stores (and the closure of such remaining Bubble Stores).

  Exhibit 10.1 OSI RESTAURANT PARTNERS, INC. Amendment THIS AMENDMENT (this “Amendment”) is made and entered into effective this 5th day of November, 2006, by and between DIRK MONTGOMERY (“Employee” or “Grantee”) and OSI RESTAURANT PARTNERS, INC., a Delaware corporation (the “Company”). W I T N E S S E T H: WHEREAS, the Company and Employee are party to an Officer Employment Agreement, effective as of October 18, 2005 (the “Employment Agreement”); and WHEREAS, the Company and Employee are party to the Restricted Stock Agreement set forth on Exhibit A attached hereto (the “Restricted Stock Agreement”); and WHEREAS, the Company and Employee desire to amend the Employment Agreement and the Restricted Stock Agreement as set forth herein. NOW, THEREFORE, in consideration of the foregoing recitals, and of the premises, covenants, terms and conditions contained herein, the parties hereto agree as follows: 1. Terms used but not otherwise defined herein shall have the meanings ascribed to them in the Employment Agreement or the Restricted Stock Agreement. 2. The Employment Agreement and the Restricted Stock Agreement are hereby amended to include the following defined terms having the following meanings: “Change of Control” means: (a) The acquisition by any individual, corporation, limited liability company, joint venture, partnership, trust, unincorporated organization or other legal entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of either (i) the then-outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (ii) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that, for purposes of this Agreement, the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Company, (B) any acquisition by the Company or (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any affiliated company;   (b) Individuals who, as of the date hereof, constitute the Board of Directors of the Company (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board of Directors of the Company; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors of the Company;   (c) Consummation of a reorganization, merger, consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), in each case, unless, immediately following such Business Combination, (i) all or substantially all of the Persons that were the beneficial owners of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then-outstanding common stock and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation that, as a result of such transaction, owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Business Combination of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be and (ii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board of Directors of the Company providing for such Business Combination; or   (d) Approval by the stockholders of the Company of a liquidation or dissolution of the Company.   “Good Reason” means any of the following: (a) the assignment to Employee of any duties inconsistent in any respect with Employee’s position (including status, offices, titles, and reporting requirements), authority, duties or responsibilities as in effect immediately prior to a Change of Control or any action by the Company that results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and that is remedied by the Company promptly after receipt of notice thereof given by Employee, (b) a reduction by the Company in Employee’s base salary or benefits as in effect immediately prior to a Change in Control, unless a similar reduction is made in salary and benefits of all employees or (c) the Company requires Employee to be based at or generally work from any location more than fifty miles from the location at which Employee was based or generally worked immediately prior to a Change in Control.   “Severance Amount” means, with respect to Employee, an amount equal to (a) two multiplied by (b) the sum of (i) Employee’s gross annual base salary at the rate in effect immediately prior to a Change of Control and (ii) an amount equal to the aggregate cash bonus compensation paid to Employee for the two fiscal years preceding the year in which a Change of Control occurs divided by two; provided, however, that if Employee was not employed for the entirety of the two fiscal years preceding the year in which a Change of Control occurs, the amount used for purposes of (b)(ii) shall be an amount equal to Employee’s target bonus in the year in which a Change of Control occurs without dividing by two.   3. Section 8(b) of the Employment Agreement is hereby amended in its entirety to read as follows:   “(b) The Employee’s Disability during the Term of Employment. For purposes of this Agreement, “Disability” means a permanent and total disability as defined in Section 22(e)(3) of the Code.”   4. Section 8(c) of the Employment Agreement is hereby amended in its entirety to read as follows:   “(c) The existence of Cause. For purposes of this Agreement, “Cause” means any of the following: (a) gross neglect of duty or prolonged absence from duty (other than any such failure resulting from incapacity due to physical or mental illness) without the consent of the Company, as determined in good faith by the Board of Directors of the Company, (b) conviction or a plea of guilty or nolo contendere with respect to commission of a felony under federal law or in the law of the state in which such action occurred or (c) the willful engaging by Employee in illegal misconduct or gross misconduct that is materially and demonstrably injurious to the Company.”   5. Section 9(b) of the Employment Agreement is hereby amended to add the following as the last sentence of that Section:   “Notwithstanding anything to the contrary contained herein, in the event of a separation from service (as defined in Section 409A of the Internal Revenue Code of 1986, as amended, and the regulations thereunder (the “Code”)) of the Employee caused by the Company without Cause or by the Employee for Good Reason within two years after a Change of Control, the Severance Amount shall be paid in a lump sum by the Company upon or immediately following the Employee’s separation from service; provided, however, that if the Employee is a specified employee of the Company (as defined in Section 409A of the Code), the Severance Amount shall be paid on the date that is one day after the date that is six months following such separation from service (or such earlier date that payment of the Severance Amount can be made without incurring a tax pursuant to Section 409A of the Code).”   6. Section 20 of the Employment Agreement is hereby amended in its entirety to read as follows:   “20. Effect of Termination. The termination of this Agreement, for whatever reason, or the expiration of this Agreement shall not extinguish those obligations of Employee specified in Section 10, Section 11, Section 12, Section 13 and Section 15 hereof or those obligations of the Company specified in Section 9 and Section 34 hereof. The restrictive covenants of Section 10, Section 11, Section 12, Section 13 and Section 15 shall survive the termination or expiration of this Agreement.”   7. The Employment Agreement is hereby amended to add the following as Section 34 thereof:   “34. Excess Parachute Tax Gross-Up. It is possible that a payment or distribution (including, without limitation, any distribution or payment with respect to the vesting of any stock options or restricted stock grants or the vesting of any benefits) to Employee or for Employee’s benefit (whether paid or payable or distributed or distributable) pursuant to the terms of this Agreement, a stock option agreement, a restricted stock agreement or otherwise (a “Payment”) may constitute a “parachute payment” within the meaning of Section 280G of the Code. The Company acknowledges that the protections set forth in this Section 34 are important, and it is agreed that, except as provided in Section 34(a) below, Employee should not have to bear the burden of any excise tax that might be levied under Section 4999 of the Code (such excise tax, together with any interest or penalties incurred by Employee with respect to such excise tax, being collectively referred to as the “Excise Tax”) as a result of Employee’s receipt of the amounts or benefits payable to Employee pursuant to this Agreement, a stock option agreement, a restricted stock agreement or otherwise. The following shall therefore apply: (a) If it is determined that any Payment is subject to the Excise Tax, then the Company shall pay to or on behalf of Employee an additional payment (a “Gross-Up Payment”) in an amount such that after payment by Employee of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest or penalties imposed with respect thereto) and Excise Tax, imposed upon the Gross-Up Payment, but excluding any income taxes and penalties imposed pursuant to Section 409A of the Code, Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment. Notwithstanding the foregoing provisions of this Section 34(a), if it shall be determined that Employee is entitled to the Gross-Up Payment, but that the Parachute Value (as defined below) of all Payments does not exceed 110% of the Safe Harbor Amount (as defined below), then no Gross-Up Payment shall be made to Employee and the amounts payable under this Agreement shall be reduced so that the Parachute Value of all Payments, in the aggregate, equals the Safe Harbor Amount. The reduction of the amounts payable hereunder, if applicable, shall be made by first reducing the Severance Amount, unless an alternative method of reduction is elected by Employee, and in any event shall be made in such a manner as to maximize the Value (as defined below) of all Payments actually made to Employee. For purposes of reducing the Payments to the Safe Harbor Amount, only amounts payable under this Agreement (and no other Payments) shall be reduced. If the reduction of the amount payable under this Agreement would not result in a reduction of the Parachute Value of all Payments to the Safe Harbor Amount, no amounts payable under the Agreement shall be reduced pursuant to this Section 34(a). The foregoing determinations will be made by the Company’s tax accountants serving immediately prior to a Change of Control (the “Accountants”) in consultation with Employee and the Company and in accordance with the analysis, valuations and calculations prepared by the Accountants in connection with Section 34(b), below. Employee and the Company will each provide the Accountants access to and copies of any books, records, and documents in the possession of Employee or the Company, as the case may be, reasonably requested by the Accountants, and otherwise cooperate with the Accountants in connection with the preparation and issuance of the determinations and calculations contemplated by this Section 34.   (b) The Company shall cause all determinations required to be made under this Section 34, including the assumptions to be utilized in arriving at such determinations, to be made by the Accountants, which shall provide Employee and the Company with their determinations and detailed supporting calculations with respect thereto at least 15 business days prior to the date on which Employee would be entitled to receive a Payment (or as soon as practicable in the event that the Accountants have less than 15 business days advance notice that Employee may receive a Payment) in order that Employee may determine whether Employee concurs with such determination. For the purpose of determining whether any of the Payments will be subject to the Excise Tax and the amount of such Excise Tax, such Payments will be treated as “parachute payments” within the meaning of Section 280G of the Code, and all “parachute payments” in excess of the “base amount” (as defined under Section 280G(b)(3) of the Code) shall be treated as subject to the Excise Tax, unless and except to the extent that in the opinion of the Accountants such Payments (in whole or in part) either do not constitute “parachute payments” or represent reasonable compensation for services actually rendered (within the meaning of Section 280G(b)(4) of the Code) in excess of the “base amount,” or such “parachute payments” are otherwise not subject to such Excise Tax. Any determination by the Accountants shall be binding upon the Company and Employee. The amount of any Gross-Up Payment shall be paid in a lump sum within seven days following such determination by the Accountants. In the event that the Accountant’s determination is not finally accepted by the Internal Revenue Service (the “IRS”), Employee shall notify the Company in writing of any such claim by the IRS. Such notification shall be given as soon as practicable after Employee is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which any incremental tax attributable to such claim is requested to be paid. In connection with any claim or potential contest of such claim, Employee and the Company will provide each other access to and copies of any books, records, and documents in the possession of Employee or the Company, as the case may be, reasonably requested by the other party, and will otherwise cooperate with each other in connection with any such claim. In the event that Employee or the Company contest such claim, the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest. Upon resolution of any such claim, an appropriate adjustment, including penalties and interest, if any, shall be computed (with an additional Gross-Up Payment, if applicable) by the Accountants based upon the final amount of the Excise Tax so determined. Such adjustment shall be paid by the appropriate party in a lump sum within seven days following the computation of such adjustment by the Accountants. Nothing contained in this Section 34 shall limit Employee’s ability or entitlement to settle or contest as the case may be, any claim or issue asserted by the IRS. All fees and expenses of the Accountants incurred pursuant to this Section 34 and all costs associated with such claims by the IRS or any other taxing authority shall be borne solely by the Company.” (c) The following terms shall have the following meanings for purposes of this Section 34. (i) “Parachute Value” of a Payment shall mean the present value as of the date of the change of control for purposes of Section 280G of the Code of the portion of such Payment that constitutes a “parachute payment” under Section 280G(b)(2), as determined by the Accountants for purposes of determining whether and to what extent the Excise Tax will apply to such Payment. (ii) The “Safe Harbor Amount” means 2.99 times the Employee’s “base amount,” within the meaning of Section 280G(b)(3) of the Code. (iii) “Value” of a Payment shall mean the economic present value of a Payment as of the date of the change of control for purposes of Section 280G of the Code, as determined by the Accountants using the discount rate required by Section 280G(d)(4) of the Code. Notwithstanding any other provision of this Section 33, the Company may, in its sole discretion, withhold and pay over to the Internal Revenue Service or any other applicable taxing authority, for the benefit of Employee, all or any portion of any Gross-Up Payment, and Employee hereby consents to such withholding. 8. Section 2 of the Restricted Stock Agreement is hereby amended to add the following as subsection (d) thereof:   “(d) Notwithstanding anything to the contrary contained herein, the Restricted Stock shall become fully vested and all restrictions on the Restricted Stock shall lapse if within two years after the effective date of a Change of Control (a) Grantee’s employment is terminated by the Company without Cause, (b) Grantee resigns for Good Reason or (c) Grantee dies or suffers a Disability. For purposes of this Agreement, the defined terms used in the foregoing sentence shall have the meanings given to them under the Grantee’s employment agreement with the Company as amended.” 9. Section 5 of the Restricted Stock Agreement is hereby amended in its entirety to read as follows:   “Section 5. Termination of Employment. Except as otherwise provided in paragraph (c) or (d) of Section 2 hereof, if the Grantee does not remain employed by the Company in the position of Chief Financial Officer (or higher) through the Final Vesting Date, all shares of Restricted Stock not vested as of the date Grantee is no longer employed by the Company in the position of Chief Financial Officer (or higher) will be forfeited.” 10. This Amendment may be executed in counterparts, each of which will constitute an original and all of which together will constitute one agreement. The signature page of any individual or entity, or copies or facsimiles thereof, may be appended to any counterpart of this Amendment and when so appended will constitute an original.   11. Except as expressly amended by this Amendment, all terms and conditions of the Employment Agreement and the Incentive Compensations Agreements remain in full force and effect and are unmodified hereby.   [signature page follows]   -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties have executed or caused this Amendment to be executed as of the day and year first above written. OSI RESTAURANT PARTNERS, INC. By: /s/ Joseph W. Hartnett    Name:  Joseph W. Hartnett    Title: Vice President       /s/ Dirk Montgomery     Dirk Montgomery -------------------------------------------------------------------------------- EXHIBIT A   Restricted Stock Agreement, effective as of October 18, 2005, between the Company and Grantee   23120, 91001, 101378147.1 

Exhibit 10.45   AMENDED AND RESTATED SEVERANCE AND CHANGE OF CONTROL AGREEMENT   This Amended and Restated Severance and Change of Control Agreement (“Agreement”) is effective as of March 28, 2006, between Wireless Facilities, Inc. (“WFI”) and Deanna Lund (“Lund”), as approved by WFI’s Board Compensation Committee.   A.                                   Lund is presently employed as Chief Financial Officer pursuant to an offer letter dated March 15, 2004 (the “Offer Letter”).   B.                                     On March 28, 2005, WFI and Lund entered into a Change of Control Agreement (the “Original Agreement”), which memorialized in writing their understanding regarding the vesting of stock options and stock appreciation rights granted to Lund under WFI’s equity incentive plans in the event of a Change of Control.   C.                                     As consideration for Lund’s agreement to undertake and continue her duties and responsibilities in her role as Chief Financial Officer in light of the changed circumstances at the Company since the date of the Original Agreement, WFI and Lund desire to enter into this Agreement to (i) amend and restate paragraph 2 of the Original Agreement to provide for the payment of severance compensation to Lund upon a termination without Cause, (ii) revise the definition of Cause in paragraph 3(c) of the Original Agreement, and (iii) add a new paragraph 6 to address compliance with Section 409A of the Internal Revenue Code of 1986 (the “Code”).   Therefore, in consideration of the promises and the mutual covenants contained below, and for other good and valuable consideration, receipt of which is hereby acknowledged, the parties agree as follows:   1.                                       Vesting Upon Change of Control. Upon the closing of a transaction that constitutes a Change of Control (as defined in paragraph 3(a) below), the vesting of 50% of all stock options and stock appreciation rights granted to Lund under WFI’s equity incentive plans that as of the date of such Change of Control remain unvested shall accelerate, to the extent permissible by law, notwithstanding and in addition to any existing vesting provisions set forth in such stock option, stock appreciation right and/or WFI equity incentive plan. On the one year anniversary of such Change of Control or upon a Triggering Event (as defined in paragraph 3(b) below), whichever occurs sooner, the remaining unvested portion of any stock options and stock appreciation rights shall immediately vest.   2.                                       Severance Payments. If Lund is (a) terminated without Cause (as defined in paragraph 3(c) below) or (b) voluntarily resigns from WFI as a result of a Triggering Event (as defined in paragraph 3(b) below) after a Change of Control (as defined in paragraph 3(a) below), then Lund will be entitled to receive in satisfaction of all obligations (other than as provided in paragraph 1 above) that WFI may have to Lund: (i) in the case of 2(a) hereof, severance compensation equal to one year of her base salary then in effect; or in the case of 2 (b) hereof, severance compensation equal to two years of her base salary plus her maximum potential bonus amount for two years; in either case, less applicable taxes and withholding; and, if needed by Lund, (ii) her then-current health insurance coverage, at the then current employee cost, during the twelve (12) month period following a termination in the case of 2 (a); or during the twenty-four (24) month period following a resignation in the case of 2(b). In addition, in the event that Lund is terminated without Cause, the vesting of 100% of all stock options and stock appreciation rights granted to Lund under WFI’s equity incentive plans that as of the date of such termination remain unvested shall accelerate, to the extent permissible by law, notwithstanding and in addition to any existing vesting provisions set forth in such stock option, stock appreciation right   --------------------------------------------------------------------------------   and/or WFI equity incentive plan. The foregoing severance compensation, health insurance coverage and acceleration of vesting will be conditioned upon Lund’s execution of a separation agreement with a release of claims reasonably satisfactory to WFI and such severance compensation shall be paid in a single lump sum payment promptly after Lund’s execution of such separation agreement.   3.                                       Definition of Change of Control and Triggering Event.   (a)                                  A Change of Control means: (i) the acquisition by an individual person or entity or a group of individuals or entities acting in concert, directly or indirectly, through one transaction or a series of transactions, of more than 50% of the outstanding voting securities of WFI; (ii) a merger or consolidation of WFI with or into another entity after which the stockholders of WFI immediately prior to such transaction hold less than 50% of the voting securities of the surviving entity; (iii) any action or event that results in the Board of Directors consisting of fewer than a majority of Incumbent Directors (“Incumbent Directors” shall mean directors who either (A) are directors of WFI as of the date hereof, or (B) are elected or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination); or (iv) a sale of all or substantially all of the assets of WFI.   (b)                                 A Triggering Event means (i) Lund’s termination from employment; (ii) a material change in the nature of Lund’s role or job responsibilities so that Lund’s job duties and responsibilities after the Change of Control, when considered in their totality as a whole, are substantially different in nature from the job duties Lund performed immediately prior to the Change of Control; or (iii) the relocation of Lund’s principal place of work to a location of more that thirty (30) miles from the location Lund was assigned to immediately prior to the Change of Control.   (c)                                  “Cause” means (i) acts or omissions constituting gross negligence, recklessness or willful misconduct on the part of Lund with respect to Lund’s obligations or otherwise relating to the business of WFI; (ii) Lund’s material breach of this Agreement or WFI’s standard form of confidentiality agreement; (iii) Lund’s conviction or entry of a plea of nolo contendere for fraud, misappropriation or embezzlement, or any felony or crime of moral turpitude; (iv) Lund’s failure to perform her duties and responsibilities as Chief Financial Officer to the reasonable satisfaction of the Board after being provided with notice thereof and thirty (30) days opportunity to remedy such failure; and (v) Lund’s willful neglect of duties or poor performance. Notwithstanding the foregoing, a termination under subsection (v) shall not constitute a termination for “Cause” unless WFI has first given Lund written notice of the offending conduct (such notice shall include a description of remedial actions that WFI reasonably deems appropriate to cure such offending conduct) and a thirty (30) day opportunity to cure such offending conduct. In the event WFI terminates Lund’s employment under subsection (v), WFI agrees to participate in binding arbitration, if requested by Lund, to determine whether the cause for termination was willful neglect of duties or poor performance as opposed to some other reason that does not constitute Cause under this Agreement.   4.                                       General Provisions. Except as set forth in this Agreement, the terms of the Offer Letter remain unchanged. Nothing in this Agreement is intended to change the at-will nature of Lund’s employment with WFI. This Agreement and the Offer Letter, including the Additional Terms and Conditions attached thereto and the Proprietary Information and Innovations Agreement signed by Lund, constitute the entire agreement between Lund and WFI with respect to Lund’s employment with WFI, and supersedes and replaces the Original Agreement in its   --------------------------------------------------------------------------------   entirety. No amendment or modification of the terms or conditions of this Agreement shall be valid unless in writing and signed by the parties.   5.                                       Compliance with Section 409A of the Code. This Agreement is intended to comply with Section 409A of the Code (or any regulations or rulings thereunder), and shall be construed and interpreted in accordance with such intent. Notwithstanding anything to the contrary in this Agreement, WFI, in the exercise of its sole discretion and without the consent of Lund, (a) may amend or modify this Agreement in any manner in order to meet the requirements of Section 409A of the Code as amplified by any Internal Revenue Service or U.S. Treasury Department guidance and (b) shall have the authority to delay the payment of any amounts or the provision of any benefits under this Agreement to the extent it deems necessary or appropriate to comply with Section 409A(a)(2)(B)(i) of the Code (relating to payments made to certain “key employees” of certain publicly-traded companies) as amplified by any Internal Revenue Service or U.S. Treasury Department guidance as WFI deems appropriate or advisable. In such event, any amounts or benefits under this Agreement to which Lund would otherwise be entitled during the six (6) month period following Lund’s termination of employment will be paid on the first business day following the expiration of such six (6) month period. Any provision of this Agreement that would cause the payment of any benefit to fail to satisfy Section 409A of the Code shall have no force and effect until amended to comply with Code Section 409A (which amendment may be retroactive to the extent permitted by the Code or any regulations or rulings thereunder).         Deanna H. Lund             Dated: March 28, 2006 /s/ Deanna H. Lund     Wireless Facilities, Inc.             Dated: March 28,2006 By: /s/ Eric DeMarco       Eric DeMarco, Chief Executive Officer   --------------------------------------------------------------------------------

Exhibit 10.62 STATE AUTO PROPERTY & CASUALTY INSURANCE COMPANY AMENDED AND RESTATED INCENTIVE DEFERRED COMPENSATION PLAN Initially Effective August 1, 1995, and as amended and restated March 1, 2001 -------------------------------------------------------------------------------- STATE AUTO PROPERTY & CASUALTY INSURANCE COMPANY AMENDED AND RESTATED INCENTIVE DEFERRED COMPENSATION PLAN (the “Plan”) I PURPOSE State Auto Property & Casualty Insurance Company (the “Company”) is willing to provide as an incentive for those individuals to continue their relationship with the Company, the benefits certain key employees could otherwise earn under the State Auto Insurance Companies Capital Accumulation Plan (the “Qualified Plan”) if certain federal law restrictions did not apply and to provide such individuals an opportunity to defer designated amounts of salary and bonuses. Only a select group of the Company’s management or highly compensated employees will be eligible to participate in this program. The Company’s goal is to retain and reward its key employees by helping them to accumulate benefits for retirement. The Plan is the continuation of the State Auto Insurance Companies Incentive Deferred Compensation Plan effective August 1, 1995, which is being amended and restated effective March 1, 2001, to reflect (1) two additional investment options in which a participant may be permitted to direct the investment of the portion of the Company’s funds allocated to him; and (2) the assignment to, and assumption by, the Company of all rights, duties and obligations under the Plan from State Automobile Mutual Insurance Company and its other affiliates. II ELIGIBILITY Selection of the Company’s employees eligible to participate in the Plan is within the sole discretion of the President, Chairman and C.E.O. of State Auto Property & Casualty Insurance Company (the “Chairman”). Only high income or key management employees are eligible for selection by the Chairman. If you fall into one of these groups and are chosen by the Chairman to participate in the Plan, you will sign an Incentive Deferred Compensation Agreement which details the requirements you must satisfy to be eligible to receive this additional retirement benefit from the Company. The Chairman will review and determine his selections each year. Thus, selection in one year does not automatically confer a right to participate in succeeding years. III INCENTIVE DEFERRED COMPENSATION ACCUMULATIONS The benefits provided to participants under their Incentive Deferred Compensation Agreements are paid from the Company’s general assets. The program is, therefore, considered to be an “unfunded” arrangement as amounts are not set aside or held by the Company in a trust, escrow, or similar account or fiduciary relationship on your behalf. Each participant’s rights to   - 1 - -------------------------------------------------------------------------------- benefits under the Plan are equivalent to the rights of any unsecured general creditor of the Company. However, the Company may (a) open accounts with one or more investment companies selected by the Chairman, in his discretion, including from among those used as investment options under the Qualified Plan, (b) open accounts with one or more firms to hold common shares, without par value, of State Auto Financial Corporation, purchased in open market transactions (“STFC Shares”), or (c) create phantom stock units each of which shall represent the fair market value one STFC share, (“Phantom Stock Units”), and may invest funds subject to this Plan in these mutual funds, STFC Shares or Phantom Stock Units (collectively, the “investment options”) at their then current offering price or market value, as the case may be. Each participant may be permitted to direct how the portion of the Company’s funds allocable to him or her is invested among the investment options, if such accounts are established and such Phantom Stock Units are created. The Company currently expects any such investment options (other than the Phantom Stock Units) to be similar to those available under the Qualified Plan, but is not obligated to make these or any other particular investment options available or, if made available at any one time, to continue to make them available. The total number of STFC Shares that may be made available as an investment option hereunder is 250,000. All investments shall at all times continue to be a part of the Company’s general assets for all purposes. To measure the amount of the Company’s obligations to a participant in this program, the Company will maintain a bookkeeping record or account of each participant’s “Accumulations.” There are two basic components of each participant’s Accumulations: First, to encourage each participant to invest in his or her own future, you may also elect (within 30 days of when you first become eligible to participate in the Plan for your initial year of participation or, for subsequent years, not later than the December 31 prior to each such year) to defer payment of a portion of your compensation to be earned during the balance of the current or next calendar year, as applicable, as a credit to your Accumulations. This source of Accumulations, adjusted for earnings or losses as described below, is known as the “Deferral Value.” The minimum amount you may defer is 1% and the maximum is 100% of your compensation, less the amount deferrable through the Qualified Plan. For this purpose, your compensation includes salary, commission and bonus payments made for the year, but does not include other cash or noncash compensation, expense reimbursements or other benefits provided by the Company, other than your own salary deferrals into this Plan or the Qualified Plan. Also, who is eligible to participate in the deferral portion of the Plan is determined on a year to year basis by the Company. If you were a participant one year but are not eligible in a succeeding year, you will still be a participant, but will be treated as “inactive.” Second, the Company will also match your deferral at the same rate it is generally matching 401(k) deferrals under the Qualified Plan for the period in question. Any “caps” on the match under the Qualified Plan will also apply to this Plan, with the match under this Plan being offset by the match to the Qualified Plan to the extent duplicative. For example, at the   - 2 - -------------------------------------------------------------------------------- present time under the Qualified Plan the Company will match up to 6% of salary at the rate of 75 cents on the dollar on up to the first 2% of salary plus 50 cents on the dollar for three to six percent of salary. Under this Plan, the Company will similarly match up to 6% of all compensation, as defined above, less amounts matched under the Qualified Plan. The amounts credited to your Accumulations on a matching basis, adjusted for earnings or losses as described below, are referred to as your “Matching Value.” Earnings (or Losses): At least once each calendar year while you have a credit balance in your Accumulations, the Company will credit your Accumulations with earnings (or losses), if any, for the period since the last such crediting and determine the value of your Accumulations at that time. The earnings (or losses) may either be credited on the basis of the earnings (or losses) allocable to your directed portion of the Company investment options, if any, or on the basis of a hypothetical earnings rate, as determined by the Company in its sole discretion from time to time. The Company also reserves the right to adjust the earnings (or losses) credited to your Accumulations and to determine the value of your Accumulations as of any date by adjusting such earnings (or losses) or such fair market value for the Company’s tax and other costs of providing this Plan. Tax Consequences: These earnings may compensate for the postponement of the receipt of the Accumulations and give you the benefit of tax-deferred growth of the accumulating amounts, if any. Under current federal income tax rules, the amounts credited to your Accumulations, including earnings, will not be taxable income to you in the year they are credited to your account. You, or your beneficiaries in the event of your death, will generally be taxed on these amounts and the credited earnings, if any, only if and when benefits are actually paid to you. And any such amounts, when paid, will be taxable as ordinary income. Thus, this program provides the opportunity to defer income and the payment of income taxes. Selection of Investment Options: In the event the Company makes some or all of the investment options available to participants, at such time each year as you elect to defer a portion of your compensation (the “Deferred Amount”), you will be given a form pursuant to which you may direct how such Deferred Amount is to be invested among the available investment options. The Company may also provide information to participants how they may change their directions with respect to the allocation of their Deferred Amount among the investment options or reallocate their Accumulations among the investment options, from time to time. The Company will invest a participant’s Deferred Amount in accordance with the participant’s directions upon such amount being deemed by the Company to have been earned. All purchases by the Company of shares of investment companies will be at such shares’ current offering price, and purchases by the Company of STFC Shares will be made in the open market at their then current market value. The Company, however, reserves the right to delay or suspend its purchase of STFC Shares as it may deem necessary or appropriate to comply with all applicable securities laws, including the Securities Exchange Act of 1934, as amended.   - 3 - -------------------------------------------------------------------------------- The Company may also periodically advise participants generally as to reporting requirements and other possible limitations associated with directing a portion of their Deferral Amount or Accumulations be invested in STFC Shares. IV BENEFITS   A. Vesting If you participate in the deferral portion of the Plan, your Deferral Value will always be 100% “vested.” This means you will always be entitled to receive benefits from this portion of your Accumulations. The portion of your Accumulations derived from the Matching Value will not be vested until you complete 5 years of service for the Company. A “year of service” for this purpose means a period of 12 consecutive calendar months during which you were employed by the Company. Years of service are calculated from the date you were first hired as an employee by the Company, and anniversaries of that date. In addition, you also become 100% vested in your Matching Value Accumulations upon retirement, upon your death, or if you become permanently disabled prior to retirement or other termination of service with the Company.   B. Forfeiture of Benefits If your employment with the Company terminates for any reason other than retirement, death, or disability prior to the time you have completed 5 years of service, you will forfeit your rights to receive benefits under the Plan, except that you will still be entitled to receive benefits based on your Deferral Value.   C. Payment of Benefits. 1. Cash Payment Only. Any benefits payable to you under the Plan will be made solely in cash and not in the form of any other property or securities, including any shares of an investment company or STFC Shares that may be an investment option hereunder. Any investment options representing a participant’s Accumulations under the Plan are the sole and exclusive property of the Company. As a result, you will have no rights as a shareholder, including voting rights, with respect to these investment options representing your Accumulations. 2. Retirement Benefits. You will be eligible to receive retirement benefits under the Plan upon your retirement. Retirement benefits will generally be paid as a monthly benefit payable for 60 months. The amount of your benefit will equal the amount necessary to amortize your total Accumulations over the 60 month period. The amount payable each month will either be based on an approximately equal amortization of principal plus actual earnings (or less actual losses) or an amortization based on an assumed interest rate declared by the   - 4 - -------------------------------------------------------------------------------- Company from time to time during the period of distribution. You must give the Company at least 30 days advance written notice of your intention to retire and receive retirement benefits. Actual benefit payments will begin on the first day of the second month following your satisfaction of all requirements for payment. 3. Disability Benefits. If you become totally disabled before satisfying the requirements for retirement benefits, you will be eligible to receive payment of the amounts credited to your Accumulations as a monthly benefit commencing after six months of total disability and payable for 60 months. The amount of the benefit will be determined in the same manner as retirement benefits. For this purpose, “total disability” means a physical or mental condition which totally and presumably permanently prevents you from engaging in your usual occupation or any occupation for which you are qualified by reason of training, education, or experience. It is up to the Company to determine whether you qualify as being totally disabled and the Company may require you to submit to periodic medical examinations to confirm that you are, and continue to be, totally disabled. If your disability ends, your disability benefit payments will stop. However, you could continue to qualify for benefits under another provision of the Plan. 4. Death Benefits. In the event of your death while receiving benefit payments under the Plan, the Company will pay the beneficiary or beneficiaries designated by you any remaining payments due under the terms of your Incentive Deferred Compensation Agreement, using the same method of distribution in effect to you at the date of your death. In the event of death prior to beginning to receive benefits under the Incentive Deferred Compensation Agreement, the Company will pay any vested benefits to your beneficiary or beneficiaries, beginning as soon as practicable after your death. In this case, benefits will generally be paid as a monthly benefit payable for 60 months computed in the same manner as retirement benefits. The Company will provide you with the form for designating your beneficiary or beneficiaries. If you fail to make a beneficiary designation, or if your designated beneficiary predeceases you or cannot be located, any death benefits will be paid to your estate. 5. Other Termination of Service. If your service with the Company terminates for any reason other than retirement, death, or total disability, then the vested portion of your Accumulations will be paid to you as a monthly benefit payable for 60 months computed in the same manner as retirement benefits, beginning as soon as administratively practicable after your employment terminates. 6. Payment Alternatives. At the Company’s election, or upon your request, benefits may be paid in a lump sum or over a shorter or longer period of time than the 60 months generally called for, as described above. However, no request by you or your beneficiaries for a different payment method will be binding on the Company, and any accelerated or deferred payment of benefits shall be made only in the sole discretion of the Company. In addition, the Company may alter the payment method in effect from time to time in its discretion, for example, in order   - 5- -------------------------------------------------------------------------------- to avoid the loss of a deduction under Code §162(m). If the payment method is altered, the amount you or your beneficiaries will receive will be computed under one of the alternative methods for determining payment amounts provided for under the normal form of distribution for your Accumulations, determined by the Company in its discretion. V MISCELLANEOUS PROVISIONS   A. No Right to Company Assets. As explained previously, this Incentive Deferred Compensation Plan is an unfunded arrangement and the agreement you will enter into with the Company does not create a trust of any kind or a fiduciary relationship between the Company and you, your designated beneficiaries or any other person. To the extent you, your designated beneficiaries, or any other person acquires a right to receive payments from the Company under the Incentive Deferred Compensation Agreement, that right is no greater than the right of any unsecured general creditor of the Company.   B. Modification or Revocation. Your Incentive Deferred Compensation Agreement will continue in effect until revoked, terminated, or all benefits are paid, even during any period of time when you are an “inactive” participant because you are not designated by the Company as eligible to accumulate additional benefits. However, the Incentive Deferred Compensation Agreement and this Plan may be amended, revoked or terminated at any time, in whole or in part, by the Company in its sole discretion. Unless you agree otherwise, you will still be entitled to the vested benefit, if any, that you have earned through the date of any amendment or revocation. Such benefits will be payable at the times and in the amounts provided for in the Incentive Deferred Compensation Agreement, or the Company may elect to accelerate distribution and pay all amounts due immediately. The Plan will continue until terminated by the Company, which may be at any time, in the Company’s discretion.   C. Rights Preserved. Nothing in the Incentive Deferred Compensation Agreement or this Plan gives any employee the right to continued employment by the Company. The relationship between you and the Company shall continue to be “at will” and may be terminated at any time by the Company or you, with or without cause, except as may be specifically set forth in any separate written employment agreement between you and the Company.   - 6 - -------------------------------------------------------------------------------- D. Controlling Documents. This is merely a summary of the key provisions of the Incentive Deferred Compensation Agreement currently in use by the Company. In the event of any conflict between the provisions of this Plan and the Incentive Deferred Compensation Agreement, the Agreement shall in all cases control.   - 7 -

Exhibit 10.56   2006 Named Executive Officer Base Compensation and Short-Term Incentive Targets   2006 Base Salary and Short-Term Incentive Targets. The Compensation Committee approved base salaries and short-term incentive targets for certain executive officers for 2006 as follows: Vance N. Booker, Senior Vice President, Administration - $350,000 and 55% respectively, and James R. Harris, Senior Vice President and Philippines Region Head - $275,000 and 50%, respectively. The base salaries and short-term incentive targets of Mirant’s other executive officers are set forth in their employment agreements and no changes have been made at this time.   --------------------------------------------------------------------------------

Exhibit 10.41 ORANGE 21 INC. 2004 Stock Incentive Plan Notice of Stock Option Grant You have been granted the following Option to purchase Common Stock of Orange 21 Inc. (the “Company”) under the Company’s 2004 Stock Incentive Plan (the “Plan”):   Name of Optionee:    Jerry Collazo Total Number of Option Shares Granted:    20,000 Type of Option:    Incentive Stock Option Exercise Price Per Share:    $4.89 Grant Date:    October 12, 2006 Vesting Commencement Date:    See vesting schedule below Vesting Schedule:    The option shall vest and be exercisable pursuant to the following schedule: the option shall be exercisable with respect to 25% of the shares on the first anniversary of the grant date, and shall be exercisable with respect to 1/48 of the shares on each monthly anniversary of the grant date thereafter. Expiration Date:    October 12, 2016. This Option expires earlier if your Service (as defined in the Plan) terminates earlier, as described in the Stock Option Agreement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -------------------------------------------------------------------------------- By your signature and the signature of the Company’s representative below, you and the Company agree that this Option is granted under and governed by the term and conditions of the Plan and the Stock Option Agreement, both of which are attached to and made a part of this document.   OPTIONEE:     ORANGE 21 INC. /s/ Jerry Collazo     By:   /s/ Barry Buchholtz Optionee’s Signature       Jerry Collazo     Name:   Barry Buchholtz Optionee’s Printed Name       Title:     Chief Executive Officer -------------------------------------------------------------------------------- ORANGE 21 INC. 2004 STOCK INCENTIVE PLAN STOCK OPTION AGREEMENT   Tax Treatment    This Option is intended to be an incentive stock option under Section 422 of the Internal Revenue Code or a nonstatutory option, as provided in the Notice of Stock Option Grant. Even if this Option is designated as an incentive stock option, it shall be deemed to be a nonstatutory option to the extent required by the $100,000 annual limitation under Section 422(d) of the Internal Revenue Code. Vesting    The option shall vest and be exercisable pursuant to the following schedule: the option shall be exercisable with respect to 25% of the shares on the first anniversary of the grant date, and shall be exercisable with respect to 1/48 of the shares on each monthly anniversary of the grant date thereafter. Term    This Option expires in any event at the close of business at Company headquarters on October 12, 2006. This Option may expire earlier if your Service terminates, as described below. Regular Termination    If your Service terminates for any reason except death or “Total and Permanent Disability” (as defined in the Plan), then this Option will expire at the close of business at Company headquarters on the date three (3) months after the date your Service terminates (or, if earlier, the Expiration Date). The Company has discretion to determine when your Service terminates for all purposes of the Plan and its determinations are conclusive and binding on all persons. Death    If you die, then this Option will expire at the close of business at Company headquarters on the date twelve (12) months after the date your Service terminates (or, if earlier, the Expiration Date). During that period of up to twelve (12) months, your estate or heirs may exercise the Option. Disability    If your Service terminates because of your Total and Permanent Disability, then this Option will expire at the close of business at Company headquarters on the date twelve (12) months after the date your Service terminates (or, if earlier, the Expiration Date). -------------------------------------------------------------------------------- Leaves of Absence    For purposes of this Option, your Service does not terminate when you go on a military leave, a sick leave or another bona fide leave of absence, if the leave was approved by the Company in writing and if continued crediting of Service is required by the terms of the leave or by applicable law. But your Service terminates when the approved leave ends, unless you immediately return to active work.   If you go on a leave of absence, then the vesting schedule specified in the Notice of Stock Option Grant may be adjusted in accordance with the Company’s leave of absence policy or the terms of your leave. If you commence working on a part-time basis, then the vesting schedule specified in the Notice of Stock Option Grant may be adjusted in accordance with the Company’s part-time work policy or the terms of an agreement between you and the Company pertaining to your part-time schedule. Restrictions on Exercise    The Company will not permit you to exercise this Option if the issuance of shares at that time would violate any law or regulation. The inability of the Company to obtain approval from any regulatory body having authority deemed by the Company to be necessary to the lawful issuance and sale of the Company stock pursuant to this Option shall relieve the Company of any liability with respect to the non-issuance or sale of the Company stock as to which such approval shall not have been obtained. However, the Company shall use its best efforts to obtain such approval. Notice of Exercise    When you wish to exercise this Option you must notify the Company by completing the attached “Notice of Exercise of Stock Option” form and filing it with the Option Administrator. You notice must specify how many shares you wish to purchase. Your notice must also specify how your shares should be registered. The notice will be effective when it is received by the Company. If someone else wants to exercise this Option after your death, that person must prove to the Company’s satisfaction that he or she is entitled to do so. Form of Payment    When you submit your notice of exercise, you must include payment of the Option exercise price for the shares you are purchasing. Payment may be made in the following form(s):    •        Your personal check, a cashier’s check or a money order. --------------------------------------------------------------------------------    •        Certificates for shares of Company stock that you own, along with any forms needed to effect a transfer of those shares to the Company. The value of the shares, determined as of the effective date of the Option exercise, will be applied to the Option exercise price. Instead of surrendering shares of Company stock, you may attest to the ownership of those shares on a form provided by the Company and have the same number of shares subtracted from the Option shares issued to you. However, you may not surrender, or attest to the ownership of shares of Company stock in payment of the exercise price if your action would cause the Company to recognize a compensation expense (or additional compensation expense) with respect to this Option for financial reporting purposes.    •        By delivering on a form approved by the Committee of an irrevocable direction to a securities broker approved by the Company to sell all or part of your Option shares and to deliver to the Company from the sale proceeds in an amount sufficient to pay the Option exercise price and any withholding taxes. The balance of the sale proceeds, if any, will be delivered to you. The directions must be given by signing a special “Notice of Exercise” form provided by the Company.    •        Irrevocable directions to a securities broker or lender approved by the Company to pledge Option shares as security for a loan and to deliver to the Company from the loan proceeds an amount sufficient to pay the Option exercise price and any withholding taxes. The directions must be given by signing a special “Notice of Exercise” form provided by the Company.    Notwithstanding the foregoing, payment may not be made in any form that is unlawful, as determined by the Company in its sole discretion. Withholding Taxes and Stock Withholding    You will not be allowed to exercise this Option unless you make arrangements acceptable to the Company to pay any withholding taxes that may be due as a result of the Option exercise. These arrangements may include withholding shares of Company stock that otherwise would be issued to you when you exercise this Option. The value of these shares, determined as of the effective date of the Option exercise, will be applied to the withholding taxes. Restrictions on Resale    By signing this Agreement, you agree not to sell any Option shares at a time when applicable laws, Company policies or an agreement between the Company and its underwriters prohibit a sale (e.g., a lock-up period after the Company goes public). This restriction will apply as long as you are an employee, consultant or director of the Company or a subsidiary of the Company. -------------------------------------------------------------------------------- Transfer of Option    In general, only you can exercise this Option prior to your death. You cannot transfer or assign this Option, other than as designated by you by will or by the laws of descent and distribution, except as provided below. For instance, you may not sell this Option or use it as security for a loan. If you attempt to do any of these things, this Option will immediately become invalid. You may in any event dispose of this Option in your will. Regardless of any marital property settlement agreement, the Company is not obligated to honor a notice of exercise from your former spouse, nor is the Company obligated to recognize your former spouse’s interest in your Option in any other way.   However, if this Option is designated as a nonstatutory stock option in the Notice of Stock Option Grant, then the “Committee” (as defined in the Plan) may, in its sole discretion, allow you to transfer this Option as a gift to one or more family members. For purposes of this Agreement, “family member” means a child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law or sister-in-law (including adoptive relationships), any individual sharing your household (other than a tenant or employee), a trust in which one or more of these individuals have more than 50% of the beneficial interest, a foundation in which you or one or more of these persons control the management of assets, and any entity in which you or one or more of these persons own more than 50% of the voting interest.   In addition, if this Option is designated as a nonstatutory stock option in the Notice of Stock Option Grant, then the Committee may, in its sole discretion, allow you to transfer this option to your spouse or former spouse pursuant to a domestic relations order in settlement of marital property rights.   The Committee will allow you to transfer this Option only if both you and the transferee(s) execute the forms prescribed by the Committee, which include the consent of the transferee(s) to be bound by this Agreement. Retention Rights    Neither your Option nor this Agreement gives you the right to be retained by the Company or a subsidiary of the Company in any capacity. The Company and its subsidiaries reserve the right to terminate your Service at any time, with or without cause. Stockholder Rights    You, or your estate or heirs, have no rights as a stockholder of the Company until you have exercised this Option by giving the required notice to the Company and paying the exercise price. No adjustments are made for dividends or other rights if the applicable record date occurs before you exercise this Option, except as described in the Plan. -------------------------------------------------------------------------------- Adjustments    In the event of a stock split, a stock dividend or a similar change in Company stock, the number of shares covered by this Option and the exercise price per share may be adjusted pursuant to the Plan. Applicable Law    This Agreement will be interpreted and enforced under the laws of the State of Delaware (without regard to their choice-of-law provisions). The Plan and Other Agreements    The text of the Plan is incorporated in this Agreement by reference. All capitalized terms in the Stock Option Agreement shall have the meanings assigned to them in the Plan. This Agreement and the Plan constitute the entire understanding between you and the Company regarding this Option. Any prior agreements, commitments or negotiations concerning this Option are superseded. This Agreement may be amended only by another written agreement, signed by both parties. BY SIGNING THE COVER SHEET OF THIS AGREEMENT, YOU AGREE TO ALL OF THE TERMS AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN -------------------------------------------------------------------------------- ORANGE 21 INC. 2004 STOCK INCENTIVE PLAN NOTICE OF EXERCISE OF STOCK OPTION You must complete and sign this Notice on the last page before submitting it to the Company   OPTIONEE INFORMATION:    Name:                                                       Social Security Number:                                           Address:                                                   Employee Number:                                                                     ___________________      OPTION INFORMATION:    Date of Grant: August __, 2006    Type of Stock Option: Exercise Price per Share: $                _______ Nonstatutory (NSO) Total number of shares of Common Stock of ORANGE 21 INC. (the “Company”) covered by option: 20,000    _______ Incentive (ISO)* EXERCISE INFORMATION: Number of shares of Common Stock of the Company for which option is being exercised now:                         . (These shares are referred to below as the “Purchased Shares.”) Total exercise price for the Purchased Shares: $             Form of payment enclosed: [check all that apply]:   ¨ Check for $            , payable to “ORANGE 21 INC.” -------------------------------------------------------------------------------- ¨ Certificate(s) for              shares of Common Stock of the Company that I have owned for at least six months or have purchased in the open market. (These shares will be valued as of the date when the Company receives this notice.)   ¨ Attestation Form covering              shares of Common Stock of the Company. (These shares will be valued as of the date when the Company receives this notice.) Name(s) in which the Purchased Shares should be registered: [please check one box]:   ¨        In my name only    ¨        In the names of my spouse and myself as community property    My spouse’s name (if applicable):                                                                                                                                   ¨        In the names of my spouse and myself as joint tenants with the right of survivorship    ¨        In the name of an eligible revocable trust    Full legal name of revocable trust:                                                                                                                                                                                                                                                                                                                                                                                                      The certificate for the Purchased Shares should be sent to the following address:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    ACKNOWLEDGMENTS:   1. I understand that all sales of Purchased Shares are subject to compliance with the Company’s policy on securities trades.   2. I hereby acknowledge that I received and read a copy of the prospectus describing the Company’s 2004 Stock Incentive Plan and the tax consequences of an exercise.   3. In the case of a nonstatutory option, I understand that I must recognize ordinary income equal to the spread between the fair market value of the Purchased Shares on the date of exercise and the exercise price. I further understand that I am required to pay withholding taxes at the time of exercising a nonstatutory option. -------------------------------------------------------------------------------- 4. In the case of an incentive stock option, I agree to notify the Company if I dispose of the Purchased Shares before I have met both of the tax holding periods applicable to incentive stock options (that is, if I make a disqualifying disposition).   5. I acknowledge that the Company has encouraged me to consult my own adviser to determine the form of ownership that is appropriate for me. In the event that I choose to transfer my Purchased Shares to a trust that does not satisfy the requirements of the Internal Revenue Service (i.e., a trust that is not an eligible revocable trust), I also acknowledge that the transfer will be treated as a “disposition” for tax purposes. As a result, the favorable ISO tax treatment will be unavailable and other unfavorable tax consequences may occur. SIGNATURE AND DATE: _______________________________________                                                         , 200    

EXHIBIT 10.7 TRANSLATION FOR CONVENIENCE ONLY - NOT LEGALLY BINDING TRANSLATION   ADDENDUM TO THE CONTRACT FOR THE SALE AND ROLLOVER OF SHARES INTERVED AT MONTREAL, JUDICIAL DISTRICT OF MONTREAL, PROVINCE OF QUEBEC, CANADA BETWEEN:   3841944 CANADA INC., a body politic and corporate duly incorporated under the Canada Business Corporations act, having its place of business situated at 407 McGill Street, Suite 1003, in the City and District of Montreal, herein acting and represented by Michel Pelletier, its president, duly authorized, as he so declares;           (hereinafter referred to as the “Vendor”)       AND:   WATER BANK OF AMERICA INC., a body politic and corporate duly incorporated under the Canada Business Corporations act, having its place of business situated at 407 McGill Street, Suite 1003, in the City and District of Montreal, herein acting and represented by Michel Pelletier, its president, duly authorized, as he so declares;           (hereinafter referred to as the “Purchaser”)   PREAMBLE WHEREAS on August 16, 2002 the parties entered into and concluded a contract for the sale and rollover of shares pursuant to which the Vendor sold and assigned to the Purchaser 462,063 Class A Shares in the capital stock of Eau de Source Vita (2000) Inc. (hereinafter referred to as the “Corporation”), representing the totality of the capital stock of the said Corporation; WHEREAS in view of acquiring the shares of the Corporation, the Purchaser issued in favour of the Vendor shares in its own capital stock in acquittance of the purchase price, namely 12,000,000 Class A Shares, together with 3,000,000 Class B Shares;     1 --------------------------------------------------------------------------------     WHEREAS after review of the capitalization of the Purchaser, the parties wish to modify the issuance of shares, as above-mentioned, in view of reflecting the true capitalization of the Purchaser; AND THE PARTIES COVENANT AND AGREE TO MODIFY THE CONTRACT FOR THE SALE AND ROLLOVER OF SHARES INTERVENED BETWEEN THEM ON THE 16TH DAY OF AUGUST 2002, AS FOLLOWS: 1. Paragraph 4.1 of the Contract for the Sale and Rollover of Shares intervened between the parties on August 16, 2002 is modified as follows: “4.1 Issuance of shares The purchase price due and payable in virtue of these presents, namely the amount of $150,000.00 shall be paid and acquitted by the Purchaser by way of an issuance in favour of the Vendor of 5,559,160 Class A Shares of the capital stock of the Purchaser, and the issuance in favour of the Vendor of 3,000,000 Class B Shares in the capital stock of the Vendor.” UPON WHICH THE PARTIES HAVE SIGNED IN QUADRUPLICATE, AT MONTREAL, PROVINCE OF QUEBEC, THIS 3RD DAY OF FEBRUARY 2003.         VENDOR:       3841944 CANADA INC. (SGD)   (SGD) Per: -------------------------------------------------------------------------------- Witness -------------------------------------------------------------------------------- Michel P. Pelletier Duly authorized as he so declares           PURCHASER:       WATER BANK OF AMERICA INC. (SGD)   (SGD) Per:   -------------------------------------------------------------------------------- Witness -------------------------------------------------------------------------------- Michel  Pelletier Duly authorized as he so declares     2 --------------------------------------------------------------------------------  

  Exhibit 10.3 AMENDMENT NO. 2 TO STOCK OPTION AGREEMENT      This Amendment No. 2 (this “Amendment”) dated as of November 18, 2002 to that certain Stock Option Agreement (the “Stock Option Agreement”), dated as of January 18, 2001, and amended as of October 14, 2002, by and between Natural Health Trends Corp., a Florida corporation the (“Company”), and Terry L. LaCore (the “Optionee”). W I T N E S S E T H :      WHEREAS, the Company and Optionee are parties to the Stock Option Agreement, as amended, a copy of which is attached hereto as Exhibit A; and      WHEREAS, the parties to the Stock Option Agreement desire to amend the Stock Option Agreement to amend the cashless exercise provision contained therein.      NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:      1. Effective as of the date hereof, the Stock Option Agreement is hereby amended by deleting the following phrase contained in the first sentence of Section 4:                “the Optionee may, at its election” and in lieu thereof the following phrase shall be inserted:                “the Company may, at its election, permit the Optionee to”.      2. This Amendment shall be governed by and construed in accordance with the laws of the State of Texas, without regard to principles of conflicts of law.      3. Except as otherwise specifically set forth herein, all of the terms and provisions of the Stock Option Agreement shall remain in full force and effect.      IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the day first above written.             NATURAL HEALTH TRENDS CORP.       By:   /s/ Mark D. Woodburn         Name:   MARK D. WOODBURN        Title:   President                        By:   /s/ Terry L. LaCore         Name: Terry L. Lacore             --------------------------------------------------------------------------------             AMENDMENT NO. 1 TO STOCK OPTION AGREEMENT      This Amendment No. 1 (this “Amendment”) dated as of October 14, 2002 to that certain Stock Option Agreement (the “Stock Option Agreement”), dated as of January 18, 2001, by and between Natural Health Trends Corp., a Florida corporation (the “Company”), and Terry L. LaCore (the “Optionee”). W I T N E S S E T H :      WHEREAS, the Company and Optionee are parties to the Stock Option Agreement, a copy of which is attached hereto as Exhibit A; and      WHEREAS, the parties to the Stock Option Agreement desire to amend the Stock Option Agreement to delete the non-dilutive provisions contained therein.      NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:      1. Effective as of the date hereof, the Stock Option Agreement is hereby amended by deleting Section 5 in its entirety.      2. This Amendment shall be governed by and construed in accordance with the laws of the State of Texas, without regard to principles of conflicts of law.      3. Except as otherwise specifically set forth herein, all of the terms and provisions of the Stock Option Agreement shall remain in full force and effect.      IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the day first above written.             NATURAL HEALTH TRENDS CORP.       By:   /s/ Mark D. Woodburn         Name:   MARK D. WOODBURN        Title:   President                        By:   /s/ Terry L. LaCore         Name:   Terry L. LaCore              --------------------------------------------------------------------------------             STOCK OPTION AGREEMENT      This Agreement, dated as of January 18, 2001 by and between Natural Health Trends Corp., a Florida corporation (the “Company”), and Benchmark Consulting Group (the “Optionee”). W I T N E S S E T H :      WHEREAS, the Company considers it to be in its best interests and in the best interests of its stockholders that the Optionee be given the opportunity to acquire a proprietary interest in the Company by possessing an option to purchase certain shares of common stock, par value $.001 per share (the “Common Stock”), of the Company in accordance with the provisions set forth below;      NOW, THEREFORE, in consideration of the premises and mutual promises contained herein, it is agreed by and between the parties as follows:      1. Grant of Option. The Company hereby grants to Optionee the right, privilege and option (the “ Option”) to purchase all or any part of 3,000,000 shares of Common Stock (the “Option Shares”) at a purchase price of $.-011 per share in the manner and subject to the conditions provided herein.      2. Time of Exercise of Option. The Option is exercisable in full commencing on the date hereof through January 18, 2011 subject to the terms of this Agreement.      3. Method of Exercise. The Option shall be exercised by written notice directed to the Company at the Company’s principal place of business, accompanied by a check in payment of the option price for the number of Option Shares specified and paid for in full. The Company shall make prompt delivery of such Option Shares once payment clears, provided that if any law or regulation requires the Company to take any action with respect to the Option Share specified in such notice before the issuance thereof, then the date of delivery of such Option Shares shall be extended for the period necessary to take such action. If the Optionee fails to pay for any of the Option Share specified in such notice or fails to accepts delivery thereof, the Optionee’s right to purchase such Option Shares may be terminated by the Company. The date specified in the Optionee’s notice as the date of exercises shall be deemed the date of exercise of the Option, provided that payment in full for the Option Shares to be purchased upon such exercise shall have been received by such date. No fractional shares may be purchased hereunder.      4. Cashless Exercise. At any time during the term, the Optionee may, at its election, exchange these options, in whole or in part (an “Option Exchange”), into the number of shares determined in accordance with this paragraph 4 by surrendering these   --------------------------------------------------------------------------------   Options at the principal office of the Company, accompanied by a notice stating the Optionee’s intent to effect such exchange, the number of shares to be exchanged and the date on which the Optionee requests that such Option Exchange occur (the “Notice of Exchange”). The Option Exchange shall take place on the date specified in the Notice of Exchange or, if later, the date the Notice of Exchange is received by the Company (the “Exchange Date”). Certificates for the shares issuable upon such Option Exchange and, if applicable, a new Option of like tenor evidencing the balance of the shares remaining subject to this Option, shall be issued as of the Exchange Date and delivered to the Optionee within seven (7) business days following the Exchange Date. In connection with any Option Exchange, the Option shall represent the right to subscribe for and acquire the number of shares (rounded to the next highest integer) equal to (i) the number of shares specified by the Optionee in its Notice of Exchange (the “Total Number”) less (ii) the number of shares equal to the quotient obtained by dividing (A) the product of the Total Number and the then existing exercise price by (B) the current market value of a share of the Company’s common stock.       5. Non-Dilution. This Option shall be non-dilutable equal to ten percent (10%) of the outstanding shares of the Company. For a period of ten years after the date hereof, the Company on each issuance of new shares of the Company shall heretofore grant an additional option to the Optionee for ten percent (10%) of the new shares issued at an exercise price equal to price of the new shares issued. By way of illustration and not in limitation of the foregoing, if $100,000 face value of the Company’s convertible preferred stock is converted into 5,000,000 shares of Company’s common stock, an additional option is granted to the Optionee for 500,000 shares at $.02 per share.      6. Termination of Option. The Option and all rights granted by this Agreement, to the extent such rights have not been exercised, will terminate and become null and void ten years from the date hereof or upon ninety (90) days after the termination of the Optionee.      7. Adjustments in Event of Change in Common Stock. In the event of any change in the Common Stock by reason of any stock dividend, recapitalization, reorganization, merger, consolidation, split-up, combination or exchange of shares, or of any similar change affecting the Common Stock, the number and kind of Option Shares subject to Option hereunder and the purchase price per Option Share thereof shall be appropriately adjusted consistent with such change in such manner as the Committee may reasonably deem equitable.      8. Piggyback Registration Rights. Simultaneous herewith, the Company shall grant to the Optionee Piggyback Registration Rights, asset forth in Exhibit “A” annexed hereto.      9. Rights Prior to Exercise of Option. The Optionee shall have no rights as a stockholder of the Company with respect to the Option Shares until full payment of the option price and delivery of such Option Shares as herein provided. Nothing contained   --------------------------------------------------------------------------------   herein or in the Plan shall be construed as creating or evidence of any agreement on the part of the Company to continue to employ or retain the Optionee in any capacity.      10. Investment Representation. The Optionee, as a condition to the Optionee’s exercise of this Option, shall represent to the Company that the shares of Common Stock that the Optionee acquires hereunder are being acquired by the Optionee for investment and not with a view to distribution or resale thereof, unless counsel for the Company is then of the opinion that such a representation is not required under the Securities Act of 1933, as amended, or any other applicable law, regulation or rule of any governmental agency, except that this representation shall not apply to any transaction by Optionee pursuant to a registration statement under the Securities Act.      11. Waiver; Entire Agreement. No waiver of any breach or condition of this Agreement shall be deemed to be a waiver of any other or subsequent breach or condition, whether of like or different nature. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof.      12. Governing Law. The validity, construction, interpretation and effect of this Agreement shall exclusively be governed by and determined in accordance with the internal laws of the State of Texas, which is the sole jurisdiction in which any issues relating to this Agreement may be litigated.      13. Binding Effect. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors and assigns.      IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the date and year first above written.               NATURAL HEALTH TRENDS CORP.               By:   /s/ Mark D. Woodburn                   Name: MARK D. WOODBURN         Title: President   --------------------------------------------------------------------------------   EXHIBIT A      The Investor shall have piggy-back registration rights with respect to the Investor Shares then held by the Investor (collectively, the “Remaining Investor Shares”), subject to the conditions set forth below. If, at any time the Company participates (whether voluntarily or by reason of an obligation to a third party) in the registration of any shares of the Company’s stock (other than a registration on Form S-4 or Form S-8), the Company shall give written notice thereof to the Investor and the Investor shall have the right, exercisable within ten (10) business days after receipt of such notice, to demand inclusion of all or a portion of the Investor’s Remaining Investor Shares in such registration statement. If the Investor exercises such election, the Remaining Investor Shares so designated shall be included in the registration statement at no cost or expense to the Investor (other than any costs or commissions which would be borne by the Investor under the terms of the Registration Rights Agreement). If, in connection with any underwritten offering for the account of the Company the managing underwriter or underwriters thereof (collectively, the “Underwriter”) shall impose a limitation on the number of shares of Common Stock which may be included in the registration statement because, in the Underwriter’s judgement, such limitation is necessary to effect an orderly public distribution of securities covered thereby, then the Company shall be obligated to include in such registration only such limited portion of the Registrable Securities for which such Investor has requested inclusion hereunder as the Underwriter shall permit. Any exclusion of Registrable Securities shall be made pro rata among the Investors seeking to include Registrable Securities, in proportion to the number of Registrable Securities sought to be included by such Investors; provided, however, that the Company shall not exclude any Registrable Securities unless the Company has first excluded all outstanding securities the Investors of which are not entitled by right to inclusion of securities in such registration statement; and provided further, however, that, after giving effect to the immediately preceding proviso, any exclusion of Registrable Securities shall be made pro rata with Investors of other securities having the right to include such securities in such registration statement. The Investor’s rights under this Section shall expire at such time as the Investor can sell all of the Remaining Investor Shares under Rule 144 (k) without volume or other restrictions or limit.   --------------------------------------------------------------------------------   April 5, 2002 Benchmark Consulting Group hereby assigns all of its right title and interest in that certain Stock Option Agreement dated January 18, 2001 with Natural Health Trends Corp. to LaCore and Woodburn Partnership.       /s/ Mark D. Woodburn Vice President      

Exhibit 10.17   FIFTH THIRD BANCORP   Schedule of Director Compensation Arrangements   For 2006, non-employee Directors of Fifth Third Bancorp will receive a single annual retainer of $50,000 (payable $25,000 in cash and approximately $25,000 in stock granted under the Fifth Third Bancorp Incentive Compensation Plan) and a fee of $1,500 per meeting attended. Non-employee Directors will also receive a fee of $1,500 per committee meeting attended. Committee chairs will receive an additional annual retainer of $10,000. Pursuant to a Deferred Compensation Plan, Directors may annually defer from one-half to all of their cash compensation as Directors until age 65 or until they cease to serve on the Board, whichever occurs last. The deferred funds bear interest until paid at an annually adjusted rate equal to 1% over the U.S. treasury bill rate or Directors may elect to receive a return on deferred funds at a rate equal to the rate of return on the Company’s Common Stock. Directors who are also employees receive no additional compensation for service on the Board or its Committees.   The Fifth Third Bancorp Incentive Compensation Plan (the “Plan”), provides that the Compensation Committee has full authority to provide stock-based or other incentive awards to non-employee Directors. The following types of awards may be granted under the Plan:   Stock Appreciation Rights (“SARs”). The Compensation Committee may grant SARs independently of any stock option or in tandem with all or any part of a stock option granted under the Plan. Upon exercise, each SAR entitles a participant to receive an amount equal to the excess of the Fair Market Value (as defined in the Plan) of a share of Common Stock on the date the SAR is exercised over the Fair Market Value of a share of Common Stock on the date the SAR is granted. The payment may be made in shares of Common Stock having a Fair Market Value on the date of exercise equal to the amount due upon the exercise of the SAR, may be paid in cash, or in a combination. Upon exercise of an SAR granted in conjunction with a stock option, the option may be required to be surrendered.   Restricted Stock and Restricted Stock Units. An award of Restricted Stock is an award of shares of Common Stock that may not be sold or otherwise disposed of during a restricted period determined by the Committee. An award of Restricted Stock Units is an award of the right to receive a share of Common Stock after the expiration of a restricted period determined by the Committee. Restricted Stock may be voted by the recipient. To the extent provided by the Committee, dividends on the Restricted Stock and Restricted Stock Units may be payable to the recipient in cash or in additional Restricted Stock or Restricted Stock Units.   Performance Shares and Performance Units. Performance Shares and Performance Units are awards of a fixed or variable number of shares or of dollar-denominated units that are earned by achievement of performance goals established by the Committee. If the applicable performance criteria are met, the shares are earned and become unrestricted with respect to Performance Shares or an amount is payable with respect to the Performance Units. The Committee may provide that a certain percentage of the number of Performance Shares or Units originally awarded may be earned based upon the attainment of the performance goals. Amounts earned under Performance Share and Performance Unit Awards may be paid in Common Stock, cash or a combination of both. During the applicable performance period for an award, the shares may be voted by the recipient and the recipient may be entitled to receive dividends on those shares, at the discretion of the Committee.   Stock Options. Stock Options may be nonqualified stock options or incentive stock options that comply with Code Section 422. The exercise period for any stock option will be determined by the Committee at the time of grant. The exercise price per share for all shares of Common Stock issued pursuant to stock options under the Plan may not be less than 100% of the Fair Market Value of a share of Common Stock on the grant date. Each stock option may be exercised in whole, at any time, or in part, from time to time, after the grant becomes exercisable. The Plan limits the term of any stock option to 10 years and prohibits repricing of options.   Annual Incentive Awards. Participants in the Plan may receive Annual Incentive Awards. Under an Annual Incentive Award, the participant may receive an amount based on the achievement of performance goals established by the Committee. As required by Code Section 162(m), the Plan provides an annual limit of $4,000,000 on the amount a single participant may earn under an Annual Incentive Award for any calendar year.   Other Incentive Awards. The Committee may grant other types of awards of which may be based in whole or in part by reference to Common Stock or upon the achievement of performance goals or such other terms and conditions as the Committee may prescribe. As required by Code Section 162(m), the Plan provides an annual limit of $4,000,000 on the amount a single participant may earn under any such Other Incentive Award. For purposes of this limitation, any award earned over a period greater than one year is deemed to have been earned ratably over the full and partial calendar years in such period.   Awards to non-employee Directors are subject to the discretion of the Compensation Committee.

Exhibit 10.10 SCHEDULE OF PARTICIPATING OFFICERS Armstrong World Industries, Inc. has entered into substantially similar agreements with certain of its officers, including John N. Rigas, Stephen J. Senkowski and William C. Rodruan. Mr. Rodruan’s agreement has been modified to provide a 2x multiplier, and Section 16(P) has been modified to remove the “modified single trigger” provision.

Exhibit 10.1 [***] - Certain information in this exhibit have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. THIRD AMENDMENT TO AMENDED AND RESTATED BOVINE VACCINE DISTRIBUTION AGREEMENT           This Third Amendment (“Third Amendment”) is entered into as of the 26th day of May, 2006 (“Effective Date”) by and between DIAMOND ANIMAL HEALTH, INC., an Iowa corporation with offices at 2538 Southeast 43rd Street, Des Moines, Iowa 50317 (“Diamond”) and AGRI LABORATORIES, LTD., a Delaware corporation, with offices at 20927 State Route K, St. Joseph, Missouri 64505 (“Distributor”) as an amendment to that certain Amended and Restated Bovine Vaccine Distribution Agreement dated as of September 30, 2002 between Diamond and Distributor (the “Original Agreement”), as amended by that certain First Amendment dated as of September 20, 2004 (the “First Amendment”) and that certain Second Amendment dated as of December 10, 2004 (the “Second Amendment”) (collectively, the “Agreement”).           WHEREAS, Diamond and Distributor are parties to the Agreement providing for the distribution of certain bovine antigens; and           WHEREAS, Diamond and Distributor desire to amend the Agreement on the terms and conditions of this Third Amendment.           NOW, THEREFORE, the parties agree as follows:           1.        Definitions. Capitalized terms used herein shall have the meaning ascribed to them in the Agreement, unless otherwise defined herein.           2.        Prepayments. Distributor hereby reaffirms its obligation to make a [***] prepayment on each of June 16, 2006 and September 16, 2006, as outlined in and subject to the terms and conditions of Section 3.04(iii)(A) of the Agreement.           3.        Use of Prepayment Proceeds. The unused balance of any prepayment made by Distributor on June 16, 2006 and September 16, 2006 shall be carried over as a credit for purchases in future periods, including Contract Year 2007 if necessary, and any revenue from such balance shall be included in Initial Product Qualified Revenues and Qualified Revenues for Contract Year 2006 only, regardless of the actual fulfillment date.           4.        Take or pay obligations. Diamond hereby waives Distributor’s obligations under Section 3.04(iii)(D) of the Agreement for the third and fourth quarter of Contract Year 2006 only.           5.        Reaffirmation of purchase orders. Distributor reaffirms its obligations under firm written purchase orders currently outstanding for delivery in the third and fourth quarter of Contract Year 2006, as outlined on Exhibit C, and subject to regulatory approval and the terms and conditions of this Agreement.           6.        Third quarter [***] orders. Distributor agrees to submit firm written purchase orders for Products other than [***] Products scheduled for delivery in the third -------------------------------------------------------------------------------- [***] - Certain information on this page have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. quarter of Contract Year 2006 of at least [***]. If there are less than [***] of such purchase orders on Exhibit C for Products other than [***] Products, Distributor shall promptly submit enough of such purchase orders so that there are [***] of such purchase orders. Distributor shall not be required to pay or lose prepayment credit on any order unless and until Diamond fulfills such order. All revenue from these purchase orders shall be included in Initial Product Qualified Revenues and Qualified Revenues for Contract Year 2006 only, regardless of the actual fulfillment date.           7.        Fourth quarter [***] orders. Distributor agrees to submit firm written purchase orders for Products other than [***] Products scheduled for delivery in the fourth quarter of Contract Year 2006 of at least [***]. Distributor shall not be required to pay or lose prepayment credit on any order unless and until Diamond fulfills such order. All revenue from these purchase orders shall be included in Initial Product Qualified Revenues and Qualified Revenues for Contract Year 2006 only, regardless of the actual fulfillment date.           8.        [***] Orders. If necessary to purchase [***], including amounts from Section 6 and 7 above, from Diamond during the last six months of Contract Year 2006 if [***] on or before [***], Distributor agrees to issue purchase orders for [***] Products in addition to those listed on Exhibit C. Distributor shall not be required to pay or lose prepayment credit on any order unless and until Diamond fulfills such order. All revenue from these purchase orders shall be included in Initial Product Qualified Revenues and Qualified Revenues for Contract Year 2006 only, regardless of the actual fulfillment date.           9.        [***]. [***] on or before [***], Distributor will commit to purchase at least [***] from Diamond during the last six months of Contract Year 2006. If at the time [***], Distributor has not submitted firm written purchase orders for delivery in the last six months of Contract Year 2006 totaling at least [***], Distributor shall promptly submit enough of such purchase orders so that there are [***] of such purchase orders. Distributor shall not be required to pay or lose prepayment credit on any order unless and until Diamond fulfills such order. All revenue from these purchase orders shall be included in Initial Product Qualified Revenues and Qualified Revenues for Contract Year 2006 only, regardless of the actual fulfillment date.           10.        Amendment of Loan. Pursuant to Section 3 of the Second Amendment Diamond delivered to Distributor a substitute Note (the “Substitute Note”) attached as Exhibit A to evidence the Loan. Upon execution and delivery of this Third Amendment, the parties shall cancel the Substitute Note and execute and deliver a second substitute note (the “2007 Note”) in the form attached hereto as Exhibit B.           11.        [***]. If [***], there shall be no change to Section 3.07 of the Agreement, which is entitled [***]. If [***], the first sentence of Section 3.07 of the Agreement shall be deleted in its entirety and replaced with the following sentence: -------------------------------------------------------------------------------- [***] - Certain information on this page have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.                        [***]           12.        Effect of Amendment. This Third Amendment is hereby incorporated by reference into the Agreement as if fully set forth therein, the Agreement as amended by this Third Amendment shall continue in full force and effect following execution and delivery hereof, and references to the term “Agreement” shall include this Third Amendment. In the event of any conflict between the terms and conditions of the Original Agreement, First Amendment or Second Amendment and this Third Amendment, the terms and conditions of this Third Amendment shall control.           IN WITNESS WHEREOF, the parties have caused this Third Amendment be executed by their duly authorized representatives as of the date first written above.                                  DIAMOND ANIMAL HEALTH, INC.                               By:    /s/  Jason A. Napolitano      Its:     Chief Financial Officer                       AGRI LABORATORIES, LTD.                               By:    /s/  Steve Schram                 Its:     CEO/President -------------------------------------------------------------------------------- EXHIBIT A AMENDED AND RESTATED PROMISSORY NOTE $500,000.00 as of April 15, 2002 Des Moines, Iowa           FOR VALUE RECEIVED, the undersigned DIAMOND ANIMAL HEALTH, INC., an Iowa corporation (“Maker”), promises to pay to AGRI LABORATORIES, LTD., a Delaware corporation (“Holder”), or order, at such place as the Holder of this Note shall designate in writing, the sum of Five Hundred Thousand Dollars ($500,000.00) in lawful money of the United States of America. Beginning from the date hereof interest shall accrue until the effective date of that certain Second Amendment to the Distribution Agreement (defined below) on the outstanding principal balance at the “prime rate” plus one-quarter percent (1/4%) per annum and thereafter, at the “prime rate” plus one percent (1%) per annum. Accrued interest shall be paid quarterly on each quarterly anniversary of the date of this Note, and shall accrue based upon a thirty-day month and a 360-day year. Principal under this Note shall be paid in one annual installment on May 31, 2006. All principal and any accrued but unpaid interest shall be due and payable on the maturity date of this Note.           Notwithstanding any provision of this Note to the contrary, all principal and unpaid accrued interest shall be due and payable on the ninetieth (90th) day following the date that either (i) Holder’s exclusivity rights under that certain Amended and Restated Bovine Vaccine Distribution Agreement dated as of September 30, 2002, as amended (the “Distribution Agreement”) are terminated due to Distributor’s nonpayment of any Additional Payment under the Distribution Agreement or (ii) in the event of a merger, sale or fifty percent (50%) change in ownership of Maker.           The “prime rate” shall be the annual rate of interest announced from time to time by Wells Fargo Business Credit, Inc. (“Wells Fargo”) as its prime rate. The interest accruing on the principal balance of this Note shall fluctuate from time to time concurrently with changes in the prime rate, effective as of the date any change in the prime rate is publicly announced. If Wells Fargo ceases to announce the prime rate, the prime rate as published in the Wall Street Journal in its “Money Rates” section or a similar financial publication shall be used, as reasonably determined by Maker.           Maker shall have the right at any time or from time to time to prepay all or a portion of the principal or interest without premium or penalty, and such prepayments shall be applied first to accrued interest and then to principal.           If default be made in the payment of any of the installments of principal, interest, or other amounts when due under this Note, the entire principal sum and accrued interest and all other amounts due hereunder shall become due at the option of Holder if not paid within ten (10) days of written notice to Maker.           In the event garnishment, attachment, levy or execution is issued against any substantial or material portion of the property or assets of Maker, or any of them if more than one, or upon the happening of any event which constitutes a default pursuant to the terms of any agreement or other instrument entered into or given in connection herewith, or upon the adjudication of Maker, or any of them if more than one, a bankrupt, such event shall be deemed a default hereunder and Holder may declare this Note immediately due and payable without notice to Maker or exercise any of its remedies hereunder or at law or equity. Should suit be brought to recover on this Note, or should the same be placed in the hands of an attorney for collection, Maker promises to pay all reasonable attorneys’ fees and costs incurred in connection therewith. PAGE 1 OF PROMISSORY NOTE DATED APRIL 15, 2002 --------------------------------------------------------------------------------           Failure of Holder to exercise any option hereunder shall not constitute a waiver of the right to exercise the same in the event of any subsequent default, or in the event of continuance of any existing default.           Maker waives demand, diligence, presentment for payment, protest and notice of demand, protest, nonpayment and exercise of any option hereunder. Maker agrees that the granting without notice of any extension or extensions of time for payment of any sum or sums due hereunder, or for the performance of any covenant, condition or agreement hereof shall in no way release or discharge the liability of Maker hereof.           This Note shall be governed by the laws of the State of Iowa.           Time is of the essence of this Note and each and every term and provision hereof.           This Note is secured by that certain Security Agreement, dated as of even date herewith, by and between Maker and Holder. Debtor and its affiliates are parties to that certain Second Amended and Restated Credit and Security Agreement by and between Debtor and Wells Fargo Business Credit, Inc., fka Norwest Business Credit, Inc., a Minnesota corporation (“Wells Fargo”), originally dated June 4, 2000, as amended, that certain Loan Agreement dated as of April 4, 1994 and related Promissory Note between the City of Des Moines, Iowa and Debtor, as amended, and that certain CEBA Loan Agreement dated January 20, 1994 and related Promissory Notes between Iowa Department of Economic Development and Debtor, as amended (collectively, the “Senior Loan Agreements” and the lender parties thereto collectively, the “Senior Lenders”). This Note and Maker’s obligations hereunder shall be junior and subordinated to all any and all indebtedness and obligations for borrowed money (including, without limitation, principal, premium (if any), interest, fees, charges, expenses, costs, professional fees and expenses, and reimbursement obligations) (“Indebtedness”) at any time owing by Debtor to the Senior Lenders, their successors and assigns under the Senior Loan Agreements or otherwise, and the extension, renewal or refinancing (including without limitation any additional advances made in connection therewith) of all or any portion of such Indebtedness by any of the Senior Lenders or any successor lender and any and all security interests securing any portion of such Indebtedness and additional advances from time to time (such Indebtedness, additional advances and security interests, the “Senior Indebtedness”). Holder hereby agrees to take such actions, and to execute and deliver such documents and instruments, as shall be requested from time to time by any holder of Senior Indebtedness to confirm and further implement such subordination. In addition, this Note is subject to the terms and conditions of that certain Subordination Agreement dated as of even date herewith by and among Maker, Holder and Wells Fargo.           This Note replaces that certain Amended and Restated Promissory Note dated as of April 15, 2004 given by Maker to Holder.           THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON OR PERTAINING TO THIS NOTE.                                                   DIAMOND ANIMAL HEALTH, INC., an Iowa      corporation, Maker                               By:    /s/  Jason A. Napolitano      Its:     Chief Financial Officer      THIS INSTRUMENT IS SUBJECT TO THE TERMS OF A SUBORDINATION AGREEMENT BY AGRI LABORATORIES, LTD. IN FAVOR OF WELLS FARGO BUSINESS CREDIT, INC. DATED AS OF APRIL 15, 2002. PAGE 2 OF PROMISSORY NOTE DATED APRIL 15, 2002 -------------------------------------------------------------------------------- EXHIBIT B 2007 Note -------------------------------------------------------------------------------- AMENDED AND RESTATED PROMISSORY NOTE $500,000.00 as of April 15, 2002 Des Moines, Iowa           FOR VALUE RECEIVED, the undersigned DIAMOND ANIMAL HEALTH, INC., an Iowa corporation (“Maker” or (“Debtor”), promises to pay to AGRI LABORATORIES, LTD., a Delaware corporation (“Holder”), or order, at such place as the Holder of this Note shall designate in writing, the sum of Five Hundred Thousand Dollars ($500,000.00) in lawful money of the United States of America. Beginning from the date hereof interest shall accrue until the effective date of that certain Second Amendment to the Distribution Agreement (defined below) on the outstanding principal balance at the “prime rate” plus one-quarter percent (1/4%) per annum and thereafter, at the “prime rate” plus one percent (1%) per annum. Accrued interest shall be paid quarterly on each quarterly anniversary of the date of this Note, and shall accrue based upon a thirty-day month and a 360-day year. Principal under this Note shall be paid in one annual installment on May 31, 2007. All principal and any accrued but unpaid interest shall be due and payable on the maturity date of this Note.           Notwithstanding any provision of this Note to the contrary, all principal and unpaid accrued interest shall be due and payable on the ninetieth (90th) day following the date that either (i) Holder’s exclusivity rights under that certain Amended and Restated Bovine Vaccine Distribution Agreement dated as of September 30, 2002, as amended (the “Distribution Agreement”) are terminated due to Distributor’s nonpayment of any Additional Payment under the Distribution Agreement or (ii) in the event of a merger, sale or fifty percent (50%) change in ownership of Maker.           The “prime rate” shall be the annual rate of interest announced from time to time by Wells Fargo Bank, National Association (“Wells Fargo”) as its prime rate. The interest accruing on the principal balance of this Note shall fluctuate from time to time concurrently with changes in the prime rate, effective as of the date any change in the prime rate is publicly announced. If Wells Fargo ceases to announce the prime rate, the prime rate as published in the Wall Street Journal in its “Money Rates” section or a similar financial publication shall be used, as reasonably determined by Maker.           Maker shall have the right at any time or from time to time to prepay all or a portion of the principal or interest without premium or penalty, and such prepayments shall be applied first to accrued interest and then to principal.           If default be made in the payment of any of the installments of principal, interest, or other amounts when due under this Note, the entire principal sum and accrued interest and all other amounts due hereunder shall become due at the option of Holder if not paid within ten (10) days of written notice to Maker.           In the event garnishment, attachment, levy or execution is issued against any substantial or material portion of the property or assets of Maker, or any of them if more than one, or upon the happening of any event which constitutes a default pursuant to the terms of any agreement or other instrument entered into or given in connection herewith, or upon the adjudication of Maker, or any of them if more than one, a bankrupt, such event shall be deemed a default hereunder and Holder may declare this Note immediately due and payable without notice to Maker or exercise any of its remedies hereunder or at law or equity. Should suit be brought to recover on this Note, or should the same be placed in the hands of an attorney for collection, Maker promises to pay all reasonable attorneys’ fees and costs incurred in connection therewith. PAGE 1 OF PROMISSORY NOTE DATED APRIL 15, 2002 --------------------------------------------------------------------------------           Failure of Holder to exercise any option hereunder shall not constitute a waiver of the right to exercise the same in the event of any subsequent default, or in the event of continuance of any existing default.           Maker waives demand, diligence, presentment for payment, protest and notice of demand, protest, nonpayment and exercise of any option hereunder. Maker agrees that the granting without notice of any extension or extensions of time for payment of any sum or sums due hereunder, or for the performance of any covenant, condition or agreement hereof shall in no way release or discharge the liability of Maker hereof.           This Note shall be governed by the laws of the State of Iowa.           Time is of the essence of this Note and each and every term and provision hereof.           This Note is secured by that certain Security Agreement, dated as of even date herewith, by and between Maker and Holder. Debtor and its affiliates are parties to that certain Third Amended and Restated Credit and Security Agreement by and between Debtor and Wells Fargo Bank, National Association, as successor in interest to Wells Fargo Business Credit, Inc. (“Wells Fargo”), dated December 30, 2005 and Debtor is party to a certain promissory note with the City of Des Moines, due in monthly installments through June 2006 (collectively, the “Senior Loan Agreements” and the lender parties thereto collectively, the “Senior Lenders”). This Note and Maker’s obligations hereunder shall be junior and subordinated to all any and all indebtedness and obligations for borrowed money (including, without limitation, principal, premium (if any), interest, fees, charges, expenses, costs, professional fees and expenses, and reimbursement obligations) (“Indebtedness”) at any time owing by Debtor to the Senior Lenders, their successors and assigns under the Senior Loan Agreements or otherwise, and the extension, renewal or refinancing (including without limitation any additional advances made in connection therewith) of all or any portion of such Indebtedness by any of the Senior Lenders or any successor lender and any and all security interests securing any portion of such Indebtedness and additional advances from time to time (such Indebtedness, additional advances and security interests, the “Senior Indebtedness”). Holder hereby agrees to take such actions, and to execute and deliver such documents and instruments, as shall be requested from time to time by any holder of Senior Indebtedness to confirm and further implement such subordination. In addition, this Note is subject to the terms and conditions of that certain Subordination Agreement dated as of even date herewith by and among Maker, Holder and Wells Fargo.           This Note replaces that certain Amended and Restated Promissory Note dated as of April 15, 2004 given by Maker to Holder.           THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON OR PERTAINING TO THIS NOTE.                                                   DIAMOND ANIMAL HEALTH, INC., an Iowa      corporation, Maker                               By:    /s/  Jason A. Napolitano      Its:     Chief Financial Officer      THIS INSTRUMENT IS SUBJECT TO THE TERMS OF A SUBORDINATION AGREEMENT BY AGRI LABORATORIES, LTD. IN FAVOR OF WELLS FARGO BUSINESS CREDIT, INC. DATED AS OF APRIL 15, 2002. PAGE 2 OF PROMISSORY NOTE DATED APRIL 15, 2002 -------------------------------------------------------------------------------- [***] - Certain information on this page have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. EXHIBIT C AgriLabs 3rd Quarter Purchase Orders and 4th Quarter Purchase Orders and Forecast as of 5/25/06                          [***] -------------------------------------------------------------------------------- [***] - Certain information on this page have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. EXHIBIT C (CONT.) AgriLabs 3rd Quarter Purchase Orders and 4th Quarter Purchase Orders and Forecast as of 5/25/06 (Cont.)                          [***]

  Exhibit 10.1 SEVERANCE AGREEMENT      This Severance Agreement (the “Agreement”) is dated as of the ___day of ___, 2006, between The Timken Company, an Ohio corporation (the “Company”), and _________________ (the “Employee”). Recitals      The Employee is a key employee of the Company and has made and is expected to continue to make major contributions to the profitability, growth and financial strength of the Company.      The Company wishes to induce its key employees to remain in the employment of the Company and to assure itself of stability and continuity of operations by providing severance protection to those key employees who are expected to make major contributions to the success of the Company. In addition, the Company recognizes that a termination of employment may occur following a change in control in circumstances where the Employee should receive additional compensation for services theretofore rendered and for other good reasons, the appropriate amount of which would be difficult to ascertain. Hence, the Company has agreed to provide special severance in the event of a change in control of the Company.      NOW, THEREFORE, in consideration of the premises, including the Release provided for in Section 6 hereof, the Company and the Employee hereby agree as follows:      1. Definitions:          1.1 Base Salary: The term “Base Salary” shall mean the Employee’s annual base salary as in effect on the date this Agreement becomes operative, as the same may be increased from time to time.          1.2 Board: The term “Board” shall mean the Board of Directors of the Company.          1.3 Change in Control: “Change in Control” means the occurrence during the Term of any of the following events:        (a) any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a “Person”) is or becomes the beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of the combined voting power of the then-outstanding Voting Stock of the Company; provided, however, that:         (i) for purposes of this Section 1.3(a), the following acquisitions will not constitute a Change in Control: (A) any acquisition of Voting Stock of the Company directly from the Company that is approved by a majority of the Incumbent Directors, (B) any acquisition of Voting Stock of the Company by the Company or any Subsidiary, (C) any acquisition of Voting Stock of the Company by the trustee or other   --------------------------------------------------------------------------------   fiduciary holding securities under any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary, and (D) any acquisition of Voting Stock of the Company by any Person pursuant to a Business Transaction that complies with clauses (i), (ii) and (iii) of Section 1.3(c) below;         (ii) if any Person is or becomes the beneficial owner of 30% or more of combined voting power of the then-outstanding Voting Stock of the Company as a result of a transaction described in clause (A) of Section 1.3(a)(i) above and such Person thereafter becomes the beneficial owner of any additional shares of Voting Stock of the Company representing 1% or more of the then-outstanding Voting Stock of the Company, other than in an acquisition directly from the Company that is approved by a majority of the Incumbent Directors or other than as a result of a stock dividend, stock split or similar transaction effected by the Company in which all holders of Voting Stock are treated equally, such subsequent acquisition shall be treated as a Change in Control;         (iii) a Change in Control will not be deemed to have occurred if a Person is or becomes the beneficial owner of 30% or more of the Voting Stock of the Company as a result of a reduction in the number of shares of Voting Stock of the Company outstanding pursuant to a transaction or series of transactions that is approved by a majority of the Incumbent Directors unless and until such Person thereafter becomes the beneficial owner of any additional shares of Voting Stock of the Company representing 1% or more of the then-outstanding Voting Stock of the Company, other than as a result of a stock dividend, stock split or similar transaction effected by the Company in which all holders of Voting Stock are treated equally; and         (iv) if at least a majority of the Incumbent Directors determine in good faith that a Person has acquired beneficial ownership of 30% or more of the Voting Stock of the Company inadvertently, and such Person divests as promptly as practicable but no later than the date, if any, set by the Incumbent Directors a sufficient number of shares so that such Person beneficially owns less than 30% of the Voting Stock of the Company, then no Change in Control shall have occurred as a result of such Person’s acquisition; or        (b) a majority of the Board ceases to be comprised of Incumbent Directors; or        (c) the consummation of a reorganization, merger or consolidation, or sale or other disposition of all or substantially all of the assets of the Company or the acquisition of the stock or assets of another corporation, or other transaction (each, a “Business Transaction”), unless, in each case, immediately following such Business Transaction (i) the Voting Stock of the Company outstanding -2- --------------------------------------------------------------------------------   immediately prior to such Business Transaction continues to represent (either by remaining outstanding or by being converted into Voting Stock of the surviving entity or any parent thereof), at least 51% of the combined voting power of the then outstanding shares of Voting Stock of the entity resulting from such Business Transaction (including, without limitation, an entity which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries), (ii) no Person (other than the Company, such entity resulting from such Business Transaction, or any employee benefit plan (or related trust) sponsored or maintained by the Company, any Subsidiary or such entity resulting from such Business Transaction) beneficially owns, directly or indirectly, 30% or more of the combined voting power of the then outstanding shares of Voting Stock of the entity resulting from such Business Transaction, and (iii) at least a majority of the members of the Board of Directors of the entity resulting from such Business Transaction were Incumbent Directors at the time of the execution of the initial agreement or of the action of the Board providing for such Business Transaction; or        (d) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company, except pursuant to a Business Transaction that complies with clauses (i), (ii) and (iii) of Section 1.3(c). The Company shall give the Employee written notice, delivered to the Employee in the manner specified in Section 8 hereof, of the occurrence of any event constituting a Change in Control as promptly as practical, and in no case later than 10 calendar days, after the occurrence of such event.          1.4 CIC Severance Amount: The term “CIC Severance Amount” shall mean a lump sum amount equal to the sum of:        (a) ___times the greater of (i) the Employee’s Base Salary in effect immediately prior to the Employee’s termination of employment or (ii) the Employee’s Base Salary in effect immediately prior to the Change in Control;        (b) ___times the greater of (i) the Employee’s Incentive Pay for the year in which the Employee’s employment is terminated or (ii) the Employee’s Incentive Pay for the year in which the Change in Control occurred;        (c) The Supplemental Pension Benefit;        (d) The Supplemental SIP Plan Benefit; and        (e) The Post-Tax SIP Plan Benefit.          1.5 Code: The term “Code” shall mean the Internal Revenue Code of 1986, as amended. -3- --------------------------------------------------------------------------------            1.6 Company Termination Event: The term “Company Termination Event” shall mean the termination, prior to any Employee Termination Event, of the employment of the Employee by the Company in any of the following events:        (a) The Employee’s death;        (b) If the Employee shall become eligible to receive and begins actually to receive long-term disability benefits under The Long Term Disability Program of The Timken Company or any successor plan; or        (c) For Cause. Termination shall be deemed to have been for “Cause” only if based on the fact that the Employee has done any of the following:         (i) An intentional act of fraud, embezzlement or theft in connection with his duties with the Company;         (ii) Intentional wrongful disclosure of secret processes or confidential information of the Company or a Company subsidiary; or         (iii) Intentional wrongful engagement in any Competitive Activity which would constitute a material breach of the Employee’s duty of loyalty to the Company. For purposes of this Agreement, no act, or failure to act, on the part of the Employee shall be deemed “intentional” unless done or omitted to be done, by the Employee not in good faith and without reasonable belief that his action or omission was in or not opposed to the best interest of the Company.          1.7 Competitive Activity: The term “Competitive Activity” shall mean the Employee’s participation, without the written consent of an officer of the Company, in the management of any business enterprise if such enterprise engages in substantial and direct competition with the Company and such enterprise’s sales of any product or service competitive with any product or service of the Company amounted to 25% of such enterprise’s net sales for its most recently completed fiscal year and if the Company’s net sales of said product or service amounted to 25% of the Company’s net sales for its most recently completed fiscal year. “Competitive Activity” shall not include (a) the mere ownership of securities in any enterprise and exercise of rights appurtenant thereto or (b) participation in management of any enterprise or business operation thereof other than in connection with the competitive operation of such enterprise.          1.8 Employee Termination Event: The term “Employee Termination Event” shall mean the termination of the employment of the Employee (including a decision to retire if eligible under The 1984 Retirement Plan for Salaried Employees of The Timken Company, or any successor plan (the “Retirement Plan”)) by the Employee in any of the following events:        (a) A determination by the Employee made in good faith that upon or after the occurrence of a Change in Control: (i) a significant reduction or other adverse change has occurred in the nature or scope of the responsibilities, -4- --------------------------------------------------------------------------------   authorities, duties, powers or functions of the Employee attached to the Employee’s position held immediately prior to the Change in Control; or (ii) a change of more than 60 miles has occurred in the location of the Employee’s principal office immediately prior to the Change in Control;        (b) A failure to elect, reelect or otherwise maintain the Employee in the same or better office or position in the Company or any Subsidiary which the Employee held immediately prior to a Change in Control, or removal of the Employee as a Director of the Company (or a successor thereto) or a Subsidiary, if the Employee shall have been a Director of the Company or such Subsidiary immediately prior to the Change in Control;        (c) A reduction by the Company in the Employee’s Base Salary; For purposes of this Agreement, the amount of any reduction in annual base salary elected by the Employee pursuant to any qualified or non-qualified salary reduction arrangement maintained by the Company, including, without limitation, The Timken Company Savings and Investment Pension Plan (the “SIP Plan”) and The Timken Company 1996 Deferred Compensation Plan (the “Deferred Compensation Plan”), shall be included in the determination of Base Salary;        (d) If in any calendar year, or portion of a calendar year, in or for which the Company pays to any employee any Incentive Payments, the amount of Incentive Payments received by or awarded to the Employee is less than an amount equal to the Employee’s average Incentive Pay for the previous three calendar years;        (e) The failure by the Company to continue in effect without substantial change any compensation or benefit plan in which the Employee participates, or the failure by the Company to continue the Employee’s participation therein; or the taking of any action by the Company or its subsidiaries which would directly or indirectly materially reduce any of the benefits of such plans enjoyed by the Employee at the time of the Change in Control, or the failure by the Company or its subsidiaries to provide the Employee with the number of paid vacation days to which the Employee is entitled on the basis of years of service with the Company or its subsidiaries in accordance with the normal vacation policy of the Company or of the subsidiary by which the Employee is employed as in effect at the time of the Change in Control, or the taking of any other action by the Company or its subsidiaries which materially adversely changes the conditions or prerequisites of the Employee’s employment;        (f) The purported termination of the Employee’s employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 1.13 of this Agreement, which purported termination shall not be effective for purposes of this Agreement; or -5- --------------------------------------------------------------------------------          (g) A failure of any successor company to execute the agreement required by Section 7.1 of this Agreement.          1.9 Incentive Pay: The term “Incentive Pay” shall mean an annual amount equal to the target annual amount of Incentive Payments payable to the Employee, without regard to any reduction thereof elected by the Employee pursuant to any qualified or non-qualified salary reduction arrangement maintained by the Company, including, without limitation, the SIP Plan and the Deferred Compensation Plan.          1.10 Incentive Payments: The term “Incentive Payments” shall mean any cash incentive compensation paid based on an annual performance period (whether pursuant to the Company’s Management Performance Plan or any successor similar plan or through any other means).          1.11 Incumbent Directors: The term “Incumbent Directors” means the individuals who, as of the date hereof, are Directors of the Company and any individual becoming a Director subsequent to the date hereof whose election, nomination for election by the Company’s shareholders, or appointment, was approved by a vote of at least two-thirds of the then Incumbent Directors (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination); provided, however, that an individual shall not be an Incumbent Director if such individual’s election or appointment to the Board occurs as a result of an actual or threatened election contest (as described in Rule 14a-12(c) of the Exchange Act) with respect to the election or removal of Directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board.          1.12 Limited Period: The term “Limited Period” shall mean that period of time commencing on the date of a Change in Control and continuing for a period of three years.          1.13 Notice of Termination: The term “Notice of Termination” shall mean a written notice delivered to the Employee in the manner specified in Section 8 of this Agreement, which notice indicates the specific termination provision in this Agreement relied upon and sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee’s employment.          1.14 Post-Tax SIP Plan Benefit: The “Post-Tax SIP Plan Benefit” shall mean the sum of:        (a) The amount credited to the Employee’s account under The Timken Company Post-Tax SIP Plan (the “Post-Tax SIP Plan”) as of the Termination Date; plus        (b) The amount of Company contributions that would have been credited to the Employee’s account under the Post-Tax SIP Plan after the Termination Date if the Employee had remained in the full-time employment of the Company until the earlier of (i) end of the Limited Period or (ii) the end of the Severance Period at the greater of (I) his Base Salary and Incentive Pay for the calendar year in which the Employee’s employment is terminated, or (II) his Base -6- --------------------------------------------------------------------------------   Salary and Incentive Pay for the calendar year in which the Change in Control occurred, and assuming the Employee’s contributions to the Post-Tax SIP Plan following the Termination Date had been at the highest rate at which such contributions had been made at any time during the three-year period ending on the Termination Date.          1.15 Severance Amount: The term “Severance Amount” shall mean a lump sum amount equal to the sum of:        (a) ___times the Employee’s Base Salary in effect immediately prior to the Employee’s termination of employment[; and        (b) ___times the Employee’s Incentive Pay for the year in which the Employee’s employment is terminated;]          1.16 Severance Period: The term “Severance Period” shall mean the period beginning on the Employee’s Termination Date and ending on the ___anniversary of the Termination Date.          1.17 Subsidiary: The term “Subsidiary” means a corporation, partnership, joint venture, unincorporated association or other entity in which the Company directly or indirectly beneficially owns 50% or more ownership or other equity interest.          1.18 Supplemental Pension Benefit: The term “Supplemental Pension Benefit” shall mean (a) less (b), where:        (a) is the sum of the accrued pension benefits (converted to a lump sum of actuarial equivalence as of the Termination Date) which the Employee would have been entitled to receive at or after the Termination Date under (i) the Retirement Plan, (ii) any annuity distributed to the Employee as a result of the termination on October 31, 1984 of the Retirement Plan for Salaried Employees of The Timken Company (the “Terminated Pension Plan”), (iii) any Employee Excess Benefits Agreement (“Excess Agreement”), and (iv) the Supplemental Pension Plan of the Timken Company (“Supplemental Plan”), assuming for purposes of this calculation that (A) the Employee’s benefits under the Retirement Plan, the Excess Agreement and the Supplemental Plan were vested and non-forfeitable, (B) the Employee satisfied any other condition under the Retirement Plan, the Excess Agreement and the Supplemental Plan to his receipt of benefits thereunder, (C) the Employee’s compensation for purposes of the Retirement Plan, the Excess Agreement and the Supplemental Plan was determined without regard to any reduction in compensation elected by the Employee pursuant to any qualified or non-qualified salary reduction arrangement maintained by the Company, including without limitation, the SIP Plan and the Deferred Compensation Plan, (D) the Employee was credited with additional service with the Company equal to the period of time between the Termination Date and the first to occur of either (1) the end of the Limited Period or (2) the end of the Severance Period, provided that for purposes of the Retirement Plan, the Excess -7- --------------------------------------------------------------------------------   Agreement and the Supplemental Plan the Employee will only be credited with such additional service if the Employee was being credited with service for benefit accrual purposes under such plans immediately prior to the Termination Date, (E) solely for purposes of determining the time at which the Employee would receive benefits under the Retirement Plan, the Terminated Pension Plan, the Excess Agreement and the Supplemental Plan, the Employee had continued his employment with the Company until such time Employee would have received such benefits, (F) the Employee’s compensation for purposes of benefit calculation under the Retirement Plan, the Excess Agreement and the Supplemental Plan included a period of the Employee’s full-time employment with the Company equal to the period of time between the Termination Date and the first to occur of either (1) the end of the Limited Period or (2) the end of the Severance Period during which the Employee had Base Salary equal to the greater of (I) his Base Salary for the calendar year in which the Employee’s employment is terminated or (II) his Base Salary for the calendar year in which the Change in Control occurred, and Incentive Pay equal to the greater of (y) the Employee’s Incentive Pay for the calendar year in which the Termination Date occurs or (z) the Employee’s Incentive Pay for the calendar year in which the Change in Control occurs, and (G) the Employee commenced receiving benefits from the Retirement Plan, the Terminated Pension Plan, the Excess Agreement and the Supplemental Plan at the point in time when the total of the lump sums of actuarial equivalence under the Retirement Plan, the Terminated Pension Plan, the Excess Agreement and the Supplemental Plan is the greatest; and        (b) is the sum of the accrued pension benefits (converted to a lump sum of actuarial equivalence as of the Termination Date) which the Employee is entitled to receive at or after the Termination Date under (i) the Retirement Plan, and (ii) any annuity distributed to the Employee as a result of the termination on October 31, 1984 of the Terminated Pension Plan. The calculations of the Supplemental Pension Benefit (and its actuarial equivalence) shall be made, as of the Termination Date, by Watson Wyatt & Company or such other independent actuary appointed by the administrator of the Retirement Plan and acceptable to the Employee (the “Actuary”). The lump sum of actuarial equivalence shall be calculated using the applicable mortality table promulgated by the Internal Revenue Service (“IRS”) under Section 417(e)(3) of the Code as in effect on the Termination Date and the applicable interest rate promulgated by the IRS under Section 417(e)(3) of the Code for the month third preceding the month in which the Termination Date occurs, and if the IRS ceases to promulgate such interest rates, an interest rate determined by the Actuary.          1.19 Supplemental SIP Plan Benefit: The “Supplemental SIP Plan Benefit” shall mean:        (a) The amount of the Company Matching Contributions and Core Contributions (as such terms are defined in the SIP Plan) that would have been made to the SIP Plan by the Company and allocated to the Employee’s account thereunder as if the Employee had remained in the full-time employment of the -8- --------------------------------------------------------------------------------   Company until the earlier of (i) the end of the Limited Period or (ii) the end of the Severance Period, at the greater of (I) his Base Salary for the calendar year in which the Employee’s employment is terminated, or (II) his Base Salary immediately prior to the Change in Control, and the greater of (y) the Employee’s Incentive Pay for the calendar year in which the Termination Date occurs and (z) the Employee’s Incentive Pay for the calendar year in which the Change in Control occurred, and assuming the Employee’s salary deferral was at the maximum permissible level; less        (b) The amount of the Company Matching Contributions and Core Contributions made to the SIP Plan by the Company and allocated to the Employee’s account thereunder as of the Termination Date.          1.20 Termination Date: The term “Termination Date” shall mean the effective date on which the Employee’s employment with the Company is terminated.          1.21 Voting Stock: The term “Voting Stock” means securities entitled to vote generally in the election of directors.      2. Operation of Agreement: This Agreement shall be effective immediately upon its execution.      3. Severance Compensation:          3.1 Severance Compensation:         (a) If the Company shall terminate the Employee’s employment during the Limited Period other than pursuant to a Company Termination Event, or if the Employee shall voluntarily terminate his employment during the Limited Period pursuant to an Employee Termination Event, then the Company shall pay as severance compensation to the Employee a lump sum cash payment in the amount of the CIC Severance Amount. Anything in this Agreement to the contrary notwithstanding, if a Change in Control occurs and not more than 90 days prior to the date on which the Change in Control occurs, the Employee’s employment with the Company is terminated by the Company, such termination of employment will be deemed to be a termination of employment during the Limited Period for purposes of this Agreement if the Employee has reasonably demonstrated that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change in Control, or (ii) otherwise arose in connection with or in anticipation of a Change in Control. In the event the Employee is entitled to the benefits under this Agreement as a result of the preceding sentence, then the 60-calendar-day periods specified in Section 3.1(c) and Section 3.5(b) shall be deemed to commence on the date on which the Employee receives the notice contemplated by the last sentence of Section 1.3 hereof; provided, however, that if the Change in Control is not a Change in Control as defined under Section 409A of the Code, payments under -9- --------------------------------------------------------------------------------   Section 3.1(c) will be made no sooner than 6 months after the date of the Employee’s “separation from service” (as defined in Section 409A of the Code).         (b) If the Company shall terminate the Employee’s employment other than during the Limited Period and other than (i) pursuant to a Company Termination Event or (ii) for reasons of (A) criminal activity or (B) willful misconduct or gross negligence in the performance of the Employee’s duties, then the Company shall pay as severance compensation to the Employee a lump sum cash payment in the amount of the Severance Amount.         (c) The payment of the Severance Amount or the CIC Severance Amount required by this Section 3.1 and any Gross-Up Payment initially determined to be required by Section 3.5 shall, subject to execution and delivery by the Employee of the Release described in Section 6 hereof, and the expiration of all applicable rights of the Employee to revoke the Release or any provision thereof, be made to the Employee on the date that is 60 calendar days after the Termination Date. Notwithstanding the foregoing, if the Employee is a “specified employee” (as defined under Section 409A of the Code), the portion of the CIC Severance Amount attributable to the Supplemental Pension Benefit, the Supplemental SIP Plan Benefit, and the Post Tax SIP Plan Benefit and any other payment or portion of a payment of amounts described in Sections 3.1 and 3.5 that constitutes a “deferral of compensation” under Section 409A of the Code will be paid to the Employee upon the earlier of (i) six months following the Employee’s “separation from service” with the Company (as such phrase is defined in Section 409A of the Code) or (ii) the Employee’s death. Upon receipt of the CIC Severance Amount, if paid, and because the CIC Severance Amount includes a supplemental pension benefit that the parties intend to be paid pursuant to this Agreement in lieu of any benefits to which the Employee is entitled under the Excess Agreement, the Supplemental Plan, and the Post-Tax SIP Plan, the Employee hereby retroactively waives, upon his receipt of the CIC Severance Amount, participation in any non-qualified pension plan of, or benefits under any employee excess benefits agreement with, the Company providing for benefits in excess of those permitted by the Code to be paid under the Retirement Plan and SIP Plan, and which measure service and compensation under such plan or agreement as a basis for benefits, including, without limitation, the Excess Agreement and the Supplemental Plan.                  3.2 Compensation through Termination: If the Employee’s employment is terminated, the Company shall pay the Employee any Base Salary that has accrued but is unpaid through the Termination Date. If the Employee’s employment is terminated by the Company other than for Cause, the Company shall pay the Employee an amount equivalent to the Incentive Pay for the calendar year in which the Termination Date occurs multiplied by a fraction, the numerator of which is the number of days in the calendar year in which the Termination Date occurs that have expired prior to the Termination Date and the denominator of which is three hundred sixty-five, in accordance with the provisions of Section 3.1(c). -10- --------------------------------------------------------------------------------                    3.3 Offset: To the full extent permitted by applicable law, the Company retains the right to offset against the Severance Amount or the Gross-Up Payment on the Severance Amount otherwise due to the Employee hereunder any amounts then owing and payable such Employee to the Company or any of its affiliates.                  3.4 Interest on Overdue Payments: Without limiting the rights of the Employee at law or in equity, if the Company fails to make any payment required to be made under this Agreement on a timely basis, the Company shall pay interest on the amount thereof at an annualized rate of interest equal to the “prime rate” as set forth from time to time during the relevant period in The Wall Street Journal “Money Rates” column, plus 1%.                  3.5 Indemnification:              (a) Anything in this Agreement to the contrary notwithstanding, in the event that it shall be determined (as hereafter provided) that any payment or distribution by the Company to or for the benefit of the Employee, whether paid hereunder or paid or payable or distributed or distributable pursuant to or by reason of any other agreement, policy, plan, program or arrangement, including without limitation any stock option, stock appreciation right or similar right, or the lapse of termination of any of the foregoing (individually and collectively a “Payment”), would be subject to the excise tax imposed by Section 4999 of the Code (or any successor provision thereto) by reason of being considered “contingent on a change in ownership or control” of the Company, within the meaning of Section 280G of the Code (or any successor provision thereto), or to any similar tax imposed by state or local law, or to any interest or penalties with respect to such taxes (such taxes together with any such interest and penalties, being hereafter collectively referred to as the “Excise Tax”), then the Employee shall be entitled to receive an additional payment or payments (individually and collectively, a “Gross-Up Payment”). The Gross-Up Payment shall be in an amount such that, after payment by the Employee of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax imposed upon the Gross-Up Payment, the Employee retains a portion of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment.              (b) Subject to the provisions of paragraph (e) of this Section 3.5, all determinations required to be made under this Section 3.5, including whether an Excise Tax is payable by the Employee and the amount of such Excise Tax and whether a Gross-Up Payment is required to be paid by the Company to the Employee and the amount of such Gross-Up Payment, if any, shall be made by a nationally recognized accounting or benefits consulting firm (the “Firm”) mutually agreed upon by the Employee and the Company. The Firm shall submit its determination and detailed supporting calculations to both the Company and the Employee within 30 calendar days after the Termination Date, if applicable, and any such other time or times as may be requested by the Company or the Employee. If the Firm determines that any Excise Tax is payable by the Employee, the Company shall pay the required Gross-Up Payment to the Employee on the date that is 60 calendar days after the Termination Date. If the -11- --------------------------------------------------------------------------------                (c) Firm determines that no Excise Tax is payable by the Employee, it shall, at the same time as it makes such determination, furnish the Company and the Employee an opinion that the Employee has substantial authority not to report any Excise Tax on his federal income tax return. As a result of the uncertainty in the application of Section 4999 of the Code (or any successor provision thereto) and the possibility of similar uncertainty regarding applicable state or local tax law at the time of any determination by the Firm hereunder, it is possible that Gross-Up payments which will not have been made by the Company should have been made (an “Underpayment”), consistent with the calculations required to be made hereunder. In the event that the Company exhausts or fails to pursue its remedies pursuant to paragraph (e) of this Section 3.5 and the Employee thereafter is required to make a payment of the Excise Tax, the Employee shall direct the Firm to determine the amount of the Underpayment that has occurred and to submit its determination and detailed supporting calculations to both the Company and the Employee as promptly as possible. Any such Underpayment shall be promptly paid by the Company to, or for the benefit of, the Employee within five business days after receipt of such determination and calculations.              (d) The Company and the Employee shall each provide the Firm access to and copies of any books, records and documents in the possession of the Company or the Employee, as the case may be, reasonably requested by the Firm, and otherwise cooperate with the Firm in connection with the preparation and issuance of the determinations and calculations contemplated by paragraph (b) of this Section 3.5. Any determination by the Firm as to the amount of the Gross-Up Payment or the Underpayment shall be binding upon the Company and the Employee.              (e) The fees and expenses of the Firm for its services in connection with the determinations and calculations contemplated by paragraph (b) of this section 3.5 shall be borne by the Company. If such fees and expenses are initially paid by the Employee, the Company shall reimburse the Employee the full amount of such fees and expenses within five business days after receipt from the Employee of a statement therefor and reasonable evidence of his payment thereof.              (f) The Employee shall notify the Company in writing of any claim by the IRS or any other taxing authority that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notification shall be given as promptly as practicable but no later than 10 business days after the Employee actually receives notice of such claim and the Employee shall further apprise the Company of the nature of such claim and the date on which such claim is requested to be paid (in each case, to the extent known by the Employee). The Employee shall not pay such claim prior to the earlier of (y) the expiration of the 30-calendar-day period following the date on which he gives such notice to the Company and (z) the date that any payment of amount with respect to such claim is due. If the Company notifies the Employee in writing prior to the expiration of such period that it desires to contest such claim, the Employee shall: -12- --------------------------------------------------------------------------------                (i) provide the Company with any written records or documents in his possession relating to such claim reasonably requested by the Company;              (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including without limitation accepting legal representation with respect to such claim by an attorney competent in respect of the subject matter and reasonably selected by the Company;              (iii) cooperate with the Company in good faith in order to effectively to contest such claim; and              (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including interest and penalties) incurred in connection with such contest and shall indemnify and hold harmless the Employee, on an after-tax basis, for and against any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limiting the foregoing provisions of paragraph (e), the Company shall control all proceedings taken in connection with the contest of any claim contemplated by paragraph (e) and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim (provided, however, that the Employee may participate therein at his own cost and expense) and may, at its option, either direct the Employee to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Employee agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Employee to pay the tax claimed and sue for a refund, the Company shall, if permitted by applicable law, advance the amount of such payment to the Employee on an interest-free basis and shall indemnify and hold the Employee harmless, on an after-tax basis, from any Excise Tax or income tax or other tax, including interest or penalties with respect thereto, imposed with respect to such advance; and provided further, however, that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Employee with respect to which the contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company’s control of any such contested claim shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Employee shall be entitled to settle or contest, as the case may be, any other issue raised by the IRS or any other taxing authority. -13- --------------------------------------------------------------------------------                (g) If, after the receipt by the Employee of an amount advanced by the Company pursuant to paragraph (e) of this Section 3.5, the Employee receives any refund with respect to such claim, the Employee shall (subject to the Company’s complying with the requirements of paragraph (e) of this Section 3.5) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after any taxes applicable thereto). If, after the receipt by the Employee of an amount advanced by the Company pursuant to paragraph (e) of this Section 3.5, a determination is made that the Employee shall not be entitled to any refund with respect to such claim and the Company does not notify the Employee in writing of its intent to contest such denial or refund prior to the expiration of 30 calendar days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of any such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid by the Company to the Employee pursuant to this Section 3.5.              (h) The Federal, state and local income or other tax returns filed by the Employee shall be prepared and filed on a basis consistent with the determination of the Firm with respect to the Excise Tax payable by the Employee. The Employee shall make proper payment of the amount of any Excise Tax, and at the request of the Company, provide to the Company true and correct copies (with any amendments) of his federal income tax return as filed with the IRS and corresponding state and local tax returns, if relevant, as filed with the applicable taxing authority, and such other documents reasonably requested by the Company, evidencing such payment. If prior to the filing of the Employee’s federal income tax return, or corresponding state or local tax return, if relevant, the Firm determines that the amount of the Gross-Up Payment should be reduced, the Employee shall within five business days pay to the Company the amount of such reduction.                  3.6 Continuation of Certain Benefits.              (a) If the Company terminates the Employee’s employment during the Limited Period other than pursuant to a Company Termination Event, or if the Employee voluntarily terminates his employment during the Limited Period pursuant to an Employee Termination Event, then the Employee, and the Employee’s eligible dependents, shall be entitled to continue to participate in the Company’s medical, dental, vision and life insurance plans for which the Employee was eligible immediately prior to the Employee’s Termination Date, until the earlier of (i) Employee’s eligibility for any such coverage under another employer’s or any other medical plan or (ii) [three years/eighteen months] following the termination of Executive’s employment. The Employee’s continued participation in the Company’s medical, dental, vision and life insurance plans shall be on the terms (including access fees) not less favorable than those in effect for actively employed key employees of the Company. Employee agrees that the period of coverage under such plan shall count against the medical plan’s obligation to provide continuation coverage pursuant to Part 6 -14- --------------------------------------------------------------------------------   of Subtitle B of Title I of the Employee Retirement Income Security Act of 1974, as amended (“COBRA”).              (b) If the Company terminates the Employee’s employment other than during the Limited Period and other than (i) pursuant to a Company Termination Event or (ii) for reasons of (A) criminal activity or (B) willful misconduct or gross negligence in the performance of the Employee’s duties, then the Employee, and the Employee’s eligible dependents, shall be entitled to continue to participate in the Company’s medical, dental, vision and life insurance plans for which the Employee was eligible immediately prior to the Employee’s Termination Date, until the earlier of (x) Employee’s eligibility for any such coverage under another employer’s or any other medical plan or (y) ___following the termination of Executive’s employment. The Employee’s continued participation in the Company’s medical, dental, vision and life insurance plans shall be on the terms (including access fees) not less favorable than those in effect for actively employed key employees of the Company. Employee agrees that the period of coverage under such plan shall count against the medical plan’s obligation to provide continuation coverage pursuant to COBRA.              (c) Notwithstanding the foregoing, if the Company determines that the benefit provided under this Section 3.6 is likely to result in negative tax consequences to the Employee, the Company will use its reasonable best efforts to make other arrangements to provide a substantially similar benefit to the Employee that does not have such negative tax consequences, which may include making a lump sum payment at the earliest time permitted under Section 409A of the Code, in an amount equal to the Company’s reasonable determination of the present value of any such benefits that, if provided, would result in negative tax consequences to the Employee or providing such benefit through insurance coverage on the Employee’s behalf.      4. No Obligation to Mitigate Damages: The Employee shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by the Employee as the result of employment by another employer after the Termination Date, or otherwise.      5. Confidential Information; Covenant Not To Compete:                  5.1 The Employee acknowledges that all trade secrets, customer lists and other confidential business information are the exclusive property of the Company. The Employee shall not (following the execution of this Agreement, during the Limited Period, or at any time thereafter) disclose such trade secrets, customer lists, or confidential business information without the prior written consent of the Company. The Employee also shall not (following the execution of this Agreement, during the Limited Period, or at any time thereafter) directly or indirectly, or by acting in concert with others, employ or attempt to employ or solicit for any employment competitive with the Company any person(s) employed by the Company. The Employee recognizes that any violation of this Section 5.1 and Section 5.2 is likely to result -15- --------------------------------------------------------------------------------   in immediate and irreparable harm to the Company for which money damages are likely to be inadequate. Accordingly, the Employee consents to the entry of injunctive and other appropriate equitable relief by a court of competent jurisdiction, after notice and hearing and the court’s finding of irreparable harm and the likelihood of prevailing on a claim alleging violation of this Section 5, in order to protect the Company’s rights under this Section. Such relief shall be in addition to any other relief to which the Company may be entitled at law or in equity. The Employee agrees that the state and federal courts located in the State of Ohio shall have jurisdiction in any action, suit or proceeding against Employee based on or arising out of this Agreement and Employee hereby: (a) submits to the personal jurisdiction of such courts; (b) consents to service of process in connection with any action, suit or proceeding against Employee; and (c) waives any other requirement (whether imposed by statute, rule of court or otherwise) with respect to personal jurisdiction, venue or service of process.                  5.2 For a period of time beginning upon the Termination Date and ending upon the first anniversary of the Termination Date, the Employee shall not (a) engage or participate, directly or indirectly, in any Competitive Activity, as defined in Section 1.7 or (b) solicit or cause to be solicited on behalf of a competitor any person or entity which was a customer of the Company during the term of this Agreement, if the Employee had any direct responsibility for such customer while employed by the Company.      6. Release:      Payment of the severance payments set forth in Section 3 hereof is conditioned upon the Employee executing and delivering a full and complete release of all claims satisfactory to the Company.      7. Successors, Binding Agreement and Complete Agreement:                  7.1 Successors: The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, by agreement in form and substance satisfactory to the Employee, to assume and agree to perform this Agreement.                  7.2 Binding Agreement: This Agreement shall inure to the benefit of and be enforceable by the Employee’s personal or legal representative, executor, administrators, successors, heirs, distributees and legatees. This Agreement shall be binding upon and inure to the benefit of the Company and any successor of or to the Company, including, without limitation, any person acquiring directly or indirectly all or substantially all of the assets of the Company whether by merger, consolidation, sale or otherwise (and such successor shall thereafter be deemed “the Company” for the purposes of this Agreement), but shall not otherwise be assignable by the Company.                  7.3 Complete Agreement. This Agreement embodies the complete agreement and understanding between the parties with respect to the subject matter hereof and effective as of its date supersedes and preempts any prior understandings, agreements or representations [, including, but not limited to, the Severance Agreement between the Company and the Employee -16- --------------------------------------------------------------------------------   dated          ,     ,] by or between the parties, written or oral, which may have related to the subject matter hereof in any way.      8. Notices: For the purpose of this Agreement, all communications provided for herein shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as indicated below, or to such other address as any party may have furnished to the other in writing and in accordance herewith, except that notices of change of address shall be effective only upon receipt.       If to the Company:   The Timken Company     1835 Dueber Avenue, S.W.     Canton, Ohio 44706       If to the Employee:                                                                     9. Governing Law: The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Ohio, without giving effect to the principles of conflict of laws of such State.      10. Miscellaneous: No provision of this Agreement may be amended, modified, waived or discharged unless such amendment, waiver, modification or discharge is agreed to in writing signed by the Employee and the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, expressed or implied with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. If the Employee files a claim for benefits under this Agreement with the Company, the Company will follow the claims procedures set out in 29 C.F.R. section 2560.503-1.      11. Validity: The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement which shall remain in full force and effect.      12. Counterparts: This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same Agreement.      13. Employment Rights: Nothing expressed or implied in this Agreement shall create any right or duty on the part of the Company or the Employee to have the Employee remain in the employment of the Company. -17- --------------------------------------------------------------------------------            14. Withholding of Taxes: The Company may withhold from any amount payable under this Agreement all federal, state, city or other taxes as shall be required pursuant to any law or government regulation or ruling.          15. Nonassignability: This Agreement is personal in nature and neither of the parties hereto shall, without the consent of the other, assign or transfer this Agreement or any rights or obligations, hereunder, except as provided in Sections 7.1 and 7.2 above. Without limiting the foregoing, the Employee’s right to receive payments hereunder shall not be assignable or transferable, whether by pledge, creation of a security interest or otherwise, other than by a transfer by his will or by the laws of descent and distribution and in the event of any attempted assignment or transfer contrary to this Section the Company shall have no liability to pay any amounts so attempted to be assigned or transferred.          16. Termination of Agreement: The term of this Agreement (the “Term”) shall commence as of the date hereof and shall expire on the close of business on December 31, 2007; provided, however, that (i) commencing on January 1, 2008 and each January 1 thereafter, the term of this Agreement will automatically be extended for an additional year unless, not later than September 30 of the immediately preceding year, the Company or the Employee shall have given notice that it or the Employee, as the case may be, does not wish to have the Term extended; (ii) if a Change in Control occurs during the Term, the Term will expire on the last day of the Limited Period; and (iii) subject to Section 3.1, if the Employee ceases for any reason to be a key employee of the Company or any subsidiary, thereupon without further action the Term shall be deemed to have expired and this Agreement will immediately terminate and be of no further effect. For purposes of this Section 16, the Employee shall not be deemed to have ceased to be an employee of the Company or any subsidiary by reason of the transfer of Employee’s employment between the Company and any subsidiary, or among any subsidiaries.          17. Indemnification of Legal Fees and Expenses; Security for Payment:                17.1 Indemnification of Legal Fees. It is the intent of the Company that in the case of a Change in Control, the Employee not be required to incur the expenses associated with the enforcement of his rights under this Agreement by litigation or other legal action because the cost and expense thereof would substantially detract from the benefits intended to be extended to the Employee hereunder. Accordingly, after a Change in Control, if it should appear to the Employee that the Company has failed to comply with any of its obligations under this Agreement or in the event that the Company or any other person takes any action to declare this Agreement void or unenforceable, or institutes any litigation designed to deny, or to recover from, the Employee the benefits intended to be provided to the Employee hereunder, the Company irrevocably authorizes the Employee from time to time to retain counsel of his choice, at the expense of the Company as hereafter provided, to represent the Employee in connection with the initiation or defense of any litigation or other legal action, whether by or against the Company or any Director, officer, stockholder or other person affiliated with the Company, in any jurisdiction. The Company shall pay or cause to be paid and shall be solely responsible for any and all attorneys’ and related fees and expenses incurred by the Employee after a Change in Control and as a result of the Company’s failure to perform this Agreement or any provision hereof or as a result of the Company or any person contesting the validity or enforceability of this Agreement or any provision hereof as aforesaid. -18- --------------------------------------------------------------------------------                  17.2 Trust Agreements. To ensure that the provisions of this Agreement can be enforced by the Employee, two agreements (“Amended and Restated Trust Agreement” and “Amended and Restated Trust Agreement No. 2”) each dated as of March 26, 1991, as they may have been or may be amended, have been established between a Trustee selected by the members of the Compensation Committee of the Board or any officer (the “Trustee”) and the Company. The Amended and Restated Trust Agreement sets forth the terms and conditions relating to payment pursuant to the Amended and Restated Trust Agreement of the CIC Severance Amount, the Gross-Up Payment and other payments provided for in Section 3.5 hereof pursuant to this Agreement owed by the Company, and Amended and Restated Trust Agreement No. 2 sets forth the terms and conditions relating to payment pursuant to Amended and Restated Trust Agreement No. 2 of attorneys’ and related fees and expenses pursuant to paragraph (a) of this Section owed by the Company. Employee shall make demand on the Company for any payments due Employee pursuant to paragraph (a) of this Section prior to making demand therefor on the Trustee under Amended and Restated Trust Agreement No. 2. Payments by such Trustee shall discharge the Company’s liability under paragraph (a) of this Section only to the extent that trust assets are used to satisfy such liability.                17.3 Obligation of the Company to Fund Trusts. Upon the earlier to occur of (x) a Change in Control that involves a transaction that was not approved by the Board, and was not recommended to the Company’s shareholders by the Board, (y) a declaration by the Board that the trusts under the Amended and Restated Trust Agreement and Amended and Restated Trust Agreement No. 2 should be funded in connection with a Change in Control that involves a transaction that was approved by the Board, or was recommended to shareholders by the Board, or (z) a declaration by the Board that a Change in Control is imminent, the Company shall promptly to the extent it has not previously done so, and in any event within five (5) business days:              (a) transfer to the Trustee to be added to the principal of the trust under the Amended and Restated Trust Agreement a sum equal to the aggregate value on the date of the Change in Control of the CIC Severance Amount and Gross-Up Payment which could become payable to the Employee under the provisions of Section 3.1 and Section 3.5 hereof. The payment of any CIC Severance Amount, Gross-Up Payment or other payment by the Trustee pursuant to the Amended and Restated Trust Agreement shall, to the extent thereof, discharge the Company’s obligation to pay the CIC Severance Amount, Gross-Up Payment or other payment hereunder, it being the intent of the Company that assets in such Amended and Restated Trust Agreement be held as security for the Company’s obligation to pay the CIC Severance Amount, Gross-Up Payment and other payments under this Agreement; and              (b) transfer to the Trustee to be added to the principal of the trust under Amended and Restated Trust Agreement No. 2 the sum authorized by the members of the Compensation Committee from time to time. Any payments of attorneys’ and related fees and expenses, which are the obligation of the Company under Section 17.1, by the Trustee pursuant to Amended and Restated Trust Agreement No. 2 shall, to the extent thereof, discharge the Company’s obligation hereunder, it -19- --------------------------------------------------------------------------------   being the intent of the Company that such assets in such Amended and Restated Trust Agreement No. 2 be held as security for the Company’s obligation under Section 17.1.      18. Code Section 409A of the Code.            18.1 General. To the extent applicable, it is intended that this Agreement comply with the provisions of Section 409A of the Code. This Agreement shall be administered in a manner consistent with this intent, and any provision that would cause the Agreement to fail to satisfy Section 409A of the Code shall have no force and effect until amended to comply with Section 409A of the Code (which amendment may be retroactive to the extent permitted by Section 409A of the Code and may be made by the Company without the consent of the Employee).            18.2 Interest, Indemnification, and Legal Fee Payments. Notwithstanding any provision of this Agreement to the contrary, if any payments are owed to the Employee pursuant to Section 3.4, 3.5 or 17.1, those payments will only be paid to the Employee to the extent and in the manner permitted by Section 409A of the Code.      IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered as of the date first set forth above.                   By:           Employee                  THE TIMKEN COMPANY       By:           W. R. Burkhart      Its:   Sr. VP & General Counsel      -20-

Exhibit 10.2   FOURTH AMENDED AND RESTATED EMPLOYMENT AGREEMENT   FOURTH AMENDED AND RESTATED EMPLOYMENT AGREEMENT dated as of October 25, 2004 (the “Agreement”) among Atlantic Express Transportation Group Inc., a New York corporation (“Group”), Atlantic Express Transportation Corp., a New York corporation (the “Company”), and Nathan Schlenker (the “Executive”).   WHEREAS, the Executive is presently employed by the Company, a wholly owned subsidiary of Group, under the Third Amended and Restated Employment Agreement dated as of March 31, 2003, as amended by the letter agreement dated March 2, 2004 (as amended, the “Prior Agreement”);   WHEREAS, the Company desires to secure the continued services of the Executive, and the Executive desires to continue in the employment of the Company and, in connection therewith, the Company, Group and the Executive desire to amend and restate the terms and provisions of the Prior Agreement to, among other things, set forth the terms of such continued employment.   NOW, THEREFORE, in consideration of the foregoing and the respective covenants and agreements hereinafter set forth and for other good and valuable consideration, the Company, Group and the Executive hereby agree to amend and restate the Prior Agreement in its entirety, as follows:   1. EMPLOYMENT AND DUTIES   1.1. General. Commencing on November 1, 2004 (the “Effective Date”), the Company shall employ the Executive, and the Executive agrees to serve, as Director of Finance of the Company, upon the terms and conditions herein contained during the Initial Term (as defined below), and in such capacity the Executive agrees to serve the Company faithfully and to the best of his ability under the direction of the Board of Directors (the “Board”).   1.2. Exclusive Services. During the Initial Term, the Executive shall devote his full-time working hours, four (4) days a week, to his duties hereunder and shall not, directly or indirectly, render services to any other person or organization or otherwise engage in activities which would interfere significantly with his faithful performance of his duties hereunder without the consent of the Board.   1.3. Term of Employment. The “Initial Term” of Executive’s employment under this Agreement shall commence as of the Effective Date and shall terminate on the earlier of (a) October 31, 2005 or (b) on the last day of the month a written notice of termination is delivered by either party, which notices shall be delivered not less than 10 business days prior to such termination date.   --------------------------------------------------------------------------------   Upon the termination of the Initial Term, the Company shall employ the Executive until October 31, 2005 (the “Second Term”, and together with the Initial Term, the “Employment Term”) on a part-time basis. During the Second Term, the Executive shall devote his full-time working hours, ten (10) day days a month, to his duties. The Company shall not have any obligation to employ the Executive for the Second Term (a) if the Executive resigns, (b) if the Executive has been disloyal to Group, the Company or any of their respective affiliates by assisting transportation competitors of Group, the Company or any of their respective affiliates to the disadvantage of Group, the Company or any of their respective affiliates by a breach of Section 6 or by otherwise actively assisting such competitors to the disadvantage of Group, the Company or any of their respective affiliates (a “Disloyalty Event”) or (c) if the Initial Term is not terminated prior to October 31, 2005.   2. SALARY   2.1. Base Salary. During the Initial Term, the Executive shall be entitled to receive a base salary (“Base Salary”) at a rate equal to eighty percent (80%) of the Executive’s then Base Salary under the Prior Agreement, payable monthly on or about the 15th day of each month in equal installments in accordance with the Company’s payroll practices.   2.2. Second Term Compensation. During the Second Term, the Executive shall be entitled to receive (a) a salary of $8,333 per month and (b) additional compensation of $800 per day for each day the Executive is required to work in excess of ten (10) days for any month.   3. EMPLOYEE BENEFITS   3.1. General Benefits. The Executive shall receive the following benefits during the Initial Term:   (a)                                  the Executive will be eligible to participate in benefit programs of the Company consistent with those benefit programs provided from time to time to other senior executives of the Company;   (b)         an annual life insurance premium allowance of $2,500 payable annually in February of each year;   (c)                                  an automobile allowance of $250 per month and the exclusive use of a company car;   (d)                                 a travel allowance not to exceed $15,000 annually; and   (e)                                  participation in any executive incentive plan which might be implemented by the Board during the Employment Term.   3.2. Vacation. During the Initial Term, the Executive shall be entitled to 20 days paid vacation each year in accordance with the applicable policies of the Company.   --------------------------------------------------------------------------------   3.3. Reimbursement of Expenses. The Company will reimburse the Executive for reasonable, ordinary and necessary business expenses incurred by him in the fulfillment of his duties hereunder upon presentation by the Executive of an itemized account of such expenditures in accordance with the Company practices consistently applied.   3.4. Second Term Travel Reimbursement. During the Second Term, the Executive shall be reimbursed for his travel expenses between his home and the Company’s offices in Staten Island, New York.   3.5. Benefits upon Termination. Upon the termination of the Executive’s employment, the Company shall provide the Executive with two (2) years of medical coverage under the same terms as medical coverage is offered to other executives of the Company.   3.6. Non-Renewal Severance Pay. The Company hereby acknowledges that the Executive is entitled to receive the Non-Renewal Severance Pay on November 1, 2004 in accordance with the Section 3.4 of Prior Agreement.   4. [intentionally deleted]   5. [intentionally deleted]   6. NON COMPETITION/NON SOLICITATION AND CONFIDENTIALITY   6.1. Noncompetition/Nonsolicitation. The Executive shall not, directly or indirectly, as a sole proprietor, member of a partnership, stockholder or investor, officer or director of a corporation, or as an employee, associate, consultant or agent of any person, partnership, corporation or other business organization or entity other than the Company: (a) engage in, or acquire an interest in any entity or enterprise which engages in, any business that is in competition with any business actively conducted by Group, the Company or any of their respective subsidiaries within (i) the counties then served by Group, the Company or their respective subsidiaries as well as adjacent counties, and (ii) any other counties in which Group, the Company or their respective subsidiaries has made a bid within 36 months prior to the Executive’s termination and any adjacent counties in which Group, the Company or their respective subsidiaries conducts business; (b) solicit or endeavor to entice away from Group, the Company or any of their respective subsidiaries any person who is, or was during the then most recent 36-month period, employed by or associated with Group, the Company or any of their respective subsidiaries, or (c) solicit or endeavor to entice away from Group, the Company or any of their respective subsidiaries, or otherwise interfere with the business relationship of Group, the Company or any of their respective subsidiaries with, any person or entity who is, or was within the then most recent 36-month period, a customer, client or prospect of Group, the Company or any of their respective subsidiaries. The obligations of this Section 6.1 shall apply for 18 months, or a period of 24 months if, as of termination of the employment of the Executive, more than a majority of the Common Stock of Group is then owned by the current shareholders of Group, after termination of employment of the Executive as well as during employment and shall be extended by a period of time equal to any period during which the Executive shall be in breach of such obligations.   --------------------------------------------------------------------------------   6.2. Confidentiality. The Executive covenants and agrees with the Company that he will not at any time, except in performance of his obligations to the Company hereunder or with the prior written consent of the Company, directly or indirectly, disclose any secret or confidential information that he may learn or has learned by reason of his association with Group, the Company or any of their respective subsidiaries and affiliates. The term “confidential information” includes information not previously disclosed to the public or to the trade by the Company’s or Group’s management, or otherwise in the public domain, with respect to the Company’s or Group’s or any of their respective affiliates’ or subsidiaries’ products, services, facilities, applications and methods, trade secrets and other intellectual property, systems, procedures, manuals, confidential reports, product or service price lists, customer lists, technical information, financial information (including the revenues, costs or profits associated with any of the Company’s or Group’s products), business plans, prospects or opportunities.   6.3. Exclusive Property. The Executive confirms that all confidential information is and shall remain the exclusive property of Group and the Company. All business records, papers and documents kept or made by the Executive relating to the business of Group, the Company or their respective subsidiaries shall be and remain the property of Group and the Company.   6.4. Injunctive Relief. Without intending to limit the remedies available to Group and the Company, the Executive acknowledges that a breach of any of the covenants contained in this Section 6 may result in material and irreparable injury to Group, the Company or their respective affiliates or subsidiaries for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of such a breach or threat thereof, Group and the Company shall be entitled to obtain a temporary restraining order and/or a preliminary or permanent injunction restraining the Executive from engaging in activities prohibited by this Section 6 or such other relief as may be required specifically to enforce any of the covenants in this Section 6. If for any reason a final decision of any court determines that the restrictions under this Section 6 are not reasonable or that consideration therefor is inadequate, such restrictions shall be interpreted, modified or rewritten by such court to include as much of the duration and scope identified in this Section 6 as will render such restrictions valid and enforceable.   7. GUARANTEES   7.1. Indemnification. Group, the Company and each of their subsidiaries, jointly and severally, shall indemnify the Executive and his spouse, heirs, estate, executors and administrators (collectively, the “Indemnitees”) and hold such Indemnitees harmless from and against, and pay and reimburse the Indemnitees for, any and all demands, payments, claims, actions, losses, damages, liabilities, obligations, fines, taxes, deficiencies, costs and expenses (including reasonable attorneys’ fees), whether or not resulting from third-party claims, including interest and penalties with respect thereto, asserted against or incurred or sustained by an Indemnitee in connection with or arising out of any personal guaranty or undertaking by the Executive of any obligation of Group, the Company or any of their subsidiaries (collectively a “Guaranty”).   --------------------------------------------------------------------------------   7.2. Future Subsidiaries. In the event, Group, the Company or any of their subsidiaries acquires or forms a subsidiary after the date hereof, Group and the Company shall cause such newly acquired or formed subsidiary to execute and deliver a supplement to this Amendment, which supplement shall provide that such newly acquired or formed subsidiary will indemnify the Indemnitees in accordance with Section 7.1 hereof.   8. MISCELLANEOUS   8.1. Notices. All notices or communications hereunder shall be in writing, addressed as follows:   To the Company or Group, to it at:   Atlantic Express Transportation Corp. 7 North Street Staten Island, NY 10302 Attention: Corporate Secretary   with a copy to:   GSCP III Holdings (AE), LLC c/o Greenwich Street Capital Partners, Inc. 12 E. 49th Street Suite 3200 New York, New York  10017 Fax: (212) 884-6184 Attention: Matthew Kaufman   and:   To the Executive:   Nathan Schlenker 347 Horning Road Palatine Bridge, NY 13428 Fax:  (518) 673-5071   Any such notice or communication shall be sent certified or registered mail, return receipt requested, or by facsimile, addressed as above (or to such other address as such party may designate in writing from time to time), and the actual date of receipt shall determine the time at which notice was given.   8.2. Severability. If a court of competent jurisdiction determines that any term or provision hereof is invalid or unenforceable, (a) the remaining terms and provisions hereof shall be unimpaired and (b) such court shall have the authority to replace such invalid or   --------------------------------------------------------------------------------   unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision.   8.3. Assignment. This Agreement shall inure to the benefit of the heirs and representatives of the Executive and the assigns and successors of the Company, but neither this Agreement nor any rights hereunder shall be assignable or otherwise subject to hypothecation by the Executive. Each of Group and the Company may assign this Agreement without prior written approval of the Executive upon the transfer of all or substantially all of its business and/or assets (whether by purchase, merger, consolidation or otherwise), provided that the successor to such business and/or assets shall expressly assume and agree to perform this Agreement.   8.4. Entire Agreement; Amendment. This Agreement represents the entire agreement of the parties with respect to the subject matter hereof and shall supersede any and all previous contracts, arrangements or understandings between or among Group, the Company and the Executive, including the Prior Agreement. The Agreement may be amended at any time by mutual written agreement of the parties hereto.   8.5. Withholding. The Company shall be entitled to withhold, or cause to be withheld, from payment any amount of withholding taxes required by law with respect to payments made to the Executive in connection with his employment hereunder.   8.6. Governing Law. This Agreement shall be construed, interpreted, and governed in accordance with the laws of the State of New York without reference to principles of conflict of laws.   8.7. Survival. Section 3.4 (relating to benefits upon termination), Article 6 (relating to noncompetition, nonsolicitation and confidentiality) and 8.6 (relating to governing law) shall survive the termination hereof.   8.8. Headings. Headings to sections in this Agreement are for the convenience of the parties only and are not intended to be a part of or to affect the meaning or interpretation hereof.   8.9. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.   [signature page follows]   --------------------------------------------------------------------------------   IN WITNESS WHEREOF, the Company and Group have caused this Agreement to be duly executed by their authorized representatives and the Executive has hereunto set his hand, in each case effective as of the day and year first above written.     ATLANTIC EXPRESS   TRANSPORTATION GROUP INC.           By: /s/ Domenic Gatto       Name: Domenic Gatto     Title: President       ATLANTIC EXPRESS   TRANSPORTATION CORP.           By: /s/ Domenic Gatto       Name: Domenic Gatto     Title: President           EXECUTIVE:           /s/ Nathan Schlenker     Nathan Schlenker   --------------------------------------------------------------------------------

  Exhibit 10.1 April 4, 2006 Mitch Pulwer 13115 Old Farm Drive St. Louis, Missouri 63146 Dear Mitch, On behalf of Polypore, Inc. I am pleased to offer you the position of Vice President and General Manager of Celgard, LLC reporting to Bob Toth, President and Chief Executive Officer. Your start date will be on or before April 17, 2006. The details of this offer are as follows: COMPENSATION Your base pay will be $20,416.67/month ($245,000.00 annual) paid bi-weekly. This position is based in Charlotte, N.C. and is a salaried exempt position. In addition to your base pay, you will be eligible to participate in the Company Incentive Plan with a target opportunity of 70% of the base pay salary based upon achievement of certain performance targets established by the CEO. You must be employed a minimum of (3) months in the calendar year to be eligible. EQUITY ARRANGEMENT You will participate in the equity plan at a level consistent with the position of Vice President & General Manager as one of the top five positions in the Company. The plan is currently being revised with expected implementation in 2Q or early 3Q, 2006. Complete details will be available in the near future. SEVERANCE In the event you are terminated by the Company without cause, you will be eligible for severance payments for a period of 9 months at your base pay. Should you be terminated for cause you will not be entitled to severance benefits. RELOCATION EXPENSES All reasonable and customary relocation costs including closing costs, realtor fees, move of household goods will be paid by the Company contingent upon your relocation to the Charlotte area no later than June 1, 2007. Relocation expenses that are taxable to you will be grossed up accordingly. In addition, temporary housing expenses for up to 9 months targeted at $1500/monthly will be provided.   --------------------------------------------------------------------------------   VACATION You will be eligible for four (4) weeks vacation on an annual basis prorated in 2006. BENEFITS You will be eligible for our Benefits Program described in the benefits summary that has been provided. Any questions you have regarding insurance and/or benefits may be directed to Debi Cutright at 704-587-8574. Our offer is contingent upon you successfully completing a post-offer physical that confirms that you are able to perform the essential functions of the job, with or without reasonable accommodation, a background check and passing a drug screening test prior to actual employment. If you fail the drug screen test or the background check, this offer of employment will be withdrawn. If you accept our offer, we will schedule your post-offer physical. On your first working day, please bring two forms of identification (i.e. driver’s license and social security card). If any of the above documents are not available, please give us a call to get a complete list of other acceptable forms of identification. CONFIDENTIALITY AGREEMENT You will be required to sign the Polypore, Inc. Confidentiality and Non-Disclosure Agreement. PLEASE ACKNOWLEDGE: I understand that employment is for no fixed period, and that my employment with the Company can be terminated with or without cause by the Company or by myself at any time. No oral representation to the contrary has been made to me, and I further understand that no employee of the Company is authorized to make any such representation. I also understand that Company policies, procedures, and the like, are not contractual, and may be altered, changed or deviated by the Company at its sole discretion. I understand it is the policy of the Company to respect all trade secrets and confidential know-how and information of any other company, including its competitors, and any company where its consultants and employees may have previously worked. Accordingly, I represent and warrant (i) that I am free to divulge to the Company without any violation of any rights of others, any and all information, practices and techniques which I may describe, divulge or in any other manner make known to the Company during my employment with the Company, (ii) that the services and duties to be performed for the Company and its affiliates will not infringe any third party copyright, patent, trade secret or other intellectual property right, and (iii) that I am free to accept employment with the Company, have no obligations inconsistent with this offer and any subsequent employment with the Company. 2 --------------------------------------------------------------------------------   Please acknowledge your acceptance of this offer by signing the original and returning it to me. We are excited about you joining Polypore, Inc., and look forward to a successful relationship.               Regards,                           /s/ John J. O’Malley                       John O’Malley         Senior Vice President         Human Resources         Polypore, Inc.                       ACCEPTANCE /s/ Mitch Pulwer   DATE April 7, 2006                               cc: D. Cutright             3

  Exhibit 10.7(e) AMENDMENT NO. 4 TO EXECUTIVE EMPLOYMENT AGREEMENT      This Amendment No. 4 to Executive Employment Agreement (this “Amendment”) is made as of November 1, 2003 (the “Amendment Date”), by and between BMC Software, Inc., a Delaware corporation (the “Employer”), and Dan Barnea, an individual resident of Neve Monosson, Israel (the “Executive”). The Employer and the Executive are each a “party” and are together “parties” to this Amendment.      WHEREAS, the parties have previously entered into an Employment Agreement dated as of April 1, 2000 (the “Agreement”), and the parties wish to amend the Agreement to provide for an automatically renewing “Employment Period,” as defined in the Agreement, on the terms described herein.      NOW THEREFORE, in consideration of the extension of the Employment Period provided for hereunder and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound, agree as follows, effective as of the Amendment Date:      1. Section 2.2 of the Agreement shall be deleted and the following shall be substituted therefor:          “2.2 EMPLOYMENT PERIOD    Subject to the provisions of Section 6, the term of the Executive’s employment under this Agreement will commence upon the Amendment Date and shall continue in effect through the third anniversary of the Amendment Date (the “Employment Period”); provided, however, that, subject to the provisions of Section 6, commencing on November 2, 2003 and on each day thereafter, the Employment Period shall be automatically extended for one additional day unless the Employer shall give written notice to Executive that the Employment Period shall cease to be so extended, in which event the Employment Period shall terminate on the third anniversary of the date such notice is given. The Employment Period may be further extended by mutual agreement of the parties.” [The remainder of this page is intentionally left blank.]   --------------------------------------------------------------------------------        2. Except as amended hereby, the Agreement is specifically ratified and reaffirmed.      IN WITNESS WHEREOF, the parties have executed and delivered this Amendment as of the date first written above. EMPLOYER: BMC Software, Inc. By: /s/ JEROME ADAMS Name: Jerome Adams Title: Senior Vice President of Administration EXECUTIVE: /s/ DAN BARNEA Dan Barnea  

Exhibit 10(j) Harte-Hanks, Inc. Non-Qualified Stock Option Agreement   Option   Number of Shares of Stock   Option Price, No.               Subject to this Option:                        Per Share: $ THIS AGREEMENT, effective as of the      day of             , 20     (the “Award Date”), is between Harte-Hanks, Inc., a Delaware corporation (hereinafter referred to as the “Corporation”), and                                                               (hereinafter referred to as the “Participant”). WITNESSETH: WHEREAS, the Corporation has adopted the Harte-Hanks, Inc. 1991 Stock Option Plan (the “Plan”), which provides for the grant of Non-Qualified Stock Options to employees of the Corporation and its Subsidiaries or Parent, and others, including outside directors, as selected by the Corporation’s Board of Directors (the “Board”) to purchase shares of common stock of the Corporation, par value one dollar ($1.00) per share (the “Common Stock”); and WHEREAS, the Participant has been selected by the Board to participate in the Plan, in accordance with the provisions thereof. WHEREAS, the Board awarded to Participant a Non-Qualified Stock Option on the Award Date. WHEREAS, the parties hereto desire to evidence in writing the terms and conditions of the option. NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements herein contained and as an inducement to Participant to continue as a director of the Corporation, a Subsidiary or Parent, the parties hereto hereby agree as follows: 1. On the Award Date, the Corporation awarded to Participant this Non-Qualified Stock Option to purchase from the Corporation, on the terms and conditions herein set forth, all or any part of the number of shares of Common Stock at the option price per share as set forth above, payable in cash (including check, bank draft or money order). In addition, subject to limitations established by the   1 -------------------------------------------------------------------------------- Board from time to time, the option price per share may be paid by actual or constructive delivery to the Corporation of previously owned shares of Common Stock. The grant of this option was effective on the Award Date. 2. This option cannot be exercised in whole or in part prior to                     . Thereafter, this option may be exercised to the extent shown below (rounded downward, if necessary, to the nearest full share), and to the extent not previously exercised, on or after the following anniversaries of the Award Date: Notwithstanding the foregoing, in no event can this option be exercised in whole or in part on or after the date on which this option lapses pursuant to Section 3. 3. This option shall lapse, and Participant’s rights hereunder shall terminate, on the first to occur of the following: (a) The expiration of ten (10) years from the Award Date; (b) Termination of service as a director; (c) The expiration of three (3) months after normal termination of service if the Participant is then still living; or (d) The expiration of one (1) year after the date of the Participant’s death. As used in this option, the following expressions shall have the meaning respectively indicated: “Termination of service” means the Participant’s discontinuance of service as a director of the Corporation or Parent for any reason other than death.   2 -------------------------------------------------------------------------------- “Parent” means any future corporation which would be a “parent corporation” of the Corporation as defined in Section 424(e) and (g) of the Internal Revenue Code of 1986, as amended. “Subsidiary” means any corporation which would be a “subsidiary corporation” of the Corporation as defined in Section 424(f) and (g) of the Internal Revenue Code of 1986, as amended. 4. This option and the rights and privileges conferred therewith shall not be sold, transferred, encumbered, hypothecated or otherwise anticipated by the Participant otherwise than by will or by the laws of descent and distribution. This option is not liable for or subject to, in whole or in part, the debts, contracts, liabilities, or torts by the Participant nor shall it be subject to garnishment, attachment, execution, levy or other legal or equitable process. This option shall be exercisable during the lifetime of the Participant only by the Participant. To the extent exercisable after the Participant’s death, this option shall be exercised only by the person or persons entitled to receive this option under the Participant’s will, duly probated, or if the Participant shall fail to make a testamentary disposition of this option, by the executor or administrator of the Participant’s estate. 5. Every share purchased through the exercise of this option shall be paid for in full at the time of exercise. This option shall be exercised in writing and in accordance with such rules and regulations as may, from time to time, be adopted by the Board under the Plan. This option shall be deemed exercised when notice of exercise is given to the Corporation accompanied by payment in full of the option price of the shares specified. In case of the exercise of this option in full, it shall be surrendered to the Corporation for cancellation. In case of the exercise of this option in part, it shall be delivered to the Corporation for the purpose of making appropriate notation thereon, or otherwise reflecting, in such manner as the Corporation shall determine, the result of such partial exercise of the option. 6. In the event that each of the outstanding shares of Common Stock (other than shares held by dissenting stockholders) shall be changed into or exchanged for a different number or kind of shares of stock of the Corporation or of another corporation (whether by reason of merger, consolidation, recapitalization, reclassification, stock dividend, split-up, combination of shares or otherwise), then there shall be substituted for each share of Common Stock then subject to this option the number and kind of shares of stock into which each outstanding share of Common Stock (other than shares held by dissenting stockholders) shall be so changed or for which each such share shall be so exchanged, together with an appropriate adjustment of the option price.   3 -------------------------------------------------------------------------------- In the event there shall be any other change in the number of, or kind of, issued shares of Common Stock, or of any stock or other securities into which such Common Stock shall have been changed, or for which it shall have been exchanged, the Board shall make such adjustment, if any, in the number, or kind, or option price of shares then subject to this option as is equitably required. Any such adjustment shall be effective and binding for all purposes of this option. 7. If at any time the Board shall determine, based on opinion of counsel to the Corporation, that listing, registration or qualification of the shares covered by this option upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of the exercise of this option, this option may not be exercised in whole or in part unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to counsel for the Corporation. 8. Shares issued upon the exercise of this option may not be sold except in accordance with applicable securities laws and the terms of the following restrictive legend, which shall be placed on the face of all certificates evidencing shares issued upon the exercise of this option unless the use of such legend is waived by the Corporation based on opinion of counsel that such legend is not necessary to comply with applicable securities laws: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT WHILE SUCH A REGISTRATION IS IN EFFECT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SAID ACT. Any certificate issued at any time in transfer, exchange or substitution for any certificate bearing such restrictive legend shall also bear such legend, unless the use of such legend is waived by the Corporation based on opinion of counsel that such legend is not necessary to comply with applicable securities laws. The Corporation shall have no obligation to file any registration statement or amendment to a registration statement under the Securities Act of 1933, as amended, or otherwise in connection with the sale of shares issued upon the exercise of this option.   4 -------------------------------------------------------------------------------- 9. The Participant agrees that he or she will not effect, during the seven days prior to and the 90 days after the effective date of any underwritten registration undertaken by the Corporation, any public sale or distribution of any shares issued upon exercise of this option. 10. Neither the Participant nor any person claiming under or through the Participant shall be or have any of the rights or privileges of a stockholder of the Corporation in respect of any of the shares issuable upon the exercise of this option, unless and until certificates representing such shares shall have been issued and delivered to the Participant or his or her agent. 11. Any notice to be given under the terms of this option or any delivery of this option to the Corporation shall be addressed to Secretary, Harte-Hanks, Inc., P. O. Box 269, San Antonio, Texas 78291, and any notice to be given to the Participant shall be addressed to the Participant at the address set forth beneath his or her signature hereto, or at such other address as either party may hereafter designate in writing to the other. Any such notice shall be deemed to have been duly given if mailed, postage prepaid, addressed as aforesaid. 12. The granting of this option shall impose no obligation upon the Participant to exercise it or any part thereof. Nothing herein contained shall affect the rights of the Board or the Corporation with respect to Participant’s service as a director, or shall be deemed to create any right to continue service as a director on the part of the Participant. 13. Subject to the limitations of the transferability of this option, this Agreement shall be binding upon and inure to the benefit of the heirs, legal representatives, successors and assigns of the parties hereto. 14. The interpretation, performance and enforcement of this Agreement shall be governed by the laws of the State of Texas. 15. Any provision of this Agreement to the contrary notwithstanding, the Corporation may take such steps as it may deem necessary or desirable for the withholding of any taxes which it is required by law or regulation of any governmental authority, federal, state or local, domestic or foreign, to withhold in connection with any of the shares subject hereto. Subject to limitations established by the Board from time to time, any withholding taxes may be paid by delivery to the Corporation of previously owned shares of Common Stock or by reducing the number of shares issuable upon exercise of this option. 16. This option will not be treated as an incentive stock option under the Internal Revenue Code of 1986, as amended.   5 -------------------------------------------------------------------------------- 17. Participant accepts this option subject to all the provisions of the Plan including the provisions that authorize the Board to administer and interpret the Plan and that provide the Board’s decisions, determinations and interpretations with respect to the Plan and options granted thereunder are final and conclusive on all persons affected thereby. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.     Participant:                     NEW Address Only:                       Harte-Hanks, Inc.     By:           6

Exhibit 10.2 THIRD AMENDMENT TO EMPLOYMENT AGREEMENT THIS THIRD AMENDMENT TO THE EMPLOYMENT AGREEMENT (this “Third Amendment”) is entered into as of November 15, 2006, by and between The Reader’s Digest Association, Inc., a Delaware corporation (the “Company”) and Thomas O. Ryder (the “Executive”). WITNESSETH: WHEREAS, the Executive and the Company entered into an Employment Agreement dated as of April 28, 1998 (the “Original Agreement”), as amended by the Amendment to Employment Agreement dated as of November 21, 2003 (the “First Amendment”) and as further amended by the Letter Agreement between the Executive and the Company dated October 28, 2005 (the “Second Amendment”); WHEREAS, under the terms of the Second Amendment, the Executive informed the Company of the Executive’s decision to retire from his employment, effective as of December 31, 2006; WHEREAS, at the request of the Company, the Executive has agreed to postpone his retirement and to continue his employment with the Company as a special advisor to the Chief Executive Officer of the Company until June 30, 2007 (the “Special Advisor”), provided that, the Company enters into a “Definitive Agreement” on or prior to December 31, 2006 (the “Transaction Date”) which, if consummated, will result in a “Change in Control” (as defined in Section 4.4 of The Reader’s Digest Association, Inc. 2001 Income Continuation Plan for Senior Management, as amended November 15, 2006 (the “2001 ICP”); WHEREAS, the Board of Directors of the Company has determined that it is in the best interests of the Company and its stockholders to amend the terms of the Executive’s employment, as provided in this Third Amendment; NOW, THEREFORE, in consideration of the premises and of the covenants and agreements set forth herein, the Company and the Executive agree as follows: 1. Effectiveness of the Third Amendment. This Third Amendment will be effective only upon the Transaction Date. If no Transaction Date occurs, this Third Amendment will be void and of no effect. 2. Retirement as Chairman of the Board and Continued Employment. (a) Except as otherwise provided herein, the terms of this Third Amendment will supersede in all respects any contrary terms of the Original Agreement, the First Amendment and the Second Amendment. (b) Effective as of December 31, 2006, the Executive will retire as a director of the Company and as Chairman of the Board and from all remaining officer and fiduciary   -------------------------------------------------------------------------------- positions with the Company and its subsidiaries and affiliates and will continue as a full-time employee of the Company and Special Advisor to the Chief Executive Officer. In such capacity, the Executive will perform such duties as assigned by the Chief Executive Officer on a schedule and in a location specified in such assignment until the earlier of June 30, 2007 or the occurrence of a Change in Control (the “Employment Term”). The Company will provide the Executive with appropriate support reasonably necessary, in the discretion of the Company, for the Executive to perform his assigned duties for the Company. (c) Upon the expiration of the Employment Term, the Executive will resign as Special Advisor and retire as an employee of the Company. (d) The Executive hereby waives the Good Reason provisions set forth in the Original Agreement and further agrees that the changes in the terms of his employment, as specified in this Third Amendment, will not constitute “Good Reason” or termination without “Cause” (each term as defined in the Original Agreement) under the Original Agreement. 3. Compensation and Benefits. (a) During the Employment Term, the Company will pay the Executive a salary of $5,000 per month, provided that his services are performed as requested by the Chief Executive Officer, payable in accordance with the Company’s regular payroll practices. (b) During the Employment Term, the Executive will be eligible to continue to participate in the Company’s health and other welfare benefit plans. During the Employment Term, the Executive will not be eligible to participate in any fringe benefits, perquisites and severance plans, except as otherwise provided in Section 4 of this Third Amendment, maintained by the Company. The Executive will not participate in the Company’s Excess Benefit Retirement Plan or the Company’s 1992 Executive Retirement Plan after December 31, 2006. The Executive’s annual incentive award for fiscal 2007 shall be limited to a bonus with a target of $500,000, as determined under the terms of the Senior Management Incentive Plan (“SMIP”), determined in the sole discretion of the Company’s Board of Directors, payable when annual bonuses are generally paid under the SMIP. (c) The Executive will not be eligible for new awards under any incentive compensation plans maintained by the Company, whether annual, long-term or otherwise; provided, however, that, during the Employment Term, the Executive will continue to vest in any awards outstanding as of the date of this Third Amendment in accordance with the terms of such awards and the 2001 ICP. (d) If the Company consummates a transaction constituting a Change in Control on or prior to June 30, 2007, and conditioned upon the Executive’s delivering to the Company a release satisfactory to the Company in a form substantially similar to the release attached hereto as Exhibit A, with all periods for revocation expired, the Executive will receive from the Company a severance payment (the “Severance Payment”) equal to the lesser of: (i) four million dollars ($4,000,000) or (ii) such lesser amount as would not cause the Executive to be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986 (or any successor provision thereto) (the “Code”), which will be payable on the date that is six months and one day following the date of the Executive’s separation from service, or such earlier date as may be permitted by guidance under Code Section 409A.   2 -------------------------------------------------------------------------------- (e) The Severance Payment will not be included as compensation or salary for purposes of any benefit plan maintained by the Company. (f) The Executive will continue to be entitled to reimbursement of expenses as provided in Section 8(a) of the Original Agreement. Except as provided in this Section 3(f), the other provisions of Section 8 of the Original Agreement will be superseded by this Third Amendment. (g) Upon the retirement and resignation of the Executive’s employment pursuant to the terms of this Third Amendment, the Executive will receive the retirement benefits provided in Section 12 of the Original Agreement. (h) The provisions of Sections 12 - 14 and Sections 17 - 25 of the Original Agreement, as amended by the First Amendment and the Second Amendment, will continue in full force and effect. 4. Waiver of Certain Benefits Under and Provisions of the 2001 ICP. The Executive hereby waives each and every right and benefit under Article V of the 2001 ICP; provided, however, that Article IV - A of the 2001 ICP will continue to apply to the Executive. 5. Application of Code Section 409A. This Third Amendment is intended to be administered and interpreted in a manner that is consistent with the requirements of Section 409A of the Code. The timing of all payments provided in this Third Amendment, are therefore subject to the requirements of Section 409A of the Code and other provisions of the Code and the implementing regulations of the Code. Notwithstanding the foregoing, no particular tax result for the Executive with respect to any income recognized by the Executive in connection with this Third Amendment is guaranteed, and the Executive will be responsible for any taxes, penalties and interest imposed on him under or as a result of Section 409A of the Code in connection with this Third Amendment. [Signature page follows.]   3 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the Company has caused this Third Amendment to be signed by an officer pursuant to the authority of its Board, and the Executive has executed this Third Amendment, as of the day and year first written above.     The Reader’s Digest Association, Inc. Dated: November     , 2006   By:   /s/ Lisa Cribari     Lisa Cribari,     Vice President, Global Human Resources   /s/ Thomas O. Ryder Dated: November     , 2006   Thomas O. Ryder   4 -------------------------------------------------------------------------------- Exhibit A FORM OF RELEASE AGREEMENT THIS RELEASE AGREEMENT (the “Agreement”) is made and entered into by and between Thomas O. Ryder (the “Executive”) and The Reader’s Digest Association, Inc. (the “Company”). WITNESSETH: WHEREAS, the Executive and the Company executed the Third Amendment to the Employment Agreement, effective as of November 15, 2006 (the “Third Amendment”), pursuant to which the Executive agreed to postpone his retirement and to continue his employment with the Company until June 30, 2007 as a Special Advisor (as defined in the Third Amendment); WHEREAS, the Executive’s employment with the Company terminated on                     , 2007; and WHEREAS, the Executive is required to sign this Agreement within twenty-one days after the Executive is provided a copy of this Agreement in order to receive the Severance Payment (as defined in the Third Amendment). NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, the parties do hereby finally, fully, and completely release all of these matters in their entirety as follows: 1. Complete Release by the Executive. In consideration of the promises contained herein, the Executive has released and forever discharged, and by these presents, for himself, his heirs, dependents, successors, assigns, executors, and representatives of any kind, if any, does hereby irrevocably and unconditionally releases and forever discharges the Company and any of the Company’s current and former direct and indirect parents, subsidiaries, associates, affiliates, divisions, partners, representatives, directors, officers, employees, stockholders, heirs, assigns, insurers, agents, benefit plans and administrators, insurers, attorneys, successors and assigns and all persons acting by, through, under or in concert with any of them, whether in their individual or official capacities, unless the context otherwise clearly requires (the “Released Parties”) of and from any and all claims, arbitrations, complaints, charges, obligations, promises, agreements, costs, losses, debts, expenses, demands, rights, liabilities, claims for attorney’s fees, demands, damages, suits proceedings, actions, and/or causes of action of whatsoever kind or nature, known or unknown, foreseen or unforeseen, to the date upon which the Executive executes this Agreement, including (but not limited to): (a) any claims arising out of or by virtue of or in connection with the Executive’s employment at the Company or his termination therefrom, including, but not limited to, claims of wrongful termination of employment, claims based upon sex, age, disability, or any other discrimination or violation of any equal employment opportunity law or any federal, state, or local statutory or common law or other governmental statute, regulation, ordinance or order, including, without limitation, regarding employment discrimination or termination of employment, 42 U.S.C. § 1981, Title VII of the Civil Rights Act of 1964, as amended; the Civil Rights Act of 1991; the Age Discrimination in -------------------------------------------------------------------------------- Employment Act of 1967, as amended; the Americans with Disabilities Act of 1990, as amended; the Employee Retirement Income Security Act of 1974, as amended; the Family and Medical Leave Act of 1993, as amended; the Sarbanes-Oxley Act of 2002; the Rehabilitation Act of 1973; the Racketeer Influenced and Corrupt Organizations Act; laws of the State of New York), all claims of breach of any express or implied covenant of employment, including the covenant of good faith and fair dealing, all claims of interference with contractual or advantageous relations, whether prospective or existing, all claims of defamation or damage to reputation, all claims for reinstatement, all claims for punitive or emotional distress damages, all claims for wages, bonuses, severance, back or front pay or other forms of compensation which are based upon or arise from the acts, practices, transactions, events, and/or facts underlying any wage claim that was or could have been asserted, all claims of deceit or misrepresentation, and any claims for negligence, intentional, reckless or negligent infliction of emotional distress, any legal restrictions on the Company’s right to terminate employees, public policy tort, defamation, or any other state law claims or any claims grounded in tort or contract, including all claims of breach of express or implied contract, all claims for attorney’s fees and costs; and (b) all claims against the Released Parties of any description whatsoever that could be asserted in a lawsuit. The Executive agrees not to assert any such claims or causes of action. (c) Excluded from this Agreement are any claims that cannot be waived by law, including but not limited to the right to file a charge with or participate in an investigation conducted by the EEOC. The Executive is waiving, however, his right to any monetary recovery or relief should the EEOC or any other agency pursue any claims on his behalf. Nothing herein shall require the Executive to release (i) any rights under the terms of the Third Amendment, (ii) any claim for benefits to which the Executive is or will be entitled in the ordinary course under the terms of the Company’s benefit plans, or (iii) any indemnity against claims, costs or expenses to which the Executive may be entitled as a result of having served as a director or an officer of the Company or any of its affiliates pursuant to their respective articles or by-laws, any agreement with the Executive, or any policies of insurance the Company or any of its affiliates may maintain. 2. Payment. If the Company consummates a transaction constituting a Change in Control (as defined in Section 4.4 of The Reader’s Digest Association, Inc. 2001 Income Continuation Plan for Senior Management, as amended November 15, 2006) on or prior to June 30, 2007, and upon the Executive’s executing and delivering this Agreement in accordance with the terms set forth herein, in consideration of the mutual promises contained herein, the Company shall pay to the Executive a Severance Payment (as defined and in the amount set forth in Section 3(d) of the Third Amendment). The Executive acknowledges that the Severance Payment is in addition to any other payment or benefit owed to the Executive by the Company. 3. Tax Implications. The Executive acknowledges that neither the Company nor any of the Released Parties defined in this Agreement has made any representations or promises with respect to the tax treatment of any monies paid in accordance with this Agreement. The Company will withhold from the Severance Payment all applicable federal, state, local or other   - 2 - -------------------------------------------------------------------------------- taxes as the Company is required to withhold pursuant to any law or government regulation or ruling. The parties further agree that if any state or federal agency should in the future decide that all or any part of the monies paid under this Agreement is taxable income to the Executive and/or that the proceeds were not properly reported or classified, the Executive shall pay the resulting taxes, interest, and/or penalties without further liability on the part of the Company or any of the Released Parties, and he shall indemnify the Company and the Released Parties and hold them harmless from any tax, penalty, and interest which may be imposed on the Company or the Released Parties by any state or federal agency as a result of the Executive’s tax treatment of the settlement proceeds. 4. Capacity and Authority to Sign. The parties hereby represent and warrant that each of them and any person(s) executing this Agreement on their behalf have the legal capacity and are duly authorized to execute and deliver this Agreement and any other documents, agreements, or instruments to be delivered by each party thereto. The parties are entering into this Agreement under their own free will and are not relying on any representations, statements, or advice of the other party. 5. Agreement Binding Upon Parties and Heirs. This Agreement shall be binding upon the parties and upon their respective heirs, administrators, representatives, executors, successors, and assigns, and shall inure to the benefit of the Released Parties and each of them, and to their respective heirs, administrators, representatives, executors, successors, and assigns. The parties further agree and acknowledge that this Agreement shall be binding on Executive’s estate and/or heirs and beneficiaries. 6. Acknowledgments. (a) The Executive understands and acknowledges that the Company does not admit any violation of law, liability or invasion of any of his rights and that any such violation, liability or invasion is expressly denied. The consideration provided for this Agreement is made for the purpose of settling and extinguishing all claims and rights (and every other similar or dissimilar matter) that the Executive ever had or now may have against the Company to the extent provided in this Agreement. The Executive further agrees and acknowledges that no representations, promises or inducements have been made by the Company other than as appear in the Third Amendment and this Agreement. (b) The Executive agrees to release and discharge the Company, not only from any and all claims which he could make on his own behalf, but also those which may or could be brought by any person or organization, on his behalf for monetary relief, and he specifically waives any right to recovery, directly or indirectly, in connection with any class action or representative proceeding in which a claim or claims against the Company for monetary relief may arise, in whole or in part, from any event which occurred up through and including the Effective Date. (c) The Executive acknowledges that his waiver and release of rights and claims as set forth in this Agreement is in exchange for valuable consideration which he would not otherwise be entitled to receive.   - 3 - -------------------------------------------------------------------------------- (d) The Executive understands, acknowledges and agrees that the Severance Payment and any other benefits to which the Executive shall be entitled to under the Third Amendment will be in complete satisfaction of any and all rights to payment and any and all claims the Executive may have under any severance plans of the Company; (e) The parties understand, agree and intend that, upon receipt of the Severance Payment and any other benefits to which the Executive shall be entitled to under the Third Amendment, the Executive will have received complete satisfaction of any and all claims, whether known, suspected, or unknown, that he may have or had against Company, and he thereby waives any and all relief not explicitly provided for herein. (f) The Executive agrees to pay any reasonable legal fees or costs incurred by the Company as a result of any breach of his promises in this Agreement, including his promise to fully release the Company from all claims and to compensate its attorneys for their legal fees, except to the extent that he challenges the validity of the Agreement under the Age Discrimination in Employment Act, in which case the Company may only recover such fees and expenses as may be permitted by state and federal law. (g) The Executive further represents, agrees and acknowledges that: (i) he has been advised by the Company to consult with his own legal counsel prior to executing and delivering this Agreement, has had an opportunity to consult with and to be advised by legal counsel of the Executive’s choice, fully understands the terms of this Agreement, and enters into this Agreement freely, voluntarily, without coercion or duress of any kind and intending to be bound; (ii) he has been given the opportunity to consider this Agreement for a period of at least twenty-one (21) days. In the event that the Executive has executed this Agreement within less than twenty-one (21) days of the date of its delivery to him, the Executive acknowledges that such decision was entirely voluntary and that he had the opportunity to consider this Agreement for the entire twenty-one (21) day period. The Executive and the Company acknowledge that for a period of seven (7) days from the date that the Executive executes this Agreement (the “Revocation Period”), he shall retain the right to revoke this Agreement by written notice that is received by the Company’s Senior Vice President and General Counsel before the end of such Revocation Period. Provided that this Agreement is not revoked pursuant to the preceding sentence, this Agreement shall become effective, binding, irrevocable and enforceable on the date immediately following the last day of the Revocation Period (the “Effective Date”). If the Executive exercises his right to revoke this Agreement, the Executive will forfeit his right to receive any of the benefits provided for herein or therein, without affecting the effectiveness of the termination of the Executive’s employment with the Company pursuant to the terms of the Third Amendment and without altering the termination of the Executive’s employment from all offices and any directorships and any fiduciary positions;   - 4 - -------------------------------------------------------------------------------- (iii) in executing this Agreement, the Executive does not rely and has not relied upon any representation or statement not set forth herein made by the Company with regard to the subject matter, basis, or effect of this Agreement or otherwise; and (iv) for the purpose of implementing a full and complete release and discharge of the Company, the Executive expressly acknowledges that this Agreement is intended to include in its effect, without limitation, all claims which the Executive does not know or suspect to exist in his favor at the time of execution hereof, and that this Agreement contemplates the extinguishment of any such claim or claims. IN EXECUTING THIS AGREEMENT, THE EXECUTIVE EXPRESSLY REPRESENTS THAT HE IS DOING SO VOLUNTARILY AND OF HIS OWN FREE WILL AND THAT HE IS OF SOUND MIND AT THE TIME OF SAID EXECUTION. (h) The Executive represents that he has not filed any complaints or lawsuits against the Company with any government agency or any court, and that he will not seek to recover any monetary damages in the future with respect to Claims that arose prior to the Effective Date; provided, however, that this shall not limit the Executive from filing a lawsuit for the sole purpose of enforcing the Executive’s rights under this Agreement. 7. Waiver. The Executive waives and releases any claim that the Executive has or may have to reemployment. The Executive agrees that the Executive will not seek employment with the Company at any time in the future. 8. Severability. Should any clause, sentence, provision, paragraph, or part of this Agreement be adjudged by any court of competent jurisdiction, or be held by any other competent governmental authority having jurisdiction, to be illegal, invalid, or unenforceable, such judgment or holding shall not affect, impair, or invalidate the remainder of this Agreement, but shall be confined in its operation to the clause, sentence, provision, paragraph, or part of the Agreement directly involved, and the remainder of the Agreement shall remain in full force and effect, subject to the ability to seek reformation by a court of competent jurisdiction to reduce the amount paid in settlement in proportion to the value of the unenforceable provision. 9. Non-Enforcement Not a Waiver. The failure of any party to this Agreement to enforce at any time, or for any period of time, any one or more of the terms of this Agreement shall not be a waiver of such terms or conditions or of such party’s right thereafter to enforce each and every term and condition of this Agreement. 10. Facsimile Signatures and Counterparts. This Agreement may be executed in multiple counterparts, each of which shall constitute an original, and all of which shall constitute a single document. Facsimile signatures shall have the same effect as original signatures. 11. Entire Agreement. This Agreement sets forth the entire agreement between the parties hereto pertaining to the subject matter hereof and fully supersedes any and all prior agreements or understandings between the parties hereto.   - 5 - -------------------------------------------------------------------------------- 12. Choice of Law. This Agreement shall be construed in accordance with the laws of the State of New York. 13. Litigation. If legal action is required to enforce any provision of this Agreement, the prevailing party in such litigation shall be entitled to recover its attorneys’ fees and costs incurred in connection with such litigation. PLEASE READ AND CONSIDER THIS RELEASE CAREFULLY BEFORE EXECUTING. THIS GENERAL RELEASE INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS. IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by an officer pursuant to the authority of the Board of Directors, and the Executive has executed this Agreement, as of the day and year first written above.         THE READER’S DIGEST ASSOCIATION, INC. Thomas O. Ryder     EXECUTED:                                          .         By:         Its:         EXECUTED:                                          .   - 6 -

Exhibit 10.1 Date: February 20, 2006   Name    Christopher M. O’Brien Address    10953 Alison Court City, State Zip    Inver Grove Heights, MN 55077   RE:   Offer of Employment Dear Mr. O’Brien: Reptron Manufacturing is pleased to offer you employment in accordance with the following terms and conditions:   Title:   Vice President of Sales and Marketing Start Date:   February 20, 2006 Base Salary:   $ 2,500.00 per week, payable bi-weekly. Commission:   One quarter of one percent (0.25%) of total sales generated from the Tampa, Hibbing and Gaylord facilities in excess of $125 million annually.   Calendar year 2006 commission to be the greater of $20,000 or the result of the calculation using the .25% multiplier prorated for the period of February 20, 2006 to December 31, 2006. Mobile Phone:   Mobile phone expense reimbursement at a mutually agreed upon monthly amount. Other Expenses:   Business-related expenses (lunches, dinners, gasoline, tolls, etc.) are to be submitted weekly on expense reports. -------------------------------------------------------------------------------- Vacation:   Upon hire, you will be eligible for up to three weeks vacation. Stock Options:   An appropriate number of stock options for this position will be granted at such time as Reptron receives shareholder authorization for option grants. The Company currently does not have authorized option grants to distribute and additional grants depend on future shareholder authorization. Term of Offer:   The terms and conditions of this offer are valid during your term of employment only. It is understood that employment with Reptron Manufacturing is “at will” and nothing in this “Offer of Employment” shall imply that employment is for any specified time. This constitutes the entire agreement between us as to the term of your employment, and no modifications of this agreement may be made without a written document, signed by an Officer of Reptron Electronics, Inc. Acceptance:   Please acknowledge acceptance of the terms of this offer by signing below and returning this offer. Kindly fax a signed copy of this offer to (813) 891-4007, attention Paul J. Plante.   Signature:   /s/ Paul J. Plante Date : 02/22/2006 Paul J. Plante President and Chief Executive Officer Reptron Electronics, Inc.   Signature:   /s/ Christopher M. O’Brien Date : 02/22/2006 Christopher M. O’Brien

Exhibit 10.3   BOTTOMLINE TECHNOLOGIES (DE), INC.   Restricted Stock Agreement Granted Under 2000 Stock Incentive Plan   AGREEMENT made December 2, 2005, between Bottomline Technologies (de), Inc., a Delaware corporation (the “Company”), and Peter S. Fortune (the “Participant”).   For valuable consideration, receipt of which is acknowledged, the parties hereto agree as follows:     1. Purchase of Shares.   In consideration of services rendered to the Company by the Participant, the Company shall issue to the Participant, subject to the terms and conditions set forth in this Agreement and in the Company’s 2000 Stock Incentive Plan (the “Plan”), 68,000 shares (the “Shares”) of common stock, $.001 par value per share, of the Company (“Common Stock”). The Company will pay the purchase price of $.001 per Share on behalf of the Participant. The Shares will be held in book entry by the Company’s transfer agent in the name of the Participant for that number of Shares issued to the Participant. The Participant agrees that the Shares shall be subject to the forfeiture provisions set forth in Section 2 of this Agreement and the restrictions on transfer set forth in Section 4 of this Agreement.     2. Vesting.   (a) In the event that the Participant ceases to be an employee, officer or director of, or advisor or consultant to, the Company or any parent or subsidiary of the Company for any reason or no reason, with or without cause, prior to August 26, 2009, any Unvested Shares (as defined below) shall be forfeited immediately and automatically to the Company in exchange for the lower of: (i) $.001 per Share, or (ii) Fair Market Value per Share. Notwithstanding anything herein to the contrary, if the Shares do not vest on or before the occurrence of one or more of the events set forth in this Section 2 or as otherwise provided in any other agreement with the Company related to such matters, the Shares shall automatically be forfeited to the Company in exchange for the lower of: (i) $.001 per Share, or (ii) Fair Market Value per Share. The aggregate amount to be paid for by the Company to the Participant upon forfeiture of the Shares shall be referred to herein as the “Forfeiture Amount”.   (b) “Unvested Shares” means the total number of Shares multiplied by the Applicable Percentage at the time the Shares are forfeited. Except as provided in paragraph (c) of this Section 2 or in the Plan, the “Applicable Percentage” shall be (i) 100% during the period ending on August 25, 2006, (ii) 75% less 6.25% for each three months that Participant is an employee, officer or director of, or advisor or consultant to, the Company or any parent or subsidiary of the Company from and after August 26, 2006 and (iii) 0% on or after August 26, 2009.   (c) Notwithstanding the foregoing, in the event that the Participant’s employment, office, or directorship with, or consultancy to, the Company is terminated by reason of the Participant’s death or Disability (as defined below), the “Applicable Percentage” -------------------------------------------------------------------------------- shall immediately and thereafter be 0%. For purposes of this paragraph (c), “Disability” means that the Participant becomes disabled such that the Participant is qualified for long-term disability by the Company’s then long-term disability insurance provider.   (d) For purposes of this Agreement, employment, office, or directorship with, or consultancy to, the Company shall include employment, office, or directorship with, or consultancy to, any affiliate of the Company.   (e) The Forfeiture Amount may be payable, at the option of the Company, in cancellation of all or a portion of any outstanding indebtedness of the Participant to the Company or in cash (by check) or both.   (f) The Participant shall, upon the execution of this Agreement, execute a Joint Election with the Company (or an affiliate). The Joint Election shall be delivered to the Secretary of the Company. As used herein, “Joint Election” means an election (in the form set out in Attachment A) to the effect that the Participant will become liable, so far as permissible by law, for the whole of any secondary Class 1 national insurance contributions which may arise in connection with the Shares.     3. Automatic Sale Upon Vesting.   (a) Upon any reduction in the Applicable Percentage, the Company shall sell, or arrange for the sale of, such number of the Shares no longer subject to forfeiture under Section 2 as a result of such reduction in the Applicable Percentage as is sufficient to generate net proceeds sufficient to satisfy any federal, national, foreign, state or local taxes of any kind (including national insurance and other social security contributions) required by law to be withheld by the Company or any affiliate, or which the Participant has elected or agreed to bear, as a result of the reduction in the Applicable Percentage, and the Company shall retain such net proceeds in satisfaction of such tax obligations.   (b) The Participant hereby appoints the President and the Secretary of the Company, and each of them acting singly, his or her attorney in fact, to sell the Participant’s Shares in accordance with this Section 3. The Participant agrees to execute and deliver such documents, instruments and certificates as may reasonably be required in connection with the sale of the Shares pursuant to this Section 3.   (c) The Participant represents to the Company that, as of the date hereof, he or she is not aware of any material nonpublic information about the Company or the Common Stock. The Participant and the Company have structured this Agreement to constitute a “binding contract” relating to the sale of Common Stock pursuant to this Section 3, consistent with the affirmative defense to liability under Section 10(b) of the Securities Exchange Act of 1934 under Rule 10b5-1(c) promulgated under such Act.     4. Restrictions on Transfer.   (a) The Participant shall not sell, assign, transfer, pledge, hypothecate or otherwise dispose of, by operation of law or otherwise (collectively “transfer”) any Shares, or any interest therein, until such Shares have vested, except that the Participant may transfer such   - 2 - -------------------------------------------------------------------------------- Shares (i) to or for the benefit of any spouse, children, parents, uncles, aunts, siblings, grandchildren and any other relatives approved by the Board of Directors (collectively, “Approved Relatives”) or to a trust established solely for the benefit of the Participant and/or Approved Relatives, provided that such Shares shall remain subject to this Agreement (including without limitation the restrictions on transfer set forth in this Section 4 and the forfeiture provisions contained in Section 2) and such permitted transferee shall, as a condition to such transfer, deliver to the Company a written instrument confirming that such transferee shall be bound by all of the terms and conditions of this Agreement or (ii) as part of the sale of all or substantially all of the shares of capital stock of the Company (including pursuant to a merger or consolidation), provided that, in accordance with the Plan and except as otherwise provided herein, the securities or other property received by the Participant in connection with such transaction shall remain subject to this Agreement.   (b) The Company shall not be required (i) to transfer on its books any of the Shares which have been transferred in violation of any of the provisions set forth in this Agreement or (ii) to treat as owner of such Shares or to pay dividends to any transferee to whom such Shares have been transferred in violation of any of the provisions of this Agreement.     5. Restrictive Legends.   All Shares subject to this Agreement shall be subject to the following restriction, in addition to any other restrictions that may be required under federal or state securities laws:   “The shares of stock represented by this certificate are subject to forfeiture provisions and restrictions on transfer set forth in a certain Restricted Stock Agreement between the corporation and the registered owner of these shares (or his predecessor in interest), and such Agreement is available for inspection without charge at the office of the Secretary of the corporation.”     6. Provisions of the Plan.   This Agreement is subject to the provisions of the Plan, a copy of which is furnished to the Participant with this Agreement.     7. [Reserved].     8. Withholding Taxes.   (a) The Participant acknowledges and agrees that the Company has the right to deduct from payments of any kind otherwise due to the Participant any federal, national, foreign, state or local taxes of any kind (including national insurance and other social security contributions) required by law to be withheld, or which the Participant has elected or agreed to bear, with respect to the issuance of the Shares to the Participant or the lapse of the forfeiture provisions.   (b) The Participant has reviewed with the Participant’s own tax advisors the federal, national, foreign, state and local tax consequences of this investment and the transactions   - 3 - -------------------------------------------------------------------------------- contemplated by this Agreement. The Participant is relying solely on such advisors and not on any statements or representations of the Company or any of its agents. The Participant understands that the Participant (and not the Company) shall be responsible for the Participant’s own tax and national insurance liability that may arise as a result of this investment or the transactions contemplated by this Agreement.     9. Miscellaneous.   (a) No Rights to Employment. The Participant acknowledges and agrees that the vesting of the Shares pursuant to Section 2 hereof is earned only by continuing service as an employee at the will of the Company (not through the act of being granted the Shares hereunder). The Participant further acknowledges and agrees that the transactions contemplated hereunder and the vesting schedule set forth herein do not constitute an express or implied promise of continued engagement as an employee or consultant for the vesting period, for any period, or at all.   (b) No Rights to Further Issuance, etc. The issuance of shares under the Plan is made at the discretion of the Board and the Plan may be suspended or terminated by the Company at any time. The issuance of shares in one year or at one time does not in any way entitle the Participant to an issuance of shares in the future. The Plan is wholly discretionary and is not to be considered part of the Participant’s normal or expected compensation subject to severance, resignation, redundancy or similar compensation. The value of the Shares is an extraordinary item of compensation which is outside the scope of the Participant’s employment contract. The rights and obligations of the Participant under the terms of his office or employment with the Company or any affiliate of the Company shall not be affected by his participation in the Plan or any right which he may have to participate therein or the issuance of the Shares, and the Participant hereby waives all and any rights to compensation or damages in consequence of the termination of his office or employment with any such company for any reasons whatsoever (whether lawful or unlawful and including, without prejudice to the generality of the foregoing, in circumstances giving rise to a claim for wrongful dismissal) insofar as those rights arise or may arise from his ceasing to have rights under this Agreement or the Plan as a result of such termination, or from the loss or diminution in value of such rights or entitlements.   (c) Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, and each other provision of this Agreement shall be severable and enforceable to the extent permitted by law.   (d) Waiver. Any provision for the benefit of the Company contained in this Agreement may be waived, either generally or in any particular instance, by the Board of Directors of the Company.   (e) Binding Effect. This Agreement shall be binding upon and inure to the benefit of the Company and the Participant and their respective heirs, executors, administrators, legal representatives, successors and assigns, subject to the restrictions on transfer set forth in Section 4 of this Agreement.   - 4 - -------------------------------------------------------------------------------- (f) Notice. Each notice relating to this Agreement shall be in writing and delivered in person or by first class mail, postage prepaid, to the address as hereinafter provided. Each notice shall be deemed to have been given on the date it is received. Each notice to the Company shall be addressed to it at its offices at 325 Corporate Drive, Portsmouth, New Hampshire 03801 (Attention: President). Each notice to the Participant shall be addressed to the Participant at the Participant’s last known address.   (g) Pronouns. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural, and vice versa.   (h) Entire Agreement. This Agreement and the Plan constitute the entire agreement between the parties, and supersede all prior agreements and understandings, relating to the subject matter of this Agreement.   (i) Amendment. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Participant.   (j) Governing Law. This Agreement shall be construed, interpreted and enforced in accordance with the internal laws of the State of Delaware without regard to any applicable conflicts of laws.   (k) Data Protection. The Participant agrees to the receipt, holding and processing of information in connection with the issuance, vesting and taxation of the Shares and the general administration of this Agreement and the Plan by the Company or any affiliate of the Company and any of their advisers or agents and to the transmission of such information outside of the European Economic Area for this purpose.   (l) Third Party Rights. The UK Contracts (Rights of Third Parties) Act 1999 shall not apply to this Agreement and no person other than parties hereto shall have any rights under it nor shall it be enforceable under that Act by any person other than the parties to it.   (m) Interpretation. The interpretation and construction of any terms or conditions of the Plan, or of this Agreement or other matters related to the Plan by the Compensation Committee of the Board of Directors of the Company shall be final and conclusive.   (n) Participant’s Acknowledgments. The Participant acknowledges that he or she: (i) has read this Agreement; (ii) has been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of the Participant’s own choice or has voluntarily declined to seek such counsel; (iii) understands the terms and consequences of this Agreement; (iv) is fully aware of the legal and binding effect of this Agreement; and (v) understands that the law firm of Wilmer Cutler Pickering Hale and Dorr LLP, is acting as counsel to the Company in connection with the transactions contemplated by the Agreement, and is not acting as counsel for the Participant.   - 5 - -------------------------------------------------------------------------------- (o) Delivery of Certificates. Subject to Section 3, the Participant may request that the Company deliver the Shares in certificated form with respect to any Shares that have ceased to be subject to forfeiture pursuant to Section 2.   [Remaining of Page Intentionally Left Blank]   - 6 - -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.   BOTTOMLINE TECHNOLOGIES (DE), INC. By:   /s/ Kevin Donovan     Name:   Kevin Donovan     Title:   Chief Financial Officer /s/ Peter Fortune Peter S. Fortune Address:             - 7 - -------------------------------------------------------------------------------- Attachment A   Election to transfer National Insurance Liability   UK Employees Only   Introduction   As an employee or director of an Associated Company of Bottomline Technologies (de), Inc., you are eligible to participate in both the Bottomline Technologies (de), Inc. (the “Company”) Amended & Restated 1997 Stock Plan and the 2000 Stock Incentive Plan (the “Plans”). You will be subject to income tax and employees national insurance contributions on any Relevant Employment Income (as defined below) that arises under or in connection with any options or restricted stock which are granted, issued or delivered to you under these Plans, the terms of which are incorporated herein.   “Relevant Employment Income” means (i) any amount that counts as employment income under section 426 of the Income Tax (Earnings and Pensions) Act 2003, (ii) any amount that counts as employment income under section 438 of the Income Tax (Earnings and Pensions) Act 2003, and (iii) any gain that is treated as remuneration by virtue of section 4(4)(a) of the Social Security Contributions and Benefits Act 1992.   “Associated Company” means an associated company of the Company within the meaning that expression bears in section 416 of the Income and Corporation Taxes Act 1988.   Participation in the Plan is subject to you agreeing to enter into this election pursuant to paragraph 3B of Schedule 1 to the Social Security Contributions and Benefits Act 1992 whereby the Company and any Associated Company (as defined below) transfers to you the whole of any liability to pay any secondary Class 1 national insurance contributions (“Secondary Contributions”) arising in connection with any Relevant Employment Income. Accordingly, and by signing the declaration contained in this election, you agree that you will be liable to pay the whole of any Secondary Contributions in respect of or in relation to any Relevant Employment Income.   The terms of this election shall be subject to the approval of the HM Revenue & Customs.   The Terms of the Election   This election relates to the following shares (the “Shares”): -           Type of Award (Option or Restricted Stock) --------------------------------------------------------------------------------    Number of Shares --------------------------------------------------------------------------------    Grant/Award Date --------------------------------------------------------------------------------    Option Exercise Price/Restricted Stock Purchase Price -------------------------------------------------------------------------------- Restricted Stock    68,000    December 2, 2005    $ 0.001   1. You and the Company jointly elect that the whole of the Secondary Contributions arising in connection with any Relevant Employment Income in respect of the Shares is hereby transferred from the Company and any Associated Company to you.   - 8 - -------------------------------------------------------------------------------- 2. You shall notify the Company within three working days of any Relevant Employment Income arising in respect of the Shares. You hereby agree to make such notification regardless of whether the Relevant Employment Income in respect of the Shares arises after you have ceased to be employed by the Company or at any time when you are no longer resident in the United Kingdom.   3. The Secondary Contributions will be paid to the Company or an Associated Company within 7 days from the end of the income tax month (beginning on the 6th of the calendar month and ending on the 5th of the calendar month) in which the Relevant Employment Income arises.   4. You hereby authorize the Company or an Associated Company or their agent or broker to collect the Secondary Contributions in one or more of the following ways as determined by the Company or an Associated Company or their agent or broker:-   (i) by deduction from your salary or any other money which may be due to you; or   (ii) by you providing the Company with the amount (in clear funds) of the Secondary Contributions which are due (you shall pay the said amount by cheque, bank transfer or by any other method that you and the Company agree to be appropriate at the relevant time); or   (iii) by you authorizing the Company or its authorised agent to withhold and sell a sufficient number of the Shares to cover all or any part of the Secondary Contributions.   Payment of the Secondary Contributions as described in Paragraph 4(i) or 4(ii) above must be made within the deadline specified in Paragraph 3 above.   5. Where payment is due from the Company or an Associated Company for the transfer, assignment or release of any Shares or share options, you authorise a deduction of the Secondary Contributions sufficient to cover the liability from such payment. Where any agreement is made between you and a third party for the transfer, assignment or release of any Shares or share options, and payment is due to be made from a third party, you will inform the Company of such a payment prior to such payment and authorize the third party to take whatever action is necessary to withhold an amount sufficient to cover the Secondary Contributions due. As soon   - 9 - --------------------------------------------------------------------------------   as the Company is advised of the payment, the Company undertakes to advise HM Revenue & Customs how the Secondary Contributions will be collected and paid over to HM Revenue & Customs. Such amount will be paid to the Company within 7 days of the transfer, assignment or release of the Shares or share options.   6. The Company or an Associated Company shall keep such records and make such notifications or reporting in respect of the Secondary Contributions as shall be required by the United Kingdom legislation in force from time to time.   7. This election shall continue in full force and effect in the event that you leave the Company or an Associated Company. Subject to paragraph 8 below, this election shall continue in full force and effect for such period as the Company or an Associated Company would have been responsible for the Secondary Contributions but for this Election.   8. This joint election shall cease to have effect in the event that: -     (i) it is revoked jointly by both parties;     (ii) the Company gives you notice that it shall terminate;     (iii) the Board of HM Revenue & Customs serves notice upon the Company that approval for the election has been withdrawn; or     (iv) the terms of the joint election being satisfied in full.   Declaration   I hereby agree to be bound by the terms detailed in paragraphs 1 to 8 of this election and in particular acknowledge that by signing this election, I am consenting to: -   1. accept liability for and to pay the whole of any Secondary Contributions which may be payable in connection with any Relevant Employment Income in respect of the Shares; and   2. the Company or an Associated Company deducting some or all of the Secondary Contributions from my salary or other payment due to me.               Peter Fortune       Date   - 10 - -------------------------------------------------------------------------------- Declaration   The Company hereby agrees to be bound by the terms detailed in paragraphs 1 to 8 of this election and in particular acknowledges that by signing this election, it is consenting to: -   1. ensure that proper procedures are in place to collect any Secondary Contributions which may be payable in connection with any Relevant Employment Income in respect of the Shares; and   2. ensure that payment is made to the Collector of Taxes by no later than 14 days after the end of the tax month in which the Relevant Employment Income arises.   Signed for and on behalf of Bottomline Technologies (de), Inc.               Joseph L. Mullen       Date Chief Executive Officer           - 11 -

  Exhibit 10.1     EPCM Services Agreement Between Bogoso Gold Limited and GRD Minproc (Pty) Limited and GRD Minproc Limited 06 April 2006       --------------------------------------------------------------------------------   Table of Contents                       Page No.               Formal Instrument of Agreement     5                 General Conditions     9                 Particular Conditions     11                 A.   References From Clauses in the General Conditions     12                 B.   Deleted Clauses     14                 C.   Additional Clauses     14                 45.   Definitions and Interpretation     15                 45.1   Definitions (replacing Clause 1)     15   45.2   Interpretation (replacing Clause 2)     22   45.3   Ambiguous and Inconsistent Terms     23   45.4   Matters of Clarification (General)     24   45.5   Best Endeavours     24                 46.   Appointment, Obligations, Warranties, and Covenants of the Consultant (replacing Clauses 3, 4 and 5(i), 5(ii)(a) and 5(ii)(b))     25                 46.1   Appointment of Consultant     25   46.2   Standard of Care     25   46.3   Warranties and Covenants     25   46.4   Delivery of Services     26   46.5   Design Obligations     28   46.6   Management of Project Contractors     29   46.7   Labour, Environmental, Indigenous, OHS and Quality Assurance Plans     31   46.8   Local Content     32   46.9   Monthly Reporting     33   46.10   Records Open for Inspection and Audit     34                 47.   Obligations of the Client     34                 47.1   Failure to fulfil Obligations (replacing Clauses 7 and 8)     34   47.2   Responsibilities (amending Clause 9)     35   47.3   Client provided Personnel, Equipment, Facilities and Services     35                 48.   Site     35                 48.1   Access     35   48.2   Induction Training     35   48.3   Safety Requirements     36   48.4   Access for the Client, the Client’s Representative and others and Site Condition     37   48.5   Access by Project Contractors     38   48.6   Operation of Existing Plant     38   48.7   Things of Value or Interest     39                 49.   Personnel (Replacing Clauses 11, 12, 13 and 15)     39                 49.1   General     39   49.2   Key Personnel     40   49.3   Non-Solicitation     42   49.4   Consultant’s Code of Conduct     42   49.5   Privacy     42                 50.   Administration (Amending Clause 14)     43                 50.1   The Client’s Representative     43   50.2   Delegation of the Client’s Representative’s Power     43   50.3   Compliance with Directions     44   50.4   Consultant’s Representative     45   50.5   Delegation of Consultant’s Representative’s Power     45   50.6   Consultant’s Acknowledgment     45   50.7   Project Control Group     46   50.8   Project Management Plan     46                 51.   Liability (Replacing Clauses 16 And 18)     47                 51.1   Liability of Consultant     47   51.2   Liability of Client     47   51.3   Maximum Liability     47   51.4   Excluded Losses     50   51.5   Exclusive Remedies     50   51.6   Re-performance of non-complying Services and Indemnity     50   51.7   Indemnity and Proportionality     51                 52.   Insurance (Replacing Clauses 19 and 20)     52                 52.1   Client’s Insurances Required     52   52.2   General Provisions regarding the Client’s Insurance     53   52.3   Consultant’s Insurances Required     53   52.4   Project Contractor Insurance     54   52.5   Requirements for Insurance     54   52.6   Proof of insurance     54   52.7   Payment of Excesses     54                 53.   Time (Replacing Clause 25)     54                 53.1   Instruction to Accelerate     54   Page 2 of 85 --------------------------------------------------------------------------------                         Page No.   53.2   Acceleration     55                 54.   Variation to the Scope of Works (Replacing Clauses 23 and 24)     55                 54.1   Works Variation     55   54.2   Parties to Discuss     55   54.3   Client to Determine     55   54.4   Time     56   54.5   Clarity     56                 55.   Variation to the Scope of Services (Replacing Clauses 23 and 24)     56                 55.1   Services Variation     56   55.2   Value     56   55.3   Time     56   55.4   Clarity     56   55.5   Variations — General     57                 56.   Separable Portions     57                 56.1   Agreement on Separable Portions     57   56.2   Changes relating to Separable Portions     57   56.3   Interpretation of Terms     57   56.4   Consequences of Separable Portion     57                 57.   Suspension of Services (Replacing Clauses 26, 27 and 28)     58                 57.1   Suspension by Client or Consultant     58   57.2   Recommencement of Services     58   57.3   Suspension Costs     58                 58.   Force Majeure (Replacing Clauses 26, 27 and 28)     59                 58.1   Force Majeure occurrence     59   58.2   Cessation     59   58.3   Termination resulting from Force Majeure delays     59                 59.   Completion of the Project     60                 59.1   Practical Completion     60   59.2   Final Completion     61                 60.   Defects Liability     62                 60.1   Consultant to Rectify Defects in the Services     62   60.2   Cost of Rectification of Defects     63   60.3   Failure to Rectify     63                 61.   Termination of Services (Replacing Clauses 26, 27 and 28)     63                 61.1   Termination by the Client     63   61.2   Actions by Consultant on Termination     63   61.3   Payment to Consultant     64   61.4   Sole Entitlement     64                 62.   Invoicing and Payment (Replacing Clauses 30, 31 and 34)     64                 62.1   Client’s Payment Obligations     64   62.2   Electronic Funds Transfer     65   62.3   Time for and format of Payment Claims     65   62.4   Consultant Warranty     65   62.5   Payment     66   62.6   Payment Adjustment Statement     66   62.7   Conditions Precedent to Entitlement to Payment     67   62.8   Final Payment Claim     67   62.9   Interest on Overdue Payments     68   62.10   Set off     69   62.11   Client’s Payment of Subcontractors     69   62.12   Property and Liens     69   62.13   Taxes     70   62.14   Disbursements     70   62.15   Rates     70                 63.   Default by a Party     70                 63.1   Default by Consultant     70   63.2   Default by Client     72                 64.   Insolvency     73                 65.   Intellectual Property     75                 65.1   Client to Procure     75                 66.   Assignment (Replacing Clause 38)     75                 66.1   Assignment by Consultant     75   66.2   Assignment by Client to Affiliates and Third Parties     76   66.3   Assignment by Client to Financing Entities     76   66.4   Cooperation with Financing Entities and Insurers     76                 67.   Confidentiality (Replacing Clause 42)     77                 67.1   Keep Confidential     77   Page 3 of 85 --------------------------------------------------------------------------------                         Page No.   67.2   Extension of Obligations     77   67.3   Continuation of Obligations     77                 68.   Settlement of Disputes (Replacing Clauses 43.8 and 44)     77                 68.1   Failure of Mediation     77   68.2   Matters Precedent to Litigation     78   68.3   Dispute Resolution not to delay Performance     78                 69.   Security     78                 69.1   Consultant Security     78   69.2   Client Security     78   69.3   Interest on Security     79   69.4   Security not on Trust     80   69.5   Release of Security     80   69.6   Dealing with Security     80                 70.   Guarantee and Indemnity     81                 70.1   Consideration     81   70.2   Guarantee     81   70.3   Continuing Security     81   70.4   Matters Not Affecting Guarantor’s Liability     81   70.5   Payment Later Avoided     82   70.6   Indemnity on Disclaimer     82   70.7   Guarantor Not to Prove in Liquidation or Bankruptcy     82   70.8   Guarantor Not to Claim Benefits or Enforce Rights     82   70.9   Costs and Expenses     82   70.10   Guarantee to Continue on Assignment of Rights     83   70.11   Limit of Guarantor’s Liability     83                 71.   General     83                 71.1   Legal costs     83   71.2   Waiver and exercise of rights     83   71.3   Severance     83   71.4   After hours communications     84   71.5   Process service     84   71.6   Entire understanding     84   71.7   Nature of the Relationship     84   71.8   Third Party Rights     85   71.9   Effective Date (replacing Clause 21)     85   71.10   Jurisdiction     85                 Appendix A — Scope of Services     87                 Appendix B — Personnel, Equipment, Facilities and Services of Others to be Provided by the Client     94                 Appendix C — Remuneration and Payment     96                 Appendix D — Scope of Works     110                 Appendix E — Insurances     113                 Appendix F — Key Personnel     115                 Appendix G — Material Project Contractor     118                 Appendix H — Client Deliverables (Including Client Approvals)     120                 Appendix I— Project Budget     122                 Appendix J — Project Schedule     124                 Appendix K — Code of Conduct     126                 Appendix L — Not Used     132                 Appendix M — Approved Performance Bond     133                 Appendix N — Deed of Release     136   Page 4 of 85 --------------------------------------------------------------------------------   Formal Instrument of Agreement THIS AGREEMENT made the 06th day of April 2006 Among: Bogoso Gold Limited of Level 2, No. 1 Milne Close, P.O. Box 16075, Airport Post Office, Accra, Ghana (“Client”) And: GRD Minproc (Pty) Limited, Registration No. 2002/021267/07, of Unit 1, Highbury House, Hampton Office Park North, 20 Georgian Crescent, Bryanston, South Africa (“Consultant”) And: GRD Minproc Limited, ABN 52 008 992 694 of Level 8, 140 St. Georges Terrace, Perth, Western Australia, 6000 (“Guarantor”) Recitals: A.   The Client desires to build the Project, which when designed, constructed and commissioned, shall meet the following requirements:   (a)   the Project shall be a sulphide ore treatment plant;     (b)   the Project shall be capable of processing 3.5 million tonnes of sulphide ore per annum;     (c)   except for routine, predictive or preventative maintenance, the Project shall be capable of continuous operation 24 hours per day, 365 days per year;     (d)   except for components that routinely require replacement or repair due to normal operating conditions, the Project shall have a life expectancy commensurate with the life of the Bogoso mine; and     (e)   the Project or its various components (as the case may be) shall be capable of operating continuously at the level, rate or capacity specified in the Performance Warranties in Appendix L. B.   The Client has requested that the Consultant performs the Services on the terms and conditions of the Agreement. C.   The Consultant has agreed to perform the Services on the terms and conditions of the Agreement. Page 5 of 85 --------------------------------------------------------------------------------   It is Agreed: 1.   In the Agreement, unless the context indicates otherwise, words and expressions shall have the meanings assigned to them in the Particular Conditions and the General Conditions. 2.   The Agreement is comprised of this Formal Instrument of Agreement together with the following documents which, unless otherwise stated, are attached to this Formal Instrument of Agreement, namely:   (a)   The Particular Conditions;     (b)   The General Conditions; and     (c)   The Appendices, namely:   (i)   Scope of Services;     (ii)   Personnel, Equipment, Facilities & Services of Others to be provided by the Client;     (iii)   Remuneration and Payment;     (iv)   Scope of Works;     (v)   Insurances;     (vi)   Key Personnel;     (vii)   Material Project Contractor;     (viii)   Client Deliverables (including Client Approvals);     (ix)   Project Budget;     (x)   Project Schedule;     (xi)   Code of Conduct;     (xii)   Performance Warranties.     (xiii)   Approved Performance Bond; and     (xiv)   Deed of Release. 3.   In the event of any ambiguity or discrepancy between anything contained in or between any documents forming part of the Agreement, the terms of this Formal Instrument of Agreement shall prevail to the extent of the inconsistency and the remaining documents shall, for the purposes of construction and interpretation of the Agreement, be construed in Page 6 of 85 --------------------------------------------------------------------------------       descending order of precedence having regard to the order in which the documents are set out in Clause 2 of this Formal Instrument of Agreement. 4.   In consideration of the payments to be made by the Client to the Consultant pursuant to the Agreement, the Consultant agrees to perform the Services in accordance with the provisions of the Agreement. 5.   The Client agrees to pay the Consultant, in consideration for the performance of the Services, such amounts as may become payable under the provisions of the Agreement and to reimburse all expenses incurred in the performance of the Services at the times and in the manner provided by the Agreement. 6.   The Agreement may be executed in any number of counterparts. Each counterpart is an original but the counterparts together are one and the same agreement. The Agreement is binding on the parties on the exchange of counterparts. A copy of a counterpart sent by facsimile machine or by electronic mail:   (a)   shall be treated as an original counterpart;     (b)   is sufficient evidence of the execution of the original; and     (c)   may be produced in evidence for all purposes in place of the original. Page 7 of 85 --------------------------------------------------------------------------------   Executed as an Agreement:                       For and on behalf of         )           Bogoso Gold Limited         )                     )           /s/ Peter Bradford         )     /s/ Mark D. Collopy                   Signature of Director         )     Signature of Director               )           Peter Bradford         )     Mark D. Collopy                   Name of Director         )     Name of Director               )                     )           For and on behalf of         )           GRD Minproc (Pty) Limited         )                     )           /s/ Andrew Sweeney   13/4/06     )     /s/ Roger E.R. Falls   13/4/06               Signature of Director/Secretary         )     Signature of Director               )           Andrew Sweeney   13/4/06     )     Roger E.R. Falls   13/4/06               Name of Director/Secretary         )     Name of Director               )           For and on behalf of         )           The Common Seal of GRD Minproc Limited was affixed in accordance with its constitution in the presence of:         ) ) )                     )                         Signature of Director/Secretary         )     Signature of Director               )                         Name of Director/Secretary         )     Name of Director     Page 8 of 85 --------------------------------------------------------------------------------   General Conditions Page 9 of 85 --------------------------------------------------------------------------------   General Conditions The General Conditions shall be the International Federation of Consulting Consultants (FIDIC) Client / Consultant Model Services Agreement, third edition (1998) as amended by the Particular Conditions of Agreement. Page 10 of 85 --------------------------------------------------------------------------------   Particular Conditions Page 11 of 85 --------------------------------------------------------------------------------   Particular Conditions of Contract               A.   References From Clauses in the General Conditions               1.   Clause 14:   Representatives:                           Client:   Mark Collopy                       Consultant:   John Hawxby               2.   Clause 17:   Duration of liability                           52 weeks from the end of the Term or 52 weeks from the Date of Practical Completion of the Project, whichever is the earliest.               3.   Clause 22:   Date of Commencement:   21 February 2005                       Date for Practical Completion:                           Oxide Plant:   17 March 2006                       Sulphide Plant:   30 June 2006.               4.   Clause 32:   Currency of Payments to Consultant:   Rand.                5.   Clause 36:   Language(s) of the Agreement:   English                       Ruling Language:   English                       Law to which Agreement is subject:   England               6.   Clause 37:   Principal place of business:   South Africa.               7.   Clause 41:   Unless advised otherwise in writing, the Client’s particulars for services or delivery of notices under the Agreement are not set out in Appendix A, but rather are:                       Name:   Bogoso Gold Limited         Attention:   Mark Collopy         Address:   Level 2, No. 1 Milne Close             P.O. Box 16075             Airport Post Office             Accra, Ghana                       Facsimile No.:   (23) (32) 177-7700         Electronic Mail Address:   [email protected]         Attention:   General Manager Projects Page 12 of 85 --------------------------------------------------------------------------------                         with a copy to:                           Name:   Golden Star Resources Ltd.         Attention:   Peter Bradford         Address:   10901 W. Toller Drive, Suite 300             Littleton, CO 80127             USA                       Facsimile No.:   (303) 830-9094         Electronic Mail Address:   [email protected]         Attention:   President and CEO                       Unless advised otherwise in writing, the Consultant’s particulars for delivery of notices under the Agreement are not set out in Appendix A, but rather are:                       Name:   GRD Minproc (Pty) Limited         Attention:   John Hawxby         Address:   Unit 1, Highbury House, Hampton Office             Park North             20 Georgian Crescent, Bryanston 2021             South Africa                       Facsimile No.:   (27) (11) 514-0006         Electronic Mail Address:   [email protected]                       Unless advised otherwise, in writing, the Guarantor’s particulars for service or delivery of notices under the Agreement are not set out in Appendix A, but rather are:                       Name:   GRD Minproc Limited         Attention:   Ben Zikmundovsky         Address:   Unit 1, Highbury House, Hampton Office             Park North             20 Georgian Crescent, Bryanston 2021             South Africa                       Facsimile No.:   (27) (11) 514-0006         Electronic Mail Address:   [email protected]                       Notices issued by the Client shall be titled “Notice to Consultant — BSEP EPCM Contract” or “Notice to Client — Bogoso Sulphide Expansion Project EPCM Contract”, as the case may be, and such notices shall be sequentially numbered and shall be preceded by the year of issue, for example, “yyyy mm dd NT: Bogoso Gold Limited 001” or “yyyy mm dd NT: Consultant 001”.                       References to “telex” are to be replaced with “facsimile”. Page 13 of 85 --------------------------------------------------------------------------------   B.   Deleted Clauses The Following Clauses are deleted from the General Conditions and replaced by the stated Additional Clauses specified below in Section C:               Clause replaced by Clause deleted from General Conditions   Additional Clause in Section C 1     45.1   2     45.2   3     46   4     46   5(i), 5(ii)(a) and 5(ii)(b)     46   7 and 8     47.2   11, 12, 13 and 15     49   16 and 18     51   19 and 20     52   21     71.9   23 and 24   54 and 55 25     53   26, 27 and 28   57, 58 and 61 30, 31 and 34   61 and 62 38     66   42     67   43.8 and 44     68   C.   Additional Clauses Context and interpretation These Additional Clauses shall be read and interpreted in conjunction with the General Conditions and all the terms and expressions defined herein shall bear the same meanings assigned thereto in the General Conditions unless expressly stated or the context indicates otherwise. Page 14 of 85 --------------------------------------------------------------------------------   45.   Definitions and Interpretation 45.1 Definitions (replacing Clause 1)     “Agreed Compensation” means interest at an annual rate of 9% for any amount unpaid by the Client calculated from the date such amount was due to have been paid until is paid.       “Agreement” has the meaning given in Clause 2 of the Formal Instrument of Agreement.       “Authorities” means all governmental, semi-governmental, local and other authorities that exercise jurisdiction over the Services or the Project.       “Business Day” means a day other than a Saturday, Sunday or bank or public holiday in Ghana or South Africa.       “Claim” includes any action, suit, claim, demand or proceeding of any nature.       “Client Approval” means any licence, permit, consent, approval, determination or permission, the obtaining of which is specifically agreed by the parties to be part of the Client’s responsibility in Appendix H.       “Client Deliverables” means any thing, document and action specifically identified in the Agreement as being required to be delivered or procured by the Client or a third party on behalf of the Client to the Consultant, including without limiting the foregoing those things, documents and actions listed in Appendix H.       “Client’s Representative” means the representative of the Client appointed by the Client pursuant to Clause 14.       “Client Standards and Procedures” means the standards and procedures prescribed from time to time by the Client with respect to the Project or any part of it.       “Code of Conduct” means the Consultant’s code of conduct to apply to the Consultant’s Personnel and subcontractors whilst in Ghana and on Site, set out in Appendix K, as amended from time to time.       “Consultant Approval” means any licence, permit, consent, approval, determination or permission that may be required in respect of the Project, except Client Approvals.       “Consultant’s Representative” means the representative of the Consultant appointed by the Consultant pursuant to Clause 14.       “Date for Practical Completion” means the date stated in the Particular Conditions pursuant to Clause 22, as amended or varied in accordance with the Agreement.       “Date of Commencement” means the date stated in the Particular Conditions pursuant to Clause 22. Page 15 of 85 --------------------------------------------------------------------------------       “Date of Final Completion” means the date on which the Project reaches Final Completion in accordance with the Agreement.       “Date of Practical Completion” means, in relation to the Project, a Separable Portion or a part of the Works, the date on which the Project or the Separable Portion or the part of the Works, respectively, reaches Practical Completion in accordance with the Agreement.       “Defective EPCM Services” means:   (a)   a failure to perform any part of the Services in accordance with, and to the standard required by, the Agreement including the standards set out in Appendices A or K; or     (b)   an omission of Services,     but does not include defects or omissions arising out of or in connection with:   (c)   any negligent act or omission by a third party, including a Project Contractor, that does not arise as a result of an act or omission by the Consultant;     (d)   any negligent act or omission by the Client, including a breach of statute or breach of duty by the Client;     (e)   fair wear and tear;     (f)   the Client maintaining or operating the Plant or any equipment outside the manufacturers’ or vendors’ recommendations, warranty provisions or operating manual procedures or outside the design criteria or the operating procedures established by the Consultant in consultation with the Client for the plant and equipment;     (g)   any material modifications made to the Plant or equipment by the Client without the Consultant’s consent, other than for environmental, safety or health reasons; and     (h)   any work or services the same as or similar to the Services or concerning the same subject matter as the Services which were performed by the Client or on behalf of the Client by persons other than the Consultant that were not required to be supervised by the Consultant.     “Defects Notification Period” means the period of 52 weeks from the end of the Term or 52 weeks from the Date of Practical Completion of the Project, whichever is the earliest.       “Defective Rectification Work” has the meaning given to that term in Clause 60.1.       “Design” means any design work (including engineering and drafting work) undertaken by the Consultant in the performance of the Services. Page 16 of 85 --------------------------------------------------------------------------------       “Disbursements” means only those direct expenses and costs incurred with respect to the Project, paid or payable in cash, and of the type normally charged by the Consultant as a disbursement on other projects similar to the Project, including:   (a)   reasonable living expenses of the Consultant’s Personnel in Ghana;     (b)   Project related vehicle rental and insurance expenses;     (c)   Project related travel for the Consultant’s Personnel;     (d)   expenses of insurances purchased specifically for the Project as directed by the Client hereunder;     (e)   mobilisation and de-mobilisation medical expenses for the Consultant’s Personnel going to Site;     (f)   Project related meals involving the Client or any Project Contractor, if approved in advance by the Client;     (g)   international telephone costs, courier, shipping charges, special postage;     (h)   where not supplied by the Client, Site office costs, including stationery, photocopies, office consumables, network and e-mail facilities, communications, medical first aid kits and medical consumables; and     (i)   where not supplied by Client, Site office furniture and equipment, subject to Clause 6;     (j)   Johannesburg office support, including stationery, photocopies, office consumables, network and e-mail facilities;     but excluding:   (k)   costs pertaining to Project Contractors or other contractors, which shall be direct costs of the Client;     (l)   personal protective equipment;     (m)   accommodation on Site, unless accommodation is not made available by the Client;     (n)   expenses for equipment, machinery, tools and other assets that the Client would reasonably expect consultants to have on hand and part of its tools of trade (but excluding those assets purchased with particular specification for the purpose of the Project, which shall be Client property pursuant to Clause 6);     (o)   materials that are purchased for use in South Africa without specific reference to any particular project, such as paper, pens and other supplies. Page 17 of 85 --------------------------------------------------------------------------------       “Documentation” includes software (including source code and object code versions) manuals, diagrams, graphs, charts, projections, specifications, estimates, records, concepts, documents, accounts, plans, formulae, designs, methods, techniques, processes, supplier lists, price lists, customer lists, market research information, correspondence, letters and papers of every description including all copies of or extracts from the same.       “Dry Commissioning” means those checks and tests to be performed up to Practical Completion in accordance with Appendix A.       “Execution Date” means 06 April 2006.       “Existing Plant” means the existing plant, equipment and infrastructure on Site as of the Date of Commencement.       “Final Completion” means (as the case may be) that stage in the execution of the Services where:   (a)   the Defects Notification Period has expired and the Consultant has made good all Defective EPCM Services that have been advised by the Client to the Consultant prior to the expiry of the Defects Notification Period; or     (b)   the Further Defects Liability Period has expired and the Consultant has made good all Defective Rectification Work prior to the expiry of the Further Defects Liability Period.     “Financing Entity” means any financial institution or other person providing any debt or equity financing for the Client in respect of the Project, including by provision of a letter or letters of credit or other guarantees or insurance in support of those things and including the holders of, and the agent or trustee representing the holders of, such instruments.       “Force Majeure Event” is any event or circumstance (or combination of events and circumstances) which occurs in Ghana and:   (a)   is beyond the control of the party affected by that event or circumstance or both;     (b)   causes delay in, or prevention of, the performance by the affected party of any of its obligations under the Agreement; and     (c)   cannot be prevented, overcome or remedied by the exercise by the affected party of a standard of care and diligence consistent with that of a prudent and competent mining company (in the case of the Client) or construction manager (in the case of the Consultant),     including, without limiting the foregoing, a strike or industrial dispute which affects the performance of the Works under the Agreement and wet or otherwise inclement weather that makes the conduct of the Works under the Agreement unsafe or impractical.       “Further Defects Liability Period” means 52 weeks. Page 18 of 85 --------------------------------------------------------------------------------       “Gold Fields” means Gold Fields of South Africa or its subsidiaries regarding the provision of technology relating to the BIOX® process.       “Government” means, in respect of each place in which the Services are rendered, any federal, state, provincial, regional or local government and all government, semi-government, local and other agencies, authorities, departments or instrumentalities of any of them or corporations established by statute.       “Independent Engineer” means Merit Engineers Pty Ltd (ACN 087 781 262), a company incorporated in Australia.       “Intellectual Property Rights” means all industrial and intellectual property rights, whether registered or unregistered, including, but not limited to, inventions, discoveries, innovations, technical information, technical data, prototypes, manufacturing processes, improvements, patent rights, circuitry, drawings, plans, specifications, trade mark rights, trade names, design rights, copyright (including moral rights), and other monopoly rights, samples and know-how.       “Interconnection Procedures” means the procedures for interconnecting the Existing Plant with the Oxide Plant and the Sulphide Plant, as determined pursuant to Clause 46.5(b).       “Key Personnel” means those personnel identified in Appendix F.       “Law” means any legally binding law, legislation, statute, act, rule, order or regulation which is enacted, issued or promulgated by any Government.       “Legislative Requirement” means a requirement imposed by Law and includes, without limitation:   (a)   a requirement to obtain an approval (other than a Client Approval), either expressly, or by implication through the imposition of a criminal offence for a failure to do so;     (b)   a requirement to give a notice to any Government, or to report something to any Government;     (c)   a requirement to pay a fee, charge or penalty imposed by legislation; and     (d)   a requirement to do, not to do, or comply with a matter or thing, either expressly, or by implication through the imposition of a criminal offence for a failure to do so.     “Material Project Contractor” means those contractors listed in Appendix G.       “Ore Commissioning” means those checks and tests (with the use of process materials) to be performed by the Client after Practical Completion in accordance with Appendix A. Page 19 of 85 --------------------------------------------------------------------------------       “Oxide Plant” means those areas in Appendix D numbered 00, 01, 04, 05, 06, 19 (to the extent required to operate the Oxide Plant) and 22 (to the extent required to operate the Obotan Mill as an oxide mill).       “Payment Claim” has the meaning given to that term in Clause 62.3.       “Personnel” includes a person’s officers, directors, employees, contract employees, agents, sub-contractors and invitees.       “Plant” means the Oxide Plant and the Sulphide Plant or either one of them, as the context may suggest, to be constructed as part of the Project, as further described in the Scope of Works.       “Practical Completion” means that stage in the execution of the Services where the Oxide Plant or Sulphide Plant, as the case may be, has been engineered, procured and constructed and is ready to accept the safe introduction of ore, except for minor omissions, minor defects and outstanding Services that do not prevent the safe introduction of water or ore, as listed in the punch list agreed between the Client and the Consultant pursuant to Clause 59.1(b), provided that:   (a)   if ore is introduced to any Separable Portion or other part of the Plant at the instruction of the Client, then that Separable Portion or part is deemed to have achieved Practical Completion for purposes of computing the Defects Notification Period;     (b)   non-critical secondary equipment and structures (such as administration buildings and the like) need not be complete to achieve Practical Completion; and     (c)   if Practical Completion in respect of the whole or any Separable Portion or other part of the Plant would be achieved but for failure of the Client to meet its obligations pursuant to the Agreement or the failure of any third party (provided such failure was not the result of Defective EPCM Services), then Practical Completion will be deemed to have been achieved for the purposes of computing the Defects Notification Period.     “Pre-commissioning” means those pre-operational checks and tests (without the use of process materials) to be performed by the Consultant in accordance with Appendix A.       “Privacy Law” means any Law that relates to the protection of personal or other information pertaining to Personnel.       “Project” means the Bogoso Sulphide Expansion Project, situated approximately 10km south of the town of Bogoso in the Western Region of Ghana, as described in the Scope of Works in respect of which the Client has engaged the Consultant to provide the Services.       “Project Budget” means the Project budget in Appendix I. Page 20 of 85 --------------------------------------------------------------------------------       “Project Contract” means a contract entered into with a Project Contractor for purposes of the Project.       “Project Contractor” means any consultants, contractors, vendors and suppliers engaged by the Client at the recommendation of the Consultant to carry out any part of the Project and includes any Material Project Contractor.       “Project Control Group” has the meaning given to that term in Clause 50.7.       “Project Management Plan” means the Project management plan to be prepared by the Consultant in accordance with Clause 50.8.       “Project Material” means all Documentation which is:   (a)   prepared, or required to be prepared, by or on behalf of the Consultant under the Agreement;     (b)   delivered, or required to be delivered, by or on behalf of the Consultant to the Client under the Agreement; or     (c)   incorporated into any Documentation described in (a) or (b) above.     “Project Schedule” means the schedule of various dates as required to be updated hereunder and the first of which is set out in Appendix J.       “Protected Right” means any patent, right, registered design, trademark or name, copyright or any other lawfully protected right of any person.       “Quality Assurance Program” means the program specified in Clause 46.7.       “Rectification Work” has the meaning given to that term in Clause 60.1.       “Scope of Services” means the scope of services specified in Appendix A, as amended or varied in accordance with the Agreement.       “Scope of Works” means the scope of works specified in Appendix D, as amended or varied in accordance with the Agreement.       “Separable Portion” means any one of the discrete components of the Plant described in the Scope of Works or agreed pursuant to Clause 56.1.       “Services” means the services which the Consultant is required to perform under the Agreement and as further described in the Scope of Services.       “Services Costs” has the meaning given to that term in Clause 62.1.       “Services Variation” means any variation in the Services under Clause 55.       “Site” means the location at which the Project is to be constructed, as described in the Scope of Works. Page 21 of 85 --------------------------------------------------------------------------------       “Sulphide Plant” means those areas in Appendix D numbered 10, 11, 12, 13, 14, 15, 16, 17, 18, 19 (to the extent that this area does not form part of the Oxide Plant), 21, 22 (to the extent that this area does not form part of the Oxide Plant) and 23.       “Taxes” means any taxes, charges, levies, assessments or other similar costs of any kind, excluding income, profit, revenue, royalty and other taxes payable in respect of operations (which taxes shall for the purposes of the Agreement be “Excluded Taxes”), but including goods and services taxes, value added taxes, withholding taxes, stamp duties and customs duties.       “Term” means the period commencing with the Date of Commencement and ending on the Date of Final Completion or, if the Agreement is terminated prior to the Project reaching Final Completion, on the date of such termination.       “Total Cost Forecast” means the sum of the Project Budget set out in Appendix I and the indicative Services Costs set out in Part C of Appendix C.       “Works” means the works to be constructed and the temporary works to be carried out in executing the Project as described in the Scope of Works.       “Works Variation” means any change described in the Scope of Works pursuant to Clause 54. 45.2 Interpretation (replacing Clause 2)     In the Agreement, unless contrary intention appears:   (a)   a reference to:   (i)   clauses, schedules and appendices are references to clauses of and schedules and appendices to the Agreement;     (ii)   a person includes a natural person, firm, joint venture partnership, unincorporated association, corporation and government or statutory body or authority or other body corporate;     (iii)   a party includes the party’s successors and permitted assigns;     (iv)   a document or agreement, including the Agreement, includes a reference to that document or agreement as novated, altered, supplemented or replaced from time to time;     (v)   writing includes a reference to printing, typing and each other method of producing words in a visible form;     (vi)   any legislation or legislative provision includes any statutory modification or re-enactment of, or legislative provision substituted for, and any subordinate legislation issued under that legislation or legislative provision; Page 22 of 85 --------------------------------------------------------------------------------     (vii)   a month or year means calendar month or calendar year whether or not beginning on the first day of any month or year;     (viii)   “U$”, “USD”, “USD$”, “$US”, “dollar” or “$” is a reference to United States currency;     (ix)   “R”, “ZAR” and “Rand” is a reference to South African currency;     (x)   a specific time for the performance of an obligation is a reference to that time in the country, state, or territory or other place where that obligation is to be performed; and     (xi)   a thing (including a right or obligation) includes a part of that thing;   (b)   headings are for ease of reference only and do not affect the meaning of the Agreement;     (c)   the singular includes the plural and vice versa and words importing a gender include other genders;     (d)   the expression “including” is not a word of limitation;     (e)   other grammatical forms of defined words or expressions have corresponding meanings;     (f)   if the date on or by which any act must or may be done under the Agreement is not a Business Day, the act must or may be done on or by the next Business Day;     (g)   where time is to be calculated by reference to a day or event, that day or the day of that event is excluded;     (h)   no provision of the Agreement will be construed adversely to a party solely on the ground that the party was responsible for the preparation of the Agreement or provision;     (i)   except where otherwise provided, measurements and quantities shall be in metric units; and     (j)   the words “clause 27.1(ii)” and “clause 5(i)” for purposes of Clause 40(i) shall be read as meaning “Clause 61” and “Clause 46.2,” respectively, while the words “anything of value” shall be read as meaning anything of material value and shall specifically exclude meals, entertainment and promotional items valued at less than US$200.00. 45.3 Ambiguous and Inconsistent Terms   (a)   Subject to Clause 3 of the Formal Instrument of Agreement, if the Client’s Representative reasonably considers, or the Consultant notifies the Client’s Representative in writing, that there is a conflict, ambiguity, inconsistency or Page 23 of 85 --------------------------------------------------------------------------------         discrepancy in or between any of the terms of the Agreement, the Independent Engineer shall direct the interpretation which the parties shall follow. Any interpretation of the Independent Engineer made under this clause 45.3(a) shall, except in the case of obvious error or fraud, be final and binding on the parties.     (b)   The Independent Engineer, in giving a direction in accordance with Clause 45.3(a), is not required to determine whether or not there is an ambiguity or inconsistency.     (c)   The Consultant shall bear the costs of compliance with a direction under clause 45.3(a) unless the ambiguity or inconsistency could not have been reasonably identified by a competent person experienced in projects of a similar character, size and complexity to the Project. If a direction is given in respect of an ambiguity or inconsistency that could not have been reasonably identified by a competent person experienced in projects of a similar character, size and complexity to the Project and the direction requires the Consultant to perform any additional Services, the direction will be deemed to be a Services Variation for the purposes of Clause 55. 45.4 Matters of Clarification (General)   (a)   Where in the Scope of Services:   (i)   an obligation or action is prescribed or required to be taken, the Consultant shall fulfil that obligation or take that action, unless it is expressly stated that the Client must take that action;     (ii)   a precondition is prescribed in relation to any right or benefit that the Consultant might become entitled to enjoy, then the Consultant will only be entitled to the right or benefit if the precondition is satisfied; or     (iii)   a right or benefit is given to the Client, the Client may enjoy that right or benefit even though the right or benefit is not prescribed by the General Conditions or the Particular Conditions.   (b)   Except where expressly provided to the contrary in the Agreement, no approval, consent, review, consultation, monitoring, audit or comment made, undertaken or given by or on behalf of the Client shall lessen or otherwise affect the Consultant’s obligations under the Agreement or constitute a Services Variation or Works Variation. 45.5 Best Endeavours   (a)   Subject to Clause 45.5(b), where the Agreement requires that the Consultant use “best endeavours” in the performance of any its obligations under the Agreement, the Consultant shall, in the performance of the applicable obligation adopt, use or apply the work practices and methodologies that reflect prudent practicable standards as would be employed by reputable international professional engineering, procurement and construction management contractors that are then in current use. Page 24 of 85 --------------------------------------------------------------------------------     (b)   Unless the context otherwise requires in the Agreement, the term “best endeavours” shall only bear the meaning given to that term in Clause 45.5(a). 46.   Appointment, Obligations, Warranties, and Covenants of the Consultant (replacing Clauses 3, 4 and 5(i), 5(ii)(a) and 5(ii)(b)) 46.1 Appointment of Consultant     The Client appoints the Consultant as an independent contractor of the Client to render the Services in accordance with the Agreement, which appointment is hereby accepted by Consultant. 46.2 Standard of Care   (a)   The Consultant shall perform the Services with the professional skill, care and diligence that would be expected of an international professional engineering, procurement and construction management contractor experienced in projects of a similar nature to the Project and in the performance of services the same as or similar to the Services.     (b)   The Consultant must ensure that any subcontractor appointed by it to perform part of the Services performs that part of the Services with the professional skill, care and diligence expected of a professional consultant experienced in projects of a similar nature to the Project and in the performance of services of similar nature to the part of the Services subcontracted to that subcontractor. 46.3 Warranties and Covenants      The Consultant warrants and covenants to the Client that:   (a)   it and its Personnel have the particular skill, experience and ability necessary to perform the Services and will continue to have them during the Term;     (b)   it has examined:   (i)   the Scope of Services and the Scope of Work;     (ii)   local conditions at the Site and all applicable Laws;     (iii)   the Project Schedule; and     (iv)   all other information or documents relating to the Project provided to the Consultant,       and is satisfied with the sufficiency thereof for the purpose of complying with its obligations under the Agreement (without the Consultant giving or making any warranty or representation as to the adequacy of the BIOX® process or the material characteristics provided by the Client to the Consultant); Page 25 of 85 --------------------------------------------------------------------------------     (c)   it is duly incorporated and validly existing under the law of its place of incorporation and it has full legal capacity and power:   (i)   to own its property and assets and to carry on its business; and     (ii)   to enter into the Agreement and to perform its obligations under the Agreement;         and it has taken all corporate action that is necessary to authorise its entry into the Agreement and to perform its obligations under the Agreement;   (d)   there is, in the reasonable opinion of the Consultant, no litigation, arbitration, mediation, conciliation or administrative proceedings taking place, pending or threatened against it which (if adversely decided) could have a material adverse effect on the Consultant’s or the Guarantor’s business, assets or financial condition or its or the Guarantor’s ability to perform its obligations under the Agreement;     (e)   it has not impugned the reputation of the Client to date, nor will it during the Term or at any time thereafter, nor will it knowingly do or permit anything which might damage the name or reputation of the Client or reasonably invite adverse public criticism or result in the Client being the subject of any official investigation; and     (f)   as of the Execution Date, it has no conflict of interest in performing the Services for the Client and it will ensure that none exist during the Term.     The Consultant acknowledges that the Client has executed the Agreement in reliance on the warranties contained in this Clause 46.3. The warranties contained in this Clause 46.3 will be treated as if made continuously by the Consultant during the Term. 46.4 Delivery of Services   (a)   The Consultant shall:   (i)   promptly perform the Services in accordance with the requirements of the Agreement;     (ii)   at all times use its best endeavours to ensure that the Project:   (A)   proceeds at a rate of progress such that each event stated in the Project Schedule will be completed in accordance with the corresponding completion or milestone date; and     (B)   is completed within the Total Cost Forecast;   (iii)   recommend and seek the Client’s approval to undertake all studies, reviews, investigations and other processes necessary to enable it to perform the Services as efficiently and cost-effectively as practicable; and Page 26 of 85 --------------------------------------------------------------------------------     (iv)   regularly consult with the Client’s Representative throughout the performance of the Services (including requesting instructions from the Client’s Representative and seeking comments on, or review or approval, of any documentation).   (b)   Subject to Clause 49.2 and 50.2, the Consultant may enter into subcontracts for the vicarious performance of its obligations under the Agreement, but the Consultant shall not subcontract the whole of the Services. The Consultant shall obtain the written approval (which shall not be unreasonably withheld) of the Client’s Representative before appointing a subcontractor to perform any part of its obligations under the Agreement. The Consultant shall manage the performance of each subcontractor to ensure the quality and timeliness of its performance meet the requirements of the Agreement. The Consultant’s obligations under the Agreement are not lessened or otherwise affected by subcontracting the performance of those obligations.     (c)   Where the Client has a right to and terminates the Agreement, upon the request of the Client, the Consultant shall:   (i)   assign the benefit of any subcontracts referred to in Clause 46.4(b); or     (ii)   if the benefit of any subcontract cannot be assigned, hold the subcontract, guarantee or warranty in trust for the Client or the Client’s nominee (as the case may be).   (d)   Despite Clause 46.4(b), the Consultant is solely responsible for the performance of the Services. Except to the extent specified in this Clause 46.4(d), this obligation is not affected by any approval or decision given by the Client or any Authority. Where the Client’s Representative gives the Consultant a direction which is not consistent with or would be contrary to the standard of care described in Clause 46.2, the Consultant will be excused from all liability in respect of following such instruction if at any time within three (3) Business Days from the date the instruction is given, the Consultant gives the Client’s Representative notice of the inconsistency and sets out in that notice a non-exhaustive summary of expected adverse consequences on the Project of complying with such instruction. Nothing in the preceding sentence will prejudice the Client’s rights under the Agreement to dispute any notice given by the Consultant under this Clause 46.4(d).     (e)   The Consultant acknowledges that, other than as expressly provided elsewhere in the Agreement, it is the Consultant’s responsibility to make all enquiries, obtain all information and make all judgements that are relevant to and necessary for the performance of the Services. The Consultant shall not delay the progress of the Services or any part of the Services by reason of the Consultant awaiting information from the Client or the Client’s Representative:   (i)   unless the Agreement expressly provides otherwise; Page 27 of 85 --------------------------------------------------------------------------------     (ii)   unless the Client’s Representative otherwise directs the Consultant; or     (iii)   except to the extent that the Consultant cannot reasonably proceed with the Services without the information. 46.5 Design Obligations   (a)   The Consultant shall:   (i)   develop and complete the Design, in accordance with the requirements of the Agreement, including preparing all necessary documents, information, drawings and plans sufficient for the procurement, installation, construction, commissioning and completion of the Project;     (ii)   ensure to the maximum extent reasonably possible that the Design:   (A)   meets the Client’s requirements for the Project as set out in the Scope of Services or the Scope of Works;     (B)   is free from defects in design and accurate and complete in all respects;     (C)   will minimize the repair and maintenance costs of the Project and will maximize the life of the Project;     (D)   will comply with all applicable Laws;     (E)   will enable approvals, certificates and permits to be quickly and easily obtained from any Authority; and     (F)   is otherwise suitable in all respects for the intended purposes of the Project as specified in the Scope of Services or Scope of Work so that, when constructed, the Project will be fit for its intended purpose as specified in the Scope of Services or Scope of Work; and   (iii)   allow a maximum of 10 days for review by the Client’s Representative of all Design Documentation, prior to the issue of such documentation to subcontractors or Project Contractors. In the event that the Client’s Representative has not completed his review within 10 days, the Consultant may proceed to issue such documentation to subcontractors or Project Contractors.   (b)   The Consultant shall (if applicable), on or about 31 March 2006, submit to the Client’s Representative for approval Interconnection Procedures for connecting the Oxide Plant and the Sulphide Plant to the existing infrastructure on Site which shall:   (i)   meet the requirements of the Scope of Services; Page 28 of 85 --------------------------------------------------------------------------------     (ii)   be in a format approved by the Client’s Representative (which approval shall not be unreasonably withheld).   (c)   Neither the Client nor the Client’s Representative undertakes any responsibility or duty of care to the Consultant to review any Design Documentation for errors, omissions or compliance with the Agreement. No review of, comments upon, rejection of, or failure to review or comment upon or reject, any such documentation will:   (i)   relieve the Consultant from, or alter or affect, the Consultant’s liabilities or responsibilities whether arising out of or in connection with the Agreement or otherwise according to Law; or     (ii)   prejudice the Client’s rights against the Consultant whether arising out of or in connection with the Agreement or otherwise according to Law.   (d)   The Consultant acknowledges that the Client has not given any warranty or guarantee or made any representation about the adequacy or suitability of the Scope of Services or the Scope of Works or the level of completeness of the design of the Project in the Scope of Services or the Scope of Works. 46.6 Management of Project Contractors   (a)   In performing the Services, the Consultant shall manage all Project Contractors and exercise all powers, duties and discretion conferred upon the Client, as representative for Client, in a manner that is consistent with the Client’s contractual obligations and in the Client’s best interests.     (b)   The Consultant shall:   (i)   identify the scope of each Project Contract and the sequence of all Project Contracts (in consultation with the Client’s Representative) and make recommendations to the Client’s Representative regarding the:   (A)   pre-purchase of long-lead time items of machinery, materials and supplies;     (B)   availability of materials and labour; and     (C)   the tender list for each Project Contract;   (ii)   prepare the tender documentation (including finalising the specifications and drawings) for each Project Contract (using the Project-developed conditions of tender and contract prepared by the Client) and ensure that they comply with the Client’s requirements (including, in particular, those set out (if any) in the Scope of Works);     (iii)   submit draft tender documentation to the Client’s Representative for review in a manner and at a rate which will give the Client’s Page 29 of 85 --------------------------------------------------------------------------------         Representative a reasonable opportunity (but in any event no more than ten (10) days) to review that tender documentation before it is issued to tenderers and, if any tender documentation is rejected by the Client’s Representative within such period, submit amended tender documentation to the Client’s Representative, in which case the time period in this Clause 46.6(b)(iii) will reapply;   (iv)   finalise each tender list in consultation with the Client’s Representative in accordance with the relevant procedure in the Project Management Plan so that it only includes tenderers approved by the Client’s Representative;     (v)   prepare sufficient copies of the finalised tender documentation for each Project Contract for tendering; and     (vi)   issue the tender documentation in accordance with this Clause 46.6(b) to all approved tenderers.   (c)   The Consultant shall:   (i)   keep the Client’s Representative informed of any pre-tender meetings;     (ii)   provide to the Client’s Representative copies of all correspondence from and to tenderers for the Project Contracts; and     (iii)   have a representative in attendance at the opening of all tenders for the Project Contracts.   (d)   The Consultant shall:   (i)   analyse all tenders submitted by tenderers for the Project Contracts;     (ii)   prepare a report recommending to the Client the most suitable tenderer for each Project Contract;     (iii)   recommend, if necessary, that negotiations be entered into with any preferred tenderer; and     (iv)   provide to the Client for its consideration the actual tender prices for all Project Contracts and how they compare with the cost estimates (if any) for the Project Contracts in the Total Cost Forecast or in any other budget or program prepared by the Consultant containing cost estimates of the Project Contractors.   (e)   The Consultant covenants to the Client that neither the Consultant (nor any affiliated bodies corporate, as defined by the applicable Law in South Africa and Ghana, of the Consultant) will tender for any of the Project Contracts unless the Consultant has obtained the prior written approval of the Client. Page 30 of 85 --------------------------------------------------------------------------------     (f)   The Consultant shall provide all superintendence, co-ordination and construction management with respect to Project Contractors, including:   (i)   administering and making recommendations to the Client in relation to all changes, extensions of time and all other matters pertaining to Project Contracts;     (ii)   providing all relevant information to the Client’s Representative, as and when required, and in any event in sufficient time to enable the Client to carry out its contract administration functions (if any) under the various Project Contracts;     (iii)   monitoring the performance of the Project Contractors under the Project Contracts with the aim of rectifying all faults, omissions or other defects prior to the date of practical completion or during the defect liability periods (as the case may be) in the respective Project Contracts; and     (iv)   if requested by the Client, acting as the Client’s Representative in relation to the Project Contracts; with the objective of facilitating each Project Contract being:   (v)   completed by the completion date for it in the Project Schedule; and     (vi)   within its planned cost (if any, as stated in the Total Cost Forecast or in any other budget or program prepared by the Consultant containing cost estimates of the Project Contracts).   (g)   The Consultant shall procure all Works and services in accordance with the Client’s internal process for obtaining financial authority to place orders and contracts. Requisitions for the placing of orders for supply or installation of equipment shall include the terms and conditions of the Project Contracts, the purchase order letter (if any) and any other documentation advised by the Client’s Representative.     (h)   In the event that a party to a Project Contract invokes any dispute resolution provisions or notifies the Consultant of an intention to commence any dispute resolution proceedings, the Consultant shall immediately notify the Client. In the event of any such notification to the Client the Consultant shall advise the Client of the facts and circumstances of the dispute known to the Consultant and endeavour as far as reasonably possible to participate in and achieve on behalf of the Client a prompt settlement or other resolution of the dispute subject to the directions of the Client. 46.7 Labour, Environmental, Indigenous, OHS and Quality Assurance Plans   (a)   The Consultant shall: Page 31 of 85 --------------------------------------------------------------------------------     (i)   subsequent to the Date of Commencement, establish (in consultation with the Client’s Representative) the Quality Assurance Plan for the performance of the Services and such plan shall be:   (A)   appropriate to the materials, fabrication, components, construction and Site maintenance activities; and     (B)   comply with ISO 9000 (2000) or any amended or substituted requirements which the Client’s Representative may, acting reasonably, direct in writing;   (ii)   give the Client’s Representative access to the Consultant’s and each subcontractor’s quality systems to enable monitoring and quality auditing; and     (iii)   comply, and ensure its subcontractors comply, with the Quality Assurance Plan.   (b)   The Consultant shall, if directed by the Client’s Representative, prepare and submit to the Client’s Representative for approval an occupational health and safety plan and, if approved, comply, and ensure that its subcontractors comply, with any such plan.     (c)   The Consultant shall, upon instruction by the Client, comply and shall ensure that its subcontractors comply with any documented policy and procedures on health and safety, environmental matters, community matters and industrial relations matters that are in use by the Client at the Site. 46.8 Local Content   (a)   The Consultant shall, in the performance of its obligations under the Agreement, as far as it is reasonable and economically practicable:   (i)   use labour available within the Bogoso/Prestea catchment area;     (ii)   engage professional services available in the Bogoso/Prestea catchment area; and     (iii)   give manufacturers, suppliers and subcontractors available in the Bogoso / Prestea catchment area:   (A)   a fair and reasonable opportunity to tender or quote for subcontracts for works, materials, plant, equipment and supplies; and     (B)   proper consideration and, where possible, preference to those manufacturers, suppliers and subcontractors. Page 32 of 85 --------------------------------------------------------------------------------     (b)   If the Consultant is not able to use labour, professional services, manufacturers, suppliers or subcontractors available in the Bogoso / Prestea catchment area, the Consultant shall give consideration to and, where possible, preference to labour, professional services, manufacturers, suppliers and subcontractors within Ghana.     (c)   Unless the Client agrees otherwise, the Consultant shall use its best endeavours to ensure that in every subcontract it enters into for labour, professional services, workers, materials, plant, equipment or supplies for the performance of the Services, the other party covenants to be bound by the terms of this Clause 46.8 in the same way as the Consultant and that it will report to the Consultant on its implementation of Clause 46.8(a) and Clause 46.8(b).     (d)   The requirements of this Clause 46.8 do not affect or limit the Consultant’s obligations under the Agreement. 46.9 Monthly Reporting The Consultant shall, by the fourth working day of each month, give a written report (in a form approved by the Client’s Representative) to the Client’s Representative setting out:   (a)   if applicable, details of the progress of tendering for the vendor packages and the construction packages;     (b)   the progress of the Project against the Project Schedule and the effect on the Project Schedule of any change to the Project, including a curve showing cumulative actual and forecasted cashflow (including costs for any changes to Project) against time;     (c)   details of any activities which are behind the progress anticipated in the Project Schedule, any foreseen delays to future activities on the Project Schedule and the likely effect on the Project Schedule of any actual or foreseen delay;     (d)   current claims for changes, variations and extensions of time by Project Contractors in relation to the Works or Project, including details of dates submitted, dates approved and any other details the Client’s Representative requires;     (e)   the status of all activities on which work is being undertaken;     (f)   industrial relations issues affecting (or which may affect) the performance of the Project;     (g)   strategies implemented or proposed to overcome problems, including corrective action statements for catching up lost time or avoiding potential delays;     (h)   a statement of progress claims made under Project Contracts during the period of the statement containing full and true particulars of all such claims; Page 33 of 85 --------------------------------------------------------------------------------     (i)   the total amount of costs payable to Project Contractors under their contracts awarded to date; and     (j)   any other matter reasonably required by the Client’s Representative. 46.10 Records Open for Inspection and Audit   (a)   The Consultant shall keep and maintain:   (i)   the records identified in the Project Management Plan; and     (ii)   all other Project Material relating to the Project, at the Consultant’s address as set out in the Agreement under Clause 41.   (b)   The Consultant must ensure that all Project Material relating to the Project, and the quality system and the records and Project Material referred to in Clause 46.10(a) are available to the Client (or persons nominated by the Client) at all reasonable times for examination, audit, inspection, transcription and (in respect of records only) copying.     (c)   If the Agreement is terminated, the Consultant shall give the Client any records and Project Material referred to in Clause 46.10(a) which are necessary for the orderly continuance of the Project by another person. 47. Obligations of the Client 47.1 Failure to fulfil Obligations (replacing Clauses 7 and 8) In no event shall the Client or the Client’s Representative be considered to have delayed the Project or a Separable Portion where — with respect to -:   (a)   the Client Approvals, such approvals have been obtained within ten Business Days of a request from the Consultant to obtain same;     (b)   the execution of Project Contracts with Project Contractors, such contracts have been prepared and presented to the Consultant for execution by the Project Contractors within ten Business Days of a request from the Consultant to prepare same (or, where prepared by a Project Contractor, approved by the Client with or without reasonable modifications within 7 Business Days of a request from the Consultant to do so), provided such request is made following a recommendation of the Consultant supported by appropriate information; and     (c)   any approval or information requested by the Consultant, the approval or information is provided within ten Business Days of a request being made by the Consultant (provided any such request is supported by appropriate information). Where the Consultant considers that circumstances require a response before the expiry of such time periods, that opinion shall be indicated in the request to the Client with Page 34 of 85 --------------------------------------------------------------------------------   appropriate reasons therefore. In such event, the Client shall respond within a shorter time period, provided such opinion is reasonably founded. 47.2 Responsibilities (amending Clause 9)   (a)   In addition to the obligations stated in Clause 9, the Client will obtain the Client Approvals.     (b)   Clause 9 is amended by deleting “shall do all in his power” and substituting “shall use reasonable efforts, where requested by the Consultant.”     (c)   If the Consultant requests the Client to approve or decide any matter or thing in connection with the performance of the Services by the Consultant, the Client shall within a reasonable period of time after the request, notify the Consultant of its approval or decision (as the case may be). For the avoidance of doubt in this Clause 47.2(c):   (i)   a reasonable period of time shall be determined in the context of the matter or thing in respect of which the Client’s approval or decision is sought;     (ii)   an approval or decision includes a refusal to approve or decide (as the case may be). 47.3 Client provided Personnel, Equipment, Facilities and Services   (a)   Subject to Clause 47.3(b), the Client shall provide the Personnel, equipment, facilities and services described in Appendix B for use by the Consultant in performing the Services.     (b)   Where Appendix B states that the Consultant must pay for the use of specific equipment, facilities or services, the Consultant shall do so.     (c)   The Consultant shall comply with the Client’s Representative’s directions when using the equipment, facilities and services referred to in Clause 47.3(a). 48. Site 48.1 Access The Consultant shall have non-exclusive continuous access to the Site sufficient to enable it to carry out its obligations under the Agreement. 48.2 Induction Training The Consultant:   (a)   shall ensure that all of its Personnel undergo induction training required for the Site in accordance with the Client’s requirements; and Page 35 of 85 --------------------------------------------------------------------------------     (b)   acknowledges that it:   (i)   has made a sufficient allowance in the Services Costs for, and assumes the risk of any delays arising out of or in connection with, the induction training required under Clause 48.2(a), provided that any required induction training is provided within a reasonable time after request by the Consultant; and     (ii)   will not be entitled to make any Claim (insofar as is permitted by Law) arising out of or in connection with that induction training. 48.3 Safety Requirements   (a)   The Consultant shall:   (i)   ensure that the Consultant Personnel, and shall use its best endeavours to ensure that the Project Contractor Personnel, while upon the Site comply:   (A)   with all obligations of the Consultant under the Agreement;     (B)   all applicable Laws; and     (C)   with any Site safety regulations issued from time to time to the Consultant by the Client’s Representative, in relation to safety on the Site   (ii)   maintain appropriate safety precautions and programs so as to prevent injury to persons or damage to property on, about or adjacent to the Site;     (iii)   use its best endeavours to ensure that the Project is performed in a safe manner, including:   (A)   erecting and maintaining, as required by existing conditions and the progress of the performance of the Project, all safeguards necessary for safety and protection (including barriers, fences and railings); and     (B)   posting danger signs and other warnings against hazards (including all such signs and other warnings required by Law) and notifying the Client and other users of any dangerous or hazardous conditions arising out of the performance of the Project;   (iv)   have appropriate first aid facilities available on the Site at all times; and     (v)   not leave any work or partly completed work in an unsafe condition or in a condition which might cause damage to other work, plant, machinery or equipment, and continue such work until it is in a safe condition. Page 36 of 85 --------------------------------------------------------------------------------     (b)   Despite any other provision of the Agreement to the contrary, if the Client determines, pursuant to its obligations under Law and to prevent risk of injury or property damage, that it is necessary for it or any third party to take urgent action to remedy any safety or operational risk at the Site or any part of the Site that is under the control of the Consultant, then:   (i)   the Client may take any action it considers appropriate to remedy the safety or operational risk; and     (ii)   the Consultant shall indemnify the Client against any damage, cost, loss or liability the Client suffers or incurs in respect of remedying the urgent safety or operational risk if, and only to the extent, the urgent safety and operational risk was caused or contributed by a breach by the Consultant of its obligations arising out of or in relation to the Agreement.   (c)   If any of the Consultant’s Personnel damage property, the Consultant must promptly make good the damage and pay any compensation which the Law requires the Consultant to pay.     (d)   The Client shall ensure that all contracts with subcontractors and Project Contractors contain obligations identical to the obligations contained in clauses 48.3(b) and 48.3(c). 48.4 Access for the Client, the Client’s Representative and others and Site Condition   (a)   The Consultant shall ensure that:   (i)   the Client, the Client’s Representative and any other person authorised by the Client or the Client’s Representative (including Project Contractors); and     (ii)   any person authorised by Law to have access to the Site for the purpose of exercising a function or discharging a responsibility which that person has under Law, have safe access to any part of the Site that is under the control of the Consultant at all times during the performance of the Services at the Site, provided that those persons agree to observe the Consultant’s reasonable safety requirements.   (b)   The Consultant shall:   (i)   provide the Client and the Client’s Representative, at all reasonable times, with access to all workshops and places at the Site     (ii)   use reasonable endeavours to ensure that the Project Contractors provide, and the Consultant will arrange for, the Client and the Client’s Representative, at all reasonable times, to have access to all workshops and places at the Site or elsewhere, where work is being prepared or from Page 37 of 85 --------------------------------------------------------------------------------         where materials, manufactured articles or machinery are being obtained for the Project.   (c)   The Consultant shall:   (i)   subject to Clause 48.4(a), control access to any part of the Site that is under the control of the Consultant; and     (ii)   ensure that any part of the Site that is under the control of the Consultant is kept in a clean and tidy condition. 48.5 Access by Project Contractors   (a)   The Consultant acknowledges that Project Contractors may be present on the Site during the performance of the Services. The Consultant shall, and shall use its best endeavours to ensure that all Project Contractors:   (i)   co-operate with all other Project Contractors;     (ii)   co-ordinate their work with the other Project Contractors’ work to minimise any delays;     (iii)   not obstruct, delay or interfere with or damage other Project Contractors’ work;     (iv)   comply with all directions from the Client’s Representative regarding other Project Contractors and their work; and     (v)   allow any other Project Contractors engaged by the Client to use the amenities, facilities and services which are available for use on the Site.     (vi)   any delay or disruption caused by other Project Contractors will not affect or limit the Consultant’s obligations or liabilities under the Agreement. 48.6 Operation of Existing Plant   (a)   The Consultant acknowledges that the following requirements are essential to the Client:   (i)   that any interruption to the operation of the Existing Plant caused by the interconnection of the Project to the Existing Plant is minimised;     (ii)   that (other than as contemplated in Clause 48.6(a)(i) the Existing Plant and its continued operation are not affected in any way by the Project; and     (iii)   without limiting Clause 48.6(a)(i) or Clause 48.6(a)(ii), that the Project will fully, effectively and efficiently interface with the Existing Plant. Page 38 of 85 --------------------------------------------------------------------------------     (b)   The Consultant shall:   (i)   use its best endeavours to perform the Services in a manner so as to ensure that the requirements stipulated in Clause 48.6(a) are met;     (ii)   use its best endeavours to ensure that the Project Contractors comply with the requirements of the Interconnection Procedures when carrying out the interconnection works to the Existing Plant;     (iii)   at all times comply with the requirements of the Client Standards and Procedures; and     (iv)   without limiting Clause 48.6(b)(i), design the Project and perform the Services so that all aspects of the Project fully, effectively and efficiently interface with the Existing Plant. 48.7 Things of Value or Interest   (a)   Anything of value or interest (including fossils, artefacts and objects of antiquity or of archaeological or anthropological interest) found on the Site:   (i)   shall be brought immediately to the attention of the Client’s Representative; and     (ii)   will, as between the parties, be the property of the Client.   (b)   The Consultant shall, and shall ensure its subcontractors, carry out the Client’s Representative’s directions in relation to any object referred to in Clause 48.7(a).     (c)   The Consultant acknowledges that it has no right or interest in any object referred to in Clause 48.7(a). 49. Personnel (Replacing Clauses 11, 12, 13 and 15) 49.1 General   (a)   The Consultant shall:   (i)   provide experienced and skilled Personnel to perform the Services in accordance with its obligations under the Agreement; and     (ii)   ensure that the Services are performed under the supervision of appropriately qualified and experienced Personnel.   (b)   Upon request, the Consultant shall provide resumes for any of the Consultant’s Personnel or any Project Contractor Personnel.     (c)   The Client may, in its absolute discretion, direct the Consultant to remove from the Site, or from any activity connected with performance of the Services, any of its Page 39 of 85 --------------------------------------------------------------------------------         Personnel engaged or employed in connection with the performance of the Services for any of the following reasons:   (i)   breach of the Code of Conduct;     (ii)   breach of Law;     (iii)   gross insubordination or wilful misconduct;     (iv)   negligence or incompetence. The Consultant shall comply with a direction made under this Clause 49.1(c) within the time specified by the Client. 49.2 Key Personnel   (a)   No personnel listed in Appendix F will be replaced or released from involvement in the Project by the Consultant without the prior written approval of the Client, in its absolute discretion. If any of the personnel described in Appendix F leave the employ of the Consultant or are unable to perform their allocated duties for any period (whether as a result of death, illness or injury or the application of Clause 49.1(c)), the Consultant will promptly replace such personnel with substitutes of like skill and experience who are approved by the Client, which approval will not be unreasonably withheld.     (b)   The Consultant acknowledges and agrees that:   (i)   the Key Personnel are critical for the management, supervision and performance of the Services;     (ii)   subject to Clause 49.2(e), it will pay to the Client liquidated damages at the relevant rate and up to the maximum amount, both as stated in Appendix F, for every day for which a member of the Key Personnel is removed from or not available for the Services, but for which they are required to be so available, until the earliest of:   (A)   the day that the member of the Key Personnel is again made available;     (B)   the date that the member of the Key Personnel is replaced with a substitute person approved by the Client’s Representative;     (C)   the date that the Agreement is terminated; and     (D)   the Date of Final Completion; unless such removal is due to resignation, serious illness, injury or death of the Key Personnel or is otherwise approved by the Client’s Representative under Clause 49.2(a) or directed by the Client under Clause 49.1(c); Page 40 of 85 --------------------------------------------------------------------------------     (iii)   the parties have agreed to specify rates of liquidated damages to be payable to avoid the difficulty of proving the precise loss suffered by the Client if the Consultant fails to comply with its obligations in respect of Key Personnel and agree that the rates of liquidated damages in Appendix F represent a reasonable, fair and accurate estimate of the loss that will be suffered by the Client arising out of the loss of continuity and resulting inefficiencies should a member of the Key Personnel be removed from the performance of the Services;     (iv)   the specified rates of liquidated damages are separate and cumulative for each member of the Key Personnel; and     (v)   if the Client’s entitlement to, and the Consultant’s liability for, liquidated damages under Clause 49.2(b)(ii) is or becomes void, voidable or unenforceable for any reason or there is no amount specified in Appendix F, then the Client will be entitled to recover from the Consultant, and the Consultant will indemnify the Client against, the costs, losses, damages and liabilities incurred or suffered by the Client arising out of or in connection with the Consultant’s failure to provide the Key Personnel in accordance with the Agreement.   (c)   If any person listed in Appendix F as Key Personnel desires to be released from the Project for reasons other than those referred to in Clause 49.2(a), the Consultant’s Representative must give the Client’s Representative notice in writing setting out:   (i)   the name of the person;     (ii)   the part of the Services performed by that person and the extent to which those Services have been performed;     (iii)   a summary of the reasons why that person desires to be released from the Project;     (iv)   a statement of the impact upon the performance of the Services or the Project (including its progress) should the person be released;     (v)   the name of the proposed replacement together with a statement of that person’s experience and qualifications.       Any notice given under this Clause 49.2(c) must be countersigned by the person who desires to be released.   (d)   Except where any person listed in Appendix F as Key Personnel desires to be released from the Project due to serious misconduct by the Client or any of its Personnel in which case the request will be allowed, the Client’s Representative may refuse any request made under Clause 49.2(c) if the Client’s Representative considers (acting reasonably) that the release of the relevant person would have an adverse impact upon the performance of the Services or the Project (including delay the progress of the Services or Project) or result in an increase in the Page 41 of 85 --------------------------------------------------------------------------------         Services Costs. The Consultant acknowledges and agrees that in considering any request made under Clause 49.2(c) the Client’s Representative may meet with the person named in the request in the absence of the Consultant and may, without the prior consent of the Consultant, offer that person any lawful benefit as an enticement to withdraw the request without any decision being made by the Client’s Representative in respect of the request.     (e)   If any person listed in Appendix F as Key Personnel is released from the Project in accordance with Clause 49.2(d) the Consultant will have no liability to the Client under Clause 49.2(b). 49.3 Non-Solicitation     The parties covenants that, during the Term and for a period of 6 months following end of the Term, neither party will, either directly or through its subsidiaries and associated entities, offer employment by way of contract or staff position to any Personnel employed by the other. Each party further covenants that, should it breach the provisions of this Clause 49.3 resulting in such offer being taken up, it will pay to the other party an amount being six times the monthly salary or equivalent monthly payment otherwise payable by the injured party in respect of each such person the subject of such breach. 49.4 Consultant’s Code of Conduct     The Consultant shall:   (a)   comply and ensure that all Consultant Personnel comply with the Code of Conduct;     (b)   use reasonable endeavours to ensure that the Project Contractor Personnel comply with the Code of Conduct; and     (c)   if the Consultant desires to amend the Code of Conduct, obtain the Client’s Representative’s approval before making any amendment. 49.5 Privacy   (a)   The Consultant and the Client warrant that they will comply applicable Privacy Law in relation to the collection, use or disclosure of information pertaining to Personal.     (b)   The Consultant and the Client agree to:   (i)   observe applicable Privacy Law for all such information collected or dealt with by the Consultant or the Client (as the case may be) under the Agreement;     (ii)   take reasonable measures to ensure that such information is protected against: Page 42 of 85 --------------------------------------------------------------------------------     (A)   misuse or loss; and     (B)   unauthorised access, modification and disclosure, and that only authorised personnel have access to such information;   (iii)   ensure all personnel involved in collecting or dealing with such information are adequately trained as to the requirements of the Privacy Law and the Agreement;     (iv)   give the other party reasonable assistance for it to resolve any inquiry or complaint relating to such information;     (v)   promptly follow any reasonable direction of the other party regarding such information and compliance with the Privacy Law;     (vi)   promptly inform the other party of any breach of this Clause 49.5. 50. Administration (Amending Clause 14) 50.1 The Client’s Representative   (a)   The Client’s Representative will give directions and carry out all of the other functions of the Client’s Representative under the Agreement as the agent of the Client (and not as an independent certifier, assessor or valuer).     (b)   The Consultant shall comply with any direction by the Client’s Representative given or purported to be given under a provision of the Agreement.     (c)   Except where the Agreement otherwise provides or in relation to any safety related issue, the Client’s Representative may only give a direction in writing.     (d)   The Client may replace the Client’s Representative by written notice to the Consultant at any time.     (e)   Except where expressly specified otherwise in the Agreement, the Client shall ensure at all times that in the exercise of the function of the Client’s Representative under the Agreement, the Client’s Representative act reasonably.     (f)   No comment, review, representation or approval by the Client or the Client’s Representative in respect of the Consultant’s obligations under the Agreement (including comments on, or review or approval of, any Project Material) will lessen or otherwise affect the Consultant’s obligations under the Agreement. 50.2 Delegation of the Client’s Representative’s Power   (a)   The Client’s Representative may appoint delegates to exercise any of the Client’s Representative’s functions under the Agreement and may terminate such appointments. Page 43 of 85 --------------------------------------------------------------------------------     (b)   The Client shall promptly inform the Consultant in writing of:   (i)   any replacement of the Client’s Representative; and     (ii)   any delegation by the Client’s Representative of the Client’s Representative’s function under the Agreement to a nominee, the extent and the scope of that delegation, and any termination of appointment of delegates. 50.3 Compliance with Directions   (a)   If the Consultant fails or refuses to comply with a direction by the Client’s Representative given in accordance with the Agreement, the Client may notify the Consultant in writing of:   (i)   the Consultant’s failure or refusal to comply with a direction of the Client’s Representative; and     (ii)   except in the case of an emergency or extraordinary circumstances, a reasonable period of time (but not more than 14 days) for the Consultant to rectify the failure or refusal.   (b)   If the Consultant does not rectify the failure or refusal within the specified time, then the Client may:   (i)   subject to Clause 50.3(c), withhold further payment to the Consultant until the Consultant complies with the direction or the work the subject of the direction is carried out under Clause 50.3(a); and     (ii)   carry out, or have a third party carry out, the work the subject of the direction, in which case the cost incurred by the Client will be a debt due and payable from the Consultant to the Client.   (c)   The amount that the Client is entitled to withhold under Clause 50.3(b)(i) shall:   (i)   be 50% of a Payment Claim if at the time of the Consultant’s failure or refusal referred to in Clause 50.3(b), the Payment Claim that has been submitted to the Client but not yet paid claims payment of an amount equal to or less than USD 100,000; or     (ii)   be 10% of a Payment Claim if at the time of the Consultant’s failure or refusal referred to in Clause 50.3(b), the Payment Claim that has been submitted to the Client but not yet paid claims payment of an amount that exceeds USD 100,000. Page 44 of 85 --------------------------------------------------------------------------------   50.4 Consultant’s Representative   (a)   The Consultant’s Representative will give directions and carry out all of the other functions of the Consultant’s Representative under the Agreement as the agent of the Consultant.     (b)   The Consultant may replace the Consultant’s Representative by written notice to the Client at any time, provided that any replacement is consented to in writing by the Owner.     (c)   The Consultant warrants that the Consultant’s Representative and any delegate appointed under Clause 50.5 at all times has or will have authority to act on behalf of the Consultant in respect of the Agreement. 50.5 Delegation of Consultant’s Representative’s Power   (a)   The Consultant’s Representative may appoint delegates to exercise any of the Consultant’s Representative’s functions under the Agreement and may terminate such appointments.     (b)   The Consultant shall promptly inform the Client in writing of:   (i)   any replacement of the Consultant’s Representative; and     (ii)   any delegation by the Consultant’s Representative of the Consultant’s Representative’s functions under the Agreement to a nominee, the extent and the scope of that delegation, and any termination of appointment of delegates.   (c)   The Consultant’s Representative or the Consultant’s Representative’s delegate shall be available at all times at the Site when the Consultant is performing the Services on the Site. 50.6 Consultant’s Acknowledgment     The Consultant acknowledges that:   (a)   any notice, consent, approval or other communication given or signed by the Consultant’s Representative or any Consultant’s Representative’s delegate will bind the Consultant;     (b)   matters within the Consultant’s Representative’s knowledge will be deemed to be within the knowledge of the Consultant; and     (c)   any directions given by the Client’s Representative or by a delegate appointed under Clause 50.2 on behalf of the Client’s Representative to any Key Personnel will be deemed to have been given to the Consultant. Page 45 of 85 --------------------------------------------------------------------------------   50.7 Project Control Group   (a)   The Project Control Group is:   (i)   the Client’s Representative; and     (ii)   the Consultant’s Representative.   (b)   The Client’s Representative or the Consultant’s Representative may invite any other person, whom either person reasonably requires, to attend the Project Control Group meetings.     (c)   The Project Control Group shall meet:   (i)   on a monthly basis; and     (ii)   at other times which the Client’s Representative directs the Consultant.   (d)   The Consultant shall:   (i)   take minutes of all meetings held by the Project Control Group; and     (ii)   provide a copy of those minutes to the Client’s Representative.   (e)   In respect of minutes provided pursuant to Clause 50.7(d)(ii), the Client’s Representative shall:   (i)   if the Client’s Representative disagrees with the minutes, discuss and amend the minutes to reflect the agreed position or failing agreement, amend the minutes to reflect the position of the Client’s Representative but shall record in the text the position of the Consultant’s Representative; and     (ii)   give to the Project Control Group members a copy of the agreed amended minutes at which point the amended minutes will (except for any parts of the text of the amended minutes that are not agreed) be deemed to be the official record of the relevant meeting. 50.8 Project Management Plan   (a)   Within 30 days of the Execution Date, the Consultant shall submit to the Client’s Representative for approval a draft Project Management Plan, which shall clearly set out:   (i)   the Consultant’s:   (A)   administration policies;     (B)   organisational structure; and     (C)   implementation and control procedures; Page 46 of 85 --------------------------------------------------------------------------------     (ii)   occupational health and safety procedures for the performance of the Project;     (iii)   Site accident notification procedures;     (iv)   Site safety and security procedures (including fire prevention procedures and the like);     (v)   procedures for establishing and using Site amenities,     (vi)   where required to do so under the Agreement, procedures for obtaining all approvals required from Authorities or by Law for the construction, use, operation and maintenance of the Project;     (vii)   any matter or subject which the Consultant has, in the Consultant’s proposal, represented will form part of, or be incorporated in, the Project Management Plan; and     (viii)   any other matters reasonably required by the Client to be included in the Project Management Plan.   (b)   The Client’s Representative may direct the Consultant to modify the draft Project Management Plan as the Client’s Representative considers appropriate before giving any approval, in which case the Consultant shall resubmit a modified draft of the Project Management Plan within seven days of the direction for approval by the Client’s Representative.     (c)   The Consultant shall comply with the Project Management Plan approved by the Client’s Representative when performing the Services. 51. Liability (Replacing Clauses 16 And 18) 51.1 Liability of Consultant     The Consultant shall be liable to the Client should it breach the Agreement. 51.2 Liability of Client     The Client shall be liable to the Consultant should it breach the Agreement. 51.3 Maximum Liability   (a)   For the purposes of this Clause 51.3:   (i)   “Loss” means any cost, damage, expense or other liability;     (ii)   “Potentially Recoverable Amount” means the total amount that would have been recovered under any policy of insurance that is required to be maintained under the Agreement by the Consultant, but for any acts or omissions of the Consultant in relation to the applicable policy including a Page 47 of 85 --------------------------------------------------------------------------------         failure to effect or maintain a policy or a failure to diligently pursue a claim for indemnity under any policy;     (iii)   “Event” means the event or occurrence which gives rise to or which is the cause of or contributes to the Loss;     (iv)   “Insurance Proceeds” means any amount received by the Consultant from an insurer under any policy of insurance that is required to be maintained under the Agreement by the Consultant (whether in single or multiple amounts) in respect of an Event or Loss;     (v)   “Payable Amount” means the Insurance Proceeds in respect of an Event or Loss or the Potentially Recoverable Amount in respect of an Event or Loss; and     (vi)   “Total Amount of the Services Costs” means the greater of:   (A)   the total amount of the indicative Services Costs set out Part C of Appendix C; and     (B)   the actual amount of the Services Costs paid to the Consultant.   (b)   Subject to Clauses 51.3(c) and despite any other provision of the Agreement to the contrary, the Consultant’s liability to the Client for any Loss caused by, arising out of or in connection with the Consultant’s obligations under the Agreement, including:   (i)   any breach of the Agreement by the Consultant;     (ii)   any negligent act or omission of the Consultant or its Personnel in the course of performing the Consultant’s obligations under the Agreement;     (iii)   any breach of or non — compliance with any Law by the Consultant or its Personnel in the course of performing the Consultant’s obligations under the Agreement,       is limited in the aggregate to the following;   (iv)   where the Event or Loss is an insured risk under a policy required to be maintained by the Consultant in accordance with the Agreement, to the greater of the total amount paid under that policy in respect of the Event or Loss or the Potentially Recoverable Amount in respect of the Event or Loss;     (v)   where the Event or Loss is an uninsured risk under a policy required to be maintained by the Consultant in accordance with the Agreement and the Payable Amount is less than 10% of the Total Amount of the Services Costs, to the greater of: Page 48 of 85 --------------------------------------------------------------------------------     (A)   the Payable Amount; and     (B)   the amount obtained by deducting the Payable Amount from 10% of the Total Amount of the Services Costs;   (vi)   where neither the Event or Loss are insured risks under any policy required to be maintained by the Consultant in accordance with the Agreement, to 10% of the Total Amount of the Services Costs.       For the avoidance of doubt the Client and the Consultant acknowledge and agree that:   (i)   for the purposes of Clause 51.3(b)(iv) the total amount payable in respect of an Event or Loss under:   (A)   the insurance referred to in Clause 52.3(b) shall be USD 7 million;     (B)   the insurance referred to in Clause 52.3(e) shall be USD 3.5 million;   (ii)   where an Event or Loss is an insured risk under a policy required to be maintained by the Consultant in accordance with the Agreement the Consultant shall pay to the Client, the amount of the applicable excess or deductible together with the Insurance Proceeds;     (iii)   where an Event or Loss is an insured risk under a policy required to be maintained by the Consultant in accordance with the Agreement, the Consultant shall have no liability to pay any amount to the Client in respect of that Event or Loss until the relevant insurer pays an amount under the applicable policy to the Consultant in respect of that Event or Loss, except:   (A)   where it is agreed otherwise by the Client and the Consultant; or     (B)   where the relevant insurer has not paid any amount because of an act or omission of the Consultant;   (iv)   until the liability of the Consultant to the Client arising out of or in connection with an event or Loss has been satisfied, any Insurance Proceeds shall be remitted to the Client without any deduction or set off whatsoever; and     (v)   until the Consultant remits any Insurance Proceeds to the Client in accordance with paragraph (iv) immediately above, the Consultant holds those Insurance Proceeds on trust for the Client.   (c)   The limitation in Clause 51.3(b) does not apply to the liability of the Consultant referred to in Clause 51.3(b) where that liability arises by reason of any wilful default, reckless or fraudulent conduct of the Consultant or any of its Personnel. Page 49 of 85 --------------------------------------------------------------------------------     (d)   Except in respect of claims for payment made by way of Payment Claims under Clause 62 and despite any other provision of the Agreement to the contrary, the Client’s liability to the Consultant in respect of any Claim or Loss is limited in aggregate to 10% of the Total Amount of the Services Costs. 51.4 Excluded Losses     Despite anything in the Agreement expressed or implied to the contrary, to the extent permitted by law, neither party to the Agreement will be liable to the other for loss of actual or anticipated profit or revenue, loss of use, loss of income or rent, loss of business, loss of production, loss of contract, loss of anticipated savings or business, loss of financial opportunity, financing and holding costs, business interruption, delay costs, loss by reason of shutdown or increased expense of operation, loss or corruption of data, loss of goodwill, denial of use of any plant, port or facility, economic loss or any consequential, special, contingent, penal or indirect loss, damage or expense, whether arising out of a breach of the Agreement, in contract, in tort (including negligence), under statute or otherwise at law or in equity. 51.5 Exclusive Remedies     To the extent permitted by law, the Client’s and Consultant’s remedies expressly stated in the Agreement are their sole and exclusive remedies in respect of their respective liabilities arising out of or in connection with the Agreement (including indemnities and warranties) or the Project, in tort (including negligence), under statute or otherwise at law or in equity. 51.6 Re-performance of non-complying Services and Indemnity   (a)   If, at any time during the performance of the Services up to and including the Date of Practical Completion, the Client’s Representative considers any part of the Services not to be in accordance with the Agreement, or that any defect, deficiency or non-conformance exists in respect of the Services, the Client’s Representative may direct the Consultant to re-perform that part of the Services or rectify that defect, deficiency or non-conformance and may specify the time within which this must occur.     (b)   Subject to Clause 51.6(a), the Consultant shall correct or re-perform any Services which do not comply with the requirements of the Agreement or rectify any defect or deficiency in the Services so as to ensure compliance with the requirements of the Agreement.     (c)   The Consultant acknowledges that it is not entitled to be reimbursed (under the Agreement or otherwise) for any costs incurred by performing its obligations under this Clause 51.6.     (d)   The Client may have the correction or re-performance of the non-compliant Services, or rectification of any defect, deficiency or non-conformance in respect of the Services carried out by others at the Consultant’s cost if: Page 50 of 85 --------------------------------------------------------------------------------     (i)   the Client has directed the Consultant to correct, re-perform or rectify those matters in accordance with Clause 51.6(a) within a reasonable period of time (being not less than seven days) as stated in that direction; and     (ii)   the Consultant has failed to correct, re-perform or rectify those matters within that period.   (e)   The Client’s costs under Clause 51.6(d) will be a debt due and payable by the Consultant to the Client.     (f)   The Consultant’s compliance with any direction given by the Client’s Representative under Clause 51.6(a) will:   (i)   not be an admission of liability by the Consultant;     (ii)   not prejudice the right of the Consultant to dispute whether any defect, deficiency or non-conformance exists in respect of the Services the subject of the direction.   (g)   If the Consultant:   (i)   complies with a direction given under Clause 51.6(a) and subsequently disputes whether any defect, deficiency or non-conformance exists in respect of the Services the subject of the direction; and     (ii)   it is agreed between the parties or is determined by a Court or other person whose decision is binding on the parties that no defect, deficiency or nonconformance exists in respect of the Services the subject of the direction,         then the Consultant shall be entitled to be paid in respect of the services or work performed by it in complying with the direction in an amount agreed between the parties or failing agreement, the services or work shall be considered a Services Variation for the purposes of Clause 55.(d)(ii) and the amount payable to the Consultant in respect of the services and work shall be determined in accordance with that Clause.   (h)   The Consultant acknowledges and agrees that, except for legal costs and disbursements incurred and paid by it with respect to a dispute arising under this Clause 51.6, it is not entitled to make any Claim against the Client for compensation in connection with a direction given under this Clause 51.6 whether under the Agreement or otherwise except as provided in this Clause 51.6. 51.7 Indemnity and Proportionality   (a)   Subject to Clause 51.7(b), the Consultant shall indemnify the Client against any cost, damage, expense or loss which the Client suffers or incurs in respect of:   (i)   loss of, or damage to, any real or personal property; or Page 51 of 85 --------------------------------------------------------------------------------     (ii)   the personal injury to, or disease or illness (including mental illness) affecting, or death of, any person,       arising out of or in connection with:   (iii)   any negligent act or omission of the Consultant or its Personnel;     (iv)   any breach by the Consultant of the Agreement; and     (v)   the breach of, or failure to comply with, any Law by the Consultant or its Personnel.   (b)   For the purposes of Clause 51.7(a), a reference to the Client includes its directors, officers, employees, direct contract employees and affiliates and the Client will be deemed to be acting as agent or trustee on behalf of or for the benefit of all persons who are or might be its directors, officers, employees, direct contract employees or affiliates, from time to time as well as on its behalf.   (c)   The Consultant’s liability under this Clause 51.7 will be reduced proportionately to the extent that the cost, damage, expense or loss was contributed to or caused by the Client, its employees, direct contract employees, agents or affiliates. 52. Insurance (Replacing Clauses 19 and 20) 52.1 Client’s Insurances Required     The Client will maintain or effect and maintain the following insurances for the Term and any extension of it in the joint names of itself, the Consultant, the Project Contractors and any lower tier subcontractors, including respective directors, officers, employees and agents (“Insured”).   (a)   Under a Contractors’ All-Risk Insurance Policy, for physical loss of or damage to the Plant or any works, temporary works and materials or components incorporated or to be incorporated in respect thereof whilst on or adjacent to the Site, including inland transit in respect of loss, destruction or damage to the property. The policy will be for an amount and with an excess as specified in Appendix E.   (b)   Under a Marine/Storage/Handling/Insurance Policy, cover for all materials or components that will be used for incorporation into the Works or temporary works against the risks of loss, damage or destruction whilst transported from suppliers’ premises until they are delivered and unpacked at the Site including loading or unloading to the Site.   (c)   Under a Third Party Liability Policy, cover for general third party liability for an amount and with an excess of not less than the amount specified in Appendix E. Such insurance policy will cover liability for physical loss or damage to property (other than the Works and temporary works) and injury or death to persons (not being a person who is insured under a policy of workers’ compensation or otherwise protected under an applicable government-controlled workers Page 52 of 85 --------------------------------------------------------------------------------         compensation fund) arising from or in connection with the execution of the Works, whilst on or adjacent to the Site. 52.2 General Provisions regarding the Client’s Insurance     The Client will provide to the Consultant:   (a)   A copy of a certificate evidencing the Client’s insurance policies mentioned in Clause 52.1, excluding references to premiums and other costs payable by the Client upon request by the Consultant. If copies of such certificates have not been provided to the Consultant at the Execution Date, the Consultant may suspend the Services until such time as they are provided.   (b)   A copy of any material variations to or cancellation of the Client’s insurance if likely to affect the Consultant, the Project Contractors or the subcontractors. 52.3 Consultant’s Insurances Required     The Consultant shall maintain or effect and maintain the following insurances for the Term and any extension of it:   (a)   Workers’ Compensation and any other insurance or government-controlled fund required by any applicable Law;     (b)   Third party liability insurance covering the Consultant’s own premises with a limit of liability of US$7 million for any one occurrence;     (c)   Motor vehicle liability insurance in respect of the Consultant’s mechanically propelled vehicles used by the Consultant in connection with the performance of the Services under the Agreement;     (d)   Motor vehicle third party liability insurance if required by any applicable Law;     (e)   Professional indemnity insurance for an amount of not less than US$3.5 million for any one claim or in the aggregate for the duration of the Agreement;     (f)   Property insurance covering Consultant’s constructional plant (if any), equipment, buildings and other property not for incorporation in the Works used by the Consultant in connection with the performance of the Services;     (g)   any additional insurance required by applicable Law; and     (h)   such other insurance, if available and as the Client may, at its own cost, require from time to time. Page 53 of 85 --------------------------------------------------------------------------------   52.4 Project Contractor Insurance     The Consultant shall ensure that all Project Contractors obtain and maintain, where applicable, the insurances noted in Clauses 52.3(a), 52.3(c), 52.3(d), 52.3(e) and 52.3(f), as well as all additional insurances that may be required by the Client from time to time. 52.5 Requirements for Insurance     All insurances required under the Agreement will be:   (a)   underwritten by reputable insurers; and     (b)   maintained at least for the Term;     and comply with applicable Law. 52.6 Proof of insurance     If requested by the Client, the Consultant will produce certificates of currency of the insurances effected and maintained by the Consultant in accordance with this Clause 52. 52.7 Payment of Excesses     Any excesses payable under Clause 52.3, excluding those relating to motor vehicles, shall be paid by the Consultant. 53. Time (Replacing Clause 25) 53.1 Instruction to Accelerate     If the Client’s Representative (acting reasonably) considers that any actual or anticipated delay has or will arise in relation to:   (a)   achieving the Date for Practical Completion;     (b)   performance of any part of part of the Services described in the Project Schedule by the corresponding dates (if any) listed in the Project Schedule;     (c)   the performance of the Services generally,     the Client’s Representative may:   (d)   instruct the Consultant to accelerate the performance of the Services or any part of the Services by taking those measures which are necessary to overcome or minimize the extent and effects of some or all of the delay; and     (e)   give such an instruction whether or not the cause of delay is due to any act or omission of the Consultant. Page 54 of 85 --------------------------------------------------------------------------------   53.2 Acceleration     If the Client’s Representative gives an instruction to the Consultant under Clause 53.1 the Consultant shall as instructed accelerate the performance of the Services or any specified part of the Services (as the case may be) to overcome or minimize the extent and effect of some or all of the delay and the Consultant will be entitled to be paid in accordance with Clause 62.1.       The Consultant acknowledges and agrees that it will not be entitled to make any Claim against the Client, arising out of, or in connection with, the cause of delay and any associated instruction to accelerate other than for the amount which is payable by the Client under this Clause 53.2 and Clause 62.1. 54. Variation to the Scope of Works (Replacing Clauses 23 and 24) 54.1 Works Variation     A Works Variation may be:   (a)   directed by the Client in writing; or   (b)   approved by the Client after being recommended by the Consultant. 54.2 Parties to Discuss     If the Works Variation directed or approved pursuant to Clause 54.1 will, in the reasonable opinion of the Consultant, result in:   (a)   a change in the Total Cost Forecast; or     (b)   a delay in the Date for Practical Completion;     then the Consultant shall promptly provide an estimate including time and costs associated with the Works Variation and the Client’s Representative and the Consultant’s Representative (or their delegates) will discuss the effect of the proposed Works Variation. 54.3 Client to Determine     If the Client proceeds with a proposed Works Variation and the Works Variation directly causes a material change in the Services, it will direct a Services Variation in accordance with Clause 55.       For the purposes of this Clause 54.3 a material change in the Services will occur where the value of any additional Services to be performed by the Consultant as a direct result of a Works Variation is equal to or exceeds USD 250. Page 55 of 85 --------------------------------------------------------------------------------   54.4 Time     Subject to Clause 53, the Consultant will be entitled to an adjustment to the Project Schedule and Date for Practical Completion for a period equal to the estimated delay in achieving Practical Completion resulting from the Works Variation. 54.5 Clarity     Nothing in this Clause 54 shall lessen or otherwise affect the Consultant’s obligations under the Agreement. 55. Variation to the Scope of Services (Replacing Clauses 23 and 24) 55.1 Services Variation     A Services Variation may be:   (a)   directed by the Client in writing; or     (b)   approved by the Client after being recommended by the Consultant.     Services Variations may include additions to, or omissions from, the Scope of Services. If the Services Variation requires the omission of any Services, the Client may have the omitted Services carried out by others. If the Consultant receives a direction in accordance with Clause 55.1, it shall perform its obligations under the Agreement in accordance with the varied Scope of Services.       The Client shall, and shall cause the Client’s Representative to, exercise the powers of the Client under this Clause 55.1 reasonably, professionally, in good faith and not for any improper or punitive purpose. 55.2 Value     The services to be performed by the Consultant as a result of a Services Variation will be, subject to Clauses 51.6 and 60. Subject to Clauses 51.6 and 60, the Client will pay the Consultant for Services Variations in accordance with Clause 55.5. 55.3 Time     Subject to Clause 53, the Consultant will be entitled to an adjustment to the Project Schedule and Date for Practical Completion for a period equal to the estimated delay in achieving Practical Completion resulting from the Services Variation. 55.4 Clarity     Nothing in this Clause 55 shall lessen or otherwise affect the Consultant’s obligations under the Agreement. Page 56 of 85 --------------------------------------------------------------------------------   55.5 Variations — General   (a)   If the Consultant receives a direction in accordance with Clause 55.1, it shall perform its obligations under the Agreement in accordance with varied Scope of Services.     (b)   For any additional Services it is required to perform pursuant to Clause 55.1, the Consultant’s only entitlement to compensation will be for an increase in Services Costs as is calculated and paid in accordance with Clause 62.1. 56. Separable Portions 56.1 Agreement on Separable Portions     In addition to the Separable Portions described in the Agreement, if any, the Client and the Consultant may agree:   (a)   that any part of the Works shall be a Separable Portion; and     (b)   on the respective Dates for Practical Completion for the new Separable Portion and the resultant Separable Portion.     It is agreed that the Oxide Plant and Sulphide Plant are Separable Portions as of the Date of Commencement. 56.2 Changes relating to Separable Portions     The Client and the Consultant may agree that any part of the Works or the Plant shall become included within a Separable Portion or shall be removed from a Separable Portion and be included as part of another Separable Portion. 56.3 Interpretation of Terms     The interpretations of the terms “Date for Practical Completion”, “Date of Practical Completion” and “Practical Completion” apply separately to each Separable Portion and, in relation to each Separable Portion, references in the Agreement to “the Work” and “the Plant” mean so much thereof as is comprised in the relevant Separable Portion. 56.4 Consequences of Separable Portion     The Client will:   (a)   direct a Works Variation in accordance with Clause 54 as a result of any creation (other than those Separable Portions identified in Clause 56.1) of or change in relation to a Separable Portion if that creation or change increases the Works; and     (b)   if, as a consequence of such Works Variation, there is a material modification to the Scope of Services, direct a Services Variation in accordance with Clause 55. Page 57 of 85 --------------------------------------------------------------------------------       For the purposes of this Clause 56.4 a material change in the Scope Services will occur where the value of any additional Services to be performed by the Consultant as a direct result of a Works Variation is equal to or exceeds USD 250. 57. Suspension of Services (Replacing Clauses 26, 27 and 28) 57.1 Suspension by Client or Consultant     The whole or any part of the Services may be suspended:   (a)   by the Client, for such time and in such manner and for such reason as the Client may consider necessary and suspension will be effected by written notice to the Consultant; or   (b)   by the Consultant for reasons of safety or, subject to the Consultant having given notice in accordance with Clause 63.2, where the Client has failed to pay the Consultant in accordance with Clause 62 of the Agreement. 57.2 Recommencement of Services     If the Services are suspended in accordance with Clause 57.1 or any other reason, the Client may, as soon as it is reasonable, direct the Consultant to recommence the whole or the relevant part of the Services and the Consultant will comply with such direction as soon as practicable provided that if the suspension is due to the Client’s failure to pay the Consultant such direction to recommence may only be given after the Client has paid the Consultant in accordance with Clause 62. 57.3 Suspension Costs   (a)   Subject to Clause 57.3(e), any reasonable cost or expense (including to the extent not covered by the Services Costs, any reasonable demobilization and remobilization costs) incurred by the Consultant by reason of the suspension will be borne and paid for by the Client, provided, however, that should any Consultant Personnel be redeployed by the Consultant to other projects, then the Client shall not be obligated to pay to the Consultant the costs associated with such personnel and, in any event, the Client shall only be responsible for the cost of any such personnel for a period not exceeding 30 days.     (b)   Subject to Clause 53, the parties acknowledge that any such suspension will result in a Works Variation, Services Variation and extension to the Date for Practical Completion.     (c)   The Consultant will mitigate the effect of suspension as soon as possible after the Services are suspended in accordance with Clause 57.1.     (d)   If the suspension continues for more than 30 calendar days it shall be considered a Force Majeure event and Clause 58.3(a) shall apply as if the figure “120” had been replaced with “30”. Page 58 of 85 --------------------------------------------------------------------------------     (e)   The Client will not be liable to pay to the Consultant any Services Costs or any other cost or expense incurred or paid by it in connection with a suspension of the Services where that suspension was caused by any act or omission of the Consultant or its Personnel. 58. Force Majeure (Replacing Clauses 26, 27 and 28) 58.1 Force Majeure occurrence   (a)   The Consultant or the Client (as the case may be) shall give prompt notice of a Force Majeure Event to the other including reasonable details of:   (i)   the Force Majeure Event;     (ii)   the effect of the Force Majeure Event on the performance of the Services; and     (iii)   the likely duration of the delay in performance of the Services and the likely delay in the Date for Practical Completion.   (b)   The parties will use reasonable endeavours to remove or relieve any Force Majeure Event and to minimise the delay caused by any such event. 58.2 Cessation     After Force Majeure Event has ceased, the Client may:   (a)   direct a Works Variation in accordance with Clause 54 as a result of the Force Majeure Event; and   (b)   direct a Services Variation accordance with Clause 55 as a result of the Force Majeure Event. 58.3 Termination resulting from Force Majeure delays   (a)   If a Force Majeure Event delays the Project for more than 120 days, either party may terminate the Agreement by giving 14 days notice to the other party.   (b)   If the Agreement is terminated under this Clause 58.3, the Client will pay to the Consultant:   (i)   all the Services Costs due and unpaid at the date of termination; and     (ii)   reasonable costs incurred in demobilising all of the Consultant’s Personnel and equipment to their place or origin in South Africa or Australia (as the case may be) and in terminating any contract with a subcontractor or other agreement, arrangement or commitment undertaken by the Consultant for the purpose of providing the Services. Page 59 of 85 --------------------------------------------------------------------------------     (c)   The Consultant acknowledges and agrees that it is not entitled to make any Claim (whether under the Agreement or otherwise) against the Client for compensation in connection with the termination of the Agreement under this Clause 58.3 except as otherwise provided in this Clause 58.3. 59. Completion of the Project 59.1 Practical Completion   (a)   Once the Project (or Separable Works) has in the opinion of the Consultant reached Practical Completion following the completion of Dry Commissioning in accordance with the standards set during Pre-Commissioning, the Consultant will in writing request the Client to issue a certificate stating that the Project (or a Separable Portion) has reached Practical Completion (“Certificate of Practical Completion”).     (b)   Within 7 days of the receipt of the request pursuant to Clause 59.1(a), the Client’s Representative and the Consultant’s Representative will meet, inspect the Plant and agree to a punch-list of any minor omissions, defects and outstanding Services which do not prevent the safe introduction of water or ore to the Plant (or a Separable Portion).     (c)   Within 14 days of the receipt of the request pursuant to Clause 59.1(a), the Client will issue to the Consultant the Certificate of Practical Completion along with the punch-list agreed pursuant to Clause 59.1(b) or give to the Consultant in writing reasons for not issuing the Certificate of Practical Completion, including particulars of any omissions or defects in the Services or Works or outstanding Services or Works required to be remedied or completed for the Project (or a Separable Portion) to achieve Practical Completion.     (d)   If the Client does not issue the Certificate of Practical Completion or does not provide written reasons for not providing the Certificate of Practical Completion within the 14 days required pursuant to Clause 59.1(c) then the Project (or a Separable Portion) is deemed to have reached Practical Completion on the date of the Consultant’s written request under Clause 59.1(a).     (e)   Notwithstanding any other provision of this Clause 59.1, if Practical Completion would have been achieved but for:   (i)   failure of the Client to meet its obligations pursuant to the Agreement; or     (ii)   any defect in or failure of the Biox® process as provided by Goldfields,         the Project or a Separable Portion (as the case may be) will be deemed to have reached Practical Completion on the date of the Consultant’s written request under Clause 59.1(a). Page 60 of 85 --------------------------------------------------------------------------------     (f)   The Client will allow the Consultant access to the Site and reasonable time to rectify omissions or defects in the Services or to complete outstanding parts of the Services as required pursuant to this Clause 59.1.     (g)   The Client shall not use any part or all of the Works (other than as a temporary measure which is either specified in the Agreement or agreed by both parties) for commercial purposes, unless and until the Client has issued a Certificate of Practical Completion for that part or all of the Works. However, if the Client does use any part or all of the Works for commercial purposes before the Certificate of Practical Completion is issued, any part which is used shall be deemed to have reached Practical Completion on the date on which it was used by the Client.     (h)   If the Consultant incurs cost or expenses as a result of the Client using a part of the Works, other than such as is specified in the Agreement or agreed by the Consultant, the Client shall reimburse the cost and expenses of the Consultant resulting from such use. 59.2 Final Completion   (a)   When the Project has in the opinion of the Consultant reached Final Completion, the Consultant will in writing request the Client to issue a certificate stating that the Project has reached Final Completion (“Certificate of Final Completion”).     (b)   Within 14 days of the receipt of the request pursuant to Clause 59.2(a), the Client will issue to the Consultant the Certificate of Final Completion or give to the Consultant written reasons for not issuing the Certificate of Final Completion, including particulars of any defects or omissions in the Services or the Works required to be completed for the Project to reach Final Completion.     (c)   If the Client does not issue the Certificate of Final Completion or provide written reasons for not providing the Certificate of Final Completion within the 14 days required pursuant to Clause 59.2(b) then the Project is deemed to have reached Final Completion on the date of the Consultant’s written request under Clause 59.2(a).     (d)   Notwithstanding the other provisions of this Clause 59.2, if at any time the Client wishes to issue a Certificate of Final Completion, notwithstanding any omissions or defects in the Services, the Client may nevertheless at its absolute discretion issue a Certificate of Final Completion and the Project will be deemed to have reached Final Completion on the date of issue of such a Certificate of Final Completion or such earlier date nominated by the Client.     (e)   Notwithstanding any other paragraph of this Clause 59.2, if Final Completion would be achieved but for failure of the Client to meet its obligations pursuant to the Agreement, the Project will be deemed to have reached Final Completion on the date of the Consultant’s written request under Clause 59.2(a). Page 61 of 85 --------------------------------------------------------------------------------     (f)   The Client will allow the Consultant access to the Site and reasonable time to rectify omissions or defects in the Services or to complete outstanding parts of the Services as required pursuant to this Clause 59.2. 60. Defects Liability 60.1 Consultant to Rectify Defects in the Services   (a)   Subject to Clauses 60.1(b) and 60.1(d), the Consultant shall:   (i)   rectify any Defective EPCM Services; and,     (ii)   where any defects or omissions in the Works have been caused or contributed to by any Defective EPCM Services, arrange for the relevant Project Contractors to rectify any defects or omissions in the Works,       (“Rectification Work”).     (b)   Subject to Clause 60.1(d), the Consultant shall not be required to perform the Rectification Work (including rectification of any hidden defects or omissions in the Works) if notice containing details of the Rectification Work is not given by the Client to the Consultant prior to the expiry of the Defects Notification Period.     (c)   For the avoidance of doubt, the Defects Notification Period of a Separable Portion or part of the Works which has reach or deemed to have reached Practical Completion pursuant to Clause 59.1 will commence on the date that Practical Completion was reached or deemed to have reached Practical Completion pursuant to Clause 59.1.     (d)   Where the Consultant has performed any Rectification Work, there shall be a separate Further Defects Liability Period in respect of each item of Rectification Work. The separate Further Defects Liability Period shall commence on the date that the Consultant completes or causes the completion of the relevant Rectification Work. The Consultant shall:   (i)   insofar as the Rectification Work consists of Defective EPCM Services, rectify any defects or omissions in the Rectification Work; or     (ii)   where any defects or omissions in the Rectification Work performed by Project Contractors have been caused or contributed to by any Defective EPCM Services, arrange for the relevant Project Contractors to rectify any defects or omissions in the Rectification Work,       (“Defective Rectification Work”)         provided that notice containing details of the Defective Rectification Work is given by the Client to the Consultant prior to the expiry of the Further Defects Liability Period. Page 62 of 85 --------------------------------------------------------------------------------   60.2 Cost of Rectification of Defects     The Consultant shall bear the cost of performance of Rectification Work and the Defective Rectification Work which cost shall be limited to the limits of liability in clause 51. The Consultant is not liable for:   (a)   the cost of any Project Contractor’s work; or     (b)   aspects of Plant design that are attributable to intellectual property conferred by Gold Fields. 60.3 Failure to Rectify     Where the Consultant is given notice under Clause 60.1(a) or Clause 60.1(d) and fails to perform the Rectification Work or the Defective Rectification Work (as the case may be), the Client may have the Rectification Work or Defective Rectification Work carried out by others and the Client’s costs incurred under this Clause 60.3 shall be a debt due and payable by the Consultant to the Client. 61. Termination of Services (Replacing Clauses 26, 27 and 28) 61.1 Termination by the Client   (a)   In addition to any other rights of termination contained in the Agreement, the Client may (acting reasonably) at any time terminate the Agreement by giving notice to the Consultant to that effect. The Client shall, and shall cause the Client’s Representative to, exercise the powers of the Client under this Clause 61.1 reasonably, professionally, in good faith and not for any improper or punitive purpose.     (b)   Termination of the Agreement pursuant to this Clause 61.1 will become effective immediately after the notice has been served on the Consultant. 61.2 Actions by Consultant on Termination     In the event of termination of the Agreement, whether under Clause 61.1 or otherwise, the Consultant will immediately after receipt of the notice of termination:   (a)   stop performance of the Services and, if required by the Client, the Works;     (b)   not place any further orders nor enter into any further contracts in respect of the Services and, if required by the Client, the Works;     (c)   take all reasonable steps to protect the Works and other property in the possession of the Consultant in which the Client has or may acquire an interest;     (d)   remove from the Site all the Consultant’s Personnel, plant, machinery, vehicles and equipment and other things brought on to the Site by or on behalf of the Consultant or the Consultant’s Personnel, unless otherwise agreed with the Client; Page 63 of 85 --------------------------------------------------------------------------------     (e)   take any other action relating to the Services and the Works which the Client may reasonably require;     (f)   hand over all Documentation; and     (g)   do all things reasonably possible to reduce expenses or costs to the Client consequent upon such termination. 61.3 Payment to Consultant     In the event of termination of the Agreement pursuant to Clause 61.1, the Client will pay to the Consultant:   (a)   all the Services Costs due and unpaid at the date of termination; and     (b)   reasonable costs incurred in demobilising all of the Consultant’s Personnel and equipment to their place of origin in South Africa or Australia (as the case may be) and in terminating any contract with any subcontractor or other agreement, arrangement or commitment undertaken by the Consultant for the specific purpose of providing the Services.     If the Agreement is terminated under Clause 61.1 each party retains any rights it has against the other party in respect of any past breach. 61.4 Sole Entitlement     Where the Agreement is terminated in accordance with Clause 61.1, the Consultant acknowledges and agrees that it is not entitled to any other compensation or to make any other Claim against the Client, except as provided in Clause 61.3. 62. Invoicing and Payment (Replacing Clauses 30, 31 and 34) 62.1 Client’s Payment Obligations   (a)   Except where expressly specified otherwise in the Agreement, as total compensation for its performance of the Services, the Client shall pay the Consultant the aggregate of the following amounts:   (i)   the Disbursements;     (ii)   for each hour spent by any of its officers, directors, employees and contract employees engaged in the performance of the Services in the positions specified in Part A of Appendix C, the corresponding hourly rate for each position as specified in Part A in Appendix C,       (“Services Costs”).     (b)   The Consultant will not be entitled to be paid, and must not charge for, any Services Costs incurred due to the failure of the Consultant to: Page 64 of 85 --------------------------------------------------------------------------------     (i)   exercise reasonable care and diligence in the performance of the Services;     (ii)   perform the Services in a reasonably expeditious and cost effective manner.   (c)   The estimated total Services Costs as at the Execution Date is the amount specified in Part C of Appendix C.     (d)   Subject to Clause 62.9 and any other right to set off which the Client may have, the Client must pay the Consultant the Services Costs in accordance with the Agreement. 62.2 Electronic Funds Transfer     The Client will make payment to the Consultant by electronic funds transfer into the Consultant’s bank account. 62.3 Time for and format of Payment Claims   (a)   Subject to Clause 62.7, the Consultant shall give the Client’s Representative a claim for payment on account of the Services Costs and any other amounts payable by the Client to the Consultant under the Agreement (“Payment Claim”) by both electronic mail and in tangible form by the fourth Business Day of each month with a copy by electronic mail to the Client’s Treasurer.     (b)   The Payment Claim shall be in the format approved in writing by the Client’s Representative which shall as a minimum:   (i)   set out the amount of the Services Costs and the other amounts that the Consultant asserts are payable to the Consultant in accordance with the Agreement;     (ii)   detail the relevant period of the Term for the Payment Claim;     (iii)   describe in detail the part of the Services performed during the relevant period for the Payment Claim;     (iv)   set out amounts paid previously under the Agreement;     (v)   provide an individual reference number for the Client to quote with remittance of payment; and     (vi)   include any other information directed by the Client’s Representative. 62.4 Consultant Warranty     By making a Payment Claim, the Consultant warrants to the Client that:   (a)   the Consultant has completed the Services which are the subject of the Payment Claim; Page 65 of 85 --------------------------------------------------------------------------------     (b)   there are no defects known to the Consultant in the Services which are the subject of the Payment Claim at the time the Payment Claim was submitted;     (c)   any remuneration and other amounts payable by the Consultant to any of its Personnel by Law or under an industrial instrument in respect of the Services have been paid;     (d)   its subcontractors have been paid all amounts due and payable to them for services performed or material supplied by them in respect of the Services which was the subject of the Payment Claim;     (e)   the Consultant has, unless there are lawful or reasonable grounds for not so doing, complied with all of the obligations imposed on the Consultant by any subcontract in relation to the Services; and     (f)   subject to any Claims that may have arisen within the 14-day period prior to the Payment Claim, the Consultant is not aware of any Claim against the Client which is not identified in the Payment Claim or in an earlier Payment Claim or notice of which has not been previously given to the Client. 62.5 Payment   (a)   Within 14 days of receipt of the Payment Claim, the Client shall pay to the Consultant or the Consultant shall pay to the Client, as the case may be, the full amount shown in the Payment Claim.     (b)   A payment made pursuant to the Agreement:   (i)   of prejudice the right of either party to dispute whether the paid amount is the amount properly due and payable;     (ii)   will not be evidence of the value of the Services;     (iii)   will not be evidence that the Services have been performed satisfactorily; and     (iv)   will not be an admission of liability on the part of the Client. 62.6 Payment Adjustment Statement   (a)   Within fourteen (14) days of receipt of a Payment Claim under Clause 62.3, the Client’s Representative may give the Consultant on behalf of the Client a payment adjustment statement in respect of the Payment Claim or any previous Payment Claim which states:   (i)   the value of the Services performed by the Consultant in accordance with the Agreement as at the date of the Payment Claim;     (ii)   the amount already paid to the Consultant; Page 66 of 85 --------------------------------------------------------------------------------     (iii)   the amount the Client is entitled to retain, deduct, withhold or set off under the Agreement as well as a summary of the reasons for the retention, deduction, withholding or setting off;     (iv)   notification of any additional information required by the Client’s Representative; and   (b)   On receipt of the Payment Adjustment Statement, the Consultant must issue a credit note to the Client and shall incorporate the adjustment on the next Payment Claim.     (c)   If the Consultant fails to make a Payment Claim in accordance with the Agreement, the Client’s Representative may nevertheless issue a payment statement under this Clause 62.6.     (d)   The Client shall, and shall cause the Client’s Representative to, exercise the powers of the Client under this Clause 62.6 reasonably, professionally, in good faith and not for any improper or punitive purpose. 62.7 Conditions Precedent to Entitlement to Payment     If, at the time that the Consultant submits a Payment Claim under Clause 62.3, the Consultant has not:   (a)   provided security or the amount (if any) required under Clause 69;     (b)   effected the insurance required by Clause 52 and (if requested) provided evidence of this to the Client’s Representative;     (c)   paid all subcontractors as warranted under Clause 62.4(d); and     (d)   in the case of a Final Payment Claim, submitted a duly executed Deed of Release as required under Clause 62.8(a)(ii);     then:   (e)   the Consultant will not be entitled to payment of;     (f)   the Client’s Representative will not be obliged to include in any payment statement under Clause 62.6; and     (g)   the Client will not be liable to pay,     any amount included in the Payment Claim. 62.8 Final Payment Claim   (a)   Within two months after the expiry of the later of the Defects Notification Period or the Further Defects Liability Period, the Consultant shall deliver to the Client’s Representative: Page 67 of 85 --------------------------------------------------------------------------------     (i)   a final payment claim under Clause 66.3 entitled ‘Final Payment Claim’; and     (ii)   a duly executed deed of release in the form of the deed of release in Appendix N.   (b)   The Consultant shall include in the Final Payment Claim:   (i)   a complete statement of accounts, including any changes to the Scope of Services;     (ii)   all money that the Consultant considers to be due from the Client arising out of or in connection with the Services or any alleged breach of contract;     (iii)   confirmation that all documentation, approvals of all Authorities and deliverables as required by the Agreement have been lodged with the Client’s Representative; and     (iv)   a certificate stating that all wages and other charges have been paid and that no monies are due or owing by the Consultant to any of its Personnel other than any Personnel disclosed in the certificate.   (c)   The Consultant shall provide with the Deed of Release (as required by Clause 62.8(a)) details of how the amount claimed (“Amount Claimed”) is calculated including:   (i)   separate identification of each claim and the amount of each claim which is part of the Amount Claimed;     (ii)   which clause, if any, of the Agreement the Consultant relies upon to support an entitlement to each claim;     (iii)   if based on breach of contract, what obligation, if any, of the Agreement the Client has breached and which the Consultant relies upon to support an entitlement to each claim; and     (iv)   a description of the other acts, defaults and omissions that the Consultant relies upon to support any entitlement to a claim.   (d)   After expiration of the two month period in Clause 62.8(a), any Claim which the Consultant could have made against the Client but which has not been made in the Final Payment Claim, whether or not a Final Payment Claim is delivered, is barred. 62.9 Interest on Overdue Payments     If any money due to either party remains unpaid after the date on which the money should have been paid, then the party responsible for the payment must, following a written request by the other party for payment of interest, pay to the other party Agreed Page 68 of 85 --------------------------------------------------------------------------------       Compensation on the unpaid amount from, but not including the date on which the money was due. 62.10 Set off     The Client may set off or deduct from any payments due to the Consultant:   (a)   any debt or other moneys due from the Consultant to the Client; and/or     (b)   any money or any claim to money that the Client may have against the Consultant (including liquidated damages), which are due or which will become due under the Agreement. 62.11 Client’s Payment of Subcontractors   (a)   If the Consultant owes any subcontractor of the Consultant money in connection with the Services, and   (i)   that money has been outstanding under the relevant subcontract for more than 14 days; and     (ii)   the Consultant cannot satisfy the Client’s Representative that there is a valid reason (which shall include a genuine dispute between the Consultant and a subcontractor of the Consultant) for that outstanding money not having been paid, the Client may pay the subcontractor the outstanding amount, and:     (iii)   call upon the security for the outstanding amount in accordance with Clause 691 (without limiting the unconditional nature of the security); or     (iv)   the outstanding amount so paid will be a debt due and immediately payable from the Consultant to the Client.   (b)   No debt by the Client will be taken to have accrued in favour of the Consultant in respect of any payment by the Client of an outstanding amount in accordance with Clause 62.11(a).     (c)   The Client is entitled to withhold from any payment which would otherwise be due to the Consultant under the Agreement any amount owing to a subcontractor by the Consultant under Clause 62.11(a). 62.12 Property and Liens     The Consultant must not (insofar as is permitted by Law) assert any right to a lien over the Site or Project (or part thereof) or take any steps whatsoever to lodge or register a lien over the Site or Project (or part thereof) under, or in pursuance of, any relevant Law. Page 69 of 85 --------------------------------------------------------------------------------   62.13 Taxes   (a)   The Consultant is and remains liable for payment of any Taxes connected to the Services. If any Tax is imposed, the Consultant shall pay the full amount to the relevant Authority or person and indemnifies the Client against any failure to do so. If any exemptions, reductions, allowances, rebates or other privileges in relation to Taxes (other than Taxes imposed on the Consultant’s income or non-Project operations of the Consultant) may be available to the Consultant or the Client, the Consultant shall adjust any payments due to reflect any such savings or refunds (including interest awarded) to the maximum allowable extent.   (b)   Except for Excluded Taxes, it is agreed that:   (i)   the Services Costs excludes the Taxes prevailing at the date of the Agreement;     (ii)   the Services Costs will be increased by the amount of the Taxes;     (iii)   the Consultant will be entitled to include in any Payment Claim (as defined in Clause 62.3) the amount of any Taxes paid by the Consultant in the period to which the Payment Claim relates.   (c)   Except for Excluded Taxes, if any rate of Tax is increased or decreased or a new Tax is introduced or an existing Tax is abolished or any change in interpretation or application of any Tax occurs in the course of performance of the Agreement, an adjustment will be made to the Services Costs to reflect any such change regardless of whether this results in the Services Costs increasing or decreasing.     (d)   When the Client has approved (whether under this Clause 62 or otherwise) payment to the Consultant and part or all of that payment consists of Taxes, the Client may withhold and deduct from that payment those Taxes if the Client is required to withhold or deduct those Taxes by any Authority. 62.14 Disbursements     The Consultant shall only be entitled to recover Disbursements as disbursements, unless the Client agrees to other specific disbursements. 62.15 Rates     The rates itemized in Part A of Appendix C are fixed for the Term. 63. Default by a Party 63.1 Default by Consultant   (a)   If the Client considers that the Consultant:   (i)   is in breach of or in default under the Agreement; or Page 70 of 85 --------------------------------------------------------------------------------     (ii)   has breached a warranty which it has given to the Client under the Agreement;       the Client may give the Consultant a notice:   (iii)   specifying the alleged breach of or default under the Agreement;     (iv)   specifying the time and date by which the Consultant shall rectify the breach or default (or overcome their effects); and     (v)   requiring the Consultant to show cause in writing why the Client should not exercise its rights under Clause 63.1(d).   (b)   If the Client gives the Consultant a notice referred to Clause 63.1(a), the Consultant shall:   (i)   comply with the notice;     (ii)   give the Client a program to rectify the relevant default or remedy the breach (or overcome their effects) in accordance with the terms of the Client’s notice.   (c)   If the Consultant fails to rectify a default or remedy a breach (or overcome their effects) in accordance with the terms of a notice referred to in Clause 63.1(a):   (i)   the Client may take any action it considers appropriate to:   (A)   rectify that default; or     (B)   remedy that breach; and   (ii)   the Consultant shall indemnify the Client against any damage, cost, loss or liability it suffers or incurs in respect of that default or breach, except to the extent such damage, cost, loss or liability arises from the negligence of the Client.   (d)   If the Consultant is in breach of any material obligation under the Agreement, the Client may, by written notice to the Consultant after it has previously given the Consultant a notice under Clause 63.1(a) and the Consultant has not complied with that notice, with immediate effect:   (i)   suspend payment to the Consultant under the Agreement; or     (ii)   terminate the Agreement.   (e)   Subject to Clause 50.3(c), if the Consultant is in breach of any obligation under the Agreement that is not a material obligation, the Client may, by written notice to the Consultant after it has previously given the Consultant a notice under Clause 63.1(a) and the Consultant has not complied with that notice, deduct or Page 71 of 85 --------------------------------------------------------------------------------         withhold from any Payment Claim that the Client has at that time approved for payment an amount, not exceeding 10% of the relevant Payment Claim, whether for damages or otherwise which, in the Owner’s reasonable estimate, is due or will become due under the Agreement.   (f)   Subject to the Client’s accrued and other rights under the Agreement or Law, in the event of termination of the Agreement pursuant to Clause 63.1(d), the Client will pay to the Consultant:   (i)   all the Services Costs due and unpaid at the date of termination; and     (ii)   reasonable costs incurred in demobilising all of the Consultant’s Personnel and equipment to their place of origin in South Africa or Australia (as the case may be) and in terminating any contract with any subcontractor or other agreement, arrangement or commitment undertaken by the Consultant for the specific purpose of providing the Services.   (g)   Except as provided in Clause 63.1(f), the Consultant acknowledges and agrees that where the Agreement is terminated in accordance with this Clause 63.1, the Consultant is not entitled to make any Claim against the Owner in respect of the termination including for any loss, cost, damage, expense or other liability. 63.2 Default by Client   (a)   If the Client:   (i)   breach of any material obligation under the Agreement,     (ii)   fails to pay the Consultant as required under the Agreement, or     (iii)   fails to pay Project Contractors as required under the Project Contracts,       then the Consultant may by notice specify the default and state its intention to exercise any one of the remedies under Clause 63.2(b)(i) or Clause 63.2(b)(ii).   (b)   If the Client fails to remedy such default within 14 days of receiving the notice from the Consultant, the Consultant may (without prejudice to any other rights or remedies it has under the Agreement) upon notice to the Client exercise all or any of the following remedies:   (i)   suspend performance of the Services until the default has been remedied; or     (ii)   in the case of Clause 63.2(a)(i) or Clause 63.2(a)(ii), by way of a 30 Business Day notice terminate the Agreement.   (c)   Subject to the Client’s accrued and other rights under the Agreement or Law, in the event of termination of the Agreement pursuant to Clause 63.2(b)(ii), the Client will pay to the Consultant: Page 72 of 85 --------------------------------------------------------------------------------     (i)   all the Services Costs due and unpaid at the date of termination; and     (ii)   reasonable costs incurred in demobilising all of the Consultant’s Personnel and equipment to their place of origin in South Africa or Australia (as the case may be) and in terminating any contract with any subcontractor or other agreement, arrangement or commitment undertaken by the Consultant for the specific purpose of providing the Services. 64. Insolvency   (a)   If in relation to a party (“Insolvent Party”):   (i)   notice is given of a meeting of creditors with a view to the party entering a deed of company arrangement;     (ii)   a controller or administrator is appointed;     (iii)   the party enters a deed of company arrangement wit creditors;     (iv)   an application is made to a court for the winding up of the party and not stayed within 21 days;     (v)   a winding up order is made in respect of the party;     (vi)   the party resolves by special resolution that it be wound up voluntarily (other than for a members’ voluntary winding-up);     (vii)   a mortgagee of any property of the party takes possession of that property;     (viii)   a receiver or a receiver and manager of any property of the party is appointed; or     (ix)   the party takes or suffers in any place, any step or action analogous to any of those mentioned in subparagraphs (i) to (viii),     then the other party may (without prejudice to any other rights or remedies it has under the Agreement):   (x)   terminate the Agreement by way of a 3 Business Day notice to the Insolvent Party, its manager, receiver, trustee, liquidator, administrator or any other person in whom the affairs of the Insolvent Party may have become vested; or     (xi)   give to the manager, receiver, trustee, liquidator, administrator or other person in whom the Insolvent Party’s affairs have vested, the option of continuing to carry out the Agreement subject to the provision of a guarantee satisfactory to the other party for the due and proper performance of the unexpired portion of the Agreement. The option in this Page 73 of 85 --------------------------------------------------------------------------------         clause is exercisable within 14 days of its receipt. If such option is not so exercised, it lapses, unless extended by the other party.   (b)   In the event of termination of the Agreement pursuant to Clause 64(a)(x) by the Consultant, the Client will:   (i)   to the extent (if any) permitted by Law; and     (ii)   subject to the rights and powers of any of the persons described in Clauses 64(a)(ii), 64(a)(iii), 64(a)(vii) and 64(a)(viii); and     (iii)   subject to the rights and powers (whether under any instrument or otherwise) of the persons who appointed of any of the persons described in Clauses 64(a)(ii), 64(a)(iii), 64(a)(vii) and 64(a)(viii),       pay to the Consultant:   (iv)   all the Services Costs due and unpaid at the date of termination; and   (v)   all reasonable costs incurred in demobilising all of the Contractor’s Personnel and equipment to their point of origin in either South Africa or Australia (as the case may be) and in terminating any contract with any subcontractor of the Consultant or other contract or agreement entered into by the Consultant for the specific purpose of performing the Services.   (c)   In the event of termination of the Agreement pursuant to Clause 64(a)(x) by the Client, the Consultant will:   (i)   to the extent (if any) permitted by Law; and     (ii)   subject to the rights and powers of any of the persons described in Clauses 64(a)(ii), 64(a)(iii), 64(a)(vii) and 64(a)(viii); and     (iii)   subject to the rights and powers (whether under any instrument or otherwise) of the persons who appointed of any of the persons described in Clauses 64(a)(ii), 64(a)(iii), 64(a)(vii) and 64(a)(viii),       pay to the Client:   (iv)   all moneys which the Client may be entitled to from the Consultant under or in accordance with the Agreement as at the date of termination; and   (v)   all moneys paid to others in accordance with an express provision of the Agreement prior to or on the date of termination. Page 74 of 85 --------------------------------------------------------------------------------   65. Intellectual Property 65.1 Client to Procure   (a)   Except as otherwise provided in the Agreement, the Client will procure all third party Intellectual Property Rights necessary for the lawful completion and operation of the Project.     (b)   Subject to Clause 65.1(c), and to the extent permitted by Law, the ownership of any Protected Right, any new invention or any improvement to an existing patent made or developed by the Consultant (or by those for whom it is responsible) during the Agreement and for the purposes of the Agreement shall be the property of the Client (“New IP”). The Client gives the Consultant a royalty-free, irrevocable and non-exclusive licence to use the New IP and any improvements thereto, subject to Law and any prior third party rights restricting such licence.     (c)   The Consultant remains the owner of any Protected Right used in the performance of the Services, which are in existence at the Date of Commencement or come into existence after the Date of Commencement and are created for a purpose other than the Services (“Background IP”). The Consultant shall own the Protected Rights in any improvements to the Background IP. The Consultant gives the Client a royalty-free, irrevocable and non-exclusive licence to use the Background IP and any improvements thereto for any purpose connected with the Project including repair, maintenance or expansion of the Project. 66. Assignment (Replacing Clause 38) 66.1 Assignment by Consultant     The Consultant may, with the prior written approval of the Client not to be unreasonably withheld (which approval may be subject to the Consultant first demonstrating to the Client that all of the Consultant’s Key Personnel as identified in Appendix F will transfer to the assignee and after the assignment continue to perform the Services in their same positions and with their same authorities as they had prior to the assignment), assign all or part of its right, title, and interest in the Agreement to any parent, subsidiary or affiliated company of the Consultant, provided that:   (a)   the Consultant shall then remain jointly and severally liable with the assignee for all obligations and liabilities of the Consultant under the Agreement;     (b)   the Client may at its sole option have recourse against either or both the assignee and the Consultant for any and all obligations or liabilities of the Consultant; and     (c)   there is no adverse affect on the validity or enforceability of the guarantee and indemnity referred to in Clause 70 or any Security previously delivered by or on behalf of the Consultant to the Client under Clause 69, and that both the guarantee and indemnity in Clause 70 and all security under Clause 69 remain valid and enforceable by the Client in accordance with the provisions of the Agreement. Page 75 of 85 --------------------------------------------------------------------------------   66.2 Assignment by Client to Affiliates and Third Parties   (a)   The Client may, with the prior written approval of the Consultant not to be unreasonably withheld, assign all or part of its right, title, and interest in the Agreement to any parent, subsidiary or affiliated company, partnership or joint venture of the Client, provided that all outstanding amounts properly due and owing to the Consultant at that time have been paid and that such parent, subsidiary or affiliated company, partnership or joint venture of the Client reasonably demonstrates that it is able to meet the payment obligations of the Client under the Agreement.     (b)   The Client may assign all or part of its right, title, and interest in the Agreement to any other third party with the prior written approval of the Consultant, which consent will not be withheld provided that all outstanding amounts properly due and owing to the Consultant at that time have been paid and that such third party reasonably demonstrates that it is able to meet the payment obligations of the Client under the Agreement. 66.3 Assignment by Client to Financing Entities     Without the prior consent of the Consultant, the Client may assign all or part of its right, title, and interest in the Agreement to any Financing Entity. The Consultant shall execute and deliver to the Client a consent to and acknowledgement of assignment on reasonable terms as may be required by the Financing Entities, to be effective only when all outstanding amounts properly due and owing to the Consultant at that time have been paid. Any Financing Entity may, in connection with any default under any financing document related to the Project, assign any rights assigned to it under this Clause 66.3 to any third party provided that all outstanding amounts properly due and owing to the Consultant at that time have been paid and that such third party reasonably demonstrates that it is able to meet the payment obligations of the Client under the Agreement. The Consultant agrees that, upon receipt of written notice of such assignment, it shall, if requested by a Financing Entity, deliver all Project Material required to be delivered to the Client under the Agreement to the Financing Entity or its assignee at such address as Financing Entity shall specify to the Consultant in writing. 66.4 Cooperation with Financing Entities and Insurers   (a)   The Consultant acknowledges and agrees that any Financing Entity and any and all insurers, and their respective representatives, have the right to review, inspect, audit and monitor the performance of the Services and the Works, the Site, any item of equipment (including equipment under fabrication), materials, supplies, tools, other items, design, engineering, service, or workmanship to be provided under the Agreement, and to observe all tests and all other aspects of the Project. The Consultant shall allow all of them reasonable access during normal working hours to its offices, the Site, the Works (including equipment under fabrication) and the Project, as reasonably requested by any of the Client, a Financing Entity and insurers. The Consultant shall incorporate such rights of review, inspection, audit and monitoring in all subcontracts. Page 76 of 85 --------------------------------------------------------------------------------     (b)   The Consultant shall, if it proposes any Project Contract, include provisions in the Project Contract that allow representatives of the Financing Entity and insurers to inspect, review and monitor the progress of the Project and conformance with the requirements of the Agreement. 67. Confidentiality (Replacing Clause 42) 67.1 Keep Confidential     All information exchanged between the parties under or in relation to the Agreement is confidential to them and may not be disclosed to any person except:   (a)   if required by Law or the rules of a relevant stock exchange;     (b)   to employees, Project Contractors or consultants for the purposes of tendering for or entering into a contract with Project Contractors or consultants;     (c)   with the consent of the party who supplied the information and the consent of the Client, which may not be unreasonably withheld;     (d)   if the information is in the public domain at the Date of Commencement, or comes into the public domain after the Date of Commencement other than as a result of a breach of the Agreement;     (e)   if the information is already known or in the possession of the recipient without restrictions relating to disclosure before the date of receipt; or     (f)   if the information is obtained from a source other than the party who supplied the information, provided that the source was not subject to any prohibition against disclosure. 67.2 Extension of Obligations     The parties will ensure that the provisions of this clause are extended to their employees, agents or contractors. 67.3 Continuation of Obligations     The obligations imposed in this Clause 67 continued for a period of four years after the Date of Final Completion. 68. Settlement of Disputes (Replacing Clauses 43.8 and 44) 68.1 Failure of Mediation     If the parties fail to reach agreement within 28 days of the Mediator being appointed, or such other period as the parties may agree, then both parties shall be entitled to take any action necessary to have the dispute determined by litigation. Page 77 of 85 --------------------------------------------------------------------------------   68.2 Matters Precedent to Litigation     Each party expressly agrees not to commence any action in any court in relation to a dispute (other than where a party seeks urgent injunctive or declaratory relief) unless and until all of the provisions of Clause 43 and Clause 68.1 have been met. 68.3 Dispute Resolution not to delay Performance     Despite the existence of a dispute between the parties:   (a)   the Consultant shall proceed without delay to continue to perform the Services; and     (b)   both parties must perform their other obligations under the Agreement. 69. Security 69.1 Consultant Security   (a)   Within seven days after the date of execution of the Agreement, the Consultant shall deliver to the Client:   (i)   two performance bonds in the form in Appendix M in favour of the Client; or     (ii)   in any other form agreed in writing by the Client’s Representative.   (b)   The security shall be:   (i)   collectively for ten percent of the total Services Costs identified in Appendix C with each performance bond being for five percent of the total Services Costs identified in Appendix C;     (ii)   in a form and in terms approved by the Client if not in the form in Appendix M; and     (iii)   issued by a bank, insurance company or other financial institution in South Africa approved by the Client.   (c)   Any security provided by the Consultant under this Clause 69.1 shall be available to the Client and any security that does not consist of money may be converted into money whenever the Client is entitled to the payment of moneys by the Consultant under or in accordance with the Agreement, or, whenever the Client is entitled to reimbursement of any monies paid to others under or in accordance with the Agreement, in all such cases as if the security were a sum of money due to the Client by the Consultant. 69.2 Client Security   (a)   Within seven days after the date of execution of the Agreement, the Client shall deliver to the Consultant: Page 78 of 85 --------------------------------------------------------------------------------     (i)   two performance bonds in the form in Appendix M in favour of the Consultant; or     (ii)   in any other form agreed in writing by the Consultant’s Representative.   (b)   The security shall be:   (i)   collectively for ten percent of the total Services Costs identified in Appendix C with each performance bond being for five percent of the total Services Costs identified in Appendix C;     (ii)   in a form and in terms approved by the Consultant if not in the form in Appendix M; and     (iii)   issued by a bank, insurance company or other financial institution in South Africa approved by the Consultant.   (c)   Any security provided by the Client under this Clause 69.2 shall be available to the Consultant and any security that does not consist of money may be converted into money whenever:   (i)   the Client does not pay any amount due to the Consultant under Clause 62.5 within the period specified in Clause 62.5; and     (ii)   within 14 days after the Consultant gives a notice to the Client under Clause 63.2(a) the amount remains unpaid. 69.3 Interest on Security   (a)   A party is not obliged to pay the other party interest on:   (i)   any security; or     (ii)   subject to the Clause 69.3(b), the proceeds of any security if it is converted into cash.   (b)   If a party makes a call upon any security held by that party under this Clause 69.3 (“calling party”) and obtains cash as a consequence, the calling party will, following a written request by the other party for payment of interest, pay simple interest, at the rate of Agreed Compensation, on the amount of any cash obtained in excess of the sum to which the calling party is entitled at the time of such call.   (c)   The sum attracting interest will be further reduced by any unsatisfied amounts which subsequently become payable under the Agreement by the Consultant to the Client or by the Client to the Consultant (as the case may be) at the time such amounts become payable. Page 79 of 85 --------------------------------------------------------------------------------   69.4 Security not on Trust     Neither the Client or the Consultant hold any security or the proceeds or money referred to in Clause 69.3 on trust for each other. 69.5 Release of Security     The Client and the Consultant shall each release:   (a)   one of the performance bonds (or one half of the other form of security) provided in accordance with Clause 69.1 or Clause 69.2 (as the case may be) within 21 days of the Date of Practical Completion of the Sulphide Plant; and   (b)   the other performance bond (or the other half of the other form of security) provided in accordance with Clause 69.1 or Clause 69.2 (as the case may be) within 21 days of the later of:   (i)   the expiry of the Defects Notification Period or any Further Defects Liability Period; and     (ii)   the Client or the Consultant (as the case may be) having complied with all its obligations under the Agreement.   (c)   If prior to the date to be determined in accordance with Clause 69.5(b) (“release date”) any security delivered to the Client by the Consultant under Clause 69.1 expires, the Consultant shall provide further security which:   (i)   is a performance bond in the form of Appendix M in favour of the Client or is otherwise in a form agreed in writing by the Client’s Representative;     (ii)   is for two and a half percent of the total Services Costs;     (iii)   does not expire for three years from the date it is delivered to the Client.       Any further security delivered under this Clause 69.5(c) by the Consultant to the Client shall be released by the Client on the release date. 69.6 Dealing with Security     Each party shall not, and warrants that it will not, take any steps to:   (a)   injunct or otherwise restrain the issuer of a security referred in to in Clause 69.1 and Clause 69.2 from making a payment under it; or     (b)   restrain, hinder or in any way obstruct the other party from, when so entitled, calling on or otherwise exercising its rights under a security. Page 80 of 85 --------------------------------------------------------------------------------   70. Guarantee and Indemnity 70.1 Consideration   (a)   The Guarantor has requested the Client to enter into the Agreement with the Consultant and the Client does so in consideration of this guarantee and indemnity.   (b)   The Guarantor acknowledges that it has been given a copy of the Agreement and has and full opportunity to consider its provisions before entering into this guarantee and indemnity. 70.2 Guarantee     The Guarantor guarantees to the Client prompt performance of all of the obligations of the Consultant contained or implied in the Agreement. If the obligation is to pay money, the Client may immediately recover the money from the Guarantor as a liquidated debt without first commencing proceedings or enforcing any other right against the Consultant or any other person. 70.3 Continuing Security     This guarantee and indemnity is a continuing security, and is not discharged or prejudicially affected by any settlement of accounts, but remains in full force until a final release is given by the Client. 70.4 Matters Not Affecting Guarantor’s Liability     The Guarantor’s liability under Clauses 70.2 is not affected by:   (a)   the granting of time, forbearance or other concession by the Client to the Consultant or the Guarantor;     (b)   any delay or failure by the Client to take action against the Consultant or the Guarantor;     (c)   an absolute or partial release of the Consultant or the Guarantor or a compromise with the Consultant or any Guarantor;     (d)   a variation, novation, renewal or assignment of the Agreement by the Client whether or not this increases the liability of the Consultant or the liability of the Guarantor under the Agreement;     (e)   the termination of the Agreement;     (f)   the fact that the Agreement is wholly or partially void, voidable or unenforceable;     (g)   the non-execution of the Agreement by one or more of the persons named as the Guarantor or the unenforceability of the guarantee or indemnity against one or more of the Guarantors; or Page 81 of 85 --------------------------------------------------------------------------------     (h)   the exercise or purported exercise by the Client of its rights under the Agreement. 70.5 Payment Later Avoided     The Guarantor’s liability is not discharged by a payment to the Client which is later avoided by law. If that happens, the Client, the Consultant and the Guarantor will be restored to their respective rights and obligations as it the payment had not been made. 70.6 Indemnity on Disclaimer     It a liquidator or trustee in bankruptcy disclaims the Agreement, the Guarantor indemnifies the Client against any resulting loss. 70.7 Guarantor Not to Prove in Liquidation or Bankruptcy     Until the Client has received all money payable to it by the Consultant:   (a)   the Guarantor must not prove or claim in any liquidation, bankruptcy, composition, arrangement or assignment for the benefit of creditors of the Consultant; and     (b)   the Guarantor must hold any claim it has and any dividend it receives on trust for the Client. 70.8 Guarantor Not to Claim Benefits or Enforce Rights     Until the Guarantor’s liability under the Agreement is discharged the Guarantor may not, without the consent of the Client:   (a)   claim the benefit or seek the transfer (in whole or in part) of any other guarantee, indemnity or security held or taken by the Client;     (b)   make a claim or enforce a right against the Consultant or any other guarantor or against the estate or any of the property of any of them, except for the benefit of the Client;     (c)   raise a set-off or counterclaim available to it or the Consultant against the Client in reduction of its liability under this guarantee and indemnity. 70.9 Costs and Expenses   (a)   The Guarantor agrees to pay or reimburse the Client on demand for:   (i)   its costs, charges and expenses of making, enforcing and doing anything in connection with this guarantee and indemnity, including all costs actually payable by the Client to its legal representatives (whether under a costs agreement or otherwise); and     (ii)   all Taxes which are payable in connection with this guarantee and indemnity or any payment, receipt or other transaction contemplated by it. Page 82 of 85 --------------------------------------------------------------------------------     (b)   Money paid to the Client by the Guarantor must be applied first against payment of costs, charges and expenses under this Clause 70.9(a) and then against other obligations under this guarantee and indemnity. 70.10 Guarantee to Continue on Assignment of Rights     If the Client assigns its rights under the Agreement in accordance with Clause 66, the benefit of the guarantee and indemnity in this Clause 70 extends to the assignee and continues concurrently for the benefit of the Client regardless of the assignment unless the Client releases the Guarantor in writing. 70.11 Limit of Guarantor’s Liability     Despite any other provision of this Clause 70 to the contrary, the Client and the Guarantor acknowledge and agree that the Guarantor’s liability to the Client under this Clause (whether for payment of money or otherwise) shall not exceed the liability of the Consultant to the Client under the Agreement. 71. General 71.1 Legal costs     Except as expressly stated otherwise in the Agreement, each party will pay its own legal and other costs and expenses of negotiating, preparing, executing and performing its obligations under the Agreement. 71.2 Waiver and exercise of rights   (a)   A single or partial exercise or waiver by a party of a right relating to the Agreement does not prevent any other exercise of that right or the exercise of any other right.     (b)   The non-exercise of, or a delay in exercising, any power or right of a party does not operate as a waiver of that power or right, nor does any single exercise of a power or right preclude any other or further exercise of it or the exercise of any other power or right by that party or Consultant.     (c)   A power or right of a party may only be waived in writing by the party.     (d)   The Agreement may only be varied, or its provisions waived, in writing by the Client and the Consultant. 71.3 Severance     Each provision of the Agreement will be deemed to be separate and severable from the others of them. If any provisions of the Agreement are determined to be invalid or unenforceable in any jurisdiction, such determination and the consequential severance (if any) will not invalidate the rest of the Agreement, which will remain in full force and Page 83 of 85 --------------------------------------------------------------------------------       effect as if such provision had not been made a part thereof, nor will it affect the validity or enforceability of such provision in any other jurisdiction. 71.4 After hours communications     If a communication is given:   (a)   after 5.00 pm in the place of receipt; or     (b)   on a day which is not a Business Day in the place of receipt,     it is taken as having been given on the next Business Day. 71.5 Process service     Any process or other document relating to litigation, administrative or arbitral proceedings relating to this document may be served by any method contemplated by Clause 41 or in accordance with any applicable Law. 71.6 Entire understanding   (a)   The Agreement contains the entire understanding between the parties as to the subject matter of the Agreement.   (b)   All previous negotiations, understandings, representations, warranties, memoranda or commitments concerning the subject matter of the Agreement are merged in and superseded by the Agreement and are of no effect. No party is liable to any other party in respect of those matters.     (c)   No oral explanation or explanation by e-mail or information provided by any party to another:   (i)   affects the meaning or interpretation of the Agreement; or     (ii)   constitutes any collateral agreement, warranty or understanding between any of the parties. 71.7 Nature of the Relationship   (a)   Nothing in the Agreement constitutes a joint venture, agency, partnership or other fiduciary relationship between the Client and the Consultant.     (b)   The Consultant acknowledges that it has no authority to bind the Client.     (c)   At all times when performing its obligations under the Agreement, the Consultant is deemed to be an independent contractor and not an employee or agent of the Client.     (d)   The Consultant must not act outside the scope of the authority conferred on it under the Agreement. Page 84 of 85 --------------------------------------------------------------------------------   71.8 Third Party Rights     The Agreement shall be binding on and enure to the benefit of the lawful successors of each party and every other person having rights under it by virtue of the Agreements (Rights of Third Parties) Act 1999. Except as provided in this Clause 71.8, nothing in the Agreement confers any rights on any person under the Agreements (Rights of Third Parties) Act 1999. The exceptions provided for in this Clause 71.8 are each indemnified person named in Clause 51.7 of the Agreement, who may respectively enforce the rights in his, her or its favour set out in such provision, subject to and in accordance with the Agreements (Rights of Third Parties) Act 1999 and any express limits of liability set out in the Agreement. 71.9 Effective Date (replacing Clause 21)     The Agreement shall be effective as of 21 February 2005. 71.10 Jurisdiction     The parties irrevocably submit to the exclusive jurisdiction of the Courts exercising jurisdiction in England, and any court that may hear appeals from any of those courts, for any proceeding in connection with the Agreement, subject only to the right to enforce a judgment in any court in any other jurisdiction. Page 85 of 85

--------------------------------------------------------------------------------   Exhibit 10.2 SMART ONLINE, INC. INCENTIVE STOCK OPTION AGREEMENT   THIS INCENTIVE STOCK OPTION AGREEMENT, made and entered into as of the 20th day of September, 2005, by and between Smart Online, Inc., a Delaware corporation (the “Company”), and Elizabeth Marino (the “Participant”). WHEREAS, the committee appointed under the Smart Online, Inc. Equity Compensation Plan (the “Committee”) granted Participant an option to purchase shares of the Company’s Common Stock, $0.001 par value per share (the “Common Stock”), pursuant to the Smart Online, Inc. 2004 Equity Compensation Plan (the “Plan”) (capitalized terms used herein shall have the meanings set out in the Plan unless otherwise specified in this Agreement); and WHEREAS, this Agreement evidences the grant of such option. NOW, THEREFORE, in consideration of the foregoing, of the mutual promises set forth below and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: 1.    Grant of Option. The Committee hereby grants Participant an option to purchase from the Company, during the period specified in Section 2 of this Agreement, a total of two hundred (200) shares of Stock, at the purchase price of nine dollars and sixty cents ($9.60) per share (the “Purchase Price”), in accordance with the terms and conditions stated in this Agreement. The shares of Stock subject to the option granted hereby are referred to below as the “Shares,” and the option to purchase such Shares is referred to below as the “Option”. 2.    Vesting and Exercise of Option. The Option shall vest and become exercisable in increments in accordance with the five-year schedule set forth below, provided that the Option shall vest and become exercisable with respect to an increment as specified only if Participant is employed with the Company on the specified date for such increment:   (a)    on the first year anniversary of the Grant Date, the Option shall vest and become exercisable with respect to twenty percent (20%) of the Shares; (b)    on the second year anniversary of the Grant Date, the Option shall vest and become exercisable with respect to an additional twenty percent (20%) of the Shares; (c)    on the third anniversary of the Grant Date, the Option shall vest and become exercisable with respect to an additional twenty percent (20%) of the Shares; 1 -------------------------------------------------------------------------------- (d)    on the fourth anniversary of the Grant Date, the Option shall vest and become exercisable with respect to an additional twenty percent (20%) of the Shares; and (e)    on the fifth anniversary of the Grant Date, the Option shall vest and become exercisable with respect to an additional twenty percent (20%) of the Shares. The schedule set forth above is cumulative, so that Shares as to which the Option has become vested and exercisable on and after a date indicated by the schedule may be purchased pursuant to exercise of the Option at any subsequent date prior to termination of the Option. The Option may be exercised at any time and from time to time to purchase up to the number of Shares as to which it is then vested and exercisable. Notwithstanding the foregoing, the Option shall vest and become exercisable, to the extent not already vested and exercisable, upon a Change of Control or a Corporate Reorganization, if the Company shall send Participant prior written notice of the effectiveness of such event and the last day on which Participant may exercise the Option. Participant may, upon compliance with all of the terms of this Agreement and the Plan, purchase any or all of the Shares with respect to which the Option is vested and exercisable on or prior to the last day specified in such notice, and, to the extent the Option is not exercised, it shall terminate at 5:00 P.M., eastern standard time, on the last day specified in such notice. The last day specified in the notice shall not be less than twenty (20) days after the date of the notice. 3.    Termination of Option. The Option shall remain exercisable as specified in Section 2 above until the earliest to occur of the dates specified below, upon which date the Option shall terminate: (a)    the date all of the Shares are purchased pursuant to the terms of this Agreement; (b)    in the event of Participant’s death or disability prior to Termination of Service of Participant, the Option shall remain exercisable until one year following the Participant’s death or disability; (c)    upon the expiration of ninety (90) days following the Termination of Service of Participant, provided that in the event of the Participant’s death or Disability during such ninety (90) day period the Option shall remain exercisable until the expiration of one (1) year following the Participant’s death or Disability; (d)    at 5:00 P.M., eastern standard time, on the last date specified in the notice described in Section 2 above, in the event of a Change of Control or Corporate Reorganization, except to the extent that the Option is assumed by the surviving entity or an affiliate thereof in connection with such Change in Control or Corporate Reorganization; or (e)    the ten year anniversary of the Grant Date at 5:00 P.M., eastern standard time. 2 -------------------------------------------------------------------------------- Upon its termination, the Option shall have no further force or effect and Participant shall have no further rights under the Option or to any Shares which have not been purchased pursuant to prior exercise of the Option. 4.    Manner of Exercise of Option. (a)    The Option may be exercised only by (i) Participant’s completion, execution and delivery to the Company of a notice of exercise and, if required by the Company, an “investment letter” as supplied by the Company confirming Participant’s representations and warranties in Section 17 of this Agreement, including the representation that Participant is acquiring the Shares for investment only and not with a view to the resale or other distribution thereof, and (ii) the payment to the Company, pursuant to the terms of this Agreement, of an amount equal to the Purchase Price multiplied by the number of Shares being purchased as specified in Participant’s notice of exercise. Participant’s notice of exercise shall be given in the manner specified in Section 12 but any exercise of the Option shall be effective only when the items required by the preceding sentence are actually received by the Company. The notice of exercise and the “investment letter” may be in the form set forth in Exhibit A attached to this Agreement. Payment of the aggregate Purchase Price for Shares Participant has elected to purchase shall be made by cash or good check. Notwithstanding anything to the contrary in this Agreement, the Option may be exercised only if compliance with all applicable federal and state securities laws can be effected. (b)Subject to the provisions of Section 3.7 of the Plan, upon any exercise of the Option by Participant or as soon thereafter as is practicable, the Company shall issue and deliver to Participant a certificate or certificates evi-dencing such number of Shares as Participant has then elected to purchase. Such certificate or certificates shall be registered in the name of Participant and shall bear the legend specified in Section 16 of this Agreement and any legend required by any federal or state securities laws and by the state in which the Company is incorporated. 5. Definitions; Authority of Committee. (a)    A “Change in Control” shall be deemed to have occurred if, after the class of stock then subject to this Agreement becomes publicly traded, (i) the direct or indirect beneficial ownership (within the meaning of Section 13(d) of the Act and Regulation 13D thereunder) of fifty percent (50%) or more of the class of securities then subject to this Agreement is acquired or becomes held by any person or group of persons (within the meaning of Section 13(d)(3) of the Act), but excluding the Company and any employee benefit plan sponsored or maintained by the Company, or (ii) assets or earning power constituting more than fifty percent (50%) of the assets or earning power of the Company and its subsidiaries (taken as a whole) is sold, mortgaged, leased or otherwise transferred, in one or more transactions not in the ordinary course of the Company’s business, to any such person or group of persons; provided, however, that a Change in Control shall not be deemed to have occurred upon an investment by one or more venture capital funds, Small Business Investment Companies (as defined in the Small Business Investment Act of 1958, as amended) or similar financial investors. For the purposes of this Agreement, the class of stock then subject to this Agreement shall be deemed to be “publicly traded” if such stock is listed or admitted to unlisted trading privileges on a national securities exchange or as to which sales or bid and offer quotations are reported in the automated system operated by the National Association of Securities Dealers, Inc. 3 -------------------------------------------------------------------------------- (b)    A “Corporate Reorganization” means the happening of any one (1) of the following events: (i) the dissolution or liquidation of the Company; (ii) a capital reorganization, merger or consolidation involving the Company, unless (A) the transaction involves only the Company and one or more of the Company’s parent corporation and wholly-owned (excluding interests held by employees, officers and directors) subsidiaries; or (B) the shareholders who had the power to elect a majority of the board of directors of the Company immediately prior to the transaction have the power to elect a majority of the board of directors of the surviving entity immediately following the transaction; (iii) the sale of all or substantially all of the assets of the Company to another corporation, person or business entity; or (iv) an acquisition of Company stock, unless the shareholders who had the power to elect a majority of the board of directors of the Company immediately prior to the acquisition have the power to elect a majority of the board of directors of the Company immediately following the transaction; provided, however, that a Corporate Reorganization shall not be deemed to have occurred upon an investment by one or more venture capital funds, Small Business Investment Companies (as defined in the Small Business Investment Act of 1958, as amended) or similar financial investors. (c)    “Termination of Service” shall have the meaning defined in the Plan.   (d)    All determinations made by the Committee with respect to the interpretation, construction and application of any provision of this Agreement shall be final, conclusive and binding on the parties. 6.    Default Treatment. (a)    The Option shall be construed so that it is in compliance with the requirements of section 422 of the Internal Revenue Code of 1986, as amended (the “Code”). If for any reason the Option does not meet the requirements of section 422 of the Code and the regulations thereunder, then the Option or any portion of the Option, as necessary, shall be deemed a Nonqualified Stock Option granted under the Plan. (b)    If the aggregate Fair Market Value, determined on the date of grant, of the stock to which this Option and any other incentive stock options are exercisable for the first time by Participant during any calendar year under the Plan or any other stock option plan of the Company exceeds $100,000 (or such other amount as the Code may specify), the Option shall be deemed a Nonqualified Stock Option granted under the Plan to the extent of such excess. 7.    Rights Prior to Exercise. Participant will have no rights as a shareholder with respect to the Shares except to the extent that Participant has exercised the Option and has been issued and received delivery of a certificate or certificates evidencing the Shares so purchased. 4 -------------------------------------------------------------------------------- 8.    Sale or Other Disposition by Majority Interest. Participant hereby irrevocably appoints the Company and its President, or either of them, as Participant’s agents and attor-neys-in-fact, with full power of substitution for and in Partic-ipant’s name, to sell, exchange, transfer or otherwise dispose of all or a portion of Participant’s Shares and to do any and all things and to execute any and all documents and instruments (including, without limitation, any stock transfer powers) in connection therewith, such powers of attorney not to become operable until such time as the holder or holders of a majority of the issued and outstanding shares of Stock of the Company sell, exchange, transfer or otherwise dispose of, or contract to sell, exchange, transfer or otherwise dispose of, all or a majority of the issued and outstanding shares of Stock of the Company. Any sale, exchange, transfer or other disposition of all or a portion of Participant’s Shares pursuant to the foregoing powers of attorney shall be made upon substantially the same terms and conditions (including sale price per share) applicable to a sale, exchange, transfer or other disposition of shares of Stock of the Company owned by the holder or holders of a majority of the issued and outstanding shares of Stock of the Company. For purposes of determining the sale price per share of the Shares under this Section 8, there shall be excluded the consideration (if any) paid or payable to the holder or holders of a majority of the issued and outstanding shares of Common Stock of the Company in connection with any employment, consulting, noncompetition or similar agreements which such holder or holders may enter into in connection with or subsequent to such sale, transfer, exchange or other disposition. The foregoing power of attorney shall not impose or be deemed to impose any fiduciary duty or any other duty (except as set forth in this Section 8) or obligation on either the Company or its President, shall be irrevocable and coupled with an interest and shall not terminate by operation of law, whether by the death, bankruptcy or adjudication of incompetence or insanity of Participant or the occurrence of any other event. 9.    Engagement of Participant. Nothing in this Agreement shall be construed as constituting a commitment, guarantee, agreement or understanding of any kind or nature that the Company shall continue to employ Participant, nor shall this Agreement affect in any way the right of the Company to terminate the employment of Participant at any time and for any reason. By Participant’s execution of this Agreement, Partici-pant acknowledges and agrees that Participant’s employment is “at will.” No change of Participant’s duties as an employee of the Company shall result in, or be deemed to be, a modification of any of the terms of this Agreement. 10.    Burden and Benefit; Company. This Agreement shall be binding upon, and shall inure to the benefit of, the Company and Participant, and their respective heirs, personal and legal representatives, successors and assigns. As used in this Section 10, the term the “Company” shall also include any corporation which is the parent or a subsidiary of the Company or any corporation or entity which is an affiliate of the Company by virtue of common (although not identical) owner-ship, and for which Participant is providing services in any form during Participant’s employment with the Company or any such other corporation or entity. Participant hereby consents to the enforcement of any and all of the provisions of this Agreement by or for the benefit of the Company and any such other corpo-ration or entity. 5 -------------------------------------------------------------------------------- 11.    Entire Agreement. This Agreement and the Plan under which it is issued contain the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements or understandings, oral or written, with respect to the subject matter herein. Participant accepts the Option in full satisfaction of any and all obligations of the Company to grant stock options to Participant as of the date hereof. 12.    Notices. Any and all notices under this Agreement shall be in writing, and sent by hand delivery or by certified or registered mail (return receipt requested and first-class postage prepaid), in the case of the Company, to its principal executive offices to the attention of the President, and, in the case of Participant, to Participant’s address as shown on the Company’s records.   13.    Governing Law. This Agreement shall be construed and enforced in accordance with the laws of the state in which the Company is incorporated, without reference to its conflicts of laws rules or the principles of the choice of law. 14.    Modifications. No change or modification of this Agreement shall be valid unless the same is in writing and signed by the parties hereto. 15.    Terms and Conditions of Plan. The terms and conditions included in the Plan, the receipt of a copy of which Participant hereby acknowledges by execution of this Agreement, are incorpo-rated by reference herein, and to the extent that any conflict may exist between any term or provision of this Agreement and any term or provision of the Plan, such term or provision of the Plan shall control. 16.    Stock Legend. All certificates for Shares issued by the Company to Participant or Participant’s successors and assigns or to any other person becoming a signatory to this Agreement shall be endorsed with legends in substantially the following form, and any transfer agent of the Company may be instructed to require compliance with all legends on such certificates:     The shares represented by this Certificate have not been registered under the Securities Act of 1933, as amended (the “Act”), or any state securities law. Accordingly, the shares represented by this Certificate may not be sold, offered for sale, transferred, pledged or hypothecated without an effective registration statement for such shares under the Act or applicable state securities law or an opinion of counsel satisfactory to the Company that registration is not required under the Act or any applicable state securities law. 6 -------------------------------------------------------------------------------- 17.    Covenants and Representations and Covenants of Participant. Participant represents, warrants, covenants and agrees with the Company as follows: (a)    The Option is being received for Participant’s own account without the participation of any other person, with the intent of holding the Option and the Shares issuable pursuant thereto for investment and without the intent of participating, directly or indirectly, in a distribution of the Shares and not with a view to, or for resale in connection with, any distribution of the Shares or any portion thereof. (b)    Participant is not acquiring the Option or any Shares based upon any representation, oral or written, by any person with respect to the future value of, or income from, the Shares, but rather upon an independent examination and judgment as to the prospects of the Company. (c)    Participant has had the opportunity to ask questions of and receive answers from the Company and its executive officers and to obtain all information necessary for Participant to make an informed decision with respect to the investment in the Company represented by the Option and any Shares issued upon its exercise. (d)    Participant is able to bear the economic risk of any investment in the Shares, including the risk of a complete loss of the investment, and Participant acknowledges that Participant must continue to bear the economic risk of any investment in Shares received upon exercise of the Option for an indefinite period. (e)    Participant understands and agrees that the Shares subject to the Option may be issued and sold to Participant without registration under any state or federal laws relating to the registration of securities and in that event will be issued and sold in reliance on exemptions from registration under appropriate state and federal laws. (f)    Shares issued to Participant upon exercise of the Option will not be offered for sale, sold or transferred by Participant other than pursuant to: (i) an effective registration under applicable state securities laws or in a transaction which is otherwise in compliance with those laws; (ii) an effective registration under the Securities Act of 1933, or a transaction otherwise in compliance with such Act; and (iii) evidence satisfactory to the Company of compliance with all applicable state and federal securities laws. The Company shall be entitled to rely upon an opinion of counsel satisfactory to it with respect to compliance with the foregoing laws. (g)    The Company will be under no obligation to register the Shares issuable pursuant to the Option or to comply with any exemption available for sale of the Shares by Participant without registration, and the Company is under no obligation to act in any manner so as to make Rule 144 promulgated under the Securities Act of 1933 available with respect to any sale of the Shares by Participant. 7 -------------------------------------------------------------------------------- (h)    Participant has not relied upon the Company with respect to any tax consequences related to the grant or exercise of this Option, or the disposition of Shares purchased pursuant to its exercise. Participant acknowledges that, as a result of the grant and/or exercise of the Option, Participant may incur a substantial tax liability. Participant assumes full responsibility for all such consequences and the filing of all tax returns and elections Participant may be required or find desirable to file in connection therewith. In the event any valuation of the Option or Shares purchased pursuant to its exercise must be made under federal or state tax laws and such valuation affects any return or election of the Company, Participant agrees that the Company may determine such value and that Participant will observe any determination so made by the Company in all returns and elections filed by Participant. In the event the Company is required by applicable law to collect any withholding, payroll or similar taxes by reason of the grant or any exercise of the Option, Participant agrees that the Company may withhold such taxes from any monetary amounts otherwise payable by the Company to Participant and that, if such amounts are insufficient to cover the taxes required to be collected by the Company, Participant will pay to the Company such additional amounts as are required. (i)    The agreements, representations, warranties and covenants made by Participant herein with respect to the Option shall also extend to and apply to all of the Shares issued to Participant from time to time pursuant to exercise of the Option. Acceptance by Participant of any certificate representing Shares shall constitute a confirmation by Participant that all such agreements, representations, warranties and covenants made herein shall be true and correct at that time. (j)    In the event any underwriter of securities of the Company requests Participant to sign any agreement restricting resale of the Shares in connection with any public offering by the Company, Participant agrees to sign such agreement, provided the officers of the Company have signed an agreement no less restrictive. The Company may instruct its transfer agent not to transfer the Shares if requested by an underwriter as described above. (k)    Participant hereby agrees to comply with any plan, policy or other document of the Company approved by the Board of Directors of the Company to ensure compliance with securities laws, rules and regulations both during the term of employment of Participant and for one (1) year thereafter. The Company may impose stop-transfer restrictions with respect to Shares acquired upon exercise of the Options to enforce this provision. (The remainder of this page is intentionally left blank.) 8 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties hereto have caused this Award Agreement to be executed effective as of the day and year first above written. SMART ONLINE, INC.   By:_____________________________________ Print Name: PARTICIPANT: By:_____________________________________ Print Name: 9 -------------------------------------------------------------------------------- EXHIBIT A Attention: Equity Compensation Plan Committee Smart Online, Inc. Post Office Box 12794 Research Triangle Park, North Carolina 27709-2794 Re: Exercise of Incentive Stock Option Dear Committee Members: Pursuant to the terms and conditions of that certain Incentive Stock Option Agreement dated as of _______________, 20_____ (the “Agreement”) between _________________________ and Smart Online, Inc. (the “Company”), I desire to purchase ____________ Shares of the Stock of the Company and hereby tender payment in full for such Shares in accordance with the terms of the Agreement. I hereby reaffirm that the representations and warranties made in Section 17 of the Agreement are true and correct on the date hereof as if made on the date hereof. Very truly yours, __________________________   Print Name: Date: __________________________

AMENDMENT AMENDMENT (this "Amendment") dated as of April 24, 2006 among FINLAY FINE JEWELRY CORPORATION, a Delaware corporation ("Finlay" or "Borrower Representative") and CARLYLE & CO. JEWELERS, a Delaware corporation ("Carlyle") (Finlay and Carlyle are collectively referred to herein as the "Borrowers" and individually as a "Borrower"), FINLAY ENTERPRISES, INC., a Delaware corporation (the "Parent"), the lenders named herein and signatory hereto (the "Lenders") and GENERAL ELECTRIC CAPITAL CORPORATION ("GE Capital"), individually and as administrative agent for each of the Lenders hereunder (GE Capital, in such capacity, being the "Agent"). W I T N E S S E T H : - - - - - - - - - - WHEREAS, the Parent, the Borrowers, the Lenders and the Agent are parties to a Third Amended and Restated Credit Agreement dated as of May 19, 2005 (as heretofore and hereafter amended, modified or supplemented from time to time in accordance with its terms, the "Credit Agreement"); WHEREAS, subject to the terms and conditions contained herein the parties hereto desire to amend certain provisions of the Credit Agreement; NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, and subject to the fulfillment of the conditions set forth below, the parties hereto agree as follows: Section 1. Defined Terms. Unless otherwise specifically defined herein, all capitalized terms used herein shall have the respective meanings ascribed to such terms in the Credit Agreement. Section 2. Amendments to the Credit Agreement. (a) The definition of "EBITDA" shall be amended by adding the following proviso to the end thereof: "provided that, notwithstanding the GAAP treatment of payments under the Gold Consignment Documents, such payments shall be considered, consistent with past practice, Interest Expense for the purposes of this definition." Section 3. Representations and Warranties. Each of the Parent and the Borrowers represents and warrants as follows (which representations and warranties shall survive the execution and delivery of this Amendment): (a) Each of the Parent and the Borrowers has taken all necessary action to authorize the execution, delivery and performance of this Amendment. (b) This Amendment has been duly executed and delivered by the Parent and the Borrowers. This Amendment and the Credit Agreement as amended hereby constitute the legal, valid and binding obligation of the Parent and the Borrowers, enforceable against them in accordance with their respective terms, subject to applicable bankruptcy, reorganization, insolvency, moratorium and similar laws affecting the enforcement of creditors' rights generally and by general equity principles. (c) No consent or approval of any person, firm, corporation or entity, and no consent, license, approval or authorization of any governmental authority is or will be required in connection with the execution, delivery, performance, validity or enforcement of this Amendment other than any such consent, approval, license or authorization which has been obtained and remains in full force and effect or where the failure to obtain such consent, license, approval or authorization would not result in a Material Adverse Effect. (d) After giving effect to this Amendment, each of the Borrowers and the Parent is in compliance with all of the various covenants and agreements set forth in the Credit Agreement and each of the other Loan Documents. (e) After giving effect to this Amendment, no event has occurred and is continuing which constitutes a Default or an Event of Default. (f) All representations and warranties contained in the Credit Agreement and each of the other Loan Documents are true and correct in all material respects as of the date hereof, except to the extent that any representation or warranty relates to a specified date, in which case such are true and correct in all material respects as of the specific date to which such representations and warranties relate. Section 4. Effective Date. The amendments to the Credit Agreement contained herein shall be effective for all of fiscal 2005 and thereafter. Section 5. Gold Consignment Agreement. The Majority Lenders hereby consent to the execution and delivery by the Parent, the Borrowers and eFinlay of an amendment to the Gold Consignment Agreement (and any ancillary documents thereto) consistent with the terms of this Amendment. Section 6. Expenses. The Borrowers agrees to pay on demand all costs and expenses, including reasonable attorneys' fees, of the Agent incurred in connection with this Amendment. Section 7. Continued Effectiveness. The term "Agreement", "hereof", "herein" and similar terms as used in the Credit Agreement, and references in the other Loan Documents to the Credit Agreement, shall mean and refer to the Credit Agreement as amended by this Amendment. Each of the Borrowers and the Parent hereby agrees that all of the covenants and agreements contained in the Credit Agreement and the Loan Documents are hereby ratified and confirmed in all respects. Section 8. Counterparts. This Amendment may be executed in counterparts, each of which shall be an original, and all of which, taken together, shall constitute a single instrument. Delivery of an executed counterpart of a signature page to this Amendment by telecopier shall be effective as delivery of a manually executed counterpart of this Amendment. Section 9. Governing Law. This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York without giving effect to the conflict of laws provisions thereof. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective officers as of the date first written above. FINLAY FINE JEWELRY CORPORATION By: /s/ Bruce E. Zurlnick --------------------- Name: Bruce E. Zurlnick Title: Senior Vice President, Treasurer and Chief Financial Officer CARLYLE & CO. JEWELERS By: /s/ Bruce E. Zurlnick --------------------- Name: Bruce E. Zurlnick Title: Senior Vice President, Treasurer and Chief Financial Officer FINLAY ENTERPRISES, INC. By: /s/ Bruce E. Zurlnick --------------------- Name: Bruce E. Zurlnick Title: Senior Vice President, Treasurer and Chief Financial Officer : GENERAL ELECTRIC CAPITAL CORPORATION, as U.S. Administrative Agent and Lender By: /s/ Charles Chiodo ------------------------------------ Name: Charles Chiodo Title: Duly Authorized Signatory BANK OF AMERICA, N.A. as Lender and Documentation Agent By: /s/ Alexis MacElhiney -------------------------------------- Name: Alexis MacElhiney Title: Director BANK LEUMI USA, as Lender By: /s/ S. Mosseri ------------------------------------ Name: S. Mosseri Title: Senior Vice President By: /s/ D. Selove ------------------------------------ Name: D. Selove Title: Vice President JP MORGAN CHASE BANK, NATIONAL ASSOCIATION, as Lender By: /s/ Michael W. Stevenson ------------------------------------------- Name: Michael W. Stevenson Title: Officer WELLS FARGO FOOTHILL, LLC, as Lender By: /s/ Yelena Kravchuk ----------------------------------------- Name: Yelena Kravchuk Title: Assistant Vice President GE BUSINESS CAPITAL CORPORATION, as Lender By: /s/ Charles Chiodo ------------------------------------------- Name: Charles Chiodo Title: Duly Authorized Signatory

Exhibit 10.3   GUARANTY AGREEMENT THIS GUARANTY AGREEMENT (“Guaranty”) is made as of September 29, 2006, by Guarantor (as hereinafter defined) for the benefit of Lender (as hereinafter defined). 1.             Definitions.  As used in this Guaranty, the following terms shall have the meanings indicated below: (a)           The term “Lender” shall mean TEXANS COMMERCIAL CAPITAL, LLC, a Texas limited liability company, whose address for notice purposes is the following: 777 E. Campbell Rd., Suite 650 Richardson, Texas 75081 Attn:  Linda Robertson (b)           The term “Borrower” (whether one or more) shall mean the following: BEHRINGER HARVARD MOUNTAIN VILLAGE, LLC, a Colorado limited liability company (c)           The term “Guarantor” shall mean BEHRINGER HARVARD SHORT TERM OPPORTUNITY FUND I LP, a Texas limited partnership, whose address for notice purposes is the following: 15601 Dallas Parkway, Suite 600 Addison, Texas  75001 Attention:  Gerald J. Reihsen, III (d)           The term “Guaranteed Indebtedness” shall mean (i) all principal indebtedness owing by Borrower to Lender now existing or hereafter arising under that certain Construction Loan Agreement of even date herewith between Lender and Borrower (the “Loan Agreement”) or evidenced by that one certain Promissory Note dated of even date herewith, in the original principal amount of Thirty-One Million Six Hundred Fifty Thousand and No/100 Dollars ($31,650,000.00), executed by Borrower and payable to the order of Lender and , (ii) all accrued but unpaid interest on any of the indebtedness described in (i) above, (iii) all obligations of Borrower to Lender under any documents evidencing, securing, governing and/or pertaining to all or any part of the indebtedness described in (i) and (ii) above (collectively, the “Loan Documents”), (iv) all costs and expenses incurred by Lender in connection with the collection and administration of all or any part of the indebtedness and obligations described in (i), (ii) and (iii) above or the protection or preservation of, or realization upon, the collateral securing all or any part of such indebtedness and obligations, including without limitation all reasonable attorneys’ fees, and (v) all renewals, extensions, modifications and rearrangements of the indebtedness and obligations described in (i), (ii), (iii) and (iv) above. 2.             Obligations.  As an inducement to Lender to extend or continue to extend credit and other financial accommodations to Borrower, Guarantor, for value received, does hereby unconditionally and absolutely guarantee the prompt and full payment and performance of the Guaranteed Indebtedness when due or declared to be due and at all times thereafter. 1 --------------------------------------------------------------------------------   3.             Character of Obligations. (a)           This is an absolute, continuing and unconditional guaranty of payment and not of collection and if at any time or from time to time there is no outstanding Guaranteed Indebtedness, the obligations of Guarantor with respect to any and all Guaranteed Indebtedness incurred thereafter shall not be affected.  This Guaranty and the Guarantor’s obligations hereunder are irrevocable.  All of the Guaranteed Indebtedness shall be conclusively presumed to have been made or acquired in acceptance hereof.  Guarantor shall be liable, jointly and severally, with Borrower and any other guarantor of all or any part of the Guaranteed Indebtedness. (b)           Lender may, at its sole discretion and without impairing its rights hereunder, (i) apply any payments on the Guaranteed Indebtedness that Lender receives from Borrower or any other source other than Guarantor to that portion of the Guaranteed Indebtedness, if any, not guaranteed hereunder, and (ii) apply any proceeds it receives as a result of the foreclosure or other realization on any collateral for the Guaranteed Indebtedness to that portion, if any, of the Guaranteed Indebtedness not guaranteed hereunder or to any other indebtedness secured by such collateral. (c)           Guarantor agrees that its obligations hereunder shall not be released, diminished, impaired, reduced or affected by the existence of any other guaranty or the payment by any other guarantor of all or any part of the Guaranteed Indebtedness and, in the event Paragraph 2 above partially limits Guarantor’s obligations under this Guaranty, Guarantor’s obligations hereunder shall continue until Lender has received payment in full of the Guaranteed Indebtedness. (d)           Guarantor’s obligations hereunder shall not be released, diminished, impaired, reduced or affected by, nor shall any provision contained herein be deemed to be a limitation upon, the amount of credit which Lender may extend to Borrower, the number of transactions between Lender and Borrower, payments by Borrower to Lender or Lender’s allocation of payments by Borrower. (e)           Without further authorization from or notice to Guarantor, Lender may compromise, accelerate, or otherwise alter the time or manner for the payment of the Guaranteed Indebtedness, increase or reduce the rate of interest thereon, or release or add any one or more guarantors or endorsers, or allow substitution of or withdrawal of collateral or other security and release collateral and other security or subordinate the same. 4.             Representations and Warranties.  Guarantor hereby represents and warrants the following to Lender: (a)           This Guaranty may reasonably be expected to benefit, directly or indirectly, Guarantor, and (i) if Guarantor is a corporation, the Board of Directors of Guarantor has determined that this Guaranty may reasonably be expected to benefit, directly or indirectly, Guarantor, or (ii) if Guarantor is a partnership, the requisite number of its partners have determined that this Guaranty may reasonably be expected to benefit, directly or indirectly, Guarantor; and (b)           Guarantor is familiar with, and has independently reviewed the books and records regarding, the financial condition of Borrower and is familiar with the value of any and all collateral intended to be security for the payment of all or any part of the Guaranteed Indebtedness; provided, however, Guarantor is not relying on such financial condition or collateral as an inducement to enter into this Guaranty; and 2 --------------------------------------------------------------------------------   (c)           Guarantor has adequate means to obtain from Borrower on a continuing basis information concerning the financial condition of Borrower and Guarantor is not relying on Lender to provide such information to Guarantor either now or in the future; and (d)           Guarantor has the power and authority to execute, deliver and perform this Guaranty and any other agreements executed by Guarantor contemporaneously herewith, and the execution, delivery and performance of this Guaranty and any other agreements executed by Guarantor contemporaneously herewith do not and will not violate (i) any agreement or instrument to which Guarantor is a party, (ii) any law, rule, regulation or order of any governmental authority to which Guarantor is subject, or (iii) its articles or certificate of incorporation or bylaws, if Guarantor is a corporation, or its partnership agreement, if Guarantor is a partnership; and (e)           Neither Lender nor any other party has made any representation, warranty or statement to Guarantor in order to induce Guarantor to execute this Guaranty; and (f)            The financial statements and other financial information regarding Guarantor heretofore and hereafter delivered to Lender are and shall be true and correct in all material respects and fairly present the financial position of Guarantor as of the dates thereof, and no material adverse change has occurred in the financial condition of Guarantor reflected in the financial statements and other financial information regarding Guarantor heretofore delivered to Lender since the date of the last statement thereof; and (g)           As of the date hereof, and after giving effect to this Guaranty and the obligations evidenced hereby, (i) Guarantor is and will be solvent, (ii) the fair saleable value of Guarantor’s assets exceeds and will continue to exceed its liabilities (both fixed and contingent), (iii) Guarantor is and will continue to be able to pay its debts as they mature, and (iv) if Guarantor is not an individual, Guarantor has and will continue to have sufficient capital to carry on its business and all businesses in which it is about to engage. 5.             Covenants.  Guarantor hereby covenants and agrees with Lender as follows: (a)           Guarantor shall not, so long as its obligations under this Guaranty continue, transfer or pledge any material portion of its assets for less than full and adequate consideration; and (b)           Guarantor shall promptly furnish to Lender at any time and from time to time such financial statements and other financial information of Guarantor as the Lender may require, in form and substance satisfactory to Lender; and (c)           Guarantor shall comply with all terms and provisions of the Loan Documents that apply to Guarantor; and (d)           Guarantor shall promptly inform Lender of (i) any litigation or governmental investigation against Guarantor or affecting any security for all or any part of the Guaranteed Indebtedness or this Guaranty which, if determined adversely, might have a material adverse effect upon the financial condition of Guarantor or upon such security or might cause a default under any of the Loan Documents, (ii) any claim or controversy which might become the subject of such litigation or governmental investigation, and (iii) any material adverse change in the financial condition of Guarantor. 3 --------------------------------------------------------------------------------   6.             Consent and Waiver. (a)           Guarantor waives (i) promptness, diligence and notice of acceptance of this Guaranty and notice of the incurring of any obligation, indebtedness or liability to which this Guaranty applies or may apply and waives presentment for payment, notice of nonpayment, protest, demand, notice of protest, notice of intent to accelerate, notice of acceleration, notice of dishonor, diligence in enforcement and indulgences of every kind, and (ii) the taking of any other action by Lender, including without limitation giving any notice of default or any other notice to, or making any demand on, Borrower, any other guarantor of all or any part of the Guaranteed Indebtedness or any other party. (b)           Guarantor waives any rights Guarantor has under, or any requirements imposed by, Chapter 34 of the Texas Business and Commerce Code, as in effect on the date of this Guaranty or as it may be amended from time to time. (c)           Lender may at any time, without the consent of or notice to Guarantor, without incurring responsibility to Guarantor and without impairing, releasing, reducing or affecting the obligations of Guarantor hereunder:  (i) change the manner, place or terms of payment of all or any part of the Guaranteed Indebtedness, or renew, extend, modify, rearrange or alter all or any part of the Guaranteed Indebtedness; (ii) change the interest rate accruing on any of the Guaranteed Indebtedness (including, without limitation, any periodic change in such interest rate that occurs because such Guaranteed Indebtedness accrues interest at a variable rate which may fluctuate from time to time); (iii) sell, exchange, release, surrender, subordinate, realize upon or otherwise deal with in any manner and in any order any collateral for all or any part of the Guaranteed Indebtedness or this Guaranty or setoff against all or any part of the Guaranteed Indebtedness; (iv) neglect, delay, omit, fail or refuse to take or prosecute any action for the collection of all or any part of the Guaranteed Indebtedness or this Guaranty or to take or prosecute any action in connection with any of the Loan Documents; (v) exercise or refrain from exercising any rights against Borrower or others, or otherwise act or refrain from acting; (vi) settle or compromise all or any part of the Guaranteed Indebtedness and subordinate the payment of all or any part of the Guaranteed Indebtedness to the payment of any obligations, indebtedness or liabilities which may be due or become due to Lender or others; (vii) apply any deposit balance, fund, payment, collections through process of law or otherwise or other collateral of Borrower to the satisfaction and liquidation of the indebtedness or obligations of Borrower to Lender not guaranteed under this Guaranty; and (viii) apply any sums paid to Lender by Guarantor, Borrower or others to the Guaranteed Indebtedness in such order and manner as Lender, in its sole discretion, may determine. (d)           Should Lender seek to enforce the obligations of Guarantor hereunder by action in any court or otherwise, Guarantor waives any requirement, substantive or procedural, that (i) Lender first enforce any rights or remedies against Borrower or any other person or entity liable to Lender for all or any part of the Guaranteed Indebtedness, including without limitation that a judgment first be rendered against Borrower or any other person or entity, or that Borrower or any other person or entity should be joined in such cause, or (ii) Lender first enforce rights against any collateral which shall ever have been given to secure all or any part of the Guaranteed Indebtedness or this Guaranty.  Such waiver shall be without prejudice to Lender’s right, at its option, to proceed against Borrower or any other person or entity, whether by separate action or by joinder. (e)           In addition to any other waivers, agreements and covenants of Guarantor set forth herein, Guarantor hereby further waives and releases all claims, causes of action, defenses and offsets for any act or omission of Lender, its directors, officers, employees, representatives or agents in connection with Lender’s administration of the Guaranteed Indebtedness, except for Lender’s willful misconduct and gross negligence. 4 --------------------------------------------------------------------------------   (f)            Guarantor hereby knowingly and intentionally waives any right of offset provided to Guarantor pursuant to Section 51.005 of the Texas Property Code, and consents and agrees to be bound by Section 3.8 of that certain Amended and Restated Deed of Trust, Security Agreement, Financing Statement and Assignment of Rental of even date herewith, executed by Borrower for the benefit of Lender, covering certain real property located in Dallas County, Texas and certain personal property, all as more particularly described therein. 7.             Obligations Not Impaired. (a)           Guarantor agrees that its obligations hereunder shall not be released, diminished, impaired, reduced or affected by the occurrence of any one or more of the following events:  (i) the death, disability or lack of corporate power of Borrower, Guarantor or any other guarantor of all or any part of the Guaranteed Indebtedness, (ii) any receivership, insolvency, bankruptcy or other proceedings affecting Borrower, Guarantor or any other guarantor of all or any part of the Guaranteed Indebtedness, or any of their respective property; (iii) the partial or total release or discharge of Borrower or any other guarantor of all or any part of the Guaranteed Indebtedness, or any other person or entity from the performance of any obligation contained in any instrument or agreement evidencing, governing or securing all or any part of the Guaranteed Indebtedness, whether occurring by reason of law or otherwise; (iv) the taking or accepting of any collateral for all or any part of the Guaranteed Indebtedness or this Guaranty; (v) the taking or accepting of any other guaranty for all or any part of the Guaranteed Indebtedness; (vi) any failure by Lender to acquire, perfect or continue any lien or security interest on collateral securing all or any part of the Guaranteed Indebtedness or this Guaranty; (vii) the impairment of any collateral securing all or any part of the Guaranteed Indebtedness or this Guaranty; (viii) any failure by Lender to sell any collateral securing all or any part of the Guaranteed Indebtedness or this Guaranty in a commercially reasonable manner or as otherwise required by law; (ix) any invalidity or unenforceability of or defect or deficiency in any of the Loan Documents; or (x) any other circumstance which might otherwise constitute a defense available to, or discharge of, Borrower or any other guarantor of all or any part of the Guaranteed Indebtedness. (b)           This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment of all or any part of the Guaranteed Indebtedness is rescinded or must otherwise be returned by Lender upon the insolvency, bankruptcy or reorganization of Borrower, Guarantor, any other guarantor of all or any part of the Guaranteed Indebtedness, or otherwise, all as though such payment had not been made. (c)           In the event Borrower is a corporation, joint stock association or partnership, or is hereafter incorporated, none of the following shall affect Guarantor’s liability hereunder: (i) the unenforceability of all or any part of the Guaranteed Indebtedness against Borrower by reason of the fact that the Guaranteed Indebtedness exceeds the amount permitted by law; (ii) the act of creating all or any part of the Guaranteed Indebtedness is ultra vires; or (iii) the officers or partners creating all or any part of the Guaranteed Indebtedness acted in excess of their authority.  Guarantor hereby acknowledges that withdrawal from, or termination of, any ownership interest in Borrower now or hereafter owned or held by Guarantor shall not alter, affect or in any way limit the obligations of Guarantor hereunder. 8.             Actions Against Guarantor.  In the event of a default (after any applicable grace period) in the payment or performance of all or any part of the Guaranteed Indebtedness when such Guaranteed Indebtedness becomes due, whether by its terms, by acceleration or otherwise, Guarantor shall, without notice or demand, promptly pay the amount due thereon to Lender, in lawful money of the United States, at Lender’s address set forth in Subparagraph 1(a) above.  One or more successive or concurrent actions may be brought against Guarantor, either in the same action in which Borrower is sued or in separate actions, as 5 --------------------------------------------------------------------------------   often as Lender deems advisable.  The exercise by Lender of any right or remedy under this Guaranty or under any other agreement or instrument, at law, in equity or otherwise, shall not preclude concurrent or subsequent exercise of any other right or remedy.  The books and records of Lender shall be admissible as evidence in any action or proceeding involving this Guaranty and shall be prima facie evidence of the payments made on, and the outstanding balance of, the Guaranteed Indebtedness. 9.             Payment by Guarantor.  Whenever Guarantor pays any sum which is or may become due under this Guaranty, written notice must be delivered to Lender contemporaneously with such payment.  Such notice shall be effective for purposes of this paragraph when contemporaneously with such payment Lender receives such notice either by:  (a) personal delivery to the address and designated department of Lender identified in Subparagraph 1(a) above, or (b) United States mail, certified or registered, return receipt requested, postage prepaid, addressed to Lender at the address shown in Subparagraph 1(a) above.  In the absence of such notice to Lender by Guarantor in compliance with the provisions hereof, any sum received by Lender on account of the Guaranteed Indebtedness shall be conclusively deemed paid by Borrower. 10.           Notice of Sale.  In the event that Guarantor is entitled to receive any notice under the Uniform Commercial Code, as it exists in the state governing any such notice, of the sale or other disposition of any collateral securing all or any part of the Guaranteed Indebtedness or this Guaranty, reasonable notice shall be deemed given when such notice is deposited in the United States mail, postage prepaid, at the address for Guarantor set forth in Subparagraph 1(c) above, five (5) days prior to the date any public sale, or after which any private sale, of any such collateral is to be held; provided, however, that notice given in any other reasonable manner or at any other reasonable time shall be sufficient. 11.           Waiver by Lender.  No delay on the part of Lender in exercising any right hereunder or failure to exercise the same shall operate as a waiver of such right.  In no event shall any waiver of the provisions of this Guaranty be effective unless the same be in writing and signed by an officer of Lender, and then only in the specific instance and for the purpose given. 12.           Successors and Assigns.  This Guaranty is for the benefit of Lender, its successors and assigns.  This Guaranty is binding upon Guarantor and Guarantor’s heirs, executors, administrators, personal representatives and successors, including without limitation any person or entity obligated by operation of law upon the reorganization, merger, consolidation or other change in the organizational structure of Guarantor. 13.           Costs and Expenses.  Guarantor shall pay on demand by Lender all costs and expenses, including without limitation all reasonable attorneys’ fees, incurred by Lender in connection with the preparation, administration, enforcement and/or collection of this Guaranty.  This covenant shall survive the payment of the Guaranteed Indebtedness. 14.           Severability.  If any provision of this Guaranty is held by a court of competent jurisdiction to be illegal, invalid or unenforceable under present or future laws, such provision shall be fully severable, shall not impair or invalidate the remainder of this Guaranty and the effect thereof shall be confined to the provision held to be illegal, invalid or unenforceable. 15.           No Obligation.  Nothing contained herein shall be construed as an obligation on the part of Lender to extend or continue to extend credit to Borrower. 16.           Amendment.  No modification or amendment of any provision of this Guaranty, nor consent to any departure by Guarantor therefrom, shall be effective unless the same shall be in writing and signed by an 6 --------------------------------------------------------------------------------   officer of Lender, and then shall be effective only in the specific instance and for the purpose for which given. 17.           Cumulative Rights.  All rights and remedies of Lender hereunder are cumulative of each other and of every other right or remedy which Lender may otherwise have at law or in equity or under any instrument or agreement, and the exercise of one or more of such rights or remedies shall not prejudice or impair the concurrent or subsequent exercise of any other rights or remedies.  This Guaranty, whether general, specific and/or limited, shall be in addition to and cumulative of, and not in substitution, novation or discharge of, any and all prior or contemporaneous guaranty agreements by Guarantor in favor of Lender or assigned to Lender by others. 18.           Governing Law, Venue. This Guaranty is intended to be performed in the State of Texas.  Except to the extent that the laws of the United States may apply to the terms hereof, the substantive laws of the State of Texas shall govern the validity, construction, enforcement and interpretation of this Guaranty.  In the event of a dispute involving this Guaranty or any other instruments executed in connection herewith, the undersigned irrevocably agrees that venue for such dispute shall lie in any court of competent jurisdiction in Dallas County, Texas. 19.           Compliance with Applicable Usury Laws.  Notwithstanding any other provision of this Guaranty or of any instrument or agreement evidencing, governing or securing all or any part of the Guaranteed Indebtedness, Guarantor and Lender by its acceptance hereof agree that Guarantor shall never be required or obligated to pay interest in excess of the maximum non-usurious interest rate as may be authorized by applicable law for the written contracts which constitute the Guaranteed Indebtedness.  It is the intention of Guarantor and Lender to conform strictly to the applicable laws which limit interest rates, and any of the aforesaid contracts for interest, if and to the extent payable by Guarantor, shall be held to be subject to reduction to the maximum non-usurious interest rate allowed under said law. 20.           Gender.  Within this Guaranty, words of any gender shall be held and construed to include the other gender. 21.           Captions.  The headings in this Guaranty are for convenience only and shall not define or limit the provisions hereof. 22.           Subrogation.  Notwithstanding anything in Section 6 above, Guarantor does not waive any rights of subrogation but until the Guaranteed Indebtedness has been paid in full, Guarantor covenants and agrees that it shall not assert, enforce, or otherwise exercise any right of subrogation (a) to any of the rights, remedies or liens of Lender or any other beneficiary against Borrower or its Affiliates or any other guarantor of the Guaranteed Indebtedness or any collateral or other security, or (b) unless such rights are expressly made subordinate to the Guaranteed Indebtedness (in form and upon terms acceptable to Lender) and the rights or remedies of Lender under this Guaranty and the Loan Documents, any right of recourse, reimbursement, contribution, indemnification, or similar right against Borrower or its Affiliates or any other guarantor of all or any part of the Guaranteed Indebtedness. 23.           Offset.  By acceptance of this Guaranty, Lender waives any statutory or common law right of offset with respect to any accounts of Guarantor at any time held by Lender. 24.           Liability.  Any obligation or liability of  Guarantor hereunder shall be enforceable only against, and payable only out of, the property of Guarantor, and in no event shall any officer, director, shareholder, partner, beneficiary, agent, advisor or employee of Guarantor, be held to any personal liability whatsoever or be liable for any of the obligations of the parties hereunder, or the property of any 7 --------------------------------------------------------------------------------   such Persons be subject to the payment of any such obligations, except in the case of certain Persons as otherwise specifically provided in the Loan Documents and where such Persons have executed a written agreement pertaining thereto.  Without limiting the generality of the foregoing sentence, no general partner of Guarantor shall have personal liability for the obligations of Guarantor under this Guaranty. EXECUTED to be effective as of the date first above written.   GUARANTOR:           BEHRINGER HARVARD SHORT-TERM OPPORTUNITY FUND I LP,   a Texas limited partnership         By: BEHRINGER HARVARD ADVISORS II LP,     a Texas limited partnership,     its general partner           By: HARVARD PROPERTY TRUST, LLC,       a Delaware limited liability company,       its general partner                       By:           Name:           Title:       8 --------------------------------------------------------------------------------

Exhibit 10.4   [g19861kgi001.jpg] The Stock Yards Bank Director’s Deferred Compensation Plan [g19861kgi002.jpg]   ADOPTION AGREEMENT   THIS AGREEMENT is made the           day of                                 ,                    , by Stock Yards Bank and Trust Company (the “Employer”), having its principal office at 1040 East Main Street, Louisville, KY 40206 and EXECUTIVE BENEFIT SERVICES, INC. (the “Sponsor”), having its principal office at 4140 ParkLake Avenue, Suite 500, Raleigh, NC 27612.   W I T N E S S E T H:   WHEREAS, the Sponsor has established the Stock Yards Bank Director’s Deferred Compensation Plan (the “Plan”); and   WHEREAS, the Employer desires to adopt the Plan as an unfunded, nonqualified deferred compensation plan: and   WHEREAS, the Employer has been advised by the Sponsor to obtain legal and tax advice from its professional advisors before adopting the Plan, and that the Sponsor disclaims all liability for the legal and tax consequences which result from the elections made by the Employer in this Adoption Agreement;   NOW, THEREFORE, the Employer hereby adopts the Plan in accordance with the terms and conditions set forth in this Adoption Agreement:   ARTICLE I   Terms used in this Adoption Agreement shall have the same meaning as in the Plan, unless some other meaning is expressly herein set forth. The Employer hereby represents and warrants that the Plan has been adopted by the Employer upon proper authorization and the Employer hereby elects to adopt the Plan for the benefit of its Participants as referred to in the Plan. By the execution of this Adoption Agreement, the Employer hereby agrees to be bound by the terms of the Plan.   This Adoption Agreement may only be used in connection with the Stock Yards Bank Director’s Deferred Compensation Plan. The Sponsor will inform the Employer of any amendments to the Plan or of the discontinuance or abandonment of the Plan. For questions concerning the Plan, the Employer may call the Sponsor at (919) 833-1042.   ©       2003 Executive Benefit Services, Inc.   1 --------------------------------------------------------------------------------   ARTICLE II   The Employer hereby makes the following designations or elections for the purpose of the Plan [Section references below correspond to Section references in the Plan]:   2.7                               Compensation: The “Compensation” of a Participant shall mean all of each Participant’s [check desired option(s)]:   o   (A)   Compensation received as an Employee reportable in box 1, Wages, Tips and other Compensation, on Form W-2.           o   (B)   Annual base salary.           o   (C)   Annual bonus.           o   (D)   Long term incentive plan compensation.           ý   (E)   Compensation received as an Independent Contractor reportable on Form 1099.           o   (F)   Commissions.           o   (G)   other [specify]: .   Notwithstanding the foregoing, Compensation ý SHALL o SHALL NOT include Salary Deferral Credits under this Plan and amounts contributed by the Participant pursuant to a Salary Deferral Agreement to another employee benefit plan of the Employer which are not includible in the gross income of the Employee under Section 125, 132(f)(4), 402(e)(3), 402(h) or 403(b) of the Code.   2.8                               Crediting Date: The Deferred Compensation Account of a Participant shall be credited with the amount of any Salary Deferral Credits to such account at the time designated below [check desired Crediting Date]:   o   (A)   The last business day of each Plan Year.           o   (B)   The last business day of each calendar quarter during the Plan Year.           o   (C)   The last business day of each month during the Plan Year.           o   (D)   The last business day of each payroll period during the Plan Year.           ý   (E)   Any business day on which Salary Deferral Credits are received by the Sponsor.           o   (F)   Other [specify]: .   2 --------------------------------------------------------------------------------   2.10                        Disability: The disability of a Participant shall be determined as follows:   o   (A)   The Employee participating in the Plan shall be considered to be disabled when he has been determined to be disabled for the purposes of any long term disability insurance covering the Participant that is sponsored by the Employer           ý   (B)   The Participant shall be considered to be disabled when he has been determined to be disabled for purposes of the Federal Social Security Act.           o   (C)   Other:                     .   2.14                        Effective Date [check desired option]:   o   (A)   This is a newly-established Plan, and the Effective Date of the Plan is                                           .           ý   (B)   This is an amendment and restatement of a plan named Stock Yards Bank Director’s Deferred Compensation Plan with an effective date of March 1, 2001. The Effective Date of this amended and restated Plan is                                        .  This is amendment number 5.   2.20                        Normal Retirement Date: The Normal Retirement Date of a Participant shall be: [check desired option]:   ý   (A)   The attainment of age 70.           o   (B)   The later of age             or the              anniversary of the participation commencement date. The participation commencement date is the first day of the first Plan Year in which the Participant commenced participation in the Plan.           o   (C)   The completion of        Years of Service.           o   (D)    The completion of         Years of Service and attainment of age        .   3 --------------------------------------------------------------------------------   2.22                        Participating Employer(s):  As of the Effective Date, the following Participating Employer(s) are parties to the Plan [list all employer-parties, including the Employer]:   Name of Employer   Address   Telephone No.   EIN Stock Yards Bank and Trust Company   1040 East Main Street   (502) 625-9122   61-0354170                   Louisville, KY 40206                                       2.23                        Plan: The name of the Plan as applied to the Employer is:   Stock Yards Bank Director’s Deferred Compensation Plan.   2.24                        Plan Administrator: The Plan Administrator shall be [check desired option]:   ý   (A)   Committee.           o   (B)   Employer.           o   (C)   Other (specify): .   2.25                        Plan Year: The Plan Year shall be the 12 consecutive calendar month period ending on the last day of the month of December, and each anniversary thereof.   4 --------------------------------------------------------------------------------   2.34                        Trust:  [check desired option]:   o   (A)   The Employer does desire to establish a “rabbi” trust for the purpose of setting aside assets of the Employer contributed thereto for the payment of benefits under the Plan.           o   (B)   The Employer does not desire to establish a “rabbi” trust for the purpose of setting aside assets of the Employer contributed thereto for the payment of benefits under the Plan.           ý   (C)   The Employer desires to establish a “rabbi” trust for the purpose of setting aside assets of the Employer contributed thereto for the payment of benefits under the Plan upon the occurrence of the following event(s): Upon the happening of a Change in Control as hereafter defined. A Change In Control shall occur upon (1) the acquisition by any person of 50% or  more of the voting power of the Employer’s outstanding voting stock, (2) five or more of the current members of the Board of Directors ceasing to be members of the Board unless ceasing any replacement director was  elected by a vote of either at least 75% of the remaining directors, or at least 75% of the shares entitled to vote on such replacement, or (3) approval by the shareholders of the Employer of (A) a merger or  consolidation with another corporation if the stockholders of the Employer immediately before such vote will not, as a result of such merger or consolidation, own more than 50% of the voting stock of the corporation resulting from such merger or consolidation, or (B) a complete liquidation of the Employer or the sale of all, or substantially all, of the assets of the Employer. Notwithstanding the foregoing, a Change in Control shall not occur solely because 50% or more of the voting stock of the Employer is acquired by (i) a trust which is part of the Employer’s or subsidiary’s ‘s employee benefit plan, or (ii) by a corporation which, immediately following such acquisition, is owned directly or indirectly by the stockholders of the Employer in the same  proportion as their ownership of stock in the Employer immediately prior to such acquisition. In the event a Change in Control occurs, you will be notified by the Committee.   5 --------------------------------------------------------------------------------   4.1          Salary Deferral Credits:  A Participant may elect to have his Compensation (as selected in Section 2.7 of this Adoption Agreement) reduced by the following annual percentage or amount as designated in writing to the Committee [check the applicable options]:   o   (A)   Annual base salary:                   [Complete the following blanks only if a minimum or maximum deferral is desired]:                   Minimum deferral:                 $                        or                       %         Maximum deferral:                $                        or                       %           o   (B)   Annual bonus:                   [Complete the following blanks only if a minimum or maximum deferral is desired]:                   Minimum deferral:                 $                        or                       %         Maximum deferral:                $                        or                       %           ý   (C)   Other: 1099 Income.                   [Complete the following blanks only if a minimum or maximum deferral is desired]:                   Minimum deferral:                 $                        or           0         %         Maximum deferral:                $                        or         100       %           o   (D)   Not applicable – no salary deferral provision.   4.1.2       Termination of Salary Deferrals:  A Participant may terminate his Salary Deferral Agreement effective as of [check desired option]:   ý   (A)   The first full payroll period commencing after the date written notice of the termination is received by the Committee.           o   (B)   The first day of the Plan Year occurring after the date written notice of the termination is received by the Committee.           o   (C)   Not applicable – no salary deferral provision.   6 --------------------------------------------------------------------------------   4.2          Employer Credits:  The Employer will make Employer Credits in the following manner [check a maximum of 2 desired option(s)]:   o   (A)   Employer Matching Credits:  The Employer may make matching credits to the Deferred Compensation Account of each Employee Participant in an amount determined as follows [check desired option(s)]:               o   (i)           % of the Participant’s Salary Deferral Credits.                   o   (ii)           % of the first         % of the Participant’s Compensation which is elected as a Salary Deferral Credit.                   o   (iii)   An amount determined each Plan Year by the Employer.                   o   (iv)   The Employer shall not match amounts provided above in excess of $               or in excess of         % of the Participant’s Compensation per Plan Year.                   o   (v)   Other: .                                 ý   (vi)   Not applicable – no Employer matching credits provision.               o   (B)   Employer Profit Sharing Credits:  The Employer may make profit sharing credits to the Deferred Compensation Account of each Active Employee Participant in an amount determined as follows:               o   (i)   Such amount out of the current or accumulated net profit of the Employer for such year as the Employer in its sole discretion shall determine.                   o   (ii)   Such amount as the Employer in its sole discretion shall determine without regard to current or accumulated net profit.                   o   (iii)   The Employer shall not make profit sharing credits in excess of $              , or in excess of         % of the Participant’s Compensation per Plan Year.                   o   (iv)   Other:                             .     ý   (v)   Not applicable – no Employer profit sharing provision.               o   (C)   Other [describe]:                     .   7 --------------------------------------------------------------------------------   5.1          Death of a Participant:  If the Participant dies while in Service, the Employer shall pay a benefit to the Beneficiary in an amount equal to the Accrued Benefit of the Participant determined as of the date payments to the Beneficiary commence, plus [check if desired]:   o   (A)   An amount to be determined by the Committee.           o   (B)   Other [specify]: .           ý   (C)   No additional benefits.   6.1          In-Service Withdrawals:  In-service withdrawals may be made from the Plan [check desired option]:   ý   (A)   Yes.                                   (i)   The In-Service Account may be withdrawn only after the account has been established for [check desired option]:                               ý   (a)          A minimum of 3 years (insert minimum of 2 years.)                               o   (b)         Not applicable.                           (ii)   A Participant may defer the date of any scheduled in-service withdrawal by giving notice of the new withdrawal date to the Committee [check desired option]:                               o   (a)          At least         (insert minimum of 12) months prior to the scheduled withdrawal date.                               ý   (b)         Not applicable.                   o   (B)   No in-service withdrawals.   8 --------------------------------------------------------------------------------   6.2          Financial Hardship Withdrawals:  Financial hardship withdrawals may be made from the Plan [check desired option]:   ý   (A)   Yes.           o   (B)   No.   6.3          “Haircut” Withdrawals:  “Haircut” withdrawals may be made from the Plan [check desired option]:   o   (A)   Yes.  If a Participant obtains a “haircut” withdrawal, the Participant shall forfeit 10% (specify percentage not less than 10%) of the amount of withdrawal.           ý   (B)   No “haircut” withdrawals.   6.4          Education Withdrawals:  Education withdrawals may be made from the Plan [check desired option]:   ý   (A)   Yes.                                   (i)   Education withdrawals may be made in installment payments over no more than 6 years.                       (ii)   A Participant may defer the date of any scheduled education withdrawal by giving notice of the new withdrawal date to the Committee [check desired option]:                           o   (a)          At least         (insert minimum of 12) months prior to the scheduled withdrawal date.                               ý   (b)         Not applicable.                   o   (B)   No education withdrawals.   9 --------------------------------------------------------------------------------   7.1                               Payment Options:  Any benefit payable under the Plan upon a Qualifying Distribution Event may be made to the Participant or his Beneficiary (as applicable) in any of the following payment forms, as selected by the Participant upon his entry into the Plan [check desired option(s)]:   ý   (A)   A lump sum in cash as soon as practicable following the date of the Qualifying Distribution Event.                   ý   (B)   Approximately equal annual installments over a term no longer than 10 years as elected by the Participant upon his entry into the Plan.                       ý   (i)   Payment of the benefit shall commence as soon as practicable after the following date [select desired option]:                           o   (a)   The first business day of the calendar year following the date of the Qualifying Distribution Event.                           o   (b)   The first business day of the calendar quarter following the date of the Qualifying Distribution Event.                           ý   (c)   The first business day of the calendar month following the date of the Qualifying Distribution Event.                           The payment of each annual installment shall be made on the anniversary of the date selected for the commencement of the installment payments in this subsection (i).  The amount of the annual installment shall be adjusted on each anniversary date of the commencement of the installment payments for credits or debits to the Participant’s account pursuant to Section 9 of the Plan. Such adjustment shall be made by dividing the balance in the Deferred Compensation Account on each such date (following adjustment on such date) by the number of annual installments remaining to be paid hereunder; provided that the last annual installment due under the Plan shall be the entire amount credited to the Participant’s account on the date of the payment.                       ý   (ii)   Notwithstanding the payment option elected by the Participant, the vested Accrued Benefit of the Participant will be distributed in a single lump payment if the amount of such benefit on the date that payment is to commence does not exceed [check desired option]:                           o   (a)   $                  (Insert desired cash out amount).                           ý   (b)   Not applicable.                   ý   (C)   A Participant may defer the date of any scheduled payment by giving notice of the new payment date to the Committee [check desired option]:               o   (i)   (a)          At least         (insert minimum of 12) months prior to the scheduled payment date.                   ý   (ii)   (b)         Not applicable.   10 --------------------------------------------------------------------------------   ý   (D)   Other [specify]: A Participant may change an initial form of payment election by a writing     delivered to the Employer to select either a lump sum or installments as allowed in Section 7.1 (A) and (B) above, at any time up to the date director status ends or, with respect to accounts paid while still a director, before the December 31 of the year prior to the year in which payment is to begin.   8.              Vesting: An Active Participant shall be fully vested in the Employer Credits made to the Deferred Compensation Account upon occurrence of the following events [check or complete all that apply]:   o   (A)   Normal Retirement Date.           o   (B)   Death.           o   (C)   Disability.           o   (D)   Completion of that number of Years of Service specified below:               o   (i)   Employer Matching Credits [complete if applicable]:                           o   (a)   Immediate 100% vesting.                           o   (b)   100% vesting after       Years of Service.                           o   (c)   100% vesting at age        .                           o   (d)                     Number of Years   Vested                     of Service   Percentage                                               Less than 1          %                     1          %                     2          %                     3          %                     4          %                     5          %                     6          %                     7          %                     8 or more          %                             For this purpose, Years of Service of a Participant shall be calculated from the date designated below [check desired option]:                                   o   (1)   First Day of Service.                                   o   (2)   Effective Date of the Plan Participation.                                   o   (3)   Each Crediting Date. Under this option (3), each Employer Matching Credit shall vest based on the Years of Service of a Participant from the Crediting Date on which each Employer Credit is made to his or her Deferred Compensation Account.   11 --------------------------------------------------------------------------------       o   (ii)   Employer Profit Sharing Credits [complete if applicable]:                           o   (a)   Immediate 100% vesting.                           o   (b)   100% vesting after       Years of Service.                           o   (c)   100% vesting at age        .                           o   (d)                     Number of Years   Vested                     of Service   Percentage                                               Less than 1          %                     1          %                     2          %                     3          %                     4          %                     5          %                     6          %                     7          %                     8          %                     9          %                     10 or more          %                             For this purpose, Years of Service of a Participant shall be calculated from the date designated below [check desired option]:                                   o   (1)   First Day of Service.                                   o   (2)   Effective Date of the Plan Participation.                                   o   (3)   Each Crediting Date. Under this option (3), each Employer Profit Sharing Credit shall vest based on the Years of Service of a Participant from the Crediting Date on which each Employer Credit is made to his or her Deferred Compensation Account.   12 --------------------------------------------------------------------------------       o   (iii)   Other Employer Credits [complete if applicable]:                           o   (a)   Immediate 100% vesting.                           o   (b)   100% vesting after       Years of Service.                           o   (c)   100% vesting at age        .                           o   (d)                     Number of Years   Vested                     of Service   Percentage                                               Less than 1          %                     1          %                     2          %                     3          %                     4          %                     5          %                     6          %                     7          %                     8          %                     9          %                     10 or more          %                             For this purpose, Years of Service of a Participant shall be calculated from the date designated below [check desired option]:                                   o   (1)   First Day of Service.                                   o   (2)   Effective Date of the Plan Participation.                                   o   (3)   Each Crediting Date. Under this option (3), each Other Employer Credit shall vest based on the Years of Service of a Participant from the Crediting Date on which each Employer Credit is made to his or her Deferred Compensation Account.   10.          Benefit Exchange: The Employer elects to permit the Participant to exchange all or any portion of the vested Accrued Benefit under the Plan for another type of nonqualified benefit [check desired option]:   o   (A)   Yes.           ý   (B)   No.   11.          Transfer to Qualified Plan: The Employer elects to permit the Participant to direct the transfer of a portion of his benefit under this Plan to a tax-qualified retirement plan maintained by the Employer [check desired option]:   o   (A)   Yes. Insert name of Qualified Plan: .           ý   (B)   No.   13 --------------------------------------------------------------------------------   17. Amendment or Termination of Plan: [check or complete all that apply]:   ý   (A)   Notwithstanding any provision in this Adoption Agreement or the Plan to the contrary, Exhibit A shall be added to Section 4.1.5 of the Plan.               o   (B)   The Plan shall be terminated upon the occurrence of one or more of the following events [check if desired]:                   o   (i)   The amount of shareholders equity shown on the financial statements of the Employer for each of the two most recent fiscal years is less than $            .                   o   (ii)   The aggregate net loss (after tax) as reported on the financial statements of the Employer for the two most recent fiscal years is greater than $            .                   o   (iii)   There is a change of control of the Employer. For this purpose, a “change of control” shall be deemed to have occurred if: (A) any person other than an officer who is an Employee of the Employer for at least one year preceding the change of control, acquires or becomes the beneficial owner, directly or indirectly, of securities of the Employer representing       % [insert percentage] or more of the combined voting power of the Employer’s then outstanding securities and thereafter, the membership of the Board becomes such that a majority are persons who were not members of the Board at the time of the acquisition of securities; or (B) the Employer, or its assets, are acquired by or combined with another entity and less than a majority of the outstanding voting shares of such entity after the acquisition or combination are owned, immediately after the acquisition or combination, by the owners of voting shares of the Employer immediately prior to the acquisition or combination.                   o   (iv)   Other [specify]:                                           .               ý   (C)   In the event of a termination of the Plan, the Employer elects that [check if desired]:                   o   (i)   Each Active Participant will become fully vested in the Deferred Compensation Account. [If not checked, the vesting provisions of Section 8 will continue to apply.]                   ý   (ii)   The Deferred Compensation Account will be immediately distributed to each Participant in a single lump sum payment. [If not checked the payment provisions of Section 7 will continue to apply.]   14 --------------------------------------------------------------------------------   20.9                        Construction: The provisions of the Plan and Trust (if any) shall be construed and enforced according to the laws of the State of Kentucky, except to the extent that such laws are superseded by ERISA.     IN WITNESS WHEREOF, this Agreement has been executed as of the day and year first above stated.         STOCK YARDS BANK AND TRUST COMPANY     Name of Employer             By:         Authorized Person                 Title     NOTE: Execution of this Adoption Agreement creates a legal liability of the Employer with significant tax consequences to the Employer and Participants. The Employer should obtain legal and tax advice from its professional advisors before adopting the Plan. The Sponsor disclaims all liability for the legal and tax consequences which result from the elections made by the Employer in this Adoption Agreement.   15 --------------------------------------------------------------------------------   Exhibit A   Director fee’s deferred into the Stock Yards Bank Stock index are irrevocable. They may not be rebalanced or reallocated until a normal distribution event occurs. Future Director Fee Deferrals may be allocated into different investment indices.   16 --------------------------------------------------------------------------------

Exhibit 10.3 AMENDED AND RESTATED DECLARATION OF TRUST CRESCENT CAPITAL TRUST III Dated as of May 18, 2006 -------------------------------------------------------------------------------- TABLE OF CONTENTS             Page ARTICLE I INTERPRETATION AND DEFINITIONS SECTION 1.1.    Definitions    1 ARTICLE II ORGANIZATION SECTION 2.1.    Name    9 SECTION 2.2.    Office    9 SECTION 2.3.    Purpose    9 SECTION 2.4.    Authority    9 SECTION 2.5.    Title to Property of the Trust    10 SECTION 2.6.    Powers and Duties of the Trustees and the Administrators    10 SECTION 2.7.    Prohibition of Actions by the Trust and the Trustees    15 SECTION 2.8.    Powers and Duties of the Institutional Trustee    15 SECTION 2.9.    Certain Duties and Responsibilities of the Trustees and the Administrators    17 SECTION 2.10.    Certain Rights of Institutional Trustee    19 SECTION 2.11.    Delaware Trustee    21 SECTION 2.12.    Execution of Documents    21 SECTION 2.13.    Not Responsible for Recitals or Issuance of Securities    21 SECTION 2.14.    Duration of Trust    22 SECTION 2.15.    Mergers    22 ARTICLE III SPONSOR SECTION 3.1.    Sponsor’s Purchase of Common Securities    24 SECTION 3.2.    Responsibilities of the Sponsor    24 ARTICLE IV TRUSTEES AND ADMINISTRATORS SECTION 4.1.    Number of Trustees    24 SECTION 4.2.    Delaware Trustee    24 SECTION 4.3.    Institutional Trustee; Eligibility    25 SECTION 4.4.    Certain Qualifications of the Delaware Trustee Generally    25 SECTION 4.5.    Administrators    25   -i- -------------------------------------------------------------------------------- TABLE OF CONTENTS (continued)             Page SECTION 4.6.    Initial Delaware Trustee    26 SECTION 4.7.    Appointment, Removal and Resignation of the Trustees and the Administrators    26 SECTION 4.8.    Vacancies Among Trustees    28 SECTION 4.9.    Effect of Vacancies    28 SECTION 4.10.    Meetings of the Trustees and the Administrators    28 SECTION 4.11.    Delegation of Power    28 SECTION 4.12.    Merger, Conversion, Consolidation or Succession to Business    29 ARTICLE V DISTRIBUTIONS SECTION 5.1.    Distributions    29 ARTICLE VI ISSUANCE OF SECURITIES SECTION 6.1.    General Provisions Regarding Securities    29 SECTION 6.2.    Paying Agent, Transfer Agent, Calculation Agent and Registrar    31 SECTION 6.3.    Form and Dating    31 SECTION 6.4.    Book-Entry Capital Securities    32 SECTION 6.5.    Mutilated, Destroyed, Lost or Stolen Certificates    33 SECTION 6.6.    Temporary Securities    34 SECTION 6.7.    Cancellation    34 SECTION 6.8.    Rights of Holders; Waivers of Past Defaults    34 ARTICLE VII DISSOLUTION AND TERMINATION OF TRUST SECTION 7.1.    Dissolution and Termination of Trust    36 ARTICLE VIII TRANSFER OF INTERESTS SECTION 8.1.    General    37 SECTION 8.2.    Transfer Procedures and Restrictions    38 SECTION 8.3.    Deemed Security Holders    41 ARTICLE IX LIMITATION OF LIABILITY OF HOLDERS OF SECURITIES, TRUSTEES OR OTHERS SECTION 9.1.    Liability    42   -ii- -------------------------------------------------------------------------------- TABLE OF CONTENTS (continued)             Page SECTION 9.2.    Exculpation    42 SECTION 9.3.    Fiduciary Duty    42 SECTION 9.4.    Indemnification    43 SECTION 9.5.    Outside Businesses    46 SECTION 9.6.    Compensation; Fee    46 ARTICLE X ACCOUNTING SECTION 10.1.    Fiscal Year    47 SECTION 10.2.    Certain Accounting Matters    47 SECTION 10.3.    Banking    48 SECTION 10.4.    Withholding    48 ARTICLE XI AMENDMENTS AND MEETINGS SECTION 11.1.    Amendments    48 SECTION 11.2.    Meetings of the Holders of the Securities; Action by Written Consent    50 ARTICLE XII REPRESENTATIONS OF INSTITUTIONAL TRUSTEE AND DELAWARE TRUSTEE SECTION 12.1.    Representations and Warranties of Institutional Trustee    52 SECTION 12.2.    Representations and Warranties of Delaware Trustee    53 ARTICLE XIII MISCELLANEOUS SECTION 13.1.    Notices    53 SECTION 13.2.    Governing Law    55 SECTION 13.3.    Submission to Jurisdiction    55 SECTION 13.4.    Intention of the Parties    55 SECTION 13.5.    Headings    55 SECTION 13.6.    Successors and Assigns    55 SECTION 13.7.    Partial Enforceability    56 SECTION 13.8.    Counterparts    56   -iii- -------------------------------------------------------------------------------- TABLE OF CONTENTS (continued)             Page ANNEXES AND EXHIBITS    ANNEX I    Terms of Capital Securities and Common Securities    A-I-1 EXHIBIT A-1    Form of Capital Security Certificate    A-1-1 EXHIBIT A-2    Form of Common Security Certificate    A-2-1   -iv- -------------------------------------------------------------------------------- AMENDED AND RESTATED DECLARATION OF TRUST OF CRESCENT CAPITAL TRUST III May 18, 2006 AMENDED AND RESTATED DECLARATION OF TRUST (this “Declaration”), dated and effective as of May 18, 2006, by the Trustees (as defined herein), the Administrators (as defined herein), the Sponsor (as defined herein) and the holders from time to time of undivided beneficial interests in the assets of the Trust (as defined herein) to be issued pursuant to this Declaration. WHEREAS, certain of the Trustees, the Administrators and the Sponsor established Crescent Capital Trust III (the “Trust”), a statutory trust under the Statutory Trust Act (as defined herein), pursuant to a Declaration of Trust, dated as of May 16, 2006 (the “Original Declaration”), and a Certificate of Trust filed with the Secretary of State of the State of Delaware on May 16, 2006, for the sole purpose of issuing and selling certain securities representing undivided beneficial interests in the assets of the Trust and investing the proceeds thereof in the Debentures (as defined herein) of the Debenture Issuer (as defined herein) in connection with the issuance of the Capital Securities (as defined herein); WHEREAS, as of the date hereof, no interests in the assets of the Trust have been issued; and WHEREAS, all of the Trustees, the Administrators and the Sponsor, by this Declaration, amend and restate each and every term and provision of the Original Declaration. NOW, THEREFORE, it being the intention of the parties hereto to continue the Trust as a statutory trust under the Statutory Trust Act and that this Declaration constitutes the governing instrument of such statutory trust, and that all assets contributed to the Trust will be held in trust for the benefit of the holders, from time to time, of the securities representing undivided beneficial interests in the assets of the Trust issued hereunder, subject to the provisions of this Declaration, and, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties, intending to be legally bound hereby, amend and restate in its entirety the Original Declaration and agree as follows: ARTICLE I INTERPRETATION AND DEFINITIONS SECTION 1.1. Definitions. Unless the context otherwise requires: (a) capitalized terms used in this Declaration but not defined in the preamble above or elsewhere herein have the respective meanings assigned to them in this Section 1.1 or, if not defined in this Section 1.1 or elsewhere herein, in the Indenture; -------------------------------------------------------------------------------- (b) a term defined anywhere in this Declaration has the same meaning throughout; (c) all references to “the Declaration” or “this Declaration” are to this Declaration as modified, supplemented or amended from time to time; (d) all references in this Declaration to Articles and Sections and Annexes and Exhibits are to Articles and Sections of and Annexes and Exhibits to this Declaration unless otherwise specified; (e) a term defined in the Trust Indenture Act (as defined herein) has the same meaning when used in this Declaration unless otherwise defined in this Declaration or unless the context otherwise requires; and (f) a reference to the singular includes the plural and vice versa. “Additional Interest” has the meaning set forth in Section 3.06 of the Indenture. “Administrative Action” has the meaning set forth in paragraph 4(a) of Annex I. “Administrators” means each of J. Donald Boggus, Jr. and Leland W. Brantley, Jr., solely in such Person’s capacity as Administrator of the Trust continued hereunder and not in such Person’s individual capacity, or such Administrator’s successor in interest in such capacity, or any successor appointed as herein provided. “Affiliate” has the same meaning as given to that term in Rule 405 of the Securities Act or any successor rule thereunder. “Applicable Depositary Procedures” means, with respect to any transfer or transaction involving a Book-Entry Capital Security, the rules and procedures of the Depositary for such Book-Entry Capital Security, in each case to the extent applicable to such transaction and as in effect from time to time. “Authorized Officer” of a Person means any Person that is authorized to bind such Person. “Bankruptcy Event” means, with respect to any Person: (a) a court having jurisdiction in the premises enters a decree or order for relief in respect of such Person in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appoints a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of such Person or for any substantial part of its property, or orders the winding-up or liquidation of its affairs, and such decree, appointment or order remains unstayed and in effect for a period of 90 consecutive days; or (b) such Person commences a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, consents to the entry of an order for relief in an involuntary case under any such law, or consents to the appointment of or   -2- -------------------------------------------------------------------------------- taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of such Person of any substantial part of its property, or makes any general assignment for the benefit of creditors, or fails generally to pay its debts as they become due. “Book-Entry Capital Security” means a Capital Security, the ownership and transfers of which shall be made through book entries by a Depositary. “Business Day” means any day other than Saturday, Sunday or any other day on which banking institutions in Wilmington, Delaware or New York City or are permitted or required by any applicable law or executive order to close. “Calculation Agent” has the meaning set forth in Section 1.01 of the Indenture. “Capital Securities” has the meaning set forth in Section 6.1(a). “Capital Security Certificate” means a definitive Certificate registered in the name of the Holder representing Capital Securities, which shall be substantially in the form attached hereto as Exhibit A 1. “Capital Treatment Event” has the meaning set forth in paragraph 4(a) of Annex I. “Certificate” means any certificate evidencing Securities. “Certificate of Trust” means the certificate of trust filed with the Secretary of State of the State of Delaware with respect to the Trust, as amended and restated from time to time. “Closing Date” has the meaning set forth in the Purchase Agreement. “Code” means the Internal Revenue Code of 1986, as amended from time to time, or any successor legislation. “Commission” means the United States Securities and Exchange Commission. “Common Securities” has the meaning set forth in Section 6.1(a). “Common Security Certificate” means a definitive Certificate registered in the name of the Holder representing a Common Security substantially in the form of Exhibit A-2. “Company Indemnified Person” means (a) any Administrator; (b) any Affiliate of any Administrator; (c) any officers, directors, shareholders, members, partners, employees, representatives or agents of any Administrator; or (d) any officer, director, shareholder, employee, representative or agent of the Trust or its Affiliates. “Corporate Trust Office” means the office of the Institutional Trustee at which the corporate trust business of the Institutional Trustee shall, at any particular time, be principally administered, which office shall at all times be located in the United States and at the date of execution of this Declaration is located at 919 Market Street Suite 700 Wilmington, DE 19801, Attention: Corporate Trust Division.   -3- -------------------------------------------------------------------------------- “Coupon Rate” has the meaning set forth in paragraph 2(a) of Annex I. “Covered Person” means: (a) any Administrator, officer, director, shareholder, partner, member, representative, employee or agent of (i) the Trust or (ii) the Trust’s Affiliates; and (b) any Holder of Securities. “Debenture Issuer” means Crescent Banking Company, a bank holding company incorporated in Georgia, in its capacity as issuer of the Debentures under the Indenture. “Debenture Trustee” means Wells Fargo Bank, National Association, a national banking association with its principal place of business in the State of Delaware, not in its individual capacity but solely as trustee under the Indenture until a successor is appointed thereunder, and thereafter means such successor trustee. “Debentures” means the Junior Subordinated Debt Securities due July 7, 2036 to be issued by the Debenture Issuer under the Indenture. “Deferred Interest” means any interest on the Debentures that would have been overdue and unpaid for more than one Distribution Payment Date but for the imposition of an Extension Period, and the interest that shall accrue (to the extent that the payment of such interest is legally enforceable) on such interest at the Coupon Rate applicable during such Extension Period, compounded quarterly from the date on which such Deferred Interest would otherwise have been due and payable until paid or made available for payment. “Definitive Capital Securities” means any Capital Securities in definitive form issued by the Trust. “Delaware Trustee” has the meaning set forth in Section 4.2. “Depositary” means an organization registered as a clearing agency under the Exchange Act that is designated as Depositary by the Sponsor 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 the Depositary effects book-entry transfers and pledges of securities deposited with the Depositary. “Direct Action” has the meaning set forth in Section 2.8(e). “Distribution” means a distribution payable to Holders of Securities in accordance with Section 5.1. “Distribution Payment Date” has the meaning set forth in paragraph 2(e) of Annex I. “Distribution Payment Period” means the period from and including a Distribution Payment Date, or in the case of the first Distribution Payment Period, the original date of issuance of the Securities, to, but excluding, the next succeeding Distribution Payment Date or, in the case of the last Distribution Payment Period, the Redemption Date, Special Redemption   -4- -------------------------------------------------------------------------------- Date or Maturity Date (each as defined in the Indenture), as the case may be, for the related Debentures. “DTC” means The Depository Trust Company or any successor thereto. “Event of Default” means the occurrence of an Indenture Event of Default. “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, or any successor legislation. “Extension Period” has the meaning set forth in paragraph 2(e) of Annex I. “Fiduciary Indemnified Person” shall mean each of the Institutional Trustee (including in its individual capacity), the Delaware Trustee (including in its individual capacity), any Affiliate of the Institutional Trustee or the Delaware Trustee, and any officers, directors, shareholders, members, partners, employees, representatives, custodians, nominees or agents of the Institutional Trustee or the Delaware Trustee. “Fiscal Year” has the meaning set forth in Section 10.1. “Global Capital Security” means a Capital Securities Certificate evidencing ownership of Book-Entry Capital Securities. “Guarantee” means the Guarantee Agreement, dated as of May 18, 2006, of the Sponsor in respect of the Capital Securities. “Holder” means a Person in whose name a Certificate representing a Security is registered on the register maintained by or on behalf of the Registrar, such Person being a beneficial owner within the meaning of the Statutory Trust Act. “Indemnified Person” means a Company Indemnified Person or a Fiduciary Indemnified Person. “Indenture” means the Indenture, dated as of May 18, 2006, among the Debenture Issuer and the Debenture Trustee, and any indenture supplemental thereto pursuant to which the Debentures are to be issued. “Indenture Event of Default” means an “Event of Default” as defined in the Indenture. “Initial Purchaser” means the initial purchaser of the Capital Securities. “Institutional Trustee” means the Trustee meeting the eligibility requirements set forth in Section 4.3. “Investment Company” means an investment company as defined in the Investment Company Act. “Investment Company Act” means the Investment Company Act of 1940, as amended from time to time, or any successor legislation.   -5- -------------------------------------------------------------------------------- “Investment Company Event” has the meaning set forth in paragraph 4(a) of Annex I. “Legal Action” has the meaning set forth in Section 2.8(e). “LIBOR” means the London Interbank Offered Rate for U.S. Dollar deposits in Europe as determined by the Calculation Agent according to paragraph 2(b) of Annex I. “LIBOR Banking Day” has the meaning set forth in paragraph 2(b)(1) of Annex I. “LIBOR Business Day” has the meaning set forth in paragraph 2(b)(1) of Annex I. “LIBOR Determination Date” has the meaning set forth in paragraph 2(b)(1) of Annex I. “Liquidation” has the meaning set forth in paragraph 3 of Annex I. “Liquidation Distribution” has the meaning set forth in paragraph 3 of Annex I. “Majority in liquidation amount of the Securities” means Holders of outstanding Securities voting together as a single class or, as the context may require, Holders of outstanding Capital Securities or Holders of outstanding Common Securities voting separately as a class, who are the record owners of more than 50% of the aggregate liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accrued and unpaid Distributions to the date upon which the voting percentages are determined) of all outstanding Securities of the relevant class. “Notice” has the meaning set forth in Section 2.11 of the Indenture. “Officers’ Certificate” means, with respect to any Person, a certificate signed by two Authorized Officers of such Person. Any Officers’ Certificate delivered with respect to compliance with a condition or covenant provided for in this Declaration shall include: (c) a statement that each officer signing the Officers’ Certificate has read the covenant or condition and the definitions relating thereto; (d) a brief statement of the nature and scope of the examination or investigation undertaken by each officer in rendering the Officers’ Certificate; (e) a statement that each such officer has made such examination or investigation as, in such officer’s opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and (f) a statement as to whether, in the opinion of each such officer, such condition or covenant has been complied with. “Owner” means each Person who is the beneficial owner of Book-Entry Capital Securities as reflected in the records of the Depositary or, if a Depositary Participant is not the beneficial owner, then the beneficial owner as reflected in the records of the Depositary Participant.   -6- -------------------------------------------------------------------------------- “Paying Agent” has the meaning set forth in Section 6.2. “Payment Amount” has the meaning set forth in Section 5.1. “Person” means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association, or government or any agency or political subdivision thereof, or any other entity of whatever nature. “PORTAL” has the meaning set forth in Section 2.6(a)(í). “Property Account” has the meaning set forth in Section 2.8(c). “Pro Rata” has the meaning set forth in paragraph 8 of Annex I. “Purchase Agreement” means the Purchase Agreement relating to the offering and sale of Capital Securities. “QIB” means a “qualified institutional buyer” as defined under Rule 144A. “Quorum” means a majority of the Administrators or, if there are only two Administrators, both of them. “Redemption Date” has the meaning set forth in paragraph 4(a) of Annex I. “Redemption/Distribution Notice” has the meaning set forth in paragraph 4(e) of Annex I. “Redemption Price” has the meaning set forth in paragraph 4(a) of Annex I. “Registrar” has the meaning set forth in Section 6.2. “Relevant Trustee” has the meaning set forth in Section 4.7(a). “Responsible Officer” means, with respect to the Institutional Trustee, any officer within the Corporate Trust Office of the Institutional Trustee with direct responsibility for the administration of this Declaration, including any vice-president, any assistant vice-president, any secretary, any assistant secretary, the treasurer, any assistant treasurer, any trust officer or other officer of the Corporate Trust Office of the Institutional Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of that officer’s knowledge of and familiarity with the particular subject. “Restricted Securities Legend” has the meaning set forth in Section 8.2(c). “Rule 144A” means Rule 144A under the Securities Act. “Rule 3a-5” means Rule 3a-5 under the Investment Company Act.   -7- -------------------------------------------------------------------------------- “Rule 3a-7” means Rule 3a-7 under the Investment Company Act. “Securities” means the Common Securities and the Capital Securities, as applicable. “Securities Act” means the Securities Act of 1933, as amended from time to time, or any successor legislation. “Special Event” has the meaning set forth in paragraph 4(a) of Annex I. “Special Redemption Price” has the meaning set forth in paragraph 4(a) of Annex I. “Sponsor” means Crescent Banking Company, a bank holding company that is a U.S. Person incorporated in Georgia, or any successor entity in a merger, consolidation or amalgamation that is a U.S. Person, in its capacity as sponsor of the Trust. “Statutory Trust Act” means Chapter 38 of Title 12 of the Delaware Code, 12 Del. Code § 3801 et seq., as it may be amended from time to time, or any successor legislation. “Successor Delaware Trustee” has the meaning set forth in Section 4.7(e). “Successor Entity” has the meaning set forth in Section 2.15(b). “Successor Institutional Trustee” has the meaning set forth in Section 4.7(b). “Successor Securities” has the meaning set forth in Section 2.15(b). “Super Majority” has the meaning set forth in paragraph 5(b) of Annex I. “Tax Event” has the meaning set forth in paragraph 4(a) of Annex I. “10% in liquidation amount of the Securities” means Holders of outstanding Securities voting together as a single class or, as the context may require, Holders of outstanding Capital Securities or Holders of outstanding Common Securities voting separately as a class, who are the record owners of 10% or more of the aggregate liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accrued and unpaid Distributions to the date upon which the voting percentages are determined) of all outstanding Securities of the relevant class. “Transfer Agent” has the meaning set forth in Section 6.2. “Transfer Notice” has the meaning set forth in Section 8.2(e). “Trust Indenture Act” means the Trust Indenture Act of 1939, as amended from time-to-time, or any successor legislation. “Trustee” or “Trustees” means each Person who has signed this Declaration as a trustee, so long as such Person shall continue in office in accordance with the terms hereof, and all other Persons who may from time to time be duly appointed, qualified and serving as Trustees in   -8- -------------------------------------------------------------------------------- accordance with the provisions hereof, and references herein to a Trustee or the Trustees shall refer to such Person or Persons solely in their capacity as trustees hereunder. “Trust Property” means (a) the Debentures, (b) any cash on deposit in, or owing to, the Property Account and (c) all proceeds and rights in respect of the foregoing and any other property and assets for the time being held or deemed to be held by the Institutional Trustee pursuant to the trusts of this Declaration. “U.S. Person” means a United States Person as defined in Section 7701(a)(30) of the Code. ARTICLE II ORGANIZATION SECTION 2.1. Name. The Trust is named “Crescent Capital Trust III,” as such name may be modified from time to time by the Administrators following written notice to the Institutional Trustee and the Holders of the Securities. The Trust’s activities may be conducted under the name of the Trust or any other name deemed advisable by the Administrators. SECTION 2.2. Office. The address of the principal office of the Trust, which shall be in a state of the United States or the District of Columbia, is 7 Caring Way, Jasper, Georgia 30143. On ten (10) Business Days’ written notice to the Institutional Trustee and the Holders of the Securities, the Administrators may designate another principal office, which shall be in a state of the United States or the District of Columbia. SECTION 2.3. Purpose. The exclusive purposes and functions of the Trust are (a) to issue and sell the Securities representing undivided beneficial interests in the assets of the Trust, (b) to invest the gross proceeds from such sale to acquire the Debentures, (c) to facilitate direct investment in the assets of the Trust through issuance of the Common Securities and the Capital Securities and (d) except as otherwise limited herein, to engage in only those other activities incidental thereto that are deemed necessary or advisable by the Institutional Trustee, including, without limitation, those activities specified in this Declaration. The Trust shall not borrow money, issue debt or reinvest proceeds derived from investments, pledge any of its assets, or otherwise undertake (or permit to be undertaken) any activity that would cause the Trust not to be classified for United States federal income tax purposes as a grantor trust. SECTION 2.4. Authority. Except as specifically provided in this Declaration, the Institutional Trustee shall have exclusive and complete authority to carry out the purposes of the Trust. An action taken by a Trustee on behalf of the Trust and in accordance with such Trustee’s powers shall constitute the act of and serve to bind the Trust. In dealing with the Trustees acting on behalf of the Trust, no Person shall be required to inquire into the authority of the Trustees to bind the Trust. Persons dealing with the Trust are entitled to rely conclusively on the power and authority of the Trustees as set forth in this Declaration. The Administrators shall have only those ministerial duties set forth herein with respect to accomplishing the purposes of the Trust and are not intended to be trustees or fiduciaries with respect to the Trust or the Holders. The Institutional Trustee shall have the right, but shall not be obligated except as provided in Section 2.6, to perform those duties assigned to the Administrators.   -9- -------------------------------------------------------------------------------- SECTION 2.5. Title to Property of the Trust. Except as provided in Section 2.6(g) and Section 2.8 with respect to the Debentures and the Property Account or as otherwise provided in this Declaration, legal title to all assets of the Trust shall be vested in the Trust. The Holders shall not have legal title to any part of the assets of the Trust, but shall have an undivided beneficial interest in the assets of the Trust. SECTION 2.6. Powers and Duties of the Trustees and the Administrators. (a) The Trustees and the Administrators shall conduct the affairs of the Trust in accordance with the terms of this Declaration. Subject to the limitations set forth in paragraph (b) of this Section, and in accordance with the following provisions (i) and (ii), the Administrators and, at the direction of the Administrators, the Trustees, shall have the authority to enter into all transactions and agreements determined by the Administrators to be appropriate in exercising the authority, express or implied, otherwise granted to the Trustees or the Administrators, as the case may be, under this Declaration, and to perform all acts in furtherance thereof, including without limitation, the following: (i) Each Administrator shall have the power, duty and authority, and is hereby authorized, to act on behalf of the Trust with respect to the following matters: (A) the issuance and sale of the Securities; (B) to acquire the Debentures with the proceeds of the sale of the Securities; provided, however, that the Administrators shall cause legal title to the Debentures to be held of record in the name of the Institutional Trustee for the benefit of the Holders; (C) to cause the Trust to enter into, and to execute, deliver and perform on behalf of the Trust, such agreements as may be necessary or desirable in connection with the purposes and function of the Trust, including agreements with the Paying Agent, a Debenture subscription agreement between the Trust and the Sponsor and a Common Securities subscription agreement between the Trust and the Sponsor; (D) ensuring compliance with the Securities Act and applicable state securities or blue sky laws; (E) if and at such time determined solely by the Sponsor at the request of the Holders, assisting in the designation of the Capital Securities for trading in the Private Offering, Resales and Trading through the Automatic Linkages (“PORTAL”) system if available; (F) the sending of notices (other than notices of default) and other information regarding the Securities and the Debentures to the Holders in accordance with this Declaration, including notice of any notice received from the Debenture Issuer of its election to defer payments   -10- -------------------------------------------------------------------------------- of interest on the Debentures by extending the interest payment period under the Indenture; (G) the appointment of a Paying Agent, Transfer Agent and Registrar in accordance with this Declaration; (H) execution and delivery of the Securities in accordance with this Declaration; (I) execution and delivery of closing certificates pursuant to the Purchase Agreement and the application for a taxpayer identification number; (J) unless otherwise determined by the Holders of a Majority in liquidation amount of the Securities or as otherwise required by the Statutory Trust Act, to execute on behalf of the Trust (either acting alone or together with any or all of the Administrators) any documents that the Administrators have the power to execute pursuant to this Declaration; (K) the taking of any action incidental to the foregoing as the Sponsor or an Administrator may from time to time determine is necessary or advisable to give effect to the terms of this Declaration for the benefit of the Holders (without consideration of the effect of any such action on any particular Holder); (L) to establish a record date with respect to all actions to be taken hereunder that require a record date be established, including Distributions, voting rights, redemptions and exchanges, and to issue relevant notices to the Holders of Capital Securities and Holders of Common Securities as to such actions and applicable record dates; (M) to duly prepare and file on behalf of the Trust all applicable tax returns and tax information reports that are required to be filed with respect to the Trust; (N) to negotiate the terms of, and the execution and delivery of, the Purchase Agreement providing for the sale of the Capital Securities; (O) to employ or otherwise engage employees, agents (who may be designated as officers with titles), managers, contractors, advisors, attorneys and consultants and pay reasonable compensation for such services; (P) to incur expenses that are necessary or incidental to carry out any of the purposes of the Trust;   -11- -------------------------------------------------------------------------------- (Q) to give the certificate required by § 314(a)(4) of the Trust Indenture Act to the Institutional Trustee, which certificate may be executed by an Administrator; and (R) to take all action that may be necessary or appropriate for the preservation and the continuation of the Trust’s valid existence, rights, franchises and privileges as a statutory trust under the laws of each jurisdiction (other than the State of Delaware) in which such existence is necessary to protect the limited liability of the Holders of the Capital Securities or to enable the Trust to effect the purposes for which the Trust was created. (ii) As among the Trustees and the Administrators, the Institutional Trustee shall have the power, duty and authority, and is hereby authorized, to act on behalf of the Trust with respect to the following matters: (A) the establishment of the Property Account; (B) the receipt of the Debentures; (C) the collection of interest, principal and any other payments made in respect of the Debentures in the Property Account; (D) the distribution through the Paying Agent of amounts owed to the Holders in respect of the Securities; (E) the exercise of all of the rights, powers and privileges of a holder of the Debentures; (F) the sending of notices of default and other information regarding the Securities and the Debentures to the Holders in accordance with this Declaration; (G) the distribution of the Trust Property in accordance with the terms of this Declaration; (H) to the extent provided in this Declaration, the winding up of the affairs of and liquidation of the Trust and the preparation, execution and filing of the certificate of cancellation with the Secretary of State of the State of Delaware; (I) after any Event of Default (of which the Institutional Trustee has knowledge (as provided in Section 2.10(m) hereof)) (provided, that such Event of Default is not by or with respect to the Institutional Trustee), the taking of any action incidental to the foregoing as the Institutional Trustee may from time to time determine is necessary or advisable to give effect to the terms of this Declaration and protect and   -12- -------------------------------------------------------------------------------- conserve the Trust Property for the benefit of the Holders (without consideration of the effect of any such action on any particular Holder); (J) to take all action that may be necessary or appropriate for the preservation and the continuation of the Trust’s valid existence, rights, franchises and privileges as a statutory trust under the laws of the State of Delaware to protect the limited liability of the Holders of the Capital Securities or to enable the Trust to effect the purposes for which the Trust was created; and (K) to undertake any actions set forth in § 317(a) of the Trust Indenture Act. (iii) The Institutional Trustee shall have the power and authority, and is hereby authorized, to act on behalf of the Trust with respect to any of the duties, liabilities, powers or the authority of the Administrators set forth in Section 2.6(a)(i)(F) and (G) herein but shall not have a duty to do any such act unless specifically requested to do so in writing by the Sponsor, and shall then be fully protected in acting pursuant to such written request; and in the event of a conflict between the action of the Administrators and the action of the Institutional Trustee, the action of the Institutional Trustee shall prevail. (b) So long as this Declaration remains in effect, the Trust (or the Trustees or Administrators acting on behalf of the Trust) shall not undertake any business, activities or transaction except as expressly provided herein or contemplated hereby. In particular, neither the Trustees nor the Administrators may cause the Trust to (i) acquire any investments or engage in any activities not authorized by this Declaration, (ii) sell, assign, transfer, exchange, mortgage, pledge, set-off or otherwise dispose of any of the Trust Property or interests therein, including to Holders, except as expressly provided herein, (iii) take any action that would cause (or in the case of the Institutional Trustee, to the actual knowledge of a Responsible Officer would cause) the Trust to fail or cease to qualify as a “grantor trust” for United States federal income tax purposes, (iv) incur any indebtedness for borrowed money or issue any other debt or (v) take or consent to any action that would result in the placement of a lien on any of the Trust Property. The Institutional Trustee shall, at the sole cost and expense of the Trust, defend all claims and demands of all Persons at any time claiming any lien on any of the Trust Property adverse to the interest of the Trust or the Holders in their capacity as Holders. (c) In connection with the issuance and sale of the Capital Securities, the Sponsor shall have the right and responsibility to assist the Trust with respect to, or effect on behalf of the Trust, the following (and any actions taken by the Sponsor in furtherance of the following prior to the date of this Declaration are hereby ratified and confirmed in all respects): (i) the taking of any action necessary to obtain an exemption from the Securities Act; (ii) the determination of the States in which to take appropriate action to qualify or register for sale all or part of the Capital Securities and the   -13- -------------------------------------------------------------------------------- determination of any and all such acts, other than actions which must be taken by or on behalf of the Trust, and the advisement of and direction to the Trustees of actions they must take on behalf of the Trust, and the preparation for execution and filing of any documents to be executed and filed by the Trust or on behalf of the Trust, as the Sponsor deems necessary or advisable in order to comply with the applicable laws of any such States in connection with the sale of the Capital Securities; and (iii) the taking of any other actions necessary or desirable to carry out any of the foregoing activities. (d) Notwithstanding anything herein to the contrary, the Administrators, the Institutional Trustee and the Holders of a Majority in liquidation amount of the Common Securities are authorized and directed to conduct the affairs of the Trust and to operate the Trust so that (i) the Trust will not be deemed to be an Investment Company (in the case of the Institutional Trustee, to the actual knowledge of a Responsible Officer), (ii) the Trust will not fail to be classified as a grantor trust for United States federal income tax purposes (in the case of the Institutional Trustee, to the actual knowledge of a Responsible Officer) and (iii) the Trust will not take any action inconsistent with the treatment of the Debentures as indebtedness of the Debenture Issuer for United States federal income tax purposes (in the case of the Institutional Trustee, to the actual knowledge of a Responsible Officer). In this connection, the Institutional Trustee, the Administrators and the Holders of a Majority in liquidation amount of the Common Securities are authorized to take any action, not inconsistent with applicable laws or this Declaration, as amended from time to time, that each of the Institutional Trustee, the Administrators and such Holders determine in their discretion to be necessary or desirable for such purposes, even if such action adversely affects the interests of the Holders of the Capital Securities. (e) All expenses incurred by the Administrators or the Trustees pursuant to this Section 2.6 shall be reimbursed by the Sponsor, and the Trustees shall have no obligations with respect to such expenses. (f) The assets of the Trust shall consist of the Trust Property. (g) Legal title to all Trust Property shall be vested at all times in the Institutional Trustee (in its capacity as such) and shall be held and administered by the Institutional Trustee for the benefit of the Trust in accordance with this Declaration. (h) If the Institutional Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Declaration and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Institutional Trustee or to such Holder, then and in every such case the Sponsor, the Institutional Trustee and the Holders shall, subject to any determination in such proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of the Institutional Trustee and the Holders shall continue as though no such proceeding had been instituted.   -14- -------------------------------------------------------------------------------- SECTION 2.7. Prohibition of Actions by the Trust and the Trustees. The Trust shall not, and the Institutional Trustee and the Administrators shall not, and the Administrators shall cause the Trust not to, engage in any activity other than as required or authorized by this Declaration. In particular, the Trust shall not, and the Institutional Trustee and the Administrators shall not cause the Trust to: (a) invest any proceeds received by the Trust from holding the Debentures, but shall distribute all such proceeds to Holders of the Securities pursuant to the terms of this Declaration and of the Securities; (b) acquire any assets other than as expressly provided herein; (c) possess Trust Property for other than a Trust purpose; (d) make any loans or incur any indebtedness other than loans represented by the Debentures; (e) possess any power or otherwise act in such a way as to vary the Trust Property or the terms of the Securities; (f) issue any securities or other evidences of beneficial ownership of, or beneficial interest in, the Trust other than the Securities; or (g) other than as provided in this Declaration (including Annex I), (i) direct the time, method and place of exercising any trust or power conferred upon the Debenture Trustee with respect to the Debentures, (ii) waive any past default that is waivable under the Indenture, (iii) exercise any right to rescind or annul any declaration that the principal of all the Debentures shall be due and payable, or (iv) consent to any amendment, modification or termination of the Indenture or the Debentures where such consent shall be required unless the Trust shall have received a written opinion of counsel experienced in such matters to the effect that such amendment, modification or termination will not cause the Trust to cease to be classified as a grantor trust for United States federal income tax purposes. SECTION 2.8. Powers and Duties of the Institutional Trustee. (a) The legal title to the Debentures shall be owned by and held of record in the name of the Institutional Trustee in trust for the benefit of the Trust. The right, title and interest of the Institutional Trustee to the Debentures shall vest automatically in each Person who may hereafter be appointed as Institutional Trustee in accordance with Section 4.7. Such vesting and cessation of title shall be effective whether or not conveyancing documents with regard to the Debentures have been executed and delivered. (b) The Institutional Trustee shall not transfer its right, title and interest in the Debentures to the Administrators or to the Delaware Trustee.   -15- -------------------------------------------------------------------------------- (c) The Institutional Trustee shall: (i) establish and maintain a segregated non-interest bearing trust account (the “Property Account”) in the United States (as defined in Treasury Regulations § 301.7701-7), in the name of and under the exclusive control of the Institutional Trustee, and maintained in the Institutional Trustee’s trust department, on behalf of the Holders of the Securities and, upon the receipt of payments of funds made in respect of the Debentures held by the Institutional Trustee, deposit such funds into the Property Account and make payments to the Holders of the Capital Securities and Holders of the Common Securities from the Property Account in accordance with Section 5.1. Funds in the Property Account shall be held uninvested until disbursed in accordance with this Declaration; (ii) engage in such ministerial activities as shall be necessary or appropriate to effect the redemption of the Capital Securities and the Common Securities to the extent the Debentures are redeemed or mature; and (iii) upon written notice of distribution issued by the Administrators in accordance with the terms of the Securities, engage in such ministerial activities as shall be necessary or appropriate to effect the distribution of the Debentures to Holders of Securities upon the occurrence of certain circumstances pursuant to the terms of the Securities. (d) The Institutional Trustee shall take all actions and perform such duties as may be specifically required of the Institutional Trustee pursuant to the terms of the Securities. (e) The Institutional Trustee may bring or defend, pay, collect, compromise, arbitrate, resort to legal action with respect to, or otherwise adjust claims or demands of or against, the Trust (a “Legal Action”) which arise out of or in connection with an Event of Default of which a Responsible Officer of the Institutional Trustee has actual knowledge or the Institutional Trustee’s duties and obligations under this Declaration or the Trust Indenture Act; provided, however, that if an Event of Default has occurred and is continuing and such event is attributable to the failure of the Debenture Issuer to pay interest or premium, if any, on or principal of the Debentures on the date such interest, premium, if any, or principal is otherwise payable (or in the case of redemption, on the redemption date), then a Holder of the Capital Securities may directly institute a proceeding for enforcement of payment to such Holder of the principal of or premium, if any, or interest on the Debentures having a principal amount equal to the aggregate liquidation amount of the Capital Securities of such Holder (a “Direct Action”) on or after the respective due date specified in the Debentures. In connection with such Direct Action, the rights of the Holders of the Common Securities will be subrogated to the rights of such Holder of the Capital Securities to the extent of any payment made by the Debenture Issuer to such Holder of the Capital Securities in such Direct Action; provided, however, that a Holder of the Common Securities may exercise such right of subrogation only if no Event of Default with respect to the Capital Securities has occurred and is continuing. (f) The Institutional Trustee shall continue to serve as a Trustee until either: (i) the Trust has been completely liquidated and the proceeds of the liquidation distributed to the Holders of the Securities pursuant to the terms of the   -16- -------------------------------------------------------------------------------- Securities and this Declaration (including Annex I) and the certificate of cancellation referenced in Section 7.1(b) has been filed; or (ii) a Successor Institutional Trustee has been appointed and has accepted that appointment in accordance with Section 4.7. (g) The Institutional Trustee shall have the legal power to exercise all of the rights, powers and privileges of a holder of the Debentures under the Indenture and, if an Event of Default occurs and is continuing, the Institutional Trustee may, for the benefit of Holders of the Securities, enforce its rights as holder of the Debentures subject to the rights of the Holders pursuant to this Declaration (including Annex I) and the terms of the Securities. (h) The Institutional Trustee must exercise the powers set forth in this Section 2.8 in a manner that is consistent with the purposes and functions of the Trust set out in Section 2.3, and the Institutional Trustee shall not take any action that is inconsistent with the purposes and functions of the Trust set out in Section 2.3. SECTION 2.9. Certain Duties and Responsibilities of the Trustees and the Administrators. (a) The Institutional Trustee, before the occurrence of any Event of Default (of which the Institutional Trustee has knowledge (as provided in Section 2.10(m) hereof)) and after the curing of all Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Declaration and no implied covenants shall be read into this Declaration against the Institutional Trustee. In case an Event of Default (of which the Institutional Trustee has knowledge (as provided in Section 2.10(m) hereof)), has occurred (that has not been cured or waived pursuant to Section 6.8), the Institutional Trustee shall exercise such of the rights and powers vested in it by this Declaration, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (b) The duties and responsibilities of the Trustees and the Administrators shall be as provided by this Declaration and, in the case of the Institutional Trustee, by the Trust Indenture Act. Notwithstanding the foregoing, no provision of this Declaration shall require any Trustee or Administrator to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity satisfactory to it against such risk or liability is not reasonably assured to it. Whether or not therein expressly so provided, every provision of this Declaration relating to the conduct or affecting the liability of or affording protection to the Trustees or the Administrators shall be subject to the provisions of this Article. Nothing in this Declaration shall be construed to release a Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct or bad faith. Nothing in this Declaration shall be construed to release an Administrator from liability for its own gross negligent action, its own gross negligent failure to act, or its own willful misconduct or bad faith. To the extent that, at law or in equity, a Trustee or an Administrator has duties and liabilities relating to the Trust or to the Holders, such Trustee or Administrator shall not be liable to the Trust or to any Holder for such Trustee’s or   -17- -------------------------------------------------------------------------------- Administrator’s good faith reliance on the provisions of this Declaration. The provisions of this Declaration, to the extent that they restrict the duties and liabilities of the Administrators or the Trustees otherwise existing at law or in equity, are agreed by the Sponsor and the Holders to replace such other duties and liabilities of the Administrators or the Trustees. (c) All payments made by the Institutional Trustee or a Paying Agent in respect of the Securities shall be made only from the revenue and proceeds from the Trust Property and only to the extent that there shall be sufficient revenue or proceeds from the Trust Property to enable the Institutional Trustee or a Paying Agent to make payments in accordance with the terms hereof. Each Holder, by its acceptance of a Security, agrees that it will look solely to the revenue and proceeds from the Trust Property to the extent legally available for distribution to it as herein provided and that the Trustees and the Administrators are not personally liable to it for any amount distributable in respect of any Security or for any other liability in respect of any Security. This Section 2.9(c) does not limit the liability of the Trustees expressly set forth elsewhere in this Declaration or, in the case of the Institutional Trustee, in the Trust Indenture Act. (d) No provision of this Declaration shall be construed to relieve the Institutional Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct or bad faith with respect to matters that are within the authority of the Institutional Trustee under this Declaration, except that: (i) the Institutional Trustee shall not be liable for any error or judgment made in good faith by a Responsible Officer of the Institutional Trustee, unless it shall be proved that the Institutional Trustee was negligent in ascertaining the pertinent facts; (ii) the Institutional Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a Majority in liquidation amount of the Capital Securities or the Common Securities, as applicable, relating to the time, method and place of conducting any proceeding for any remedy available to the Institutional Trustee, or exercising any trust or power conferred upon the Institutional Trustee under this Declaration; (iii) the Institutional Trustee’s sole duty with respect to the custody, safe keeping and physical preservation of the Debentures and the Property Account shall be to deal with such property in a similar manner as the Institutional Trustee deals with similar property for its own account, subject to the protections and limitations on liability afforded to the Institutional Trustee under this Declaration and the Trust Indenture Act; (iv) the Institutional Trustee shall not be liable for any interest on any money received by it except as it may otherwise agree in writing with the Sponsor; and money held by the Institutional Trustee need not be segregated from other funds held by it except in relation to the Property Account maintained by the   -18- -------------------------------------------------------------------------------- Institutional Trustee pursuant to Section 2.8(c)(í) and except to the extent otherwise required by law; and (v) the Institutional Trustee shall not be responsible for monitoring the compliance by the Administrators or the Sponsor with their respective duties under this Declaration, nor shall the Institutional Trustee be liable for any default or misconduct of the Administrators or the Sponsor. SECTION 2.10. Certain Rights of Institutional Trustee. Subject to the provisions of Section 2.9: (a) the Institutional Trustee may conclusively rely and shall fully be protected in acting or refraining from acting in good faith upon any resolution, written opinion of counsel, certificate, written representation of a Holder or transferee, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, appraisal, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed, sent or presented by the proper party or parties; (b) if (i) in performing its duties under this Declaration, the Institutional Trustee is required to decide between alternative courses of action, (ii) in construing any of the provisions of this Declaration, the Institutional Trustee finds the same ambiguous or inconsistent with any other provisions contained herein, or (iii) the Institutional Trustee is unsure of the application of any provision of this Declaration, then, except as to any matter as to which the Holders of Capital Securities are entitled to vote under the terms of this Declaration, the Institutional Trustee may deliver a notice to the Sponsor requesting the Sponsor’s opinion as to the course of action to be taken and the Institutional Trustee shall take such action, or refrain from taking such action, as the Institutional Trustee in its sole discretion shall deem advisable and in the best interests of the Holders, in which event the Institutional Trustee shall have no liability except for its own negligence, willful misconduct pr bad faith; (c) any direction or act of the Sponsor or the Administrators contemplated by this Declaration shall be sufficiently evidenced by an Officers’ Certificate; (d) whenever in the administration of this Declaration, the Institutional Trustee shall deem it desirable that a matter be proved or established before undertaking, suffering or omitting any action hereunder, the Institutional Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and conclusively rely upon an Officers’ Certificate which, upon receipt of such request, shall be promptly delivered by the Sponsor or the Administrators; (e) the Institutional Trustee shall have no duty to see to any recording, filing or registration of any instrument (including any financing or continuation statement or any filing under tax or securities laws) or any rerecording, refiling or reregistration thereof; (f) the Institutional Trustee may consult with counsel of its selection (which counsel may be counsel to the Sponsor or any of its Affiliates) and the advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or   -19- -------------------------------------------------------------------------------- omitted by it hereunder in good faith and in reliance thereon and in accordance with such advice; the Institutional Trustee shall have the right at any time to seek instructions concerning the administration of this Declaration from any court of competent jurisdiction; (g) the Institutional Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Declaration at the request or direction of any of the Holders pursuant to this Declaration, unless such Holders shall have offered to the Institutional Trustee security or indemnity reasonably satisfactory to it against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; provided, that nothing contained in this Section 2.10(g) shall be taken to relieve the Institutional Trustee, upon the occurrence of an Event of Default (of which the Institutional Trustee has knowledge (as provided in Section 2.10(m) hereof)) that has not been cured or waived, of its obligation to exercise the rights and powers vested in it by this Declaration; (h) the Institutional Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond, debenture, note or other evidence of indebtedness or other paper or document, unless requested in writing to do so by one or more Holders, but the Institutional Trustee may make such further inquiry or investigation into such facts or matters as it may see fit; (i) the Institutional Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through its agents or attorneys and the Institutional Trustee shall not be responsible for any misconduct or negligence on the part of, or for the supervision of, any such agent or attorney appointed with due care by it hereunder; (j) whenever in the administration of this Declaration the Institutional Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder, the Institutional Trustee (i) may request instructions from the Holders of the Common Securities and the Capital Securities, which instructions may be given only by the Holders of the same proportion in liquidation amount of the Common Securities and the Capital Securities as would be entitled to direct the Institutional Trustee under the terms of the Common Securities and the Capital Securities in respect of such remedy, right or action, (ii) may refrain from enforcing such remedy or right or taking such other action until such instructions are received, and (iii) shall be fully protected in acting in accordance with such instructions; (k) except as otherwise expressly provided in this Declaration, the Institutional Trustee shall not be under any obligation to take any action that is discretionary under the provisions of this Declaration; (l) when the Institutional Trustee incurs expenses or renders services in connection with a Bankruptcy Event, such expenses (including the fees and expenses of its counsel) and the compensation for such services are intended to constitute expenses of administration under any bankruptcy law or law relating to creditors rights generally;   -20- -------------------------------------------------------------------------------- (m) the Institutional Trustee shall not be charged with knowledge of an Event of Default unless a Responsible Officer of the Institutional Trustee has actual knowledge of such event or the Institutional Trustee receives written notice of such event from any Holder, except with respect to an Event of Default pursuant to Sections 5.01 (a) or 5.01 (b) of the Indenture (other than an Event of Default resulting from the default in the payment of Additional Interest or premium, if any, if the Institutional Trustee does not have actual knowledge or written notice that such payment is due and payable), of which the Institutional Trustee shall be deemed to have knowledge; (n) any action taken by the Institutional Trustee or its agents hereunder shall bind the Trust and the Holders of the Securities, and the signature of the Institutional Trustee or its agents alone shall be sufficient and effective to perform any such action and no third party shall be required to inquire as to the authority of the Institutional Trustee to so act or as to its compliance with any of the terms and provisions of this Declaration, both of which shall be conclusively evidenced by the Institutional Trustee’s or its agent’s taking such action; and (o) no provision of this Declaration shall be deemed to impose any duty or obligation on the Institutional Trustee to perform any act or acts or exercise any right, power, duty or obligation conferred or imposed on it, in any jurisdiction in which it shall be illegal, or in which the Institutional Trustee shall be unqualified or incompetent in accordance with applicable law, to perform any such act or acts, or to exercise any such right, power, duty or obligation. No permissive power or authority available to the Institutional Trustee shall be construed to be a duty. SECTION 2.11. Delaware Trustee. Notwithstanding any other provision of this Declaration other than Section 4.2, the Delaware Trustee shall not be entitled to exercise any powers, nor shall the Delaware Trustee have any of the duties and responsibilities of any of the Trustees or the Administrators described in this Declaration (except as may be required under the Statutory Trust Act). Except as set forth in Section 4.2, the Delaware Trustee shall be a Trustee for the sole and limited purpose of fulfilling the requirements of § 3807 of the Statutory Trust Act. SECTION 2.12. Execution of Documents. Unless otherwise determined in writing by the Institutional Trustee, and except as otherwise required by the Statutory Trust Act, the Institutional Trustee, or any one or more of the Administrators, as the case may be, is authorized to execute and deliver on behalf of the Trust any documents, agreements, instruments or certificates that the Trustees or the Administrators, as the case may be, have the power and authority to execute pursuant to Section 2.6. SECTION 2.13. Not Responsible for Recitals or Issuance of Securities. The recitals contained in this Declaration and the Securities shall be taken as the statements of the Sponsor, and the Trustees do not assume any responsibility for their correctness. The Trustees make no representations as to the value or condition of the property of the Trust or any part thereof. The Trustees make no representations as to the validity or sufficiency of this Declaration, the Debentures or the Securities.   -21- -------------------------------------------------------------------------------- SECTION 2.14. Duration of Trust. The Trust, unless dissolved pursuant to the provisions of Article VII hereof, shall have existence for thirty-five (35) years from the Closing Date. SECTION 2.15. Mergers. (a) The Trust may not consolidate, amalgamate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to any corporation or other Person, except as described in this Section 2.15 and except with respect to the distribution of Debentures to Holders of Securities pursuant to Section 7.1(a)(iv) of the Declaration or Section 3 of Annex I. (b) The Trust may, with the consent of the Administrators (which consent will not be unreasonably withheld) and without the consent of the Institutional Trustee, the Delaware Trustee or the Holders of the Capital Securities, consolidate, amalgamate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets as an entirety or substantially as an entirety to a trust organized as such under the laws of any state; provided, that: (i) if the Trust is not the survivor, such successor entity (the “Successor Entity”) either: (A) expressly assumes all of the obligations of the Trust under the Securities; or (B) substitutes for the Securities other securities having substantially the same terms as the Securities (the “Successor Securities”) so that the Successor Securities rank the same as the Securities rank with respect to Distributions and payments upon Liquidation, redemption and otherwise; (ii) the Sponsor expressly appoints, as the holder of the Common Securities, a trustee of the Successor Entity that possesses the same powers and duties as the Institutional Trustee; (iii) the Capital Securities or any Successor Securities (excluding any securities substituted for the Common Securities) are listed or quoted, or any Successor Securities will be listed or quoted upon notification of issuance, on any national securities exchange or with another organization on which the Capital Securities are then listed or quoted, if any; (iv) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not cause the rating, if any, on the Capital Securities (including any Successor Securities) to be downgraded or withdrawn by any nationally recognized statistical rating organization, if the Capital Securities are then rated; (v) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and   -22- -------------------------------------------------------------------------------- privileges of the Holders of the Securities (including any Successor Securities) in any material respect (other than with respect to any dilution of such Holders’ interests in the Successor Entity as a result of such merger, consolidation, amalgamation or replacement); (vi) such Successor Entity has a purpose substantially identical to that of the Trust; (vii) prior to such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, the Trust has received a written opinion of a nationally recognized independent counsel to the Trust experienced in such matters to the effect that: (A) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the Holders of the Securities (including any Successor Securities) in any material respect (other than with respect to any dilution of the Holders’ interests in the Successor Entity); (B) following such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, neither the Trust nor the Successor Entity will be required to register as an Investment Company; and (C) following such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, the Trust (or the Successor Entity) will continue to be classified as a grantor trust for United States federal income tax purposes; (viii) the Sponsor guarantees the obligations of such Successor Entity under the Successor Securities to the same extent provided by the Guarantee, the Debentures and this Declaration; and (ix) prior to such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, the Institutional Trustee shall have received an Officers’ Certificate of the Administrators and an opinion of counsel, each to the effect that all conditions precedent of this paragraph (b) to such transaction have been satisfied. (c) Notwithstanding Section 2.15(b), the Trust shall not, except with the consent of Holders of 100% in liquidation amount of the Securities, consolidate, amalgamate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets as an entirety or substantially as an entirety to, any other Person or permit any other Person to consolidate, amalgamate, merge with or into, or replace it if such consolidation, amalgamation, merger, replacement, conveyance, transfer or lease would cause the Trust or Successor Entity to be classified as other than a grantor trust for United States federal income tax purposes.   -23- -------------------------------------------------------------------------------- ARTICLE III SPONSOR SECTION 3.1. Sponsor’s Purchase of Common Securities. On the Closing Date, the Sponsor will purchase all of the Common Securities issued by the Trust, in an amount at least equal to 3% of the capital of the Trust, at the same time as the Capital Securities are sold. SECTION 3.2. Responsibilities of the Sponsor. In connection with the issue and sale of the Capital Securities, the Sponsor shall have the exclusive right and responsibility and sole decision to engage in, or direct the Administrators to engage in, the following activities: (a) to determine the States in which to take appropriate action to qualify or register for sale of all or part of the Capital Securities and to do any and all such acts, other than actions which must be taken by the Trust, and advise the Trust of actions it must take, and prepare for execution and filing any documents to be executed and filed by the Trust, as the Sponsor deems necessary or advisable in order to comply with the applicable laws of any such States; (b) to prepare for filing and request the Administrators to cause the filing by the Trust, as may be appropriate, of an application to the PORTAL system, for listing or quotation upon notice of issuance of any Capital Securities, as requested by the Holders of not less than a Majority in liquidation amount of the Capital Securities; and (c) to negotiate the terms of and/or execute and deliver on behalf of the Trust, the Purchase Agreement and other related agreements providing for the sale of the Capital Securities. ARTICLE IV TRUSTEES AND ADMINISTRATORS SECTION 4.1. Number of Trustees. The number of Trustees initially shall be two, and: (a) at any time before the issuance of any Securities, the Sponsor may, by written instrument, increase or decrease the number of Trustees; and (b) after the issuance of any Securities, the number of Trustees may be increased or decreased by vote of the Holder of a Majority in liquidation amount of the Common Securities voting as a class at a meeting of the Holder of the Common Securities; provided, however, that there shall be a Delaware Trustee if required by Section 4.2; and there shall always be one Trustee who shall be the Institutional Trustee, and such Trustee may also serve as Delaware Trustee if it meets the applicable requirements, in which case Section 2.11 shall have no application to such entity in its capacity as Institutional Trustee. SECTION 4.2. Delaware Trustee. If required by the Statutory Trust Act, one Trustee (the “Delaware Trustee”) shall be: (a) a natural person who is a resident of the State of Delaware; or   -24- -------------------------------------------------------------------------------- (b) if not a natural person, an entity which is organized under the laws of the United States or any state thereof or the District of Columbia, has its principal place of business in the State of Delaware, and otherwise meets the requirements of applicable law, including §3807 of the Statutory Trust Act. SECTION 4.3. Institutional Trustee; Eligibility. (a) There shall at all times be one Trustee which shall act as Institutional Trustee which shall: (i) not be an Affiliate of the Sponsor; (ii) not offer or provide credit or credit enhancement to the Trust; and (iii) be a banking corporation or national association organized and doing business under the laws of the United States of America or any state thereof or of the District of Columbia and authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least fifty million U.S. dollars ($50,000,000), and subject to supervision or examination by federal, state or District of Columbia authority. If such corporation or national association publishes reports of condition at least annually, pursuant to law or to the requirements of the supervising or examining authority referred to above, then for the purposes of this Section 4.3(a)(iii), the combined capital and surplus of such corporation or national association shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. (b) If at any time the Institutional Trustee shall cease to be eligible to so act under Section 4.3(a), the Institutional Trustee shall immediately resign in the manner and with the effect set forth in Section 4.7. (c) If the Institutional Trustee has or shall acquire any “conflicting interest” within the meaning of § 310(b) of the Trust Indenture Act, the Institutional Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to this Declaration. (d) The initial Institutional Trustee shall be Wells Fargo Bank, National Association. SECTION 4.4. Certain Qualifications of the Delaware Trustee Generally. The Delaware Trustee shall be a U.S. Person and either a natural person who is at least 21 years of age or a legal entity that shall act through one or more Authorized Officers. SECTION 4.5. Administrators. Each Administrator shall be a U.S. Person. There shall at all times be at least one Administrator. Except where a requirement for action by a specific number of Administrators is expressly set forth in this Declaration and except with respect to any action the taking of which is the subject of a meeting of the Administrators, any action required or permitted to be taken by the Administrators may be taken   -25- -------------------------------------------------------------------------------- by, and any power of the Administrators may be exercised by, or with the consent of, any one such Administrator acting alone. SECTION 4.6. Initial Delaware Trustee. The initial Delaware Trustee shall be Wells Fargo Delaware Trust Company. SECTION 4.7. Appointment, Removal and Resignation of the Trustees and the Administrators. (a) No resignation or removal of any Trustee (the “Relevant Trustee”) and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of this Section 4.7. (b) Subject to Section 4.7(a), a Relevant Trustee may resign at any time by giving written notice thereof to the Holders of the Securities and by appointing a successor Relevant Trustee, except that the Delaware Trustee’s successor shall be appointed by Holders of a Majority in liquidation amount of the Common Securities. Upon the resignation of the Institutional Trustee, the Institutional Trustee shall appoint a successor by requesting from at least three Persons meeting the eligibility requirements their expenses and charges to serve as the successor Institutional Trustee on a form provided by the Administrators, and selecting the Person who agrees to the lowest reasonable expense and charges (the “Successor Institutional Trustee”). If the instrument of acceptance by the successor Relevant Trustee required by this Section 4.7 shall not have been delivered to the Relevant Trustee within 60 days after the giving of such notice of resignation or delivery of the instrument of removal, the Relevant Trustee may petition, at the expense of the Trust, any federal, state or District of Columbia court of competent jurisdiction for the appointment of a successor Relevant Trustee. Such court may thereupon, after prescribing such notice, if any, as it may deem proper, appoint a Relevant Trustee. The Institutional Trustee shall have no liability for the selection of such successor pursuant to this Section 4.7. (c) Unless an Event of Default shall have occurred and be continuing, any Trustee may be removed at any time by an act of the Holders of a Majority in liquidation amount of the Common Securities. If any Trustee shall be so removed, the Holders of the Common Securities, by act of the Holders of a Majority in liquidation amount of the Common Securities delivered to the Relevant Trustee, shall promptly appoint a successor Relevant Trustee, and such successor Trustee shall comply with the applicable requirements of this Section 4.7. If an Event of Default shall have occurred and be continuing, the Institutional Trustee or the Delaware Trustee, or both of them, may be removed by the act of the Holders of a Majority in liquidation amount of the Capital Securities, delivered to the Relevant Trustee (in its individual capacity and on behalf of the Trust). If any Trustee shall be so removed, the Holders of Capital Securities, by act of the Holders of a Majority in liquidation amount of the Capital Securities then outstanding delivered to the Relevant Trustee, shall promptly appoint a successor Relevant Trustee or Trustees, and such successor Trustee shall comply with the applicable requirements of this Section 4.7. If no successor Relevant Trustee shall have been so appointed by the Holders of a Majority in liquidation amount of the Capital Securities and accepted appointment in the manner required by this Section 4.7 within 30 days after delivery of an instrument of removal, the   -26- -------------------------------------------------------------------------------- Relevant Trustee or any Holder who has been a Holder of the Securities for at least six months may, on behalf of himself and all others similarly situated, petition any federal, state or District of Columbia court of competent jurisdiction for the appointment of a successor Relevant Trustee. Such court may thereupon, after prescribing such notice, if any, as it may deem proper, appoint a successor Relevant Trustee or Trustees. (d) The Institutional Trustee shall give notice of each resignation and each removal of a Trustee and each appointment of a successor Trustee to all Holders and to the Sponsor. Each notice shall include the name of the successor Relevant Trustee and the address of its Corporate Trust Office if it is the Institutional Trustee. (e) Notwithstanding the foregoing or any other provision of this Declaration, in the event a Delaware Trustee who is a natural person dies or is adjudged by a court to have become incompetent or incapacitated, the vacancy created by such death, incompetence or incapacity may be filled by the Institutional Trustee (provided the Institutional Trustee satisfies the requirements of a Delaware Trustee as set forth in Section 4.2) following the procedures in this Section 4.7 (with the successor being a Person who satisfies the eligibility requirement for a Delaware Trustee set forth in this Declaration) (the “Successor Delaware Trustee”). (f) In case of the appointment hereunder of a successor Relevant Trustee, the retiring Relevant Trustee and each successor Relevant Trustee with respect to the Securities shall execute and deliver an amendment hereto wherein each successor Relevant Trustee shall accept such appointment and which (a) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Relevant Trustee all the rights, powers, trusts and duties of the retiring Relevant Trustee with respect to the Securities and the Trust and (b) shall add to or change any of the provisions of this Declaration as shall be necessary to provide for or facilitate the administration of the Trust by more than one Relevant Trustee, it being understood that nothing herein or in such amendment shall constitute such Relevant Trustees co-trustees and upon the execution and delivery of such amendment the resignation or removal of the retiring Relevant Trustee shall become effective to the extent provided therein and each such successor Relevant Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Relevant Trustee; but, on request of the Trust or any successor Relevant Trustee, such retiring Relevant Trustee shall duly assign, transfer and deliver to such successor Relevant Trustee all Trust Property, all proceeds thereof and money held by such retiring Relevant Trustee hereunder with respect to the Securities and the Trust subject to the payment of all unpaid fees, expenses and indemnities of such retiring Relevant Trustee. (g) No Institutional Trustee or Delaware Trustee shall be liable for the acts or omissions of any Successor Institutional Trustee or Successor Delaware Trustee, as the case may be. (h) The Holders of the Capital Securities will have no right to vote to appoint, remove or replace the Administrators, which voting rights are vested exclusively in the Holders of the Common Securities.   -27- -------------------------------------------------------------------------------- (i) Any successor Delaware Trustee shall file an amendment to the Certificate of Trust with the Secretary of State of the State of Delaware identifying the name and principal place of business of such Delaware Trustee in the State of Delaware. SECTION 4.8. Vacancies Among Trustees. If a Trustee ceases to hold office for any reason and the number of Trustees is not reduced pursuant to Section 4.1, or if the number of Trustees is increased pursuant to Section 4.1, a vacancy shall occur. A resolution certifying the existence of such vacancy by the Trustees or, if there are more than two, a majority of the Trustees shall be conclusive evidence of the existence of such vacancy. The vacancy shall be filled with a Trustee appointed in accordance with Section 4.7. SECTION 4.9. Effect of Vacancies. The death, resignation, retirement, removal, bankruptcy, dissolution, liquidation, incompetence or incapacity to perform the duties of a Trustee shall not operate to dissolve, terminate or annul the Trust or terminate this Declaration. Whenever a vacancy in the number of Trustees shall occur, until such vacancy is filled by the appointment of a Trustee in accordance with Section 4.7, the Institutional Trustee shall have all the powers granted to the Trustees and shall discharge all the duties imposed upon the Trustees by this Declaration. SECTION 4.10. Meetings of the Trustees and the Administrators. Meetings of the Trustees or the Administrators shall be held from time to time upon the call of any Trustee or Administrator, as applicable. Regular meetings of the Trustees and the Administrators, respectively, may be in person in the United States or by telephone, at a place (if applicable) and time fixed by resolution of the Trustees or the Administrators, as applicable. Notice of any in-person meetings of the Trustees or the Administrators shall be hand delivered or otherwise delivered in writing (including by facsimile, with a hard copy by overnight courier) not less than 48 hours before such meeting. Notice of any telephonic meetings of the Trustees or the Administrators or any committee thereof shall be hand delivered or otherwise delivered in writing (including by facsimile, with a hard copy by overnight courier) not less than 24 hours before a meeting. Notices shall contain a brief statement of the time, place and anticipated purposes of the meeting. The presence (whether in person or by telephone) of a Trustee or an Administrator, as the case may be, at a meeting shall constitute a waiver of notice of such meeting except where a Trustee or an Administrator, as the case may be, attends a meeting for the express purpose of objecting to the transaction of any activity on the ground that the meeting has not been lawfully called or convened. Unless provided otherwise in this Declaration, any action of the Trustees or the Administrators, as the case may be, may be taken at a meeting by vote of a majority of the Trustees or the Administrators present (whether in person or by telephone) and eligible to vote with respect to such matter; provided, that, in the case of the Administrators, a Quorum is present, or without a meeting by the unanimous written consent of the Trustees or the Administrators, as the case may be. Meetings of the Trustees and the Administrators together shall be held from time to time upon the call of any Trustee or Administrator. SECTION 4.11. Delegation of Power. (a) Any Trustee or any Administrator, as the case may be, may, by power of attorney consistent with applicable law, delegate to any other natural person over the age of 21   -28- -------------------------------------------------------------------------------- that is a U.S. Person his or her power for the purpose of executing any documents, instruments or other writings contemplated in Section 2.6. (b) The Trustees shall have power to delegate from time to time to such of their number or to any officer of the Trust that is a U.S. Person, the doing of such things and the execution of such instruments or other writings either in the name of the Trust or the names of the Trustees or otherwise as the Trustees may deem expedient, to the extent such delegation is not prohibited by applicable law or contrary to the provisions of the Trust, as set forth herein. SECTION 4.12. Merger, Conversion, Consolidation or Succession to Business. Any Person into which the Institutional Trustee or the Delaware Trustee, as the case may be, may be merged or converted or with which either may be consolidated, or any Person resulting from any merger, conversion or consolidation to which the Institutional Trustee or the Delaware Trustee, as the case may be, shall be a party, or any Person succeeding to all or substantially all the corporate trust business of the Institutional Trustee or the Delaware Trustee, as the case may be, shall be the successor of the Institutional Trustee or the Delaware Trustee, as the case may be, hereunder, without the execution or filing of any paper or any further act on the part of any of the parties hereto, provided such Person shall be otherwise qualified and eligible under this Article and, provided, further, that such Person shall file an amendment to the Certificate of Trust with the Secretary of State of the State of Delaware as contemplated in Section 4.7(i). ARTICLE V DISTRIBUTIONS SECTION 5.1. Distributions. Holders shall receive Distributions in accordance with the applicable terms of the relevant Holder’s Securities. Distributions shall be made on the Capital Securities and the Common Securities in accordance with the preferences set forth in their respective terms. If and to the extent that the Debenture Issuer makes a payment of interest (including any Additional Interest or Deferred Interest) or premium, if any, on and/or principal on the Debentures held by the Institutional Trustee (the amount of any such payment being a “Payment Amount”), the Institutional Trustee shall and is directed, to the extent funds are available in the Property Account for that purpose, to make a distribution (a “Distribution”) of the Payment Amount to Holders. For the avoidance of doubt, funds in the Property Account shall not be distributed to Holders to the extent of any taxes payable by the Trust, in the case of withholding taxes, as determined by the Institutional Trustee or any Paying Agent and, in the case of taxes other than withholding tax taxes, as determined by the Administrators in a written notice to the Institutional Trustee. ARTICLE VI ISSUANCE OF SECURITIES SECTION 6.1. General Provisions Regarding Securities. (a) The Administrators shall on behalf of the Trust issue one series of capital securities, evidenced by a certificate substantially in the form of Exhibit A-1, representing undivided beneficial interests in the assets of the Trust and having such terms as are set forth in Annex I (the “Capital Securities”), and one series of common securities, evidenced by a   -29- -------------------------------------------------------------------------------- certificate substantially in the form of Exhibit A-2, representing undivided beneficial interests in the assets of the Trust and having such terms as are set forth in Annex I (the “Common Securities”). The Trust shall issue no securities or other interests in the assets of the Trust other than the Capital Securities and the Common Securities. The Capital Securities rank pari passu and payment thereon shall be made Pro Rata with the Common Securities except that, where an Event of Default has occurred and is continuing, the rights of Holders of the Common Securities to payment in respect of Distributions and payments upon liquidation, redemption and otherwise are subordinated to the rights to payment of the Holders of the Capital Securities. (b) The Certificates shall be signed on behalf of the Trust by one or more Administrators. Such signature shall be the facsimile or manual signature of any Administrator. In case any Administrator of the Trust who shall have signed any of the Securities shall cease to be such Administrator before the Certificates so signed shall be delivered by the Trust, such Certificates nevertheless may be delivered as though the person who signed such Certificates had not ceased to be such Administrator. Any Certificate may be signed on behalf of the Trust by such person who, at the actual date of execution of such Security, shall be an Administrator of the Trust, although at the date of the execution and delivery of the Declaration any such person was not such an Administrator. A Capital Security shall not be valid until authenticated by the manual signature of an Authorized Officer of the Institutional Trustee. Such signature shall be conclusive evidence that the Capital Security has been authenticated under this Declaration. Upon written order of the Trust signed by one Administrator, the Institutional Trustee shall authenticate the Capital Securities for original issue. The Institutional Trustee may appoint an authenticating agent that is a U.S. Person acceptable to the Trust to authenticate the Capital Securities. A Common Security need not be so authenticated and shall be valid upon execution by one or more Administrators. (c) The Capital Securities shall be, except as provided in Section 6.4, Book-Entry Capital Securities issued in the form of one or more Global Capital Securities registered in the name of the Depositary, or its nominee and deposited with the Depositary or a custodian for the Depositary for credit by the Depositary to the respective accounts of the Depositary Participants thereof (or such other accounts as they may direct). (d) The consideration received by the Trust for the issuance of the Securities shall constitute a contribution to the capital of the Trust and shall not constitute a loan to the Trust. (e) Upon issuance of the Securities as provided in this Declaration, the Securities so issued shall be deemed to be validly issued, fully paid and non-assessable, and each Holder thereof shall be entitled to the benefits provided by this Declaration. (f) Every Person, by virtue of having become a Holder in accordance with the terms of this Declaration, shall be deemed to have expressly assented and agreed to the terms of, and shall be bound by, this Declaration and the Guarantee.   -30- -------------------------------------------------------------------------------- SECTION 6.2. Paying Agent, Transfer Agent, Calculation Agent and Registrar. (a) The Trust shall maintain in Wilmington, Delaware, an office or agency where the Securities may be presented for payment (the “Paying Agent”), and an office or agency where Securities may be presented for registration of transfer or exchange (the “Transfer Agent”). The Trust shall keep or cause to be kept at such office or agency a register for the purpose of registering Securities and transfers and exchanges of Securities, such register to be held by a registrar (the “Registrar”). The Administrators may appoint the Paying Agent, the Registrar and the Transfer Agent, and may appoint one or more additional Paying Agents, one or more co-Registrars, or one or more co-Transfer Agents in such other locations as it shall determine. The term “Paying Agent” includes any additional Paying Agent, the term “Registrar” includes any additional Registrar or co-Registrar and the term “Transfer Agent” includes any additional Transfer Agent or co-Transfer Agent. The Administrators may change any Paying Agent, Transfer Agent or Registrar at any time without prior notice to any Holder. The Administrators shall notify the Institutional Trustee of the name and address of any Paying Agent, Transfer Agent and Registrar not a party to this Declaration. The Administrators hereby initially appoint the Institutional Trustee to act as Paying Agent, Transfer Agent and Registrar for the Capital Securities and the Common Securities at its Corporate Trust Office. The Institutional Trustee or any of its Affiliates in the United States may act as Paying Agent, Transfer Agent or Registrar. (b) The Trust shall also appoint a Calculation Agent, which shall determine the Coupon Rate in accordance with the terms of the Securities. The Trust initially appoints the Institutional Trustee as Calculation Agent. SECTION 6.3. Form and Dating. (a) The Capital Securities and the Institutional Trustee’s certificate of authentication thereon shall be substantially in the form of Exhibit A-1, and the Common Securities shall be substantially in the form of Exhibit A-2, each of which is hereby incorporated in and expressly made a part of this Declaration. Certificates may be typed, printed, lithographed or engraved or may be produced in any other manner as is reasonably acceptable to the Administrators, as conclusively evidenced by their execution thereof. The Certificates may have letters, numbers, notations or other marks of identification or designation and such legends or endorsements required by law, stock exchange rule, agreements to which the Trust is subject, if any, or usage (provided, that any such notation, legend or endorsement is in a form acceptable to the Sponsor). The Trust at the direction of the Sponsor shall furnish any such legend not contained in Exhibit A-1 to the Institutional Trustee in writing. Each Capital Security shall be dated the date of its authentication. The terms and provisions of the Securities set forth in Annex I and the forms of Securities set forth in Exhibits A-1 and A-2 are part of the terms of this Declaration and to the extent applicable, the Institutional Trustee, the Delaware Trustee, the Administrators and the Sponsor, by their execution and delivery of this Declaration, expressly agree to such terms and provisions and to be bound thereby. Capital Securities will be issued only in blocks having a stated liquidation amount of not less than $100,000 and multiples of $1,000 in excess thereof. (b) The Capital Securities sold by the Trust to the Initial Purchaser pursuant to the Purchase Agreement shall be issued in the form of a Global Capital Security, registered in the name of the Depositary, without coupons and with the Restricted Securities Legend.   -31- -------------------------------------------------------------------------------- SECTION 6.4. Book-Entry Capital Securities. (a) A Global Capital Security may be exchanged, in whole or in part, for Definitive Capital Securities Certificates registered in the names of Owners only if such exchange complies with Article VIII and (i) the Depositary advises the Administrators and the Institutional Trustee in writing that the Depositary is no longer willing or able to properly discharge its responsibilities with respect to the Global Capital Security, and no qualified successor is appointed by the Administrators within ninety (90) days of receipt of such notice, (ii) the Depositary ceases to be a clearing agency registered under the Exchange Act and the Administrators fail to appoint a qualified successor within ninety (90) days of obtaining knowledge of such event, (iii) the Administrators at their option advise the Institutional Trustee in writing that the Trust elects to terminate the book-entry system through the Depositary or (iv) an Indenture Event of Default has occurred and is continuing. Upon the occurrence of any event specified in clause (i), (ii), (iii) or (iv) above, the Administrators shall notify the Depositary and instruct the Depositary to notify all Owners and the Institutional Trustee of the occurrence of such event and of the availability of Definitive Capital Securities Certificates to Owners requesting the same. Upon the issuance of Definitive Capital Securities Certificates, the Administrators and the Institutional Trustee shall recognize the Holders of the Definitive Capital Securities Certificates as Holders. Notwithstanding the foregoing, if an Owner wishes at any time to transfer an interest in such Global Capital Security to a Person other than a QIB, such transfer shall be effected, subject to the Applicable Depository Procedures, in accordance with the provisions of this Section 6.4 and Article VIII, and the transferee shall receive a Definitive Capital Securities Certificate in connection with such transfer. A holder of a Definitive Capital Securities Certificate that is a QIB may upon request, and in accordance with the provisions of this Section 6.4 and Article VIII, exchange such Definitive Capital Securities Certificate for a beneficial interest in a Global Capital Security. (b) If any Global Capital Security is to be exchanged for Definitive Capital Securities Certificates or canceled in part, or if any Definitive Capital Securities Certificate is to be exchanged in whole or in part for any Global Capital Security, then either (i) such Global Capital Security shall be so surrendered for exchange or cancellation as provided in this Section 6.4 and Article VIII or (ii) the aggregate liquidation amount represented by such Global Capital Security shall be reduced, subject to Section 6.3, or increased by an amount equal to the liquidation amount represented by that portion of the Global Capital Security to be so exchanged or canceled, or equal to the liquidation amount represented by such Definitive Capital Securities Certificates to be so exchanged for any Global Capital Security, as the case may be, by means of an appropriate adjustment made on the records of the Securities Registrar, whereupon the Institutional Trustee, in accordance with the Applicable Depositary Procedures, shall instruct the Depositary or its authorized representative to make a corresponding adjustment to its records. Upon any such surrender to the Administrators or the Registrar of any Global Capital Security or Securities by the Depositary, accompanied by registration instructions, the Administrators, or any one of them, shall execute the Definitive Capital Securities Certificates in accordance with the instructions of the Depositary. None of the Registrar, Administrators, or the Institutional Trustee shall be liable for any delay in delivery of such instructions and may conclusively rely on, and shall be fully protected in relying on, such instructions.   -32- -------------------------------------------------------------------------------- (c) Every Definitive Capital Securities Certificate executed and delivered upon registration or transfer of, or in exchange for or in lieu of, a Global Capital Security or any portion thereof shall be executed and delivered in the form of, and shall be, a Global Capital Security, unless such Definitive Capital Securities Certificate is registered in the name of a Person other than the Depositary for such Global Capital Security or a nominee thereof. (d) The Depositary or its nominee, as registered owner of a Global Capital Security, shall be the Holder of such Global Capital Security for all purposes under this Declaration and the Global Capital Security, and Owners with respect to a Global Capital Security shall hold such interests pursuant to the Applicable Depositary Procedures. The Registrar, the Administrators and the Institutional Trustee shall be entitled to deal with the Depositary for all purposes of this Declaration relating to the Global Capital Securities (including the payment of the liquidation amount of and Distributions on the Book-Entry Capital Securities represented thereby and the giving of instructions or directions by Owners represented thereby and the giving of notices) as the sole Holder of the Book-Entry Capital Securities represented thereby and shall have no obligations to the Owners thereof. None of the Administrators, the Institutional Trustee nor the Registrar shall have any liability in respect of any transfers effected by the Depositary. (e) The rights of the Owners of the Book-Entry Capital Securities shall be exercised only through the Depositary and shall be limited to those established by law, the Applicable Depositary Procedures and agreements between such Owners and the Depositary and/or the Depositary Participants; provided, solely for the purpose of determining whether the Holders of the requisite amount of Capital Securities have voted on any matter provided for in this Declaration, to the extent that Capital Securities are represented by a Global Capital Security, the Administrators and the Institutional Trustee may conclusively rely on, and shall be fully protected in relying on, any written instrument (including a proxy) delivered to the Institutional Trustee by the Depositary setting forth the Owners’ votes or assigning the right to vote on any matter to any other Persons either in whole or in part. To the extent that Capital Securities are represented by a Global Capital Security, the initial Depositary will make book-entry transfers among the Depositary Participants and receive and transmit payments on the Capital Securities that are represented by a Global Capital Security to such Depositary Participants, and none of the Sponsor, the Administrators or the Institutional Trustee shall have any responsibility or obligation with respect thereto. (f) To the extent that a notice or other communication to the Holders is required under this Declaration, for so long as Capital Securities are represented by a Global Capital Security, the Administrator and the Institutional Trustee shall give all such notices and communications to the Depositary, and shall have no obligations to the Owners. SECTION 6.5. Mutilated, Destroyed, Lost or Stolen Certificates. If: (a) any mutilated Certificates should be surrendered to the Registrar, or if the Registrar shall receive evidence to its satisfaction of the destruction, loss or theft of any Certificate; and   -33- -------------------------------------------------------------------------------- (b) there shall be delivered to the Registrar, the Administrators and the Institutional Trustee such security or indemnity as may be required by them to hold each of them harmless; then, in the absence of notice that such Certificate shall have been acquired by a bona fide purchaser, an Administrator on behalf of the Trust shall execute (and in the case of a Capital Security Certificate, the Institutional Trustee shall authenticate) and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of like denomination. In connection with the issuance of any new Certificate under this Section 6.5, the Registrar or the Administrators may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. Any duplicate Certificate issued pursuant to this Section shall constitute conclusive evidence of an ownership interest in the relevant Securities, as if originally issued, whether or not the lost, stolen or destroyed Certificate shall be found at any time. SECTION 6.6. Temporary Securities. Until definitive Securities are ready for delivery, the Administrators may prepare and, in the case of the Capital Securities, the Institutional Trustee shall authenticate, temporary Securities. Temporary Securities shall be substantially in form of definitive Securities but may have variations that the Administrators consider appropriate for temporary Securities. Without unreasonable delay, the Administrators shall prepare and, in the case of the Capital Securities, the Institutional Trustee shall authenticate definitive Securities in exchange for temporary Securities. SECTION 6.7. Cancellation. The Administrators at any time may deliver Securities to the Institutional Trustee for cancellation. The Registrar shall forward to the Institutional Trustee any Securities surrendered to it for registration of transfer, redemption or payment. The Institutional Trustee shall promptly cancel all Securities surrendered for registration of transfer, payment, replacement or cancellation and shall dispose of such canceled Securities in accordance with its standard procedures or otherwise as the Administrators direct. The Administrators may not issue new Securities to replace Securities that have been paid or that have been delivered to the Institutional Trustee for cancellation. SECTION 6.8. Rights of Holders; Waivers of Past Defaults. (a) The legal title to the Trust Property is vested exclusively in the Institutional Trustee (in its capacity as such) in accordance with Section 2.6(g), and the Holders shall not have any right or title therein other than the undivided beneficial interest in the assets of the Trust conferred by their Securities and they shall have no right to call for any partition or division of property, profits or rights of the Trust except as described below. The Securities shall be personal property giving only the rights specifically set forth therein and in this Declaration. The Securities shall have no, and the issuance of the Securities shall not be subject to, preemptive or other similar rights and when issued and delivered to Holders against payment of the purchase price therefor, the Securities will be fully paid and nonassessable by the Trust. (b) For so long as any Capital Securities remain outstanding, if, upon an Indenture Event of Default, the Debenture Trustee fails or the holders of not less than 25% in principal amount of the outstanding Debentures fail to declare the principal of all of the Debentures to be immediately due and payable, the Holders of not less than a Majority in liquidation amount of the Capital Securities then outstanding shall have the right to make such   -34- -------------------------------------------------------------------------------- declaration by a notice in writing to the Institutional Trustee, the Sponsor and the Debenture Trustee. (c) At any time after a declaration of acceleration of maturity of the Debentures has been made and before a judgment or decree for payment of the money due has been obtained by the Debenture Trustee as provided in the Indenture, if the Institutional Trustee, subject to the provisions hereof, fails to annul any such declaration and waive such default, the Holders of not less than a Majority in liquidation amount of the Capital Securities, by written notice to the Institutional Trustee, the Sponsor and the Debenture Trustee, may rescind and annul such declaration and its consequences if: (i) the Sponsor has paid or deposited with the Debenture Trustee a sum sufficient to pay (A) all overdue installments of interest on all of the Debentures; (B) any accrued Deferred Interest on all of the Debentures; (C) all payments on any Debentures that have become due otherwise than by such declaration of acceleration and interest and Deferred Interest thereon at the rate borne by the Debentures; and (D) all sums paid or advanced by the Debenture Trustee under the Indenture and the reasonable compensation, documented expenses, disbursements and advances of the Debenture Trustee and the Institutional Trustee, their agents and counsel; and (ii) all Events of Default with respect to the Debentures, other than the non-payment of the principal of or premium, if any, on the Debentures that has become due solely by such acceleration, have been cured or waived as provided in Section 5.07 of the Indenture. (d) The Holders of not less than a Majority in liquidation amount of the Capital Securities may, on behalf of the Holders of all the Capital Securities, waive any past default or Event of Default, except a default or Event of Default in the payment of principal of or premium, if any, or interest (unless such default or Event of Default has been cured and a sum sufficient to pay all matured installments of interest and principal due otherwise than by acceleration has been deposited with the Debenture Trustee) or a default or Event of Default in respect of a covenant or provision that under the Indenture cannot be modified or amended without the consent of the holder of each outstanding Debenture. No such rescission shall affect any subsequent default or impair any right consequent thereon. (e) Upon receipt by the Institutional Trustee of written notice declaring such an acceleration, or rescission and annulment thereof, by Holders of any part of the Capital Securities, a record date shall be established for determining Holders of outstanding Capital Securities entitled to join in such notice, which record date shall be at the close of business on the day the Institutional Trustee receives such notice. The Holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to join in such notice, whether   -35- -------------------------------------------------------------------------------- or not such Holders remain Holders after such record date; provided, that, unless such declaration of acceleration, or rescission and annulment, as the case may be, shall have become effective by virtue of the requisite percentage having joined in such notice prior to the day that is 90 days after such record date, such notice of declaration of acceleration, or rescission and annulment, as the case may be, shall automatically and without further action by any Holder be canceled and of no further effect. Nothing in this paragraph shall prevent a Holder, or a proxy of a Holder, from giving, after expiration of such 90-day period, a new written notice of declaration of acceleration, or rescission and annulment thereof, as the case may be, that is identical to a written notice that has been canceled pursuant to the proviso to the preceding sentence, in which event a new record date shall be established pursuant to the provisions of this Section 6.8. (f) Except as otherwise provided in this Section 6.8, the Holders of not less than a Majority in liquidation amount of the Capital Securities may, on behalf of the Holders of all the Capital Securities, waive any past default or Event of Default and its consequences. Upon such waiver, any such default or Event of Default shall cease to exist, and any default or Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Declaration, but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. ARTICLE VII DISSOLUTION AND TERMINATION OF TRUST SECTION 7.1. Dissolution and Termination of Trust. (a) The Trust shall dissolve on the first to occur of (i) unless earlier dissolved, on July 7, 2041, the expiration of the term of the Trust; (ii) a Bankruptcy Event with respect to the Sponsor, the Trust or the Debenture Issuer; (iii) (other than in connection with a merger, consolidation or similar transaction not prohibited by the Indenture, this Declaration or the Guarantee, as the case may be) the filing of a certificate of dissolution or its equivalent with respect to the Sponsor or upon the revocation of the charter of the Sponsor and the expiration of 90 days after the date of revocation without a reinstatement thereof; (iv) the distribution of the Debentures to the Holders of the Securities, upon exercise of the right of the Holders of all of the outstanding Common Securities to dissolve the Trust as provided in Annex I hereto; (v) the entry of a decree of judicial dissolution of any Holder of the Common Securities, the Sponsor, the Trust or the Debenture Issuer; (vi) when all of the Securities shall have been called for redemption and the amounts necessary for redemption thereof shall have been paid to the Holders in accordance with the terms of the Securities; or   -36- -------------------------------------------------------------------------------- (vii) before the issuance of any Securities, with the consent of all of the Trustees and the Sponsor. (b) As soon as is practicable after the occurrence of an event referred to in Section 7.1(a), and after satisfaction of liabilities to creditors of the Trust as required by applicable law, including Section 3808 of the Statutory Trust Act, and subject to the terms set forth in Annex I, the Institutional Trustee, when notified in writing of the completion of the winding up of the Trust in accordance with the Statutory Trust Act, shall terminate the Trust by filing, at the expense of the Sponsor, a certificate of cancellation with the Secretary of State of the State of Delaware. (c) The provisions of Section 2.9 and Article IX shall survive the termination of the Trust. ARTICLE VIII TRANSFER OF INTERESTS SECTION 8.1. General. (a) Subject to Section 6.4 and Section 8.1(c), when Capital Securities are presented to the Registrar with a request to register a transfer or to exchange them for an equal number of Capital Securities represented by different Certificates, the Registrar shall register the transfer or make the exchange if the requirements provided for herein for such transactions are met. To permit registrations of transfers and exchanges, the Trust shall issue and the Institutional Trustee shall authenticate Capital Securities at the Registrar’s request. (b) Upon issuance of the Common Securities, the Sponsor shall acquire and retain beneficial and record ownership of the Common Securities and, for so long as the Securities remain outstanding, the Sponsor shall maintain 100% ownership of the Common Securities; provided, however, that any permitted successor of the Sponsor under the Indenture that is a U.S. Person may succeed to the Sponsor’s ownership of the Common Securities. (c) Capital Securities may only be transferred, in whole or in part, in accordance with the terms and conditions set forth in this Declaration and in the terms of the Capital Securities. To the fullest extent permitted by applicable law, any transfer or purported transfer of any Security not made in accordance with this Declaration shall be null and void and will be deemed to be of no legal effect whatsoever and any such transferee shall be deemed not to be the holder of such Capital Securities for any purpose, including but not limited to the receipt of Distributions on such Capital Securities, and such transferee shall be deemed to have no interest whatsoever in such Capital Securities. (d) The Registrar shall provide for the registration of Securities and of transfers of Securities, which will be effected without charge but only upon payment (with such indemnity as the Registrar may require) in respect of any tax or other governmental charges that may be imposed in relation to it. Upon surrender for registration of transfer of any Securities, the Registrar shall cause one or more new Securities to be issued in the name of the designated transferee or transferees. Any Security issued upon any registration of transfer or exchange pursuant to the terms of this Declaration shall evidence the same Security and shall be entitled to   -37- -------------------------------------------------------------------------------- the same benefits under this Declaration as the Security surrendered upon such registration of transfer or exchange. Every Security surrendered for registration of transfer shall be accompanied by a written instrument of transfer in form satisfactory to the Registrar duly executed by the Holder or such Holder’s attorney duly authorized in writing. Each Security surrendered for registration of transfer shall be canceled by the Institutional Trustee pursuant to Section 6. A transferee of a Security shall be entitled to the rights and subject to the obligations of a Holder hereunder upon the receipt by such transferee of a Security. By acceptance of a Security, each transferee shall be deemed to have agreed to be bound by this Declaration. (e) Neither the Trust nor the Registrar shall be required (i) to issue, register the transfer of, or exchange any Securities during a period beginning at the opening of business 15 days before the day of any selection of Securities for redemption and ending at the close of business on the earliest date on which the relevant notice of redemption is deemed to have been given to all Holders of the Securities to be redeemed, or (ii) to register the transfer or exchange of any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part. SECTION 8.2. Transfer Procedures and Restrictions. (a) The Capital Securities shall bear the Restricted Securities Legend (as defined below), which shall not be removed unless there is delivered to the Trust such satisfactory evidence, which may include an opinion of counsel reasonably acceptable to the Institutional Trustee, as may be reasonably required by the Trust, that neither the legend nor the restrictions on transfer set forth therein are required to ensure that transfers thereof comply with the provisions of the Securities Act or that such Securities are not “restricted” within the meaning of Rule 144 under the Securities Act. Upon provision of such satisfactory evidence, the Institutional Trustee, at the written direction of the Trust, shall authenticate and deliver Capital Securities that do not bear the Restricted Securities Legend (other than the legend contemplated by Section 8.2(c)). (b) When Capital Securities are presented to the Registrar (x) to register the transfer of such Capital Securities, or (y) to exchange such Capital Securities for an equal number of Capital Securities represented by different Certificates, the Registrar shall register the transfer or make the exchange as requested if its reasonable requirements for such transaction are met; provided, however, that the Capital Securities surrendered for registration of transfer or exchange shall be duly endorsed or accompanied by a written instrument of transfer in form reasonably satisfactory to the Trust and the Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. (c) Except as permitted by Section 8.2(a), each Capital Security shall bear a legend (the “Restricted Securities Legend”) in substantially the following form: THIS CAPITAL SECURITY IS A GLOBAL CAPITAL SECURITY WITHIN THE MEANING OF THE DECLARATION HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITORY TRUST COMPANY (“DTC”) OR A NOMINEE OF DTC. THIS CAPITAL SECURITY IS EXCHANGEABLE FOR CAPITAL SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN DTC OR ITS   -38- -------------------------------------------------------------------------------- NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE DECLARATION, AND NO TRANSFER OF THIS CAPITAL SECURITY (OTHER THAN A TRANSFER OF THIS CAPITAL SECURITY AS A WHOLE BY DTC TO A NOMINEE OF DTC OR BY A NOMINEE OF DTC TO DTC OR ANOTHER NOMINEE OF DTC) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES. UNLESS THIS CAPITAL SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF DTC TO CRESCENT CAPITAL TRUST III OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CAPITAL SECURITY ISSUED IS REGISTERED AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY ONLY (A) TO THE DEBENTURE ISSUER OR THE TRUST, (B) PURSUANT TO RULE 144A UNDER THE SECURITIES ACT (“RULE 144A”), TO A PERSON THE HOLDER REASONABLY BELIEVES IS A “QUALIFIED INSTITUTIONAL BUYER” AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (C) TO A “NON U.S. PERSON” IN AN “OFFSHORE TRANSACTION” PURSUANT TO REGULATION S UNDER THE SECURITIES ACT, (D) PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT TO AN “ACCREDITED INVESTOR” WITHIN THE MEANING OF SUBPARAGRAPH (a) (1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF AN “ACCREDITED INVESTOR,” FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (D) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE DEBENTURE ISSUER’S AND THE TRUST’S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (C) OR (D) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM IN ACCORDANCE WITH THE AMENDED AND RESTATED DECLARATION OF TRUST, A COPY OF WHICH MAY BE OBTAINED FROM THE DEBENTURE ISSUER OR THE TRUST. THE HOLDER OF THIS SECURITY   -39- -------------------------------------------------------------------------------- BY ITS ACCEPTANCE HEREOF AGREES THAT IT WILL COMPLY WITH THE FOREGOING RESTRICTIONS. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES, REPRESENTS AND WARRANTS THAT IT WILL NOT ENGAGE IN HEDGING TRANSACTIONS INVOLVING THIS SECURITY UNLESS SUCH TRANSACTIONS ARE IN COMPLIANCE WITH THE SECURITIES ACT OR AN APPLICABLE EXEMPTION THEREFROM. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF ALSO AGREES, REPRESENTS AND WARRANTS THAT IT IS NOT AN EMPLOYEE BENEFIT, INDIVIDUAL RETIREMENT ACCOUNT OR OTHER PLAN OR ARRANGEMENT SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (“ERISA”), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”), (EACH A “PLAN”), OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE “PLAN ASSETS” BY REASON OF ANY PLAN’S INVESTMENT IN THE ENTITY AND NO PERSON INVESTING “PLAN ASSETS” OF ANY PLAN MAY ACQUIRE OR HOLD THIS SECURITY OR ANY INTEREST THEREIN, UNLESS SUCH PURCHASER OR HOLDER IS ELIGIBLE FOR THE EXEMPTIVE RELIEF AVAILABLE UNDER U.S. DEPARTMENT OF LABOR PROHIBITED TRANSACTION CLASS EXEMPTION 96-23, 95-60, 91-38, 90-1 OR 84-14 OR ANOTHER APPLICABLE EXEMPTION OR ITS PURCHASE AND HOLDING OF THIS SECURITY IS NOT PROHIBITED BY SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE WITH RESPECT TO SUCH PURCHASE OR HOLDING. ANY PURCHASER OR HOLDER OF THIS SECURITY OR ANY INTEREST THEREIN WILL BE DEEMED TO HAVE REPRESENTED BY ITS PURCHASE AND HOLDING THEREOF THAT EITHER (i) IT IS NOT AN EMPLOYEE BENEFIT PLAN WITHIN THE MEANING OF SECTION 3(3) OF ERISA, OR A PLAN TO WHICH SECTION 4975 OF THE CODE IS APPLICABLE, A TRUSTEE OR OTHER PERSON ACTING ON BEHALF OF AN EMPLOYEE BENEFIT PLAN OR PLAN, OR ANY OTHER PERSON OR ENTITY USING THE ASSETS OF ANY EMPLOYEE BENEFIT PLAN OR PLAN TO FINANCE SUCH PURCHASE, OR (ii) SUCH PURCHASE WILL NOT RESULT IN A PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE FOR WHICH THERE IS NO APPLICABLE STATUTORY OR ADMINISTRATIVE EXEMPTION. IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS MAY BE REQUIRED BY THE AMENDED AND RESTATED DECLARATION OF TRUST TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS. THIS SECURITY WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN BLOCKS HAVING A LIQUIDATION AMOUNT OF NOT LESS THAN $100,000 AND MULTIPLES OF $1,000 IN EXCESS THEREOF. ANY ATTEMPTED TRANSFER OF THIS SECURITY IN A BLOCK HAVING A LIQUIDATION AMOUNT OF LESS THAN $100,000 SHALL BE DEEMED TO BE VOID AND OF NO LEGAL EFFECT WHATSOEVER. ANY SUCH PURPORTED TRANSFEREE SHALL BE DEEMED NOT TO BE THE HOLDER OF   -40- -------------------------------------------------------------------------------- THIS SECURITY FOR ANY PURPOSE, INCLUDING, BUT NOT LIMITED TO, THE RECEIPT OF DISTRIBUTIONS ON THIS SECURITY, AND SUCH PURPORTED TRANSFEREE SHALL BE DEEMED TO HAVE NO INTEREST WHATSOEVER IN THIS SECURITY. (d) Capital Securities may only be transferred in minimum blocks of $100,000 aggregate liquidation amount (100 Capital Securities) and multiples of $1,000 in excess thereof. Any attempted transfer of Capital Securities in a block having an aggregate liquidation amount of less than $100,000 shall be deemed to be void and of no legal effect whatsoever. Any such purported transferee shall be deemed not to be a Holder of such Capital Securities for any purpose, including, but not limited to, the receipt of Distributions on such Capital Securities, and such purported transferee shall be deemed to have no interest whatsoever in such Capital Securities. (e) Each party hereto understands and hereby agrees that the Initial Purchaser is intended solely to be an interim holder of the Capital Securities and is purchasing such securities to facilitate consummation of the transactions contemplated herein and in the documents ancillary hereto. Notwithstanding any provision in this Declaration to the contrary, the Initial Purchaser shall have the right upon notice (a “Transfer Notice”) (such Transfer Notice shall be required if, and only if, the Capital Securities are not listed with the Depository Trust Company) to the Institutional Trustee and the Sponsor to transfer title in and to the Capital Securities, provided the Initial Purchaser shall take reasonable steps to ensure that such transfer is exempt from registration under the Securities Act of 1933, as amended, and rules promulgated thereunder. Any Transfer Notice delivered to the Institutional Trustee and Sponsor pursuant to the preceding sentence shall indicate the aggregate liquidation amount of Capital Securities being transferred, the name and address of the transferee thereof (the “Transferee”) and the date of such transfer. Notwithstanding any provision in this Declaration to the contrary, the transfer by the Initial Purchaser of title in and to the Capital Securities pursuant to a Transfer Notice shall not be subject to any requirement relating to Opinions of Counsel, Certificates of Transfer or any other Opinion or Certificate applicable to transfers hereunder and relating to Capital Securities. SECTION 8.3. Deemed Security Holders. The Trust, the Administrators, the Trustees, the Paying Agent, the Transfer Agent or the Registrar may treat the Person in whose name any Certificate shall be registered on the books and records of the Trust as the sole holder of such Certificate and of the Securities represented by such Certificate for purposes of receiving Distributions and for all other purposes whatsoever and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such Certificate or in the Securities represented by such Certificate on the part of any Person, whether or not the Trust, the Administrators, the Trustees, the Paying Agent, the Transfer Agent or the Registrar shall have actual or other notice thereof.   -41- -------------------------------------------------------------------------------- ARTICLE IX LIMITATION OF LIABILITY OF HOLDERS OF SECURITIES, TRUSTEES OR OTHERS SECTION 9.1. Liability. (a) Except as expressly set forth in this Declaration, the Guarantee and the terms of the Securities, the Sponsor shall not be: (i) personally liable for the return of any portion of the capital contributions (or any return thereon) of the Holders of the Securities which shall be made solely from assets of the Trust; and (ii) required to pay to the Trust or to any Holder of the Securities any deficit upon dissolution of the Trust or otherwise. (b) The Holder of the Common Securities shall be liable for all of the debts and obligations of the Trust (other than with respect to the Securities) to the extent not satisfied out of the Trust’s assets. (c) Except to the extent provided in Section 9.1(b), and pursuant to § 3803(a) of the Statutory Trust Act, the Holders of the Securities shall be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware, except as otherwise specifically set forth herein. SECTION 9.2. Exculpation. (a) No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Trust or any Covered Person for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Indemnified Person in good faith on behalf of the Trust and in a manner such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Declaration or by law, except that an Indemnified Person (other than an Administrator) shall be liable for any such loss, damage or claim incurred by reason of such Indemnified Person’s negligence or willful misconduct or bad faith with respect to such acts or omissions and except that an Administrator shall be liable for any such loss, damage or claim incurred by reason of such Administrator’s gross negligence or willful misconduct or bad faith with respect to such acts or omissions. (b) An Indemnified Person shall be fully protected in relying in good faith upon the records of the Trust and upon such information, opinions, reports or statements presented to the Trust by any Person as to matters the Indemnified Person reasonably believes are within such other Person’s professional or expert competence and, if selected by such Indemnified Person, has been selected by such Indemnified Person with reasonable care by or on behalf of the Trust, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses or any other facts pertinent to the existence and amount of assets from which Distributions to Holders of Securities might properly be paid. SECTION 9.3. Fiduciary Duty. (a) To the extent that, at law or in equity, an Indemnified Person has duties (including fiduciary duties) and liabilities relating thereto to the Trust or to any other Covered Person, an Indemnified Person acting under this Declaration shall not be liable to the Trust or to any other Covered Person for its good faith reliance on the provisions of this Declaration. The   -42- -------------------------------------------------------------------------------- provisions of this Declaration, to the extent that they restrict the duties and liabilities of an Indemnified Person otherwise existing at law or in equity (other than the duties imposed on the Institutional Trustee under the Trust Indenture Act), are agreed by the parties hereto to replace such other duties and liabilities of the Indemnified Person. (b) Whenever in this Declaration an Indemnified Person is permitted or required to make a decision: (i) in its “discretion” or under a grant of similar authority, the Indemnified Person shall be entitled to consider such interests and factors as it desires, including its own interests, and shall have no duty or obligation to give any consideration to any interest of or factors affecting the Trust or any other Person; or (ii) in its “good faith” or under another express standard, the Indemnified Person shall act under such express standard and shall not be subject to any other or different standard imposed by this Declaration or by applicable law. SECTION 9.4. Indemnification. (a) (i) The Sponsor shall indemnify, to the fullest extent permitted by law, any Indemnified Person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Trust) by reason of the fact that such Person is or was an Indemnified Person against expenses (including attorneys’ fees and expenses), judgments, fines and amounts paid in settlement actually and reasonably incurred by such Person in connection with such action, suit or proceeding if such Person acted in good faith and in a manner such Person reasonably believed to be in or not opposed to the best interests of the Trust, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the Indemnified Person did not act in good faith and in a manner which such Person reasonably believed to be in or not opposed to the best interests of the Trust, and, with respect to any criminal action or proceeding, had reasonable cause to believe that such conduct was unlawful. (ii) The Sponsor shall indemnify, to the fullest extent permitted by law, any Indemnified Person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Trust to procure a judgment in its favor by reason of the fact that such Person is or was an Indemnified Person against expenses (including attorneys’ fees and expenses) actually and reasonably incurred by such Person in connection with the defense or settlement of such action or suit if such Person acted in good faith and in a manner such Person reasonably believed to be in or not opposed to the best interests of the Trust and except that no such indemnification shall be made in respect of any claim, issue or matter as to which such Indemnified Person shall have been adjudged to be liable to the Trust unless and only to the extent that the Court of Chancery of Delaware or the court in which such action or suit was   -43- -------------------------------------------------------------------------------- brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such Person is fairly and reasonably entitled to indemnity for such expenses which such Court of Chancery or such other court shall deem proper. (iii) To the extent that an Indemnified Person shall be successful on the merits or otherwise (including dismissal of an action without prejudice or the settlement of an action without admission of liability) in defense of any action, suit or proceeding referred to in paragraphs (i) and (ii) of this Section 9.4(a), or in defense of any claim, issue or matter therein, such Person shall be indemnified, to the fullest extent permitted by law, against expenses (including attorneys’ fees and expenses) actually and reasonably incurred by such Person in connection therewith. (iv) Any indemnification of an Administrator under paragraphs (i) and (ii) of this Section 9.4(a) (unless ordered by a court) shall be made by the Sponsor only as authorized in the specific case upon a determination that indemnification of the Indemnified Person is proper in the circumstances because such Person has met the applicable standard of conduct set forth in paragraphs (i) and (ii). Such determination shall be made (A) by the Administrators by a majority vote of a Quorum consisting of such Administrators who were not parties to such action, suit or proceeding, (B) if such a Quorum is not obtainable, or, even if obtainable, if a Quorum of disinterested Administrators so directs, by independent legal counsel in a written opinion, or (C) by the Common Security Holder of the Trust. (v) To the fullest extent permitted by law, expenses (including attorneys’ fees and expenses) incurred by an Indemnified Person in defending a civil, criminal, administrative or investigative action, suit or proceeding referred to in paragraphs (i) and (ii) of this Section 9.4(a) shall be paid by the Sponsor in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such Indemnified Person to repay such amount if it shall ultimately be determined that such Person is not entitled to be indemnified by the Sponsor as authorized in this Section 9.4(a). Notwithstanding the foregoing, no advance shall be made by the Sponsor if a determination is reasonably and promptly made (1) in the case of a Company Indemnified Person (A) by the Administrators by a majority vote of a Quorum of disinterested Administrators, (B) if such a Quorum is not obtainable, or, even if obtainable, if a Quorum of disinterested Administrators so directs, by independent legal counsel in a written opinion or (C) by the Common Security Holder of the Trust, that, based upon the facts known to the Administrators, counsel or the Common Security Holder at the time such determination is made, such Indemnified Person acted in bad faith or in a manner that such Person either believed to be opposed to or did not believe to be in the best interests of the Trust, or, with respect to any criminal proceeding, that such Indemnified Person believed or had reasonable cause to believe such conduct was unlawful, or (2) in the case of a Fiduciary Indemnified Person, by independent legal counsel in a written opinion that, based upon the facts known to the counsel at the time such determination is made, such   -44- -------------------------------------------------------------------------------- Indemnified Person acted in bad faith or in a manner that such Indemnified Person either believed to be opposed to or did not believe to be in the best interests of the Trust, or, with respect to any criminal proceeding, that such Indemnified Person believed or had reasonable cause to believe such conduct was unlawful. In no event shall any advance be made (i) to a Company Indemnified Person in instances where the Administrators, independent legal counsel or the Common Security Holder reasonably determine that such Person deliberately breached such Person’s duty to the Trust or its Common or Capital Security Holders or (ii) to a Fiduciary Indemnified Person in instances where independent legal counsel promptly and reasonably determines in a written opinion that such Person deliberately breached such Person’s duty to the Trust or its Common or Capital Security Holders. (b) The Sponsor shall indemnify, to the fullest extent permitted by applicable law, each Indemnified Person from and against any and all loss, damage, liability, tax (other than taxes based on the income of such Indemnified Person), penalty, expense or claim of any kind or nature whatsoever incurred by such Indemnified Person arising out of or in connection with or by reason of the creation, administration or termination of the Trust, or any act or omission of such Indemnified Person in good faith on behalf of the Trust and in a manner such Indemnified Person reasonably believed to be within the scope of authority conferred on such Indemnified Person by this Declaration, except that no Indemnified Person shall be entitled to be indemnified in respect of any loss, damage, liability, tax, penalty, expense or claim incurred by such Indemnified Person by reason of negligence, willful misconduct, or bad faith with respect to such acts or omissions. (c) The indemnification and advancement of expenses provided by, or granted pursuant to, the other paragraphs of this Section 9.4 shall not be deemed exclusive of any other rights to which those seeking indemnification and advancement of expenses may be entitled under any agreement, vote of stockholders or disinterested directors of the Sponsor or Capital Security Holders of the Trust or otherwise, both as to action in such Person’s official capacity and as to action in another capacity while holding such office. All rights to indemnification under this Section 9.4 shall be deemed to be provided by a contract between the Sponsor and each Indemnified Person who serves in such capacity at any time while this Section 9.4 is in effect. Any repeal or modification of this Section 9.4 shall not affect any rights or obligations then existing. (d) The Sponsor or the Trust may purchase and maintain insurance on behalf of any Person who is or was an Indemnified Person against any liability asserted against such Person and incurred by such Person in any such capacity, or arising out of such Person’s status as such, whether or not the Sponsor would have the power to indemnify such Person against such liability under the provisions of this Section 9.4. (e) For purposes of this Section 9.4, references to “the Trust” shall include, in addition to the resulting or surviving entity, any constituent entity (including any constituent of a constituent) absorbed in a consolidation or merger, so that any Person who is or was a director, trustee, officer or employee of such constituent entity, or is or was serving at the request of such constituent entity as a director, trustee, officer, employee or agent of another entity, shall stand in   -45- -------------------------------------------------------------------------------- the same position under the provisions of this Section 9.4 with respect to the resulting or surviving entity as such Person would have with respect to such constituent entity if its separate existence had continued. (f) The indemnification and advancement of expenses provided by, or granted pursuant to, this Section 9.4 shall, unless otherwise provided when authorized or ratified, continue as to a Person who has ceased to be an Indemnified Person and shall inure to the benefit of the heirs, executors and administrators of such a Person. (g) The provisions of this Section 9.4 shall survive the termination of this Declaration or the earlier resignation or removal of the Institutional Trustee. The obligations of the Sponsor under this Section 9.4 to compensate and indemnify the Trustees and to pay or reimburse the Trustees for expenses, disbursements and advances shall constitute additional indebtedness hereunder. Such additional indebtedness shall be secured by a lien prior to that of the Securities upon all property and funds held or collected by the Trustees as such, except funds held in trust for the benefit of the holders of particular Capital Securities, provided, that the Sponsor is the holder of the Common Securities. SECTION 9.5. Outside Businesses. Any Covered Person, the Sponsor, the Delaware Trustee and the Institutional Trustee (subject to Section 4.3(c)) may engage in or possess an interest in other business ventures of any nature or description, independently or with others, similar or dissimilar to the business of the Trust, and the Trust and the Holders of Securities shall have no rights by virtue of this Declaration in and to such independent ventures or the income or profits derived therefrom, and the pursuit of any such venture, even if competitive with the business of the Trust, shall not be deemed wrongful or improper. None of any Covered Person, the Sponsor, the Delaware Trustee or the Institutional Trustee shall be obligated to present any particular investment or other opportunity to the Trust even if such opportunity is of a character that, if presented to the Trust, could be taken by the Trust, and any Covered Person, the Sponsor, the Delaware Trustee and the Institutional Trustee shall have the right to take for its own account (individually or as a partner or fiduciary) or to recommend to others any such particular investment or other opportunity. Any Covered Person, the Delaware Trustee and the Institutional Trustee may engage or be interested in any financial or other transaction with the Sponsor or any Affiliate of the Sponsor, or may act as depositary for, trustee or agent for, or act on any committee or body of holders of, securities or other obligations of the Sponsor or its Affiliates. SECTION 9.6. Compensation; Fee. (a) Subject to the provisions set forth in the Fee Agreement of even date herewith, by and among the Institutional Trustee, the Trust and the Initial Purchaser (the “Fee Agreement”), the Sponsor agrees: (i) to pay to the Trustees from time to time such compensation for all services rendered by them hereunder as the parties shall agree in writing from time to time (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); and   -46- -------------------------------------------------------------------------------- (ii) except as otherwise expressly provided herein or in the Fee Agreement, to reimburse the Trustees upon request for all reasonable, documented expenses, disbursements and advances incurred or made by the Trustees in accordance with any provision of this Declaration (including the reasonable compensation and the expenses and disbursements of their respective agents and counsel), except any such expense, disbursement or advance attributable to their negligence or willful misconduct. (b) The provisions of this Section 9.6 shall survive the dissolution of the Trust and the termination of this Declaration and the removal or resignation of any Trustee. ARTICLE X ACCOUNTING SECTION 10.1. Fiscal Year. The fiscal year (the “Fiscal Year”) of the Trust shall be the calendar year, or such other year as is required by the Code. SECTION 10.2. Certain Accounting Matters. (a) At all times during the existence of the Trust, the Administrators shall keep, or cause to be kept at the principal office of the Trust in the United States, as defined for purposes of Treasury Regulations § 301.7701-7, full books of account, records and supporting documents, which shall reflect in reasonable detail each transaction of the Trust. The books of account shall be maintained on the accrual method of accounting, in accordance with generally accepted accounting principles, consistently applied. (b) The Administrators shall either (i) cause each Form 10-K and Form 10-Q prepared by the Sponsor and filed with the Commission in accordance with the Exchange Act to be delivered directly to each Holder of Securities, within 90 days after the filing of each Form 10-K and within 30 days after the filing of each Form 10-Q or (ii) cause to be prepared at the principal office of the Trust in the United States, as defined for purposes of Treasury Regulations § 301.7701-7, and delivered directly to each of the Holders of Securities, within 90 days after the end of each Fiscal Year of the Trust, annual financial statements of the Trust, including a balance sheet of the Trust as of the end of such Fiscal Year, and the related statements of income or loss. (c) The Administrators shall cause to be duly prepared and delivered to each of the Holders of Securities Form 1099 or such other annual United States federal income tax information statement required by the Code, containing such information with regard to the Securities held by each Holder as is required by the Code and the Treasury Regulations. Notwithstanding any right under the Code to deliver any such statement at a later date, the Administrators shall endeavor to deliver all such statements within 30 days after the end of each Fiscal Year of the Trust. (d) The Administrators shall cause to be duly prepared in the United States, as defined for purposes of Treasury Regulations § 301.7701-7, and filed an annual United States federal income tax return on a Form 1041 or such other form required by United States federal income tax law, and any other annual income tax returns required to be filed by the Administrators on behalf of the Trust with any state or local taxing authority.   -47- -------------------------------------------------------------------------------- (e) The Administrators will cause the Sponsor’s reports on Form FR Y-9C and FR Y-9LP to be delivered to the Holders promptly following their filing with the Board of Governors of the Federal Reserve System (the “Federal Reserve”). SECTION 10.3. Banking. The Trust shall maintain one or more bank accounts in the United States, as defined for purposes of Treasury Regulations § 301.7701-7, in the name and for the sole benefit of the Trust; provided, however, that all payments of funds in respect of the Debentures held by the Institutional Trustee shall be made directly to the Property Account and no other funds of the Trust shall be deposited in the Property Account. The sole signatories for such accounts (including the Property Account) shall be designated by the Institutional Trustee. SECTION 10.4. Withholding. The Institutional Trustee or any Paying Agent and the Administrators shall comply with all withholding requirements under United States federal, state and local law. The Institutional Trustee or any Paying Agent shall request, and each Holder shall provide to the Institutional Trustee or any Paying Agent, such forms or certificates as are necessary to establish an exemption from withholding with respect to the Holder, and any representations and forms as shall reasonably be requested by the Institutional Trustee or any Paying Agent to assist it in determining the extent of, and in fulfilling, its withholding obligations. The Administrators shall file required forms with applicable jurisdictions and, unless an exemption from withholding is properly established by a Holder, shall remit amounts withheld with respect to the Holder to applicable jurisdictions. To the extent that the Institutional Trustee or any Paying Agent is required to withhold and pay over any amounts to any authority with respect to distributions or allocations to any Holder, the amount withheld shall be deemed to be a Distribution to the Holder in the amount of the withholding. In the event of any claimed overwithholding, Holders shall be limited to an action against the applicable jurisdiction. If the amount required to be withheld was not withheld from actual Distributions made, the Institutional Trustee or any Paying Agent may reduce subsequent Distributions by the amount of such withholding. ARTICLE XI AMENDMENTS AND MEETINGS SECTION 11.1. Amendments. (a) Except as otherwise provided in this Declaration or by any applicable terms of the Securities, this Declaration may only be amended by a written instrument approved and executed by: (i) the Institutional Trustee, (ii) if the amendment affects the rights, powers, duties, obligations or immunities of the Delaware Trustee, the Delaware Trustee, (iii) if the amendment affects the rights, powers, duties, obligations or immunities of the Administrators, the Administrators, and (iv) the Holders of a Majority in liquidation amount of the Common Securities.   -48- -------------------------------------------------------------------------------- (b) Notwithstanding any other provision of this Article XI, no amendment shall be made, and any such purported amendment shall be void and ineffective: (i) unless the Institutional Trustee shall have first received (A) an Officers’ Certificate from each of the Trust and the Sponsor that such amendment is permitted by, and conforms to, the terms of this Declaration (including the terms of the Securities); and (B) an opinion of counsel (who may be counsel to the Sponsor or the Trust) that such amendment is permitted by, and conforms to, the terms of this Declaration (including the terms of the Securities) and that all conditions precedent to the execution and delivery of such amendment have been satisfied; or (ii) if the result of such amendment would be to (A) cause the Trust to cease to be classified for purposes of United States federal income taxation as a grantor trust; (B) reduce or otherwise adversely affect the powers of the Institutional Trustee in contravention of the Trust Indenture Act; (C) cause the Trust to be deemed to be an Investment Company required to be registered under the Investment Company Act; or (D) cause the Debenture Issuer to be unable to treat an amount equal to the Liquidation Amount of the Capital Securities as “Tier 1 Capital” for purposes of the capital adequacy guidelines of (x) the Federal Reserve (or, if the Debenture Issuer is not a bank holding company, such guidelines or policies applied to the Debenture Issuer as if the Debenture Issuer were subject to such guidelines of policies) or of (y) any other regulatory authority having jurisdiction over the Debenture Issuer. (c) Except as provided in Section 11.1(d), (e) or (g), no amendment shall be made, and any such purported amendment shall be void and ineffective, unless the Holders of a Majority in liquidation amount of the Capital Securities shall have consented to such amendment. (d) In addition to and notwithstanding any other provision in this Declaration, without the consent of each affected Holder, this Declaration may not be amended to (i) change the amount or timing of any Distribution on the Securities or any redemption or liquidation provisions applicable to the Securities or otherwise adversely affect the amount of any Distribution required to be made in respect of the Securities as of a specified date or (ii) restrict the right of a Holder to institute suit for the enforcement of any such payment on or after such date.   -49- -------------------------------------------------------------------------------- (e) Sections 9.1 (b) and 9.1 (c) and this Section 11.1 shall not be amended without the consent of all of the Holders of the Securities. (f) The rights of the Holders of the Capital Securities and Common Securities, as applicable, under Article IV to increase or decrease the number of, and appoint and remove, Trustees shall not be amended without the consent of the Holders of a Majority in liquidation amount of the Capital Securities or Common Securities, as applicable. (g) Subject to Section 11.1(a)(ii), this Declaration may be amended by the Institutional Trustee and the Holder of a Majority in liquidation amount of the Common Securities without the consent of the Holders of the Capital Securities to: (i) cure any ambiguity; (ii) correct or supplement any provision in this Declaration that may be defective or inconsistent with any other provision of this Declaration; (iii) add to the covenants, restrictions or obligations of the Sponsor; or (iv) modify, eliminate or add to any provision of this Declaration to such extent as may be necessary or desirable, including, without limitation, to ensure that the Trust will be classified for United States federal income tax purposes at all times as a grantor trust and will not be required to register as an Investment Company under the Investment Company Act (including without limitation to conform to any change in Rule 3a-5, Rule 3a-7 or any other applicable rule under the Investment Company Act or written change in interpretation or application thereof by any legislative body, court, government agency or regulatory authority) which amendment does not have a material adverse effect on the right, preferences or privileges of the Holders of Securities; provided, however, that no such modification, elimination or addition referred to in clauses (i), (ii), (iii) or (iv) shall adversely affect the powers, preferences or rights of Holders of Capital Securities. SECTION 11.2. Meetings of the Holders of the Securities; Action by Written Consent. (a) Meetings of the Holders of any class of Securities may be called at any time by the Administrators (or as provided in the terms of the Securities) to consider and act on any matter on which Holders of such class of Securities are entitled to act under the terms of this Declaration, the terms of the Securities or the rules of any stock exchange on which the Capital Securities are listed or admitted for trading, if any. The Administrators shall call a meeting of the Holders of such class if directed to do so by the Holders of not less than 10% in liquidation amount of such class of Securities. Such direction shall be given by delivering to the Administrators one or more notices in a writing stating that the signing Holders of the Securities wish to call a meeting and indicating the general or specific purpose for which the meeting is to be called. Any Holders of the Securities calling a meeting shall specify in writing the Certificates held by the Holders of the Securities exercising the right to call a meeting and only those   -50- -------------------------------------------------------------------------------- Securities represented by such Certificates shall be counted for purposes of determining whether the required percentage set forth in the second sentence of this paragraph has been met. (b) Except to the extent otherwise provided in the terms of the Securities, the following provisions shall apply to meetings of Holders of the Securities: (i) notice of any such meeting shall be given to all the Holders of the Securities having a right to vote thereat at least 15 days and not more than 60 days before the date of such meeting. Whenever a vote, consent or approval of the Holders of the Securities is permitted or required under this Declaration or the rules of any stock exchange on which the Capital Securities are listed or admitted for trading, if any, such vote, consent or approval may be given at a meeting of the Holders of the Securities. Any action that may be taken at a meeting of the Holders of the Securities may be taken without a meeting if a consent in writing setting forth the action so taken is signed by the Holders of the Securities owning not less than the minimum amount of Securities that would be necessary to authorize or take such action at a meeting at which all Holders of the Securities having a right to vote thereon were present and voting. Prompt notice of the taking of action without a meeting shall be given to the Holders of the Securities entitled to vote who have not consented in writing. The Administrators may specify that any written ballot submitted to the Holders of the Securities for the purpose of taking any action without a meeting shall be returned to the Trust within the time specified by the Administrators; (ii) each Holder of a Security may authorize any Person to act for it by proxy on all matters in which a Holder of Securities is entitled to participate, including waiving notice of any meeting, or voting or participating at a meeting. No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the Holder of the Securities executing it. Except as otherwise provided herein, all matters relating to the giving, voting or validity of proxies shall be governed by the General Corporation Law of the State of Delaware relating to proxies, and judicial interpretations thereunder, as if the Trust were a Delaware corporation and the Holders of the Securities were stockholders of a Delaware corporation; each meeting of the Holders of the Securities shall be conducted by the Administrators or by such other Person that the Administrators may designate; and (iii) unless the Statutory Trust Act, this Declaration, the terms of the Securities, the Trust Indenture Act or the listing rules of any stock exchange on which the Capital Securities are then listed for trading, if any, otherwise provides, the Administrators, in their sole discretion, shall establish all other provisions relating to meetings of Holders of Securities, including notice of the time, place or purpose of any meeting at which any matter is to be voted on by any Holders of the Securities, waiver of any such notice, action by consent without a meeting, the establishment of a record date, quorum requirements, voting in person or by proxy or any other matter with respect to the exercise of any such right to vote;   -51- -------------------------------------------------------------------------------- provided, however, that each meeting shall be conducted in the United States (as that term is defined in Treasury Regulations § 301.7701-7). ARTICLE XII REPRESENTATIONS OF INSTITUTIONAL TRUSTEE AND DELAWARE TRUSTEE SECTION 12.1. Representations and Warranties of Institutional Trustee. The Trustee that acts as initial Institutional Trustee represents and warrants to the Trust and to the Sponsor at the date of this Declaration, and each Successor Institutional Trustee represents and warrants to the Trust and the Sponsor at the time of the Successor Institutional Trustee’s acceptance of its appointment as Institutional Trustee, that: (a) the Institutional Trustee is a banking corporation or national association with trust powers, duly organized, validly existing and in good standing under the laws of the State of Delaware or the United States of America, respectively, with trust power and authority to execute and deliver, and to carry out and perform its obligations under the terms of, this Declaration; (b) the Institutional Trustee has a combined capital and surplus of at least fifty million U.S. dollars ($50,000,000); (c) the Institutional Trustee is not an affiliate of the Sponsor, nor does the Institutional Trustee offer or provide credit or credit enhancement to the Trust; (d) the execution, delivery and performance by the Institutional Trustee of this Declaration has been duly authorized by all necessary action on the part of the Institutional Trustee. This Declaration has been duly executed and delivered by the Institutional Trustee, and under Delaware law (excluding any securities laws) constitutes a legal, valid and binding obligation of the Institutional Trustee, enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, moratorium, insolvency and other similar laws affecting creditors’ rights generally and to general principles of equity and the discretion of the court (regardless of whether considered in a proceeding in equity or at law); (e) the execution, delivery and performance of this Declaration by the Institutional Trustee does not conflict with or constitute a breach of the charter or by-laws of the Institutional Trustee; and (f) no consent, approval or authorization of, or registration with or notice to, any state or federal banking authority governing the trust powers of the Institutional Trustee is required for the execution, delivery or performance by the Institutional Trustee of this Declaration.   -52- -------------------------------------------------------------------------------- SECTION 12.2. Representations and Warranties of Delaware Trustee. The Trustee that acts as initial Delaware Trustee represents and warrants to the Trust and to the Sponsor at the date of this Declaration, and each Successor Delaware Trustee represents and warrants to the Trust and the Sponsor at the time of the Successor Delaware Trustee’s acceptance of its appointment as Delaware Trustee that: (a) if it is not a natural person, the Delaware Trustee has its principal place of business in the State of Delaware; (b) if it is not a natural person, the execution, delivery and performance by the Delaware Trustee of this Declaration has been duly authorized by all necessary corporate action on the part of the Delaware Trustee. This Declaration has been duly executed and delivered by the Delaware Trustee, and under Delaware law (excluding any securities laws) constitutes a legal, valid and binding obligation of the Delaware Trustee, enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, moratorium, insolvency and other similar laws affecting creditors’ rights generally and to general principles of equity and the discretion of the court (regardless of whether considered in a proceeding in equity or at law); (c) if it is not a natural person, the execution, delivery and performance of this Declaration by the Delaware Trustee does not conflict with or constitute a breach of the articles of association or by-laws of the Delaware Trustee; (d) it has trust power and authority to execute and deliver, and to carry out and perform its obligations under the terms of, this Declaration; (e) no consent, approval or authorization of, or registration with or notice to, any state or federal banking authority governing the trust powers of the Delaware Trustee is required for the execution, delivery or performance by the Delaware Trustee of this Declaration; and (f) if the Delaware Trustee is a natural person, it is a resident of the State of Delaware. ARTICLE XIII MISCELLANEOUS SECTION 13.1. Notices. All notices provided for in this Declaration shall be in writing, duly signed by the party giving such notice, and shall be delivered, telecopied (which telecopy shall be followed by notice delivered or mailed by first class mail) or mailed by first class mail, as follows: (a) if given to the Trust, in care of the Administrators at the Trust’s mailing address set forth below (or such other address as the Trust may give notice of to the Holders of the Securities): Crescent Capital Trust III c/o Crescent Banking Company 7 Caring Way Jasper, Georgia 30143 Attention: Leland W. Brantley, Jr. Telecopy: (678) 454-2276 Telephone: (678) 454-2258   -53- -------------------------------------------------------------------------------- (b) if given to the Delaware Trustee, at the mailing address set forth below (or such other address as the Delaware Trustee may give notice of to the Holders of the Securities): Wells Fargo Delaware Trust Company 919 Market Street Suite 700 Wilmington, DE 19801 Attention: Corporate Trust Division Telecopy: 302-575-2006 Telephone: 302-575-2005 (c) if given to the Institutional Trustee, at the Institutional Trustee’s mailing address set forth below (or such other address as the Institutional Trustee may give notice of to the Holders of the Securities): Wells Fargo Bank, National Association 919 Market Street Suite 700 Wilmington, DE 19801 Attention: Corporate Trust Division Telecopy: 302-575-2006 Telephone: 302-575-2005 (d) if given to the Holder of the Common Securities, at the mailing address of the Sponsor set forth below (or such other address as the Holder of the Common Securities may give notice of to the Trust): Crescent Banking Company 7 Caring Way Jasper, Georgia 30143 Attention: Leland W. Brantley, Jr. Telecopy: (678) 454-2276 Telephone: (678) 454-2258 (e) if given to any other Holder, at the address set forth on the books and records of the Trust. All such notices shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid, except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver.   -54- -------------------------------------------------------------------------------- SECTION 13.2. Governing Law. This Declaration and the rights and obligations of the parties hereunder shall be governed by and interpreted in accordance with the law of the State of Delaware and all rights, obligations and remedies shall be governed by such laws without regard to the principles of conflict of laws of the State of Delaware or any other jurisdiction that would call for the application of the law of any jurisdiction other than the State of Delaware. SECTION 13.3. Submission to Jurisdiction. (a) Each of the parties hereto agrees that any suit, action or proceeding arising out of or based upon this Declaration, or the transactions contemplated hereby, may be instituted in any of the state or federal courts of the State of New York located in the Borough of Manhattan, City and State of New York, and further agrees to submit to the jurisdiction of Delaware, and to any actions that are instituted in state or Federal court in Wilmington, Delaware and any competent court in the place of its corporate domicile in respect of actions brought against it as a defendant. In addition, each such party irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of such suit, action or proceeding brought in any such court and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum and irrevocably waives any right to which it may be entitled on account of its place of corporate domicile. Each such party hereby irrevocably waives any and all right to trial by jury in any legal proceeding arising out of or relating to this Declaration or the transactions contemplated hereby. Each such party agrees that final judgment in any proceedings brought in such a court shall be conclusive and binding upon it and may be enforced in any court to the jurisdiction of which it is subject by a suit upon such judgment. (b) Each of the Sponsor, the Trustees, the Administrators and the Holder of the Common Securities irrevocably consents to the service of process on it in any such suit, action or proceeding by the mailing thereof by registered or certified mail, postage prepaid, to it at its address given in or pursuant to Section 13.1 hereof. (c) To the extent permitted by law, nothing herein contained shall preclude any party from effecting service of process in any lawful manner or from bringing any suit, action or proceeding in respect of this Declaration in any other state, country or place. SECTION 13.4. Intention of the Parties. It is the intention of the parties hereto that the Trust be classified for United States federal income tax purposes as a grantor trust. The provisions of this Declaration shall be interpreted to further this intention of the parties. SECTION 13.5. Headings. Headings contained in this Declaration are inserted for convenience of reference only and do not affect the interpretation of this Declaration or any provision hereof. SECTION 13.6. Successors and Assigns. Whenever in this Declaration any of the parties hereto is named or referred to, the successors and assigns of such party shall be deemed to be included, and all covenants and agreements in this Declaration by the Sponsor and the Trustees shall bind and inure to the benefit of their respective successors and assigns, whether or not so expressed.   -55- -------------------------------------------------------------------------------- SECTION 13.7. Partial Enforceability. If any provision of this Declaration, or the application of such provision to any Person or circumstance, shall be held invalid, the remainder of this Declaration, or the application of such provision to persons or circumstances other than those to which it is held invalid, shall not be affected thereby. SECTION 13.8. Counterparts. This Declaration may contain more than one counterpart of the signature page and this Declaration may be executed by the affixing of the signature of each of the Trustees and Administrators to any of such counterpart signature pages. All of such counterpart signature pages shall be read as though one, and they shall have the same force and effect as though all of the signers had signed a single signature page.   -56- -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the undersigned have caused this Declaration to be duly executed as of the day and year first above written.   WELLS FARGO DELAWARE TRUST COMPANY, as Delaware Trustee By:   /s/ Jose I. Mercado   Name:   Jose I. Mercado   Title:   Assistant Vice President WELLS FARGO BANK, NATIONAL ASSOCIATION, as Institutional Trustee By:   /s/ Jose I. Mercado   Name:   Jose I. Mercado   Title:   Assistant Vice President CRESCENT BANKING COMPANY as Sponsor By:   /s/ J. Donald Boggus, Jr.   Name:   J. Donald Boggus, Jr.   Title:   CEO By:   /s/ J. Donald Boggus, Jr.   Administrator By:   /s/ Leland W. Brantley, Jr.   Administrator -------------------------------------------------------------------------------- ANNEX I TERMS OF CAPITAL SECURITIES AND COMMON SECURITIES Pursuant to Section 6.1 of the Amended and Restated Declaration of Trust, dated as of May 18, 2006 (as amended from time to time, the “Declaration”), the designation, rights, privileges, restrictions, preferences and other terms and provisions of the Capital Securities and the Common Securities are set out below (each capitalized term used but not defined herein has the meaning set forth in the Declaration): 1. Designation and Number. (a) Capital Securities. 3,500 Capital Securities of Crescent Capital Trust III (the “Trust”), with an aggregate stated liquidation amount with respect to the assets of the Trust of Three Million Five Hundred Thousand Dollars ($3,500,000) and a stated liquidation amount with respect to the assets of the Trust of $1,000 per Capital Security, are hereby designated for the purposes of identification only as the “Capital Securities” (the “Capital Securities”). The Capital Security Certificates evidencing the Capital Securities shall be substantially in the form of Exhibit A-1 to the Declaration, with such changes and additions thereto or deletions therefrom as may be required by ordinary usage, custom or practice or to conform to the rules of any stock exchange on which the Capital Securities are listed, if any. (b) Common Securities. 109 Common Securities of the Trust (the “Common Securities”) will be evidenced by Common Security Certificates substantially in the form of Exhibit A-2 to the Declaration, with such changes and additions thereto or deletions therefrom as may be required by ordinary usage, custom or practice. In the absence of an Event of Default, the Common Securities will have an aggregate stated liquidation amount with respect to the assets of the Trust of One Hundred Nine Thousand Dollars ($109,000) and a stated liquidation amount with respect to the assets of the Trust of $1,000 per Common Security. 2. Distributions. (a) Distributions payable on each Security will be payable at a variable per annum rate of interest, reset quarterly, equal to LIBOR, as determined on the LIBOR Determination Date for such Distribution Payment Period, plus 1.65% (the “Coupon Rate”) of the stated liquidation amount of $1,000 per Security, (provided, however, that the Coupon Rate for any Distribution Payment Period may not exceed the highest rate permitted by New York law, as the same may be modified by United States law of general applicability), such Coupon Rate being the rate of interest payable on the Debentures to be held by the Institutional Trustee. Except as set forth below in respect of an Extension Period, Distributions in arrears for more than one quarterly period will bear interest thereon compounded quarterly at the applicable Coupon Rate for each such quarterly period (to the extent permitted by applicable law). The term “Distributions” as used herein includes cash distributions, any such compounded distributions and any Additional Interest payable on the Debentures unless otherwise stated. A Distribution is payable only to the extent that payments are made in respect of the Debentures held by the   A-I-1 -------------------------------------------------------------------------------- Institutional Trustee and to the extent the Institutional Trustee has funds legally available in the Property Account therefor. The amount of Distributions payable for any Distribution Payment Period will be computed for any full quarterly Distribution Payment Period on the basis of a 360-day year and the actual number of days elapsed in the relevant Distribution period; provided, however, that upon the occurrence of a Special Event redemption pursuant to paragraph 4(a) below the amounts payable pursuant to this Declaration shall be calculated as set forth in the definition of Special Redemption Price. (b) LIBOR shall be determined by the Calculation Agent in accordance with the following provisions: (1) On the second LIBOR Business Day (provided, that on such day commercial banks are open for business (including dealings in foreign currency deposits) in London (a “LIBOR Banking Day”), and otherwise the next preceding LIBOR Business Day that is also a LIBOR Banking Day) prior to January 15, April 15, July 15 and October 15 immediately succeeding the commencement of such Distribution Payment Period (or, with respect to the first Distribution Payment Period, on May 16, 2006), (each such day, a “LIBOR Determination Date”) for such Distribution Payment Period), the Calculation Agent shall obtain the rate for three-month U.S. Dollar deposits in Europe, which appears on Telerate Page 3750 (as defined in the International Swaps and Derivatives Association, Inc. 2000 Interest Rate and Currency Exchange Definitions) or such other page as may replace such Telerate Page 3750 on the Moneyline Telerate, Inc. service (or such other service or services as may be nominated by the British Banker’s Association as the information vendor for the purpose of displaying London interbank offered rates for U.S. dollar deposits), as of 11:00 a.m. (London time) on such LIBOR Determination Date, and the rate so obtained shall be LIBOR for such Distribution Payment Period. “LIBOR Business Day” means any day that is not a Saturday, Sunday or other day on which commercial banking institutions in The City of New York or Wilmington, Delaware are authorized or obligated by law or executive order to be closed. If such rate is superseded on Telerate Page 3750 by a corrected rate before 12:00 noon (London time) on the same LIBOR Determination Date, the corrected rate as so substituted will be the applicable LIBOR for that Distribution Payment Period. (2) If, on any LIBOR Determination Date, such rate does not appear on Telerate Page 3750 or such other page as may replace such Telerate Page 3750 on the Moneyline Telerate, Inc. service (or such other service or services as may be nominated by the British Banker’s Association as the information vendor for the purpose of displaying London interbank offered rates for U.S. dollar deposits), the Calculation Agent shall determine the arithmetic mean of the offered quotations of the Reference Banks (as defined below) to leading banks in the London Interbank market for three-month U.S. Dollar deposits in Europe (in an amount determined by the Calculation Agent) by reference to requests for quotations as of approximately 11:00 a.m. (London time) on the LIBOR Determination Date made by the Calculation Agent to the Reference Banks. If, on any LIBOR Determination Date, at least two of the Reference Banks provide such   A-I-2 -------------------------------------------------------------------------------- quotations, LIBOR shall equal the arithmetic mean of such quotations. If, on any LIBOR Determination Date, only one or none of the Reference Banks provide such a quotation, LIBOR shall be deemed to be the arithmetic mean of the offered quotations that at least two leading banks in the City of New York (as selected by the Calculation Agent) are quoting on the relevant LIBOR Determination Date for three-month U.S. Dollar deposits in Europe at approximately 11:00 a.m. (London time) (in an amount determined by the Calculation Agent). As used herein, “Reference Banks” means four major banks in the London Interbank market selected by the Calculation Agent. (3) If the Calculation Agent is required but is unable to determine a rate in accordance with at least one of the procedures provided above, LIBOR for the applicable Distribution Payment Period shall be LIBOR in effect for the immediately preceding Distribution Payment Period. (c) All percentages resulting from any calculations on the Securities will be rounded, if necessary, to the nearest one hundred-thousandth of a percentage point, with five one-millionths of a percentage point rounded upward (e.g., 9.876545% (or .09876545) being rounded to 9.87655% (or .0987655)), and all dollar amounts used in or resulting from such calculation will be rounded to the nearest cent (with one-half cent being rounded upward). (d) On each LIBOR Determination Date, the Calculation Agent shall notify, in writing, the Sponsor and the Paying Agent of the applicable Coupon Rate in effect for the related Distribution Payment Period. The Calculation Agent shall, upon the request of the Holder of any Securities, provide the Coupon Rate then in effect. All calculations made by the Calculation Agent in the absence of manifest error shall be conclusive for all purposes and binding on the Sponsor and the Holders of the Securities. The Paying Agent shall be entitled to rely on information received from the Calculation Agent or the Sponsor as to the Coupon Rate. The Sponsor shall, from time to time, provide any necessary information to the Paying Agent relating to any original issue discount and interest on the Securities that is included in any payment and reportable for taxable income calculation purposes. (e) Distributions on the Securities will be cumulative, will accrue from the date of original issuance, and will be payable, subject to extension of Distribution payment periods as described herein, quarterly in arrears on January 7, April 7, July 7 and October 7 of each year, commencing July 7, 2006 (each, a “Distribution Payment Date”). Subject to prior submission of Notice (as defined in the Indenture), and so long as no Event of Default pursuant to paragraphs (c), (e), (f) or (g) of Section 5.01 of the Indenture has occurred and is continuing, the Debenture Issuer has the right under the Indenture to defer payments of interest on the Debentures by extending the interest distribution period for up to 20 consecutive quarterly periods (each, an “Extension Period”) at any time and from time to time on the Debentures, subject to the conditions described below, during which Extension Period no interest shall be due and payable (except any Additional Interest that may be due and payable). During any Extension Period, interest will continue to accrue on the Debentures, and interest on such accrued interest (such accrued interest and interest thereon referred to herein as “Deferred Interest”) will accrue at an annual rate equal to the Coupon Rate in effect for each such Extension Period, compounded quarterly from the date such Deferred Interest would have been payable were it not for the   A-I-3 -------------------------------------------------------------------------------- Extension Period, to the extent permitted by law. No Extension Period may end on a date other than a Distribution Payment Date. At the end of any such Extension Period, the Debenture Issuer shall pay all Deferred Interest then accrued and unpaid on the Debentures; provided, however, that no Extension Period may extend beyond the Maturity Date, Redemption Date (to the extent redeemed) or Special Redemption Date and provided, further, that, during any such Extension Period, the Debenture Issuer may not (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of the Debenture Issuer’s capital stock or (ii) make any payment of principal or premium or interest on or repay, repurchase or redeem any debt securities of the Debenture Issuer that rank pari passu in all respects with or junior in interest to the Debentures or (iii) make any payment under any guarantees of the Debenture Issuer that rank in all respects pari passu with or junior in interest to the Guarantee (other than (a) repurchases, redemptions or other acquisitions of shares of capital stock of the Debenture Issuer (A) in connection with any employment contract, benefit plan or other similar arrangement with or for the benefit of one or more employees, officers, directors or consultants, (B) in connection with a dividend reinvestment or stockholder stock purchase plan or (C) in connection with the issuance of capital stock of the Debenture Issuer (or securities convertible into or exercisable for such capital stock), as consideration in an acquisition transaction entered into prior to the applicable Extension Period, (b) as a result of any exchange, reclassification, combination or conversion of any class or series of the Debenture Issuer’s capital stock (or any capital stock of a subsidiary of the Debenture Issuer) for any class or series of the Debenture Issuer’s capital stock or of any class or series of the Debenture Issuer’s indebtedness for any class or series of the Debenture Issuer’s capital stock, (c) the purchase of fractional interests in shares of the Debenture Issuer’s capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged, (d) any declaration of a dividend in connection with any stockholder’s rights plan, or the issuance of rights, stock or other property under any stockholder’s rights plan, or the redemption or repurchase of rights pursuant thereto, or (e) any dividend in the form of stock, warrants, options or other rights where the dividend stock or the stock issuable upon exercise of such warrants, options or other rights is the same stock as that on which the dividend is being paid or ranks pari passu with or junior to such stock). Prior to the termination of any Extension Period, the Debenture Issuer may further extend such period; provided, that such period together with all such previous and further consecutive extensions thereof shall not exceed 20 consecutive quarterly periods, or extend beyond the Maturity Date. Upon the termination of any Extension Period and upon the payment of all Deferred Interest, the Debenture Issuer may commence a new Extension Period, subject to the foregoing requirements. No interest or Deferred Interest shall be due and payable during an Extension Period, except at the end thereof, but Deferred Interest shall accrue upon each installment of interest that would otherwise have been due and payable during such Extension Period until such installment is paid. If Distributions are deferred, the Distributions due shall be paid on the date that the related Extension Period terminates, or, if such date is not a Distribution Payment Date, on the immediately following Distribution Payment Date, to Holders of the Securities as they appear on the books and records of the Trust on the record date immediately preceding such date. Distributions on the Securities must be paid on the dates payable (after giving effect to any Extension Period) to the extent that the Trust has funds legally available for the payment of such distributions in the Property Account of the Trust. The Trust’s funds available for Distribution to the Holders of the Securities will be limited to payments received   A-I-4 -------------------------------------------------------------------------------- from the Debenture Issuer. The payment of Distributions out of moneys held by the Trust is guaranteed by the Guarantor pursuant to the Guarantee. (f) Distributions on the Securities will be payable to the Holders thereof as they appear on the books and records of the Registrar on the relevant record dates. The relevant record dates shall be selected by the Administrators, which dates shall be 15 days before the relevant Distribution Payment Date. Distributions payable on any Securities that are not punctually paid on any Distribution Payment Date, as a result of the Debenture Issuer having failed to make a payment under the Debentures, as the case may be, when due (taking into account any Extension Period), will cease to be payable to the Person in whose name such Securities are registered on the relevant record date, and such defaulted Distribution will instead be payable to the Person in whose name such Securities are registered on the special record date or other specified date determined in accordance with the Indenture. Notwithstanding anything to the contrary contained herein, if any Distribution Payment Date, other than on the Maturity Date, Redemption Date or Special Redemption Date, falls on a day that is not a Business Day, then any Distributions payable will be paid on, and such Distribution Payment Date will be moved to, the next succeeding Business Day, and additional Distributions will accrue for each day that such payment is delayed as a result thereof. If the Maturity Date, Redemption Date or Special Redemption Date falls on a day that is not a Business Day, then the principal, premium, if any, and/or Distributions payable on such date will be paid on the next preceding Business Day. (g) In the event that there is any money or other property held by or for the Trust that is not accounted for hereunder, such property shall be distributed pro rata (as defined herein) among the Holders of the Securities. 3. Liquidation Distribution Upon Dissolution. In the event of the voluntary or involuntary liquidation, dissolution, winding-up or termination of the Trust (each, a “Liquidation”) other than in connection with a redemption of the Debentures, the Holders of the Securities will be entitled to receive out of the assets of the Trust available for distribution to Holders of the Securities, after satisfaction of liabilities to creditors of the Trust (to the extent not satisfied by the Debenture Issuer), distributions equal to the aggregate of the stated liquidation amount of $1,000 per Security plus accrued and unpaid Distributions thereon to the date of payment (such amount being the “Liquidation Distribution”), unless in connection with such Liquidation, the Debentures in an aggregate stated principal amount equal to the aggregate stated liquidation amount of such Securities, with an interest rate equal to the Coupon Rate of, and bearing accrued and unpaid interest in an amount equal to the accrued and unpaid Distributions on, and having the same record date as, such Securities, after paying or making reasonable provision to pay all claims and obligations of the Trust in accordance with Section 3808(e) of the Statutory Trust Act, shall be distributed on a Pro Rata basis to the Holders of the Securities in exchange for such Securities. The Sponsor, as the Holder of all of the Common Securities, has the right at any time to dissolve the Trust (including without limitation upon the occurrence of a Tax Event, an Investment Company Event or a Capital Treatment Event), subject to the receipt by the Debenture Issuer of prior approval from any regulatory authority having jurisdiction over the Sponsor that is primarily responsible for regulating the activities of the Sponsor if such approval   A-I-5 -------------------------------------------------------------------------------- is then required under applicable capital guidelines or policies of such regulatory authority, an opinion of nationally recognized tax counsel that Holders will not recognize any gain or loss for United States federal income tax purposes as a result of the distribution of Debentures and, after satisfaction of liabilities to creditors of the Trust, cause the Debentures to be distributed to the Holders of the Securities on a Pro Rata basis in accordance with the aggregate stated liquidation amount thereof. The Trust shall dissolve on the first to occur of (i) July 7, 2041, the expiration of the term of the Trust, (ii) a Bankruptcy Event with respect to the Sponsor, the Trust or the Debenture Issuer, (iii) (other than in connection with a merger, consolidation or similar transaction not prohibited by the Indenture, this Declaration or the Guarantee, as the case may be) the filing of a certificate of dissolution or its equivalent with respect to the Sponsor or upon the revocation of the charter of the Sponsor and the expiration of 90 days after the date of revocation without a reinstatement thereof, (iv) the distribution to the Holders of the Securities of the Debentures, upon exercise of the right of the Holder of all of the outstanding Common Securities to dissolve the Trust as described above, (v) the entry of a decree of a judicial dissolution of the Sponsor or the Trust, or (vi) when all of the Securities shall have been called for redemption and the amounts necessary for redemption thereof shall have been paid to the Holders in accordance with the terms of the Securities. As soon as practicable after the dissolution of the Trust and upon completion of the winding up of the Trust, the Trust shall terminate upon the filing of a certificate of cancellation with the Secretary of State of the State of Delaware. If a Liquidation of the Trust occurs as described in clause (i), (ii), (iii) or (v) in the immediately preceding paragraph, the Trust shall be liquidated by the Institutional Trustee of the Trust as expeditiously as such Trustee determines to be possible by distributing, after satisfaction of liabilities to creditors of the Trust as provided by applicable law, to the Holders of the Securities, the Debentures on a Pro Rata basis to the extent not satisfied by the Debenture Issuer, unless such distribution is determined by the Institutional Trustee not to be practical, in which event such Holders will be entitled to receive out of the assets of the Trust available for distribution to the Holders, after satisfaction of liabilities to creditors of the Trust to the extent not satisfied by the Debenture Issuer, an amount equal to the Liquidation Distribution. An early Liquidation of the Trust pursuant to clause (iv) of the immediately preceding paragraph shall occur if the Institutional Trustee determines that such Liquidation is possible by distributing, after satisfaction of liabilities to creditors of Trust, to the Holders of the Securities on a Pro Rata basis, the Debentures, and such distribution occurs. If, upon any such Liquidation, the Liquidation Distribution can be paid only in part because the Trust has insufficient assets available to pay in full the aggregate Liquidation Distribution, then the amounts payable directly by the Trust on such Capital Securities shall be paid to the Holders of the Securities on a Pro Rata basis, except that if an Event of Default has occurred and is continuing, the Capital Securities shall have a preference over the Common Securities with regard to such distributions. Upon any such Liquidation of the Trust involving a distribution of the Debentures, if at the time of such Liquidation, the Capital Securities were rated by at least one nationally-recognized statistical rating organization, the Debenture Issuer will use its reasonable best efforts to obtain from at least one such or other rating organization a rating for the Debentures.   A-I-6 -------------------------------------------------------------------------------- After the date for any distribution of the Debentures upon dissolution of the Trust, (i) the Securities of the Trust will be deemed to be no longer outstanding, (ii) any certificates representing the Capital Securities will be deemed to represent undivided beneficial interests in such of the Debentures as have an aggregate principal amount equal to the aggregate stated liquidation amount of, with an interest rate identical to the distribution rate of, and bearing accrued and unpaid interest equal to accrued and unpaid distributions on, the Securities until such certificates are presented to the Debenture Issuer or its agent for transfer or reissuance (and until such certificates are so surrendered, no payments of interest or principal shall be made to Holders of Securities in respect of any payments due and payable under the Debentures) and (iii) all rights of Holders of Securities under the Capital Securities or the Common Securities, as applicable, shall cease, except the right of such Holders to receive Debentures upon surrender of certificates representing such Securities. 4. Redemption and Distribution. (a) The Debentures will mature on July 7, 2036. The Debentures may be redeemed by the Debenture Issuer, in whole or in part, on any January 7, April 7, July 7 or October 7 on or after July 7, 2011 at the Redemption Price, upon not less than 30 nor more than 60 days’ notice to Holders of such Debentures. In addition, upon the occurrence and continuation of a Tax Event, an Investment Company Event or a Capital Treatment Event, the Debentures may be redeemed by the Debenture Issuer in whole or in part, at any time within 90 days following the occurrence of such Tax Event, Investment Company Event or Capital Treatment Event, as the case may be (the “Special Redemption Date”), at the Special Redemption Price, upon not less than 30 nor more than 60 days’ notice to Holders of the Debentures so long as such Tax Event, Investment Company Event or Capital Treatment Event, as the case may be, is continuing. In each case, the right of the Debenture Issuer to redeem the Debentures is subject to the Debenture Issuer having received prior approval from any regulatory authority having jurisdiction over the Debenture Issuer, if such approval is then required under applicable capital guidelines or policies of such regulatory authority. “Tax Event” means the receipt by the Debenture Issuer and the Trust of an opinion of counsel experienced in such matters to the effect that, as a result of any amendment to or change (including any announced prospective change) in the laws or any regulations thereunder of the United States or any political subdivision or taxing authority thereof or therein, or as a result of any official administrative pronouncement (including any private letter ruling, technical advice memorandum, regulatory procedure, notice or announcement) (an “Administrative Action”) or judicial decision interpreting or applying such laws or regulations, regardless of whether such Administrative Action or judicial decision is issued to or in connection with a proceeding involving the Debenture Issuer or the Trust and whether or not subject to review or appeal, which amendment, clarification, change, Administrative Action or decision is enacted, promulgated or announced, in each case on or after the date of original issuance of the Debentures, there is more than an insubstantial risk that: (i) the Trust is, or will be within 90 days of the date of such opinion, subject to United States federal income tax with respect to income received or accrued on the Debentures; (ii) interest payable by the Debenture Issuer on the Debentures is not, or within 90 days of the date of such opinion, will not be, deductible by the Debenture Issuer, in whole or in part, for United States federal income tax purposes; or (iii) the Trust is, or will be within 90 days of the date of such opinion, subject to more than a de minimis   A-I-7 -------------------------------------------------------------------------------- amount of other taxes (including withholding taxes), duties, assessments or other governmental charges. “Investment Company Event” means the receipt by the Debenture Issuer and the Trust of an opinion of counsel experienced in such matters to the effect that, as a result of a change in law or regulation or 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 Trust is or, within 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 original issuance of the Debentures. “Capital Treatment Event” means the receipt by the Debenture Issuer and the Trust of an Opinion of Counsel experienced in such matters to the effect that, as a result of any amendment to, or change in, the laws, rules or regulations of the United States or any political subdivision thereof or therein, or as the result of any official or administrative pronouncement or action or decision interpreting or applying such laws, rules or regulations, which amendment or change is effective or which pronouncement, action or decision is announced on or after the date of original issuance of the Capital Securities, there is more than an insubstantial risk that within 90 days of the receipt of such opinion, the aggregate Liquidation Amount of the Capital Securities will not be eligible to be treated by the Debenture Issuer as “Tier 1 Capital” (or the then equivalent thereof) for purposes of the capital adequacy guidelines of the Federal Reserve or OTS, as applicable (or any successor regulatory authority with jurisdiction over bank, savings & loan or financial holding companies), as then in effect and applicable to the Debenture Issuer; provided, however, that the inability of the Debenture Issuer to treat all or any portion of the Liquidation Amount of the Capital Securities as Tier 1 Capital shall not constitute the basis for a Capital Treatment Event, if such inability results from the Debenture Issuer having cumulative preferred stock, minority interests in consolidated subsidiaries, or any other class of security or interest which the Federal Reserve or OTS, as applicable, may now or hereafter accord Tier 1 Capital treatment in excess of the amount which may now or hereafter qualify for treatment as Tier 1 Capital under applicable capital adequacy guidelines; provided further, however, that the distribution of the Debt Securities in connection with the liquidation of the Trust by the Debenture Issuer shall not in and of itself constitute a Capital Treatment Event unless such liquidation shall have occurred in connection with a Tax Event or an Investment Company Event. “Special Event” means any of a Capital Treatment Event, a Tax Event or an Investment Company Event. “Redemption Price” means 100% of the principal amount of the Debentures being redeemed plus accrued and unpaid interest on such Debentures to the Redemption Date or, in the case of a redemption due to the occurrence of a Special Event, to the Special Redemption Date if such Special Redemption Date is on or after July 7, 2011. “Special Redemption Price” means (1) if the Special Redemption Date is before July 7, 2011, One Hundred Percent (100%) of the principal amount to be redeemed plus any accrued   A-I-8 -------------------------------------------------------------------------------- and unpaid interest thereon to the date of such redemption and (2) if the Special Redemption Date is on or after July 7, 2011, the Redemption Price for such Special Redemption Date. “Redemption Date” means the date fixed for the redemption of Capital Securities, which shall be any January 7, April 7, July 7 or October 7 on or after July 7, 2011. (b) Upon the repayment in full at maturity or redemption in whole or in part of the Debentures (other than following the distribution of the Debentures to the Holders of the Securities), the proceeds from such repayment or payment shall concurrently be applied to redeem Pro Rata at the applicable redemption price, Securities having an aggregate liquidation amount equal to the aggregate principal amount of the Debentures so repaid or redeemed; provided, however, that holders of such Securities shall be given not less than 30 nor more than 60 days’ notice of such redemption (other than at the scheduled maturity of the Debentures). (c) If fewer than all the outstanding Securities are to be so redeemed, the Common Securities and the Capital Securities will be redeemed Pro Rata and the Capital Securities to be redeemed will be as described in Section 4(e)(ii) below. (d) The Trust may not redeem fewer than all the outstanding Capital Securities unless all accrued and unpaid Distributions have been paid on all Capital Securities for all quarterly Distribution periods terminating on or before the date of redemption. (e) Redemption or Distribution Procedures. (i) Notice of any redemption of, or notice of distribution of the Debentures in exchange for, the Securities (a “Redemption/Distribution Notice”) will be given by the Trust by mail to each Holder of Securities to be redeemed or exchanged not fewer than 30 nor more than 60 days before the date fixed for redemption or exchange thereof which, in the case of a redemption, will be the date fixed for redemption of the Debentures. For purposes of the calculation of the date of redemption or exchange and the dates on which notices are given pursuant to this Section 4(e)(i), a Redemption/Distribution Notice shall be deemed to be given on the day such notice is first mailed by first-class mail, postage prepaid, to Holders of such Securities. Each Redemption/Distribution Notice shall be addressed to the Holders of such Securities at the address of each such Holder appearing on the books and records of the Registrar. No defect in the Redemption/Distribution Notice or in the mailing thereof with respect to any Holder shall affect the validity of the redemption or exchange proceedings with respect to any other Holder. (ii) In the event that fewer than all the outstanding Securities are to be redeemed, the Securities to be redeemed shall be redeemed Pro Rata from each Holder of Capital Securities. (iii) If the Securities are to be redeemed and the Trust gives a Redemption/Distribution Notice, which notice may only be issued if the Debentures are redeemed as set out in this Section 4 (which notice will be irrevocable), then, provided, that the Institutional Trustee has a sufficient amount   A-I-9 -------------------------------------------------------------------------------- of cash in connection with the related redemption or maturity of the Debentures, the Institutional Trustee will, with respect to Book-Entry Capital Securities, on the Redemption Date or Special Redemption Date, as applicable, irrevocably deposit with the Depositary for such Book-Entry Capital Securities, to the extent available therefor, funds sufficient to pay the relevant Redemption Price or Special Redemption Price, as applicable, and will give such Depositary irrevocable instructions and authority to pay the Redemption Price or Special Redemption Price, as applicable, to the Owners of the Capital Securities. With respect to Capital Securities that are not Book-Entry Capital Securities, the Institutional Trustee will pay, to the extent available therefore, the relevant Redemption Price or Special Redemption Price, as applicable, to the Holders of such Securities by check mailed to the address of each such Holder appearing on the books and records of the Trust on the redemption date. If a Redemption/Distribution Notice shall have been given and funds deposited as required, then immediately prior to the close of business on the date of such deposit, Distributions will cease to accrue on the Securities so called for redemption and all rights of Holders of such Securities so called for redemption will cease, except the right of the Holders of such Securities to receive the applicable Redemption Price or Special Redemption Price, as applicable, specified in Section 4(a). If any date fixed for redemption of Securities is not a Business Day, then payment of any such Redemption Price or Special Redemption Price, as applicable, payable on such date will be made on the next succeeding day that is a Business Day except that, if such Business Day falls in the next calendar year, such payment will be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date fixed for redemption. If payment of the Redemption Price or Special Redemption Price, as applicable, in respect of any Securities is improperly withheld or refused and not paid either by the Trust or by the Debenture Issuer as guarantor pursuant to the Guarantee, Distributions on such Securities will continue to accrue at the then applicable rate from the original redemption date to the actual date of payment, in which case the actual payment date will be considered the date fixed for redemption for purposes of calculating the Redemption Price or Special Redemption Price, as applicable. In the event of any redemption of the Capital Securities issued by the Trust in part, the Trust shall not be required to (i) issue, register the transfer of or exchange any Security during a period beginning at the opening of business 15 days before any selection for redemption of the Capital Securities and ending at the close of business on the earliest date on which the relevant notice of redemption is deemed to have been given to all Holders of the Capital Securities to be so redeemed or (ii) register the transfer of or exchange any Capital Securities so selected for redemption, in whole or in part, except for the unredeemed portion of any Capital Securities being redeemed in part. (iv) Redemption/Distribution Notices shall be sent by the Administrators on behalf of the Trust (A) in respect of the Capital Securities, to the Holders thereof, and (B) in respect of the Common Securities, to the Holder thereof.   A-I-10 -------------------------------------------------------------------------------- (v) Subject to the foregoing and applicable law (including, without limitation, United States federal securities laws), and provided, that the acquiror is not the Holder of the Common Securities or the obligor under the Indenture, the Sponsor or any of its subsidiaries may at any time and from time to time purchase outstanding Capital Securities by tender, in the open market or by private agreement. 5. Voting Rights - Capital Securities. (a) Except as provided under Sections 5(b) and 7 and as otherwise required by law and the Declaration, the Holders of the Capital Securities will have no voting rights. The Administrators are required to call a meeting of the Holders of the Capital Securities if directed to do so by Holders of not less than 10% in liquidation amount of the Capital Securities. (b) Subject to the requirements of obtaining a tax opinion by the Institutional Trustee in certain circumstances set forth in the last sentence of this paragraph, the Holders of a Majority in liquidation amount of the Capital Securities, voting separately as a class, have the right to direct the time, method, and place of conducting any proceeding for any remedy available to the Institutional Trustee, or exercising any trust or power conferred upon the Institutional Trustee under the Declaration, including the right to direct the Institutional Trustee, as holder of the Debentures, to (i) exercise the remedies available under the Indenture as the holder of the Debentures, (ii) waive any past default that is waivable under the Indenture, (iii) exercise any right to rescind or annul a declaration that the principal of all the Debentures shall be due and payable or (iv) consent on behalf of all the Holders of the Capital Securities to any amendment, modification or termination of the Indenture or the Debentures where such consent shall be required; provided, however, that, where a consent or action under the Indenture would require the consent or act of the holders of greater than a simple majority in principal amount of Debentures (a “Super Majority”) affected thereby, the Institutional Trustee may only give such consent or take such action at the written direction of the Holders of not less than the proportion in liquidation amount of the Capital Securities outstanding which the relevant Super Majority represents of the aggregate principal amount of the Debentures outstanding. If the Institutional Trustee fails to enforce its rights under the Debentures after the Holders of a Majority or Super Majority, as the case may be, in liquidation amount of such Capital Securities have so directed the Institutional Trustee, to the fullest extent permitted by law, a Holder of the Capital Securities may institute a legal proceeding directly against the Debenture Issuer to enforce the Institutional Trustee’s rights under the Debentures without first instituting any legal proceeding against the Institutional Trustee or any other person or entity. Notwithstanding the foregoing, if an Event of Default has occurred and is continuing and such event is attributable to the failure of the Debenture Issuer to pay interest or premium, if any, on or principal of the Debentures on the date such interest, premium, if any, on or principal is payable (or in the case of redemption, the redemption date), then a Holder of record of the Capital Securities may directly institute a proceeding for enforcement of payment, on or after the respective due dates specified in the Debentures, to such Holder directly of the principal of or premium, if any, or interest on the Debentures having an aggregate principal amount equal to the aggregate liquidation amount of the Capital Securities of such Holder. The Institutional Trustee shall notify all Holders of the Capital Securities of any default actually known to the Institutional Trustee with respect to the Debentures unless (x) such default has been cured prior to the giving of such notice or (y) the   A-I-11 -------------------------------------------------------------------------------- Institutional Trustee determines in good faith that the withholding of such notice is in the interest of the Holders of such Capital Securities, except where the default relates to the payment of principal of or interest on any of the Debentures. Such notice shall state that such Indenture Event of Default also constitutes an Event of Default hereunder. Except with respect to directing the time, method and place of conducting a proceeding for a remedy, the Institutional Trustee shall not take any of the actions described in clause (i), (ii) or (iii) above unless the Institutional Trustee has obtained an opinion of tax counsel to the effect that, as a result of such action, the Trust will not be classified as other than a grantor trust for United States federal income tax purposes. In the event the consent of the Institutional Trustee, as the holder of the Debentures is required under the Indenture with respect to any amendment, modification or termination of the Indenture, the Institutional Trustee shall request the written direction of the Holders of the Securities with respect to such amendment, modification or termination and shall vote with respect to such amendment, modification or termination as directed by a Majority in liquidation amount of the Securities voting together as a single class; provided, however, that where a consent under the Indenture would require the consent of a Super Majority, the Institutional Trustee may only give such consent at the written direction of the Holders of not less than the proportion in liquidation amount of such Securities outstanding which the relevant Super Majority represents of the aggregate principal amount of the Debentures outstanding. The Institutional Trustee shall not take any such action in accordance with the written directions of the Holders of the Securities unless the Institutional Trustee has obtained an opinion of tax counsel to the effect that, as a result of such action, the Trust will not be classified as other than a grantor trust for United States federal income tax purposes. A waiver of an Indenture Event of Default will constitute a waiver of the corresponding Event of Default hereunder. Any required approval or direction of Holders of the Capital Securities may be given at a separate meeting of Holders of the Capital Securities convened for such purpose, at a meeting of all of the Holders of the Securities in the Trust or pursuant to written consent. The Institutional Trustee will cause a notice of any meeting at which Holders of the Capital Securities are entitled to vote, or of any matter upon which action by written consent of such Holders is to be taken, to be mailed to each Holder of record of the Capital Securities. Each such notice will include a statement setting forth the following information (i) the date of such meeting or the date by which such action is to be taken, (ii) a description of any resolution proposed for adoption at such meeting on which such Holders are entitled to vote or of such matter upon which written consent is sought and (iii) instructions for the delivery of proxies or consents. No vote or consent of the Holders of the Capital Securities will be required for the Trust to redeem and cancel Capital Securities or to distribute the Debentures in accordance with the Declaration and the terms of the Securities. Notwithstanding that Holders of the Capital Securities are entitled to vote or consent under any of the circumstances described above, any of the Capital Securities that are owned by the Sponsor or any Affiliate of the Sponsor shall not entitle the Holder thereof to vote or consent and shall, for purposes of such vote or consent, be treated as if such Capital Securities were not outstanding.   A-I-12 -------------------------------------------------------------------------------- In no event will Holders of the Capital Securities have the right to vote to appoint, remove or replace the Administrators, which voting rights are vested exclusively in the Sponsor as the Holder of all of the Common Securities of the Trust. Under certain circumstances as more fully described in the Declaration, Holders of Capital Securities have the right to vote to appoint, remove or replace the Institutional Trustee and the Delaware Trustee. 6. Voting Rights - Common Securities. (a) Except as provided under Sections 6(b), 6(c) and 7 and as otherwise required by law and the Declaration, the Common Securities will have no voting rights. (b) The Holders of the Common Securities are entitled, in accordance with Article IV of the Declaration, to vote to appoint, remove or replace any Administrators. (c) Subject to Section 6.8 of the Declaration and only after each Event of Default (if any) with respect to the Capital Securities has been cured, waived or otherwise eliminated and subject to the requirements of the second to last sentence of this paragraph, the Holders of a Majority in liquidation amount of the Common Securities, voting separately as a class, may direct the time, method, and place of conducting any proceeding for any remedy available to the Institutional Trustee, or exercising any trust or power conferred upon the Institutional Trustee under the Declaration, including (i) directing the time, method, place of conducting any proceeding for any remedy available to the Debenture Trustee, or exercising any trust or power conferred on the Debenture Trustee with respect to the Debentures, (ii) waiving any past default and its consequences that are waivable under the Indenture, or (iii) exercising any right to rescind or annul a declaration that the principal of all the Debentures shall be due and payable, provided, however, that, where a consent or action under the Indenture would require a Super Majority, the Institutional Trustee may only give such consent or take such action at the written direction of the Holders of not less than the proportion in liquidation amount of the Common Securities which the relevant Super Majority represents of the aggregate principal amount of the Debentures outstanding. Notwithstanding this Section 6(c), the Institutional Trustee shall not revoke any action previously authorized or approved by a vote or consent of the Holders of the Capital Securities. Other than with respect to directing the time, method and place of conducting any proceeding for any remedy available to the Institutional Trustee or the Debenture Trustee as set forth above, the Institutional Trustee shall not take any action described in clause (i), (ii) or (iii) above, unless the Institutional Trustee has obtained an opinion of tax counsel to the effect that for the purposes of United States federal income tax the Trust will not be classified as other than a grantor trust on account of such action. If the Institutional Trustee fails to enforce its rights under the Declaration, to the fullest extent permitted by law any Holder of the Common Securities may institute a legal proceeding directly against any Person to enforce the Institutional Trustee’s rights under the Declaration, without first instituting a legal proceeding against the Institutional Trustee or any other Person. Any approval or direction of Holders of the Common Securities may be given at a separate meeting of Holders of the Common Securities convened for such purpose, at a meeting of all of the Holders of the Securities in the Trust or pursuant to written consent. The Administrators will cause a notice of any meeting at which Holders of the Common Securities are entitled to vote, or of any matter upon which action by written consent of such Holders is to   A-I-13 -------------------------------------------------------------------------------- be taken, to be mailed to each Holder of the Common Securities. Each such notice will include a statement setting forth (i) the date of such meeting or the date by which such action is to be taken, (ii) a description of any resolution proposed for adoption at such meeting on which such Holders are entitled to vote or of such matter upon which written consent is sought and (iii) instructions for the delivery of proxies or consents. No vote or consent of the Holders of the Common Securities will be required for the Trust to redeem and cancel Common Securities or to distribute the Debentures in accordance with the Declaration and the terms of the Securities. 7. Amendments to Declaration and Indenture. (a) In addition to any requirements under Section 11.1 of the Declaration, if any proposed amendment to the Declaration provides for, or the Trustees otherwise propose to effect, (i) any action that would adversely affect the powers, preferences or special rights of the Securities, whether by way of amendment to the Declaration or otherwise, or (ii) the Liquidation of the Trust, other than as described in Section 7.1 of the Declaration, then the Holders of outstanding Securities, voting together as a single class, will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of the Holders of not less than a Majority in liquidation amount of the Securities affected thereby; provided, however, if any amendment or proposal referred to in clause (i) above would adversely affect only the Capital Securities or only the Common Securities, then only the affected class will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of a Majority in liquidation amount of such class of Securities. (b) In the event the consent of the Institutional Trustee as the holder of the Debentures is required under the Indenture with respect to any amendment, modification or termination of the Indenture or the Debentures, the Institutional Trustee shall request the written direction of the Holders of the Securities with respect to such amendment, modification or termination and shall vote with respect to such amendment, modification, or termination as directed by a Majority in liquidation amount of the Securities voting together as a single class; provided, however, that where a consent under the Indenture would require a Super Majority, the Institutional Trustee may only give such consent at the written direction of the Holders of not less than the proportion in liquidation amount of the Securities which the relevant Super Majority represents of the aggregate principal amount of the Debentures outstanding. (c) Notwithstanding the foregoing, no amendment or modification may be made to the Declaration if such amendment or modification would (i) cause the Trust to be classified for purposes of United States federal income taxation as other than a grantor trust, (ii) reduce or otherwise adversely affect the powers of the Institutional Trustee or (iii) cause the Trust to be deemed an “investment company” which is required to be registered under the Investment Company Act. (d) Notwithstanding any provision of the Declaration, the right of any Holder of the Capital Securities to receive payment of distributions and other payments upon redemption or otherwise, on or after their respective due dates, or to institute a suit for the enforcement of any   A-I-14 -------------------------------------------------------------------------------- such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. For the protection and enforcement of the foregoing provision, each and every Holder of the Capital Securities shall be entitled to such relief as can be given either at law or equity. 8. Pro Rata. A reference in these terms of the Securities to any payment, distribution or treatment as being “Pro Rata” shall mean pro rata to each Holder of the Securities according to the aggregate liquidation amount of the Securities held by the relevant Holder in relation to the aggregate liquidation amount of all Securities outstanding unless, in relation to a payment, an Event of Default has occurred and is continuing, in which case any funds available to make such payment shall be paid first to each Holder of the Capital Securities Pro Rata according to the aggregate liquidation amount of the Capital Securities held by the relevant Holder relative to the aggregate liquidation amount of all Capital Securities outstanding, and only after satisfaction of all amounts owed to the Holders of the Capital Securities, to each Holder of the Common Securities Pro Rata according to the aggregate liquidation amount of the Common Securities held by the relevant Holder relative to the aggregate liquidation amount of all Common Securities outstanding. 9. Ranking. The Capital Securities rank pari passu with, and payment thereon shall be made Pro Rata with, the Common Securities except that, where an Event of Default has occurred and is continuing, the rights of Holders of the Common Securities to receive payment of Distributions and payments upon liquidation, redemption and otherwise are subordinated to the rights of the Holders of the Capital Securities with the result that no payment of any Distribution on, or Redemption Price or Special Redemption Price of, any Common Security, and no other payment on account of redemption, liquidation or other acquisition of Common Securities, shall be made unless payment in full in cash of all accumulated and unpaid Distributions on all outstanding Capital Securities for all distribution periods terminating on or prior thereto, or in the case of payment of the Redemption Price or Special Redemption Price the full amount of such Redemption Price or the Special Redemption Price on all outstanding Capital Securities then called for redemption, shall have been made or provided for, and all funds immediately available to the Institutional Trustee shall first be applied to the payment in full in cash of all Distributions on, or the Redemption Price or the Special Redemption Price of, the Capital Securities then due and payable. 10. Acceptance of Guarantee and Indenture. Each Holder of the Capital Securities and the Common Securities, by the acceptance of such Securities, agrees to the provisions of the Guarantee, including the subordination provisions therein and to the provisions of the Indenture. 11. No Preemptive Rights. The Holders of the Securities shall have no, and the issuance of the Securities is not subject to, preemptive or similar rights to subscribe for any additional securities. 12. Miscellaneous. These terms constitute a part of the Declaration. The Sponsor will provide a copy of the Declaration, the Guarantee, and the Indenture to a Holder without charge on written request to the Sponsor at its principal place of business.   A-I-15 -------------------------------------------------------------------------------- EXHIBIT A-1 FORM OF CAPITAL SECURITY CERTIFICATE [FORM OF FACE OF SECURITY] THIS CAPITAL SECURITY IS A GLOBAL CAPITAL SECURITY WITHIN THE MEANING OF THE DECLARATION HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITORY TRUST COMPANY (“DTC”) OR A NOMINEE OF DTC. THIS CAPITAL SECURITY IS EXCHANGEABLE FOR CAPITAL SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN DTC OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE DECLARATION, AND NO TRANSFER OF THIS CAPITAL SECURITY (OTHER THAN A TRANSFER OF THIS CAPITAL SECURITY AS A WHOLE BY DTC TO A NOMINEE OF DTC OR BY A NOMINEE OF DTC TO DTC OR ANOTHER NOMINEE OF DTC) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES. UNLESS THIS CAPITAL SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF DTC TO CRESCENT CAPITAL TRUST III OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CAPITAL SECURITY ISSUED IS REGISTERED AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY ONLY (A) TO THE DEBENTURE ISSUER OR THE TRUST, (B) PURSUANT TO RULE 144A UNDER THE SECURITIES ACT (“RULE 144A”), TO A PERSON THE HOLDER REASONABLY BELIEVES IS A “QUALIFIED INSTITUTIONAL BUYER” AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (C) TO A “NON U.S. PERSON” IN AN “OFFSHORE TRANSACTION” PURSUANT TO REGULATION S UNDER THE SECURITIES ACT, (D) PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT TO AN “ACCREDITED INVESTOR” WITHIN THE MEANING OF SUBPARAGRAPH (a) (1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR   A-1-1 -------------------------------------------------------------------------------- ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF AN “ACCREDITED INVESTOR,” FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE DEBENTURE ISSUER’S AND THE TRUST’S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM IN ACCORDANCE WITH THE AMENDED AND RESTATED DECLARATION OF TRUST, A COPY OF WHICH MAY BE OBTAINED FROM THE DEBENTURE ISSUER OR THE TRUST. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES THAT IT WILL COMPLY WITH THE FOREGOING RESTRICTIONS. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES, REPRESENTS AND WARRANTS THAT IT WILL NOT ENGAGE IN HEDGING TRANSACTIONS INVOLVING THIS SECURITY UNLESS SUCH TRANSACTIONS ARE IN COMPLIANCE WITH THE SECURITIES ACT OR AN APPLICABLE EXEMPTION THEREFROM. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF ALSO AGREES, REPRESENTS AND WARRANTS THAT IT IS NOT AN EMPLOYEE BENEFIT, INDIVIDUAL RETIREMENT ACCOUNT OR OTHER PLAN OR ARRANGEMENT SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (“ERISA”), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”), (EACH A “PLAN”), OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE “PLAN ASSETS” BY REASON OF ANY PLAN’S INVESTMENT IN THE ENTITY AND NO PERSON INVESTING “PLAN ASSETS” OF ANY PLAN MAY ACQUIRE OR HOLD THIS SECURITY OR ANY INTEREST THEREIN, UNLESS SUCH PURCHASER OR HOLDER IS ELIGIBLE FOR THE EXEMPTIVE RELIEF AVAILABLE UNDER U.S. DEPARTMENT OF LABOR PROHIBITED TRANSACTION CLASS EXEMPTION 96-23, 95-60, 91-38, 90-1 OR 84-14 OR ANOTHER APPLICABLE EXEMPTION OR ITS PURCHASE AND HOLDING OF THIS SECURITY IS NOT PROHIBITED BY SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE WITH RESPECT TO SUCH PURCHASE OR HOLDING. ANY PURCHASER OR HOLDER OF THIS SECURITY OR ANY INTEREST THEREIN WILL BE DEEMED TO HAVE REPRESENTED BY ITS PURCHASE AND HOLDING THEREOF THAT EITHER (i) IT IS NOT AN EMPLOYEE BENEFIT PLAN WITHIN THE MEANING OF SECTION 3(3) OF ERISA, OR A PLAN TO WHICH SECTION 4975 OF THE CODE IS APPLICABLE, A TRUSTEE OR OTHER PERSON ACTING ON BEHALF OF AN EMPLOYEE BENEFIT PLAN OR PLAN, OR ANY OTHER PERSON OR ENTITY USING THE ASSETS OF ANY EMPLOYEE BENEFIT PLAN OR PLAN TO FINANCE SUCH PURCHASE, OR (ii) SUCH PURCHASE WILL NOT RESULT IN A PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE FOR WHICH THERE IS NO APPLICABLE STATUTORY OR ADMINISTRATIVE EXEMPTION.   A-1-2 -------------------------------------------------------------------------------- IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS MAY BE REQUIRED BY THE AMENDED AND RESTATED DECLARATION OF TRUST TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS. THIS SECURITY WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN BLOCKS HAVING A LIQUIDATION AMOUNT OF NOT LESS THAN $100,000 AND MULTIPLES OF $1,000 IN EXCESS THEREOF. ANY ATTEMPTED TRANSFER OF THIS SECURITY IN A BLOCK HAVING A LIQUIDATION AMOUNT OF LESS THAN $100,000 SHALL BE DEEMED TO BE VOID AND OF NO LEGAL EFFECT WHATSOEVER. ANY SUCH PURPORTED TRANSFEREE SHALL BE DEEMED NOT TO BE THE HOLDER OF THIS SECURITY FOR ANY PURPOSE, INCLUDING, BUT NOT LIMITED TO, THE RECEIPT OF DISTRIBUTIONS ON THIS SECURITY, AND SUCH PURPORTED TRANSFEREE SHALL BE DEEMED TO HAVE NO INTEREST WHATSOEVER IN THIS SECURITY.   A-1-3 -------------------------------------------------------------------------------- Certificate Number         [P-001]    Number of Capital Securities 3,500 CUSIP NO: _______________ Certificate Evidencing Capital Securities of Crescent Capital Trust III Capital Securities (liquidation amount $1,000 per Capital Security) Crescent Capital Trust III, a statutory trust created under the laws of the State of Delaware (the “Trust”), hereby certifies that Cede & Co., as nominee on behalf of The Depository Trust Company (the “Holder”), is the registered owner of 3,500 capital securities of the Trust representing undivided beneficial interests in the assets of the Trust, designated the capital securities (liquidation amount $1,000 per Capital Security) (the “Capital Securities”). Subject to the Declaration (as defined below), the Capital Securities are transferable on the books and records of the Trust, in person or by a duly authorized attorney, upon surrender of this Certificate duly endorsed and in proper form for transfer. The Capital Securities represented hereby are issued pursuant to, and the designation, rights, privileges, restrictions, preferences and other terms and provisions of the Capital Securities shall in all respects be subject to, the provisions of the Amended and Restated Declaration of Trust of the Trust, dated as of May 18, 2006, among J. Donald Boggus, Jr. and Leland W. Brantley, Jr., as Administrators, Wells Fargo Delaware Trust Company, as Delaware Trustee, Wells Fargo Bank, National Association, as Institutional Trustee, Crescent Banking Company, as Sponsor, and the holders from time to time of undivided beneficial interests in the assets of the Trust, including the designation of the terms of the Capital Securities as set forth in Annex I to the Declaration, as the same may be amended from time to time (the “Declaration”). Capitalized terms used herein but not defined shall have the meaning given them in the Declaration. The Holder is entitled to the benefits of the Guarantee to the extent provided therein. The Sponsor will provide a copy of the Declaration, the Guarantee, and the Indenture to the Holder without charge upon written request to the Sponsor at its principal place of business. By acceptance of this Security, the Holder is bound by the Declaration and is entitled to the benefits thereunder. By acceptance of this Security, the Holder agrees to treat, for United States federal income tax purposes, the Debentures as indebtedness and the Capital Securities as evidence of beneficial ownership in the Debentures. This Capital Security is governed by, and shall be construed in accordance with, the laws of the State of Delaware, without regard to principles of conflict of laws.   A-1-4 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the Trust has duly executed this certificate.   Crescent Capital Trust III By:        Name:        Title:   Administrator Dated:      CERTIFICATE OF AUTHENTICATION This is one of the Capital Securities referred to in the within-mentioned Declaration.   WELLS FARGO BANK, NATIONAL ASSOCIATION, not in its individual capacity but solely as the Institutional Trustee By:        Authorized Officer Dated        A-1-5 -------------------------------------------------------------------------------- [FORM OF REVERSE OF SECURITY] Distributions payable on each Capital Security will be payable at a variable per annum rate of interest, reset quarterly, equal to LIBOR (as defined in the Declaration) plus 1.65% (the “Coupon Rate”) of the stated liquidation amount of $1,000 per Capital Security (provided, however, that the Coupon Rate for any Distribution Payment Period may not exceed the highest rate permitted by New York law, as the same may be modified by United States law of general applicability), such Coupon Rate being the rate of interest payable on the Debentures to be held by the Institutional Trustee. Distributions in arrears for more than one quarterly period will bear interest thereon compounded quarterly at the then applicable Coupon Rate for each such quarterly period (to the extent permitted by applicable law). The term “Distributions” as used herein includes cash distributions, any such compounded distributions and any Additional Interest payable on the Debentures unless otherwise stated. A Distribution is payable only to the extent that payments are made in respect of the Debentures held by the Institutional Trustee and to the extent the Institutional Trustee has funds legally available in the Property Account therefor. The amount of Distributions payable for any period will be computed for any full quarterly Distribution period on the basis of a 360-day year and the actual number of days elapsed in the relevant Distribution Payment Period. Except as otherwise described below, Distributions on the Capital Securities will be cumulative, will accrue from the date of original issuance and will be payable quarterly in arrears on January 7, April 7, July 7 and October 7 of each year, commencing on July 7, 2006 (each, a “Distribution Payment Date”). Upon submission of Notice and so long as no Event of Default pursuant to paragraphs (c), (e), (f) or (g) of Section 5.01 of the Indenture has occurred and is continuing, the Debenture Issuer has the right under the Indenture to defer payments of interest on the Debentures by extending the interest distribution period for up to 20 consecutive quarterly periods (each, an “Extension Period”) at any time and from time to time on the Debentures, subject to the conditions described below, during which Extension Period no interest shall be due and payable (except any Additional Interest that may be due and payable). During any Extension Period, interest will continue to accrue on the Debentures, and interest on such accrued interest (such accrued interest and interest thereon referred to herein as “Deferred Interest”) will accrue at an annual rate equal to the Coupon Rate in effect for each such Extension Period, compounded quarterly from the date such Deferred Interest would have been payable were it not for the Extension Period, to the extent permitted by law. No Extension Period may end on a date other than a Distribution Payment Date. At the end of any such Extension Period, the Debenture Issuer shall pay all Deferred Interest then accrued and unpaid on the Debentures; provided, however, that no Extension Period may extend beyond the Maturity Date, Redemption Date (to the extent redeemed) or Special Redemption Date. Prior to the termination of any Extension Period, the Debenture Issuer may further extend such period, provided, that such period together with all such previous and further consecutive extensions thereof shall not exceed 20 consecutive quarterly periods, or extend beyond the Maturity Date, Redemption Date (to the extent redeemed) or Special Redemption Date. Upon the termination of any Extension Period and upon the payment of all Deferred Interest, the Debenture Issuer may commence a new Extension Period, subject to the foregoing requirements. No interest or Deferred Interest (except any Additional Interest that may be due and payable) shall be due and payable during an Extension Period, except at the end thereof, but Deferred Interest shall accrue upon each installment of interest that would otherwise have been due and payable during such Extension Period until such   A-1-6 -------------------------------------------------------------------------------- installment is paid. If Distributions are deferred, the Distributions due shall be paid on the date that the related Extension Period terminates to Holders of the Securities as they appear on the books and records of the Trust on the record date immediately preceding such date. Distributions on the Securities must be paid on the dates payable (after giving effect to any Extension Period) to the extent that the Trust has funds legally available for the payment of such distributions in the Property Account of the Trust. The Trust’s funds available for Distribution to the Holders of the Securities will be limited to payments received from the Debenture Issuer. The payment of Distributions out of moneys held by the Trust is guaranteed by the Guarantor pursuant to the Guarantee. The Capital Securities shall be redeemable as provided in the Declaration.   A-1-7 -------------------------------------------------------------------------------- ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers this Capital Security Certificate to:            (Insert assignee’s social security or tax identification number)            (Insert address and zip code of assignee),   and irrevocably appoints                                                                                                                                                                 as agent to transfer this Capital Security Certificate on the books of the Trust. The agent may substitute another to act for it, him or her.   Date:      Signature:      (Sign exactly as your name appears on the other side of this Capital Security Certificate)   Signature Guarantee:1      -------------------------------------------------------------------------------- 1 Signature must be guaranteed by an "eligible guarantor institution" that is a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Security registrar, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Security registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.   A-1-8 -------------------------------------------------------------------------------- EXHIBIT A-2 FORM OF COMMON SECURITY CERTIFICATE THIS COMMON SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EXEMPTION FROM REGISTRATION. EXCEPT AS SET FORTH IN SECTION 8.1 (b) OF THE DECLARATION (AS DEFINED BELOW), THIS SECURITY MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED.   A-2-1 -------------------------------------------------------------------------------- Certificate Number        [C-001]    Number of Common Securities 109 Certificate Evidencing Common Securities of Crescent Capital Trust III Crescent Capital Trust III, a statutory trust created under the laws of the State of Delaware (the “Trust”), hereby certifies that Crescent Banking Company (the “Holder”) is the registered owner of 109 common securities of the Trust representing undivided beneficial interests in the assets of the Trust (liquidation amount $1,000 per Common Security) (the “Common Securities”). The Common Securities represented hereby are issued pursuant to, and the designation, rights, privileges, restrictions, preferences and other terms and provisions of the Common Securities shall in all respects be subject to, the provisions of the Amended and Restated Declaration of Trust of the Trust, dated as of May 18, 2006, among J. Donald Boggus, Jr. and Leland W. Brantley, Jr., as Administrators, Wells Fargo Delaware Trust Company, as Delaware Trustee, Wells Fargo Bank, National Association, as Institutional Trustee, the Holder, as Sponsor, and the holders from time to time of undivided beneficial interests in the assets of the Trust, including the designation of the terms of the Common Securities as set forth in Annex I to the Declaration, as the same may be amended from time to time (the “Declaration”). Capitalized terms used herein but not defined shall have the meaning given them in the Declaration. The Sponsor will provide a copy of the Declaration and the Indenture to the Holder without charge upon written request to the Sponsor at its principal place of business. As set forth in the Declaration, when an Event of Default has occurred and is continuing, the rights of Holders of Common Securities to payment in respect of Distributions and payments upon Liquidation, redemption or otherwise are subordinated to the rights of payment of Holders of the Capital Securities. By acceptance of this Certificate, the Holder is bound by the Declaration and is entitled to the benefits thereunder. By acceptance of this Certificate, the Holder agrees to treat, for United States federal income tax purposes, the Debentures as indebtedness and the Common Securities as evidence of undivided beneficial ownership in the Debentures. This Common Security is governed by, and shall be construed in accordance with, the laws of the State of Delaware, without regard to principles of conflict of laws.   A-2-2 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the Trust has executed this certificate as of this _____ day of _______________, 2006.   Crescent Capital Trust III By:        Name:        Title:   Administrator   A-2-3 -------------------------------------------------------------------------------- [FORM OF REVERSE OF SECURITY] Distributions payable on each Common Security will be identical in amount to the Distributions payable on each Capital Security, which is at a variable per annum rate of interest, reset quarterly, equal to LIBOR (as defined in the Declaration) plus 1.65% (the “Coupon Rate”) of the stated liquidation amount of $1,000 per Capital Security (provided, however, that the Coupon Rate for any Distribution Payment Period may not exceed the highest rate permitted by New York law, as the same may be modified by United States law of general applicability), such Coupon Rate being the rate of interest payable on the Debentures to be held by the Institutional Trustee. Distributions in arrears for more than one quarterly period will bear interest thereon compounded quarterly at the then applicable Coupon Rate for each such quarterly period (to the extent permitted by applicable law). The term “Distributions” as used herein includes cash distributions, any such compounded distributions and any Additional Interest payable on the Debentures unless otherwise stated. A Distribution is payable only to the extent that payments are made in respect of the Debentures held by the Institutional Trustee and to the extent the Institutional Trustee has funds legally available in the Property Account therefor. The amount of Distributions payable for any period will be computed for any full quarterly Distribution period on the basis of a 360-day year and the actual number of days elapsed in the relevant Distribution Payment Period. Except as otherwise described below, Distributions on the Common Securities will be cumulative, will accrue from the date of original issuance and will be payable quarterly in arrears on January 7, April 7, July 7 and October 7 of each year, commencing on July 7, 2006 (each, a “Distribution Payment Date”). Upon submission of Notice and so long as no Event of Default pursuant to paragraphs (c), (e), (f) or (g) of Section 5.01 of the Indenture has occurred and is continuing, the Debenture Issuer has the right under the Indenture to defer payments of interest on the Debentures by extending the interest distribution period for up to 20 consecutive quarterly periods (each, an “Extension Period”) at any time and from time to time on the Debentures, subject to the conditions described below, during which Extension Period no interest shall be due and payable (except any Additional Interest that may be due and payable). During any Extension Period, interest will continue to accrue on the Debentures, and interest on such accrued interest (such accrued interest and interest thereon referred to herein as “Deferred Interest”) will accrue at an annual rate equal to the Coupon Rate in effect for each such Extension Period, compounded quarterly from the date such Deferred Interest would have been payable were it not for the Extension Period, to the extent permitted by law. No Extension Period may end on a date other than a Distribution Payment Date. At the end of any such Extension Period, the Debenture Issuer shall pay all Deferred Interest then accrued and unpaid on the Debentures; provided, however, that no Extension Period may extend beyond the Maturity Date, Redemption Date (to the extent redeemed) or Special Redemption Date. Prior to the termination of any Extension Period, the Debenture Issuer may further extend such period, provided, that such period together with all such previous and further consecutive extensions thereof shall not exceed 20 consecutive quarterly periods, or extend beyond the Maturity Date, Redemption Date (to the extent redeemed) or Special Redemption Date. Upon the termination of any Extension Period and upon the payment of all Deferred Interest, the Debenture Issuer may commence a new Extension Period, subject to the foregoing requirements. No interest or Deferred Interest (except any Additional Interest that may be due and payable) shall be due and payable during an Extension Period, except at the end thereof, but Deferred Interest shall accrue upon each installment of   A-2-4 -------------------------------------------------------------------------------- interest that would otherwise have been due and payable during such Extension Period until such installment is paid. If Distributions are deferred, the Distributions due shall be paid on the date that the related Extension Period terminates to Holders of the Securities as they appear on the books and records of the Trust on the record date immediately preceding such date. Distributions on the Securities must be paid on the dates payable (after giving effect to any Extension Period) to the extent that the Trust has funds legally available for the payment of such distributions in the Property Account of the Trust. The Trust’s funds legally available for Distribution to the Holders of the Securities will be limited to payments received from the Debenture Issuer. The payment of Distributions out of moneys held by the Trust is guaranteed by the Guarantor pursuant to the Guarantee. The Common Securities shall be redeemable as provided in the Declaration.   A-2-5 -------------------------------------------------------------------------------- ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers this Common Security Certificate to:            (Insert assignee’s social security or tax identification number)            (Insert address and zip code of assignee), and irrevocably appoints ________ as agent to transfer this Common Security Certificate on the books of the Trust. The agent may substitute another to act for him or her.   Date:      Signature:      (Sign exactly as your name appears on the other side of this Common Security Certificate)   Signature Guarantee:1      -------------------------------------------------------------------------------- 1 Signature must be guaranteed by an "eligible guarantor institution" that is a bank, stockbroker, savings and loan association or credit union, meeting the requirements of the Security registrar, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Security registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.   A-2-6

EXECUTION COPY NON-QUALIFIED STOCK OPTION AGREEMENT UNDER LORAL SPACE & COMMUNICATIONS INC. 2005 STOCK INCENTIVE PLAN THIS AGREEMENT, made as of this 19th day of June, 2006 (the “Grant Date”), by and between Loral Space & Communications Inc., a Delaware corporation (the “Company”), and Dean A. Olmstead (the “Optionee”). WHEREAS, the Optionee is employed by or is providing services to the Company or an Affiliate in a key capacity, and the Company desires to afford Optionee the opportunity to acquire the Company’s Common Stock, par value $.01 per share (the “Stock”), so that Optionee may have a direct proprietary interest in the Company’s success; WHEREAS, all capitalized terms not otherwise defined herein shall have the same meaning as set forth in Company’s 2005 Stock Incentive Plan (the “Plan”); and WHEREAS, the Company and the Optionee have entered into a Consulting Agreement dated June 7, 2006 (the “Consulting Agreement”); and WHEREAS, the Company intends to seek shareholder and any other necessary approvals required to amend the Plan to increase the number of shares available for grant thereunder (the “Approvals”). NOW, THEREFORE, in consideration of the covenants and agreements herein contained, the parties hereto hereby agree as follows: 1. Grant of Option. Subject to the terms and conditions set forth herein and in the Plan, and subject to obtaining the Approvals, the Company hereby grants to the Optionee, during the period commencing on the Grant Date and ending on the date that is seven years from the Grant Date (the “Option Period”), the right and option (the right to purchase any one share of Stock hereunder being an “Option”) to purchase from the Company, at an exercise price of $26.52 per share (the “Option Price”), an aggregate of 120,000 shares of Stock. The Options are not intended to be “incentive stock options,” as defined in Section 422 of the Internal Revenue Code of 1986, as amended. 2. Vesting and Exercisability of Options. (a) Subject to the terms and conditions set forth herein and provided the Optionee’s employment or service continues,   (X)   20,000 of the Options (the “Base Grant Options”) shall vest and become exercisable in accordance with the following schedule: (i) one-fourth of the Base Grant Options shall vest and become exercisable on the one-year anniversary of the Grant Date; (ii) an additional one-fourth of the Base Grant Options shall vest and become exercisable on the two-year anniversary of the Grant Date; (iii) an additional one-fourth of the Base Grant Options shall vest and become exercisable on the three-year anniversary of the Grant Date; and (iv) the remainder of the Base Grant Options shall vest and become exercisable on the four-year anniversary of the Grant Date; provided, however, that in the event of a Termination Event (as defined in the Consulting Agreement), the next full tranche of unvested Base Grant Options that would have vested on the next vesting date following such Termination Event shall vest and become exercisable; and   (Y)   100,000 of the Options (the “Performance Based Options”) shall vest and become exercisable in accordance with the following schedule: (i) 25,000 of the Performance Based Options shall vest and become exercisable upon closing of a satellite services business transaction with a value to the Company of between $100 million and less than $250 million; (ii) 50,000 of the Performance Based Options shall vest and become exercisable upon closing of a satellite services business transaction with a value to the Company of between $250 million and less than $500 million; (iii) 75,000 of the Performance Based Options shall vest and become exercisable upon closing of a satellite services business transaction with a value to the Company of between $500 million and less than $1,000 million; and (iv) 100,000 of the Performance Based Options shall vest and become exercisable upon closing of a satellite services business transaction with a value to the Company of $1,000 million or more; for the avoidance of doubt, for purposes of the above Performance Based Option vesting schedule, in computing the value of a transaction, value shall mean enterprise value, and, in the case of a transaction in which the Company is not the sole participant, the Performance Based Options shall vest based on the value of the transaction to the Company (e.g., if the Company acquires 40% of a company with an enterprise valuation of $2 billion, the value of such transaction to the Company would be $800 million). Further, for the avoidance of doubt, in the case of an agreement entered into by the Company with respect to a satellite services transaction with a value to the Company that would qualify for vesting, vesting shall occur upon closing of such transaction notwithstanding the occurrence of a Termination Event (as defined in the Consulting Agreement) after signing but before closing; provided, however, that no Options (including both the Base Grant Options and the Performance Based Options) shall become exercisable (even though vested) prior to the date on which the Approvals have been obtained and the Options that would have become exercisable prior to the date the Approvals are obtained, but for this prohibition on exercisability prior to the date the Approvals are obtained, shall become exercisable on the date that the Approvals are obtained; and further provided, however, that, except as otherwise set forth herein, no vesting shall occur following the Optionee’s termination of employment or service with the Company and all Affiliates. (b) The Options shall vest only as to full shares of Stock rounded down to the nearest full share during the first three vesting dates and all fractions shall be amalgamated and become exercisable on the last vesting date. Except as otherwise stated in this Agreement, the Options shall expire on the seven-year anniversary of the Grant Date. 3. Exercisability following Termination of Employment or Service. (a) If the Optionee’s employment or service with the Company and all Affiliates is terminated for Cause, or if the Optionee resigns from employment or service with the Company and all Affiliates other than for “Good Reason,” all Options (whether vested or not) shall immediately expire. (b) If the Optionee’s employment or service with the Company and all Affiliates is terminated by the Company or an Affiliate other than for Cause or the Optionee resigns for “Good Reason,” all Options that are vested at the time of termination will remain outstanding and exercisable (but only to the extent such Options are exercisable at the time of termination) until the earlier of (i) three months following the termination of employment of the Optionee and (ii) the expiration of the Option Period. All Options that are not vested at the time of such termination shall immediately expire upon such termination of employment. (c) If the Optionee’s employment or service with the Company and all Affiliates terminates on account of the Optionee’s death or Disability, all Options that are vested at the time of such termination will remain outstanding and exercisable (but only to the extent such Options are exercisable at the time of such termination) until the earlier of (i) one year following the termination on account of death or Disability of the Optionee (in the case of death, by the executor or administrator of the estate of the Optionee) and (ii) the expiration of the Option Period. All Options that are not vested at the time of such termination shall immediately expire upon such termination of employment. 4. Method of Exercising Option. (a) Options which have become exercisable may be exercised by delivery of written notice of exercise to the Committee accompanied by payment of the Option Price. Payment for shares of Stock acquired pursuant to Options shall be made in full, upon exercise of the Options in immediately available funds in United States dollars, by certified or bank cashier’s check or, in the discretion of the Committee, (i) by surrender to the Company of Mature Shares held by the Participant; (ii) by delivering to the Committee a copy of irrevocable instructions to a stockbroker to deliver promptly to the Company an amount of sale or loan proceeds sufficient to pay the aggregate Option exercise price; (iii) through a net exercise of the Options whereby the Optionee instructs the Company to withhold that number of shares of Stock having a fair market value equal to the aggregate Option Price of the Options being exercised and deliver to the Optionee the remainder of the shares subject to exercise or (iv) by any other means approved by the Committee. For purposes of this paragraph, the term “Mature Shares” shall mean shares of Stock for which the Optionee has good title, free and clear of all liens and encumbrances, and which the Optionee either (i) has held for at least six months or (ii) has purchased on the open market. (b) At the time of exercise, (i) the Company shall have the right to withhold from the number of shares of Stock to be issued upon exercise, the minimum number of shares necessary or (ii) at the discretion of the Committee, the Optionee shall be obligated to pay to the Company such amount as the Company deems necessary, in either event, to satisfy its obligation to withhold Federal, state and local income or other taxes incurred by reason of the exercise or the transfer of shares thereupon. 5. Issuance of Shares. As promptly as practical after receipt by the Company of a written notice of exercise and full payment to the Company of the aggregate Option Price and any required income tax withholding amount, the Company shall issue or transfer to the Optionee the number of shares of Stock with respect to which Options have been so exercised, or the net number of shares of Stock in the event of an exercise pursuant to Section 4(a)(iii), or to the extent applicable in Section 4(a)(iv), or after application of Section 4(b), or both, and shall deliver to the Optionee (or the Optionee’s estate or beneficiary, if applicable) a certificate or certificates therefore, registered in the name of the Optionee (or such estate or beneficiary). 6. Non-Transferability. The Options are not transferable by the Optionee otherwise than by will or the laws of descent and distribution and are exercisable during the Optionee’s lifetime only by Optionee. No assignment or transfer of the Options, or of the rights represented thereby, whether voluntary or involuntary, by operation of law or otherwise (except by will or the laws of descent and distribution), shall vest in the assignee or transferee any interest or right herein whatsoever, but immediately upon such assignment or transfer the Options shall terminate and become of no further effect. 7. Rights as Stockholder. Neither the Optionee nor a permitted transferee of the Options shall have any rights as a stockholder with respect to any share of Stock covered by the Options until the Optionee or any transferee shall have become the holder of record of such share, and no adjustment shall be made for dividends or distributions or other rights in respect of such share for which the record date is prior to the date upon which the Optionee or any transferee shall become the holder of record thereof. 8. Compliance with Law. Notwithstanding any of the provisions hereof, the Optionee hereby agrees that Optionee will not exercise the Options, and that the Company will not be obligated to issue or transfer any shares of Stock to the Optionee hereunder, if the exercise hereof or the issuance or transfer of such shares shall constitute a violation by the Optionee or the Company of any provisions of any law or regulation of any governmental authority. Any determination in this connection by the Committee shall be final, binding and conclusive. The Company shall in no event be obliged to register any securities pursuant to the Securities Act of 1933 (as now in effect or as hereafter amended) or to take any other affirmative action in order to cause the exercise of the Options or the issuance or transfer of shares of Stock pursuant thereto to comply with any law or regulation of any governmental authority. 9. Notice. Every notice or other communication relating to this Agreement shall be in writing, and shall be mailed to or delivered to the party for whom it is intended at such address as may from time to time be designated by it in a notice mailed or delivered to the other party as herein provided, provided that, unless and until some other address be so designated, all notices or communications by the Optionee to the Company shall be mailed or delivered to the Company at its principal executive office, and all notices or communications by the Company to the Optionee may be given to the Optionee personally or may be mailed to Optionee at the Optionee’s last known address, as reflected in the Company’s records. 10. Binding Effect. Subject to Section 6 hereof, this Agreement shall be binding upon the heirs, executors, administrators and successors of the parties hereto. 11. Governing Law. This Agreement shall be construed and interpreted in accordance with the laws of the state of Delaware, without regard to the principles of conflicts of law thereof. 12. Plan. The terms and provisions of the Plan are incorporated herein by reference; provided, however, that upon an acceleration of vesting of the Options in the event of a Change in Control, as provided in Section 13(a) of the Plan, the Options shall not be exercisable unless the Approvals have been obtained by the time the Change in Control occurs. In the event of a conflict or inconsistency between discretionary terms and provisions of the Plan and the express provisions of this Agreement, this Agreement shall govern and control. Except as specifically provided herein, in all other instances of conflicts or inconsistencies or omissions, the terms and provisions of the Plan shall govern and control. 13. Section 409A. The Options are not intended to be considered “nonqualified deferred compensation” within the meaning of Section 409A of the Code. It is also intended that (i) the Option Price per share of Stock to be purchased pursuant to any Option will never be less than the “fair market value” (determined in a manner consistent with standards of Section 409A of the Code and the guidance and regulations promulgated thereunder (the “409A Standards”)) of one share of Stock on the date of the grant of the Options, (ii) the transfer or exercise of the Options will be subject to taxation pursuant to Section 83 of the Code and Treas. Reg. §1.83-7; and (iii) no Option will include any feature for the deferral of compensation, other than the deferral of recognition of income until the later of exercise or disposition of the Option under Treas. Reg. §1.83-7, or the time the Stock, acquired pursuant to the exercise of the Option, first becomes substantially vested (as defined in Treas. Reg. §1.83-3(b)). The Company shall indemnify and hold the Optionee harmless, on an after tax basis, for any additional tax (including interest and penalties with respect thereto) that may be imposed on the Optionee by Code Section 409A as a result of the Options being granted subject to the Approvals (the “409A Indemnity”). To the extent that the Options are considered nonqualified deferred compensation subject to Section 409A of the Code, the Company and the Optionee intend for this Agreement to comply with the 409A Standards. The Company reserves the right to amend this Agreement at any time without the Optionee’s consent to cause this Agreement, or any terms of this Agreement, to either comply with or be exempt from Section 409A of the Code and the 409A Standards and, upon any such amendment, the 409A Indemnity shall expire. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. LORAL SPACE & COMMUNICATIONS INC.       By: Name: Title:   /s/ Michael B. Targoff Michael B. Targoff Chief Executive Officer Accepted: /s/ Dean A. Olmstead Optionee—Dean A. Olmstead Address 42 Wilkinson Way Princeton, New Jersey 08540       Social Security Number

  Exhibit 10.2 EXECUTIVE RETIREMENT PLAN OF THE DUN & BRADSTREET CORPORATION Effective May 4, 2006   PREAMBLE      The principal purpose of this Executive Retirement Plan of the Dun & Bradstreet Corporation (the “Plan”) is to ensure the payment of a competitive level of retirement income and disability benefits in order to attract, retain and motivate selected executives of the Corporation and its affiliated companies.      The Plan is intended to provide benefits that are similar to the benefits provided by the Supplemental Executive Benefit Plan of The Dun & Bradstreet Corporation. Section 1. Definitions      1.1 “Affiliate” means any corporation, partnership, division or other organization controlling, controlled by or under common control with the Corporation or any joint venture entered into by the Corporation.      1.2 “Average Final Compensation” means the greater of (a) a Participant’s or Vested Former Participant’s average final compensation as defined in The Dun & Bradstreet Corporation Retirement Account as if no provision were set forth therein incorporating limitations imposed by Sections 401, 415 or any other applicable Section of the Code, or (b) if the Participant is disabled at the time of his or her Retirement, the Participant’s Earnings.      1.3 “Board” means the Board of Directors of The Dun & Bradstreet Corporation.      1.4 “Change in Control” means:           (a) any “Person”, as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), (other than the Corporation, any trustee or other fiduciary holding securities under an employee benefit plan of the Corporation, or any company owned, directly or indirectly, by the shareholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation), is or becomes the “Beneficial Owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing twenty percent (20%) or more of the combined voting power of the Corporation’s then outstanding securities;   --------------------------------------------------------------------------------             (b) during any period of twenty-four (24) months (not including any period prior to the Effective Date), individuals who at the beginning of such period constitute the Board, and any new director (other than (i) a director designated by a person who has entered into an agreement with the Corporation to effect a transaction described in clause (a), (c) or (d) of this Section; (ii) a director designated by any Person (including the Corporation) who publicly announces an intention to take or to consider taking actions (including, but not limited to, an actual or threatened proxy contest) which if consummated would constitute a Change in Control; or (iii) a director designated by any Person who is the Beneficial Owner, directly or indirectly, of securities of the Corporation representing ten percent (10%) or more of the combined voting power of the Corporation’s securities) whose election by the Board or nomination for election by the Corporation’s shareholders was approved by a vote of at least two thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved cease for any reason to constitute at least a majority thereof;           (c) the shareholders of the Corporation approve a merger or consolidation of the Corporation with any other company, other than (i) a merger or consolidation which would result in the voting securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the combined voting power of the voting securities of the Corporation or such surviving entity outstanding immediately after such merger or consolidation and (ii) after which no Person holds twenty percent (20%) or more of the combined voting power of the then outstanding securities of the Corporation or such surviving entity; or           (d) the shareholders of the Corporation approve a plan of complete liquidation of the Corporation or an agreement for the sale or disposition by the Corporation of all or substantially all of the Corporation’s assets. Notwithstanding the foregoing, no distribution hereunder shall be made upon a Change in Control unless such event satisfies the requirements of Code Section 409A, as then in effect.      1.5 “Code” means the Internal Revenue Code of 1986, as amended from time to time.      1.6 “Committee” means the Plan Benefit Committee, appointed by the Board.      1.7 “Corporation” means The Dun & Bradstreet Corporation, a Delaware corporation, and any successor or assigns thereto.      1.8 “Credited Service” means a Participant’s, Former Participant’s or Vested Former Participant’s Credited Service as defined in The Dun & Bradstreet Corporation Retirement Account, except that Credited Service will include service while the Participant is receiving Disability Benefits and service from the date the Participant, Former Participant or Vested Former Participant was employed by the Corporation or an Affiliate, but will not include service while an employee is a Former Participant or Vested Former Participant. In the case of an acquired business, however, the Participant’s, Former Participant’s or Vested Former 2 --------------------------------------------------------------------------------   Participant’s service with that business prior to the date of acquisition will not be counted unless such service is recognized for benefit accrual purposes under the relevant Retirement Account. Credited Service will not include service that is recognized for benefit accrual purposes under any separate non-qualified supplemental retirement plan that is designed and intended to provide supplemental benefits similar to those provided under the Plan (as distinct from a plan of the type described in Section 1.19(b)(i)).      1.9 “Disability Benefit” means the benefit provided to certain Participants pursuant to Section 5 of the Plan.      1.10 “Earnings” means the total amount paid by the Corporation or any Affiliate to a Participant in the twelve (12) months immediately preceding the onset of the Participant’s disability, (a) including salary, wages, regular cash bonuses and commissions, lump sum payments in lieu of foregone merit increases, “bonus buyouts” as the result of job changes, and any portion of such amounts (i) voluntarily deferred or reduced by the Participant under any employee benefit plan of the Corporation or any Affiliate available to all levels of Employees of the Corporation and/or any Affiliate(s) on a non-discriminatory basis upon satisfaction of eligibility requirements or (ii) voluntarily deferred or reduced under any executive deferral plan of the Corporation or any Affiliate (so long as such amounts would otherwise not have been excluded had they not been deferred), but (b) excluding any pension, retainer, severance pay, special stay-on bonus payment, income derived from stock options, stock appreciation rights and restricted stock awards and dispositions of stock acquired thereunder, payment dependent upon any contingency after the period of Credited Service and other special remuneration (including performance units).      1.11 “Effective Date” means May 4, 2006.      1.12 “Election” means an election as to the form of benefit payment made pursuant to Section 4.5 of the Plan.      1.13 “Election Date” means the date that a properly completed election form with respect to an Election is received by the Corporation’s Compensation and Benefits Department.      1.14 “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.      1.15 “Former Participant” means an employee who has not completed five (5) or more years of Vesting Service at the time his or her employment with the Corporation or an Affiliate terminates or at the time he or she was removed from further participation in the Plan.      1.16 “Long-Term Disability Plan” means the long-term disability plan of the Corporation.      1.17 “Long-Term Disability Plan Benefit” means the amount of benefits actually payable to a Participant from the Long-Term Disability Plan. 3 --------------------------------------------------------------------------------        1.18 “Other Disability Income” means (a) the disability insurance benefit that the Participant is entitled to receive under the Federal Social Security Act and (b) the disability income payable to a Participant from the following sources:                     (i) any supplemental executive disability plan of any Affiliate; and                     (ii) any other contract, agreement or other arrangement with the Corporation or an Affiliate (excluding the Long-Term Disability Plan) to the extent it provides disability benefits.      1.19 “Other Retirement Income” means (a) (i) the Social Security retirement benefit that the Participant or Vested Former Participant is entitled to receive under the Federal Social Security Act as of the date of his or her Retirement or (ii) if the Participant or Vested Former Participant is not eligible to receive a Social Security retirement benefit commencing on such date, the Social Security retirement benefit he or she is entitled to receive at the earliest age he or she is eligible to receive such a benefit, discounted to the date his or her Benefit under the Plan actually commences, using the actuarial assumptions then in use under the relevant Retirement Account, assuming for purposes of (i) and (ii) above that for years prior to the Participant’s employment with the Corporation or an Affiliate and for years following the Participant’s termination of employment with the Corporation or an Affiliate until the Participant attains age sixty-two (62), the Participant earned compensation so as to accrue the maximum Social Security benefits, and (b) the retirement income payable to a Participant or Vested Former Participant from the following sources:           (i) the Pension Benefit Equalization Plan of Dun & Bradstreet Corporation or any other retirement benefits equalization plan of the Corporation or an Affiliate or any former Affiliate, the purpose of which is to provide the Participant or Vested Former Participant with the benefits he or she is precluded from receiving under any relevant Retirement Account as a result of limitations under the Internal Revenue Code; and           (ii) any supplemental executive retirement plan of any Affiliate; and           (iii) any other contract, agreement or other arrangement with the Corporation or an Affiliate or any former Affiliate (excluding any Retirement Account and any defined contribution plan) to the extent it provides retirement or pension benefits labeled as such therein. For purposes of clarity, Other Retirement Income does not include any retirement benefits earned under any defined contribution plan intended to meet the requirements of Code Section 401(a) or any retirement benefits equalization plan or supplemental executive retirement plan (or portion of either such plan) of the Corporation, the purpose of which is to provide benefits to the Participant or Vested Former Participant with respect to amounts that he or she is precluded from receiving under any such defined contribution plan as a result of limitations under the Internal Revenue Code. 4 --------------------------------------------------------------------------------        1.20 “Participant” means an employee of the Corporation or an Affiliate who becomes a participant in the Plan pursuant to Section 2 and has not been removed pursuant to Section 2.2.      1.21 “Plan” means this Executive Retirement Plan of The Dun & Bradstreet Corporation, as amended from time to time.      1.22 “Retirement” means, after a Participant or Vested Former Participant has completed least five (5) years of Vesting Service, (a) the later of the Participant’s or Vested Former Participant’s attainment of age fifty-five (55) or termination of employment, other than at death, with the Corporation or an Affiliate or (b) termination of the Participant’s or Vested Former Participant’s employment with the Corporation or an Affiliate immediately following the cessation of the payment of Disability Benefits under the Plan to such Participant or Vested Former Participant while he or she is still disabled, as such term is defined under the Long-Term Disability Plan. Transfer of employment between the Corporation and an Affiliate, or between two Affiliates, shall not be treated as Retirement or other termination of employment, except to the extent required by Code Section 409A.      1.23 “Retirement Account” means, as to any Participant or Vested Former Participant, any defined benefit pension plan of the Corporation or an Affiliate, which is intended to meet the requirements of Section 401(a) of the Code and pursuant to which retirement benefits are payable to such Participant or Vested Former Participant or to the Surviving Spouse or designated beneficiary of a deceased Participant or Vested Former Participant.      1.24 “Retirement Account Benefit” means the amount of benefits payable from the Retirement Account to a Participant or Vested Former Participant.      1.25 “Retirement Benefit” means the benefits provided to Participants and Vested Former Participants pursuant to Sections 4 and 8 of the Plan.      1.26 “Specified Key Employee” means a Participant or Vested Former Participant who, at the time of his or her distribution, is a “specified employee” as defined in Code Section 409A(a)(2)(B)(i). Specified Key Employees will be identified as of the 12-month period ending on each December 31 (the “Identification Date”), and will be considered Specified Key Employees for the 12-month period beginning on April 1 of the year following the Identification Date and ending on the following March 31.      1.27 “Surviving Spouse” means the spouse of a deceased Participant or Vested Former Participant to whom such Participant or Vested Former Participant is legally married immediately preceding such Participant or Vested Former Participant’s death.      1.28 “Surviving Spouse’s Benefits” mean the benefits provided to a Participant’s or Vested Former Participant’s Surviving Spouse pursuant to Section 6 of the Plan.      1.29 “Vested Former Participant” means a former Participant who completed five (5) or more years of Vesting Service while he or she was a Participant. 5 --------------------------------------------------------------------------------        1.30 “Vesting Service” means Credited Service completed while an employee is a Participant in the Plan.      1.31 The masculine gender, where appearing in the Plan, will be deemed to include the feminine gender, and the singular may include the plural, unless the context clearly indicates to the contrary. Section 2. Eligibility and Participation      2.1 All key management employees of the Corporation and its Affiliates who are responsible for the management, growth or protection of the business of the Corporation and its Affiliates, who are on the Global Leadership Team (as designated in writing from time to time by the Chief Executive Officer or the Senior Human Resources Executive of the Corporation) or who are designated by the Chief Executive Officer of the Corporation in writing, and who do not participate in the Supplemental Executive Retirement Plan of the Dun & Bradstreet Corporation, are eligible for participation in the Plan as of the effective date of such designation.      2.2 A Participant’s participation in the Plan shall terminate upon termination of his or her employment with the Corporation or an Affiliate. A Participant’s participation in the Plan shall terminate prior to such termination of employment if he or she is given prior written notice of removal from participation in the Plan by the Chief Executive Officer of the Corporation. As of the date a Participant ceases further participation in the Plan, no further benefits shall accrue to such individual under the Plan and he or she will cease earning Vesting Service and/or Credited Service for purposes of the Plan. Section 3. Eligibility For Benefits      3.1 Each Participant or Vested Former Participant is eligible for a Retirement Benefit under this Plan, as described in Section 4, upon Retirement, or upon termination of employment with the Corporation or an Affiliate before Retirement after completing five (5) or more years of Vesting Service. Participants who do not complete five (5) or more years of Vesting Service are eligible, in certain circumstances, for a Retirement Benefit under this Plan, as described in Section 8, after a Change in Control.      3.2 Each Participant is eligible for a monthly Disability Benefit under this Plan, as described in Section 5, upon the commencement of benefits under the Long-Term Disability Plan, except as limited by Section 5.3.      3.3 The Surviving Spouse of each Participant or Vested Former Participant who has completed at least five (5) years of Vesting Service is eligible for a Surviving Spouse’s Benefit under this Plan, to the extent provided in Section 6, upon the death of the Participant or Vested Former Participant. 6 --------------------------------------------------------------------------------        3.4 Notwithstanding any other provision of the Plan to the contrary, no benefits or no further benefits, as the case may be, shall be paid to a Participant, Vested Former Participant or Surviving Spouse if the Committee reasonably determines that such Participant or Vested Former Participant or the deceased spouse of such Surviving Spouse has:           (a) to the detriment of the Corporation or any Affiliate, directly or indirectly acquired, without the prior written consent of the Committee, an interest in any other company, firm, association, or organization (other than an investment interest of less than one percent (1%) in any company), the business of which is in direct competition with any business of the Corporation or an Affiliate, within two (2) years of the date of such Participant’s or Vested Former Participant’s termination of employment with the Corporation or any Affiliate;           (b) to the detriment of the Corporation or any Affiliate, directly or indirectly competed with the Corporation or any Affiliate as an owner, employee, partner, director or contractor of a business, in a field of business activity in which the Participant or Vested Former Participant has been primarily engaged on behalf of the Corporation or any Affiliate or in which he or she has considerable knowledge as a result of his or her employment by the Corporation or any Affiliate, either for his or her own benefit or with any person other than the Corporation or any Affiliate, without the prior written consent of the Committee, within two (2) years of the date of such Participant’s or Vested Former Participant’s termination of employment with the Corporation or an Affiliate; or           (c) been discharged from employment with the Corporation or any Affiliate for “Cause.” “Cause” shall include the occurrence of any of the following events or such other dishonest or disloyal act or omission as the Committee reasonably determines to be “Cause”:                (i) the Participant or Vested Former Participant has misappropriated any funds or property of the Corporation or any Affiliate or committed any other act of willful malfeasance or willful misconduct in connection with his or her employment;                (ii) the Participant or Vested Former Participant has, without the prior knowledge or written consent of the Committee, obtained personal profit as a result of any transaction by a third party with the Corporation or any Affiliate;                (iii) the Participant or Vested Former Participant has sold or otherwise imparted to any person, firm, or corporation the names of the customers of the Corporation or any Affiliate or any confidential records, data, formulae, specifications and other trade secrets or other information of value to the Corporation or any Affiliate derived by his or her association with the Corporation or any Affiliate;                (iv) the Participant or Vested Former Participant fails, on a continuing basis, to perform such duties as are requested by any employee to whom the Participant or Vested Former Participant reports or the Board; or                (v) the Participant or Vested Former Participant commits any felony or any misdemeanor involving moral turpitude. 7 --------------------------------------------------------------------------------   In any case described in this Section 3.4, the Participant, Vested Former Participant or Surviving Spouse shall be given prior written notice that no benefits or no further benefits, as the case may be, will be paid to such Participant, Vested Former Participant or Surviving Spouse. Such written notice shall specify the particular act(s), or failures to act, on the basis of which the decision to terminate benefits has been made.      3.5 (a) Notwithstanding any other provision of the Plan to the contrary, a Participant or Vested Former Participant who receives any portion of his or her Retirement Benefit in a lump sum pursuant to an Election shall receive such lump sum portion of his or her Retirement Benefit subject to the condition that if such Participant or Vested Former Participant engages in any of the acts described in clause (i) or (ii) or (iii) of Section 3.4(c), then such Participant or Vested Former Participant shall, within sixty (60) days after written notice by the Corporation, repay to the Corporation the amount described in Section 3.5(b).           (b) The amount described under this Section 3.5(b) shall equal the difference, as determined by the Committee, between (i) the lump sum amount paid to the Participant or Vested Former Participant and (ii) present value of the total annuity payments that would have been paid to the Participant or Vested Former Participant as of the date of the Corporation’s written notice described in Section 3.5(a) with respect to such lump sum amount, if that portion of his or her Retirement Benefit had instead been paid in the form of an annuity. For this purpose, the value of the hypothetical annuity described in (ii) shall be calculated in the same manner as the lump sum described in (i) was calculated at the time it was paid. Section 4. Amount and Payment of Retirement Benefits      4.1 The Retirement Benefit provided by the Plan is designed to provide each Participant and Vested Former Participant with an annual pension from the Plan and certain other sources equal to his or her Retirement Benefit as hereinafter specified. Thus, the Retirement Benefits described hereunder as payable to Participants and Vested Former Participants will be offset by retirement benefits payable from sources outside the Plan as specified herein.      4.2 (a) The Retirement Benefit of a Participant or Vested Former Participant shall be an annual benefit equal to four percent (4%) of his or her Average Final Compensation for each year of Credited Service, up to a maximum of ten (10) years of Credited Service, as (i) reduced under Section 4.3, if applicable, and (ii) offset by his or her Other Retirement Income and his or her Retirement Account Benefit. For a partial year of Credited Service, a pro rata portion calculated by crediting a full month for each completed and partial month of Credited Service, of four percent (4%) of the Participant’s or Vested Former Participant’s Average Final Compensation is included in the annual benefit.           (b) Any portion of the Retirement Benefit provided under this Section 4.2 payable in the form of an annuity pursuant to Section 4.4 shall be payable in monthly installments and will commence on the first day of the calendar month coinciding with or next following the day of the Participant’s or Vested Former Participant’s Retirement, and any portion of such Retirement Benefit payable in a lump sum pursuant to Section 4.4 shall be paid on the 8 --------------------------------------------------------------------------------   date that is sixty (60) days after the date when annuity payments under this Section 4.2 commence, or would commence if any portion of the Retirement Benefit were payable in the form of an annuity, or as soon as practicable thereafter. Notwithstanding the foregoing, in the case of any Participant or Vested Former Participant who is a Specified Key Employee, no amount will be paid to him or her under the Plan upon Retirement prior to the date that is six (6) months after the date of separation from service with the Corporation or an Affiliate, except as permitted under Code Section 409A.           (c) If the Retirement Benefit under this Plan is payable to a Participant or Vested Former Participant in a different form and/or at a different time than his or her Other Retirement Income or his or her Retirement Account Benefit, the offset provided in this Plan shall be calculated by converting the amount of such Participant’s or Vested Former Participant’s Other Retirement Income and Retirement Account Benefit to a straight life annuity at the Participant’s or Vested Former Participant’s age at which the Retirement Benefit is payable, using actuarial assumptions that are used for purposes of determining the actuarial equivalent of an amount under the Retirement Account.      4.3 If a Participant or Vested Former Participant retires prior to age sixty (60), his or her Retirement Benefit, prior to the application of the offsets as described in Section 4.2(a)(ii), shall be reduced as set forth in this Section 4.3. If such Participant or Vested Former Participant terminates employment with the Corporation or an Affiliate prior to age fifty-five (55), his or her Retirement Benefit shall be reduced by six percent (6%) of his or her Average Final Compensation for each year or fraction thereof that his or her Retirement commenced prior to reaching age sixty (60). If such Participant retires at or after age fifty-five (55), his or her Retirement Benefit shall be reduced by three percent (3%) of his or her Average Final Compensation for each year or fraction thereof that his or her Retirement commenced prior to reaching age sixty (60).      4.4 (a) Except as provided under Section 4.4(b) or Section 4.4(c), a Retirement Benefit under this Plan shall be payable to a Participant or Vested Former Participant in the form of a straight life annuity if the Participant or Vested Former Participant is unmarried upon commencement of payment and in the form of a joint and 50% survivor annuity if the Participant or Vested Former Participant is legally married upon commencement of payment, without regard to any optional form of benefits elected under the Retirement Account.           (b) If a Participant or a Vested Former Participant makes an Election pursuant to Section 4.5, a Retirement Benefit under this Plan shall be payable to such Participant or such Vested Former Participant in the form or combination of forms of payment elected pursuant to such Election, and without regard to any optional form of benefit elected under the Retirement Account. Any lump sum distribution of a Participant’s or Vested Former Participant’s Retirement Benefit under the Plan shall fully satisfy all present and future Plan liability with respect to such Participant or Vested Former Participant and any Surviving Spouse for such portion or all of such Retirement Benefit so distributed.      4.5 (a) A Participant may elect, on a form supplied by the Committee, to receive all, none, or a specified portion, as provided in Section 4.5(c), of his or her Retirement Benefit under the Plan in a lump sum and to receive any balance of such Retirement Benefit in 9 --------------------------------------------------------------------------------   the form of an annuity; provided, that any such Election shall be effective for purposes of this Plan only if the conditions of Section 4.5(b) are satisfied. A Participant may elect a payment form different than the payment form previously elected by him under this Section 4.5(a) by filing a revised election form; provided, that any such new Election shall be effective only if the conditions of Section 4.5(b) are satisfied with respect to such new Election. Any prior Election made by a Participant that has satisfied the conditions of Section 4.5(b) remains effective for purposes of the Plan until such Participant has made a new Election satisfying the conditions of Section 4.5(b). The amount of any portion of a Participant’s or a Vested Former Participant’s Retirement Benefit payable as a lump sum under this Section 4.5 will equal the present value of such portion of the Retirement Benefit, and such present value shall be determined (i) based on a discount rate equal to eighty-five percent (85%) of the average of the fifteen (15) year non-callable U.S. Treasury bond yields as of the close of business on the last business day of each of the three months immediately preceding the date the annuity value is determined and (ii) using the mortality table used for purposes of valuing amounts under the Retirement Account.           (b) A Participant’s Election under Section 4.5(a) may be made prior to the later of the date he or she becomes eligible to participate in the Plan or January 1, 2007, or such later date as permitted by guidance issued by the Internal Revenue Service without being treated as a change in the time or form of payment under Code Section 409A(a)(4)(C). A Participant’s Election under Section 4.5(a) made later than permitted under the preceding sentence becomes effective only if the following conditions are satisfied: (i) such Participant does not reach Retirement prior to a date that is at least twelve (12) full calendar months after the Election Date of such Election, (ii) except as provided in Section 4.5(d), the Election delays payment of the Retirement Benefit for a period of at least five (5) years from the date the payment would otherwise have been made, and (iii) such Participant submits the form provided by the Corporation to the Compensation and Benefits Department.           (c) A Participant making an election under Section 4.5(a) may specify the portion of his or her Retirement Benefit under the Plan to be received in a lump sum as follows: zero percent (0%), twenty-five percent (25%), fifty percent (50%), seventy-five percent (75%) or one hundred percent (100%). The remainder of the Retirement Benefit, if any, shall be paid in the form of a straight life annuity if the Participant is unmarried upon commencement of payment and in the form of a joint and 50% survivor annuity if the Participant is legally married upon commencement of payment, without regard to any optional form of benefits elected under the Retirement Account.           (d) In the event a Participant who has made an Election pursuant to Section 4.5(a) dies or becomes disabled, within the meaning of Code Section 409A(a)(2)(C), while employed by the Corporation or an Affiliate, Section 4.5(b)(ii) shall not apply and the Election will not be treated as delaying payment of any benefits under this Plan for a period of five (5) years from the date the payment would otherwise have been made. 10 --------------------------------------------------------------------------------   Section 5. Disability Benefits      5.1 In the event that a Participant terminates employment with the Corporation or an Affiliate by reason of total and permanent disability, as defined in the Long-Term Disability Plan, a Disability Benefit shall be payable to such Participant under the Plan, except as limited by Section 5.3. The Disability Benefit is designed to supplement each eligible Participant’s disability benefits payable from other sources, and is therefore offset as described in Section 5.2.      5.2 The Disability Benefit shall be payable in monthly installments during the same period that the Long-Term Disability Plan Benefit is payable. The amount of each Disability Benefit installment shall be equal to one-twelfth of the following: sixty percent (60%) of the Participant’s Earnings, less the Participant’s annualized Long-Term Disability Plan Benefit, less the Participant’s annualized Other Disability Income, if any. A Participant’s Disability Benefit shall also be offset by the amount, if any, the Participant receives, concurrent with the Disability Benefit, from his or her Retirement Account Benefit and/or the Pension Benefit Equalization Plan of Dun & Bradstreet Corporation.      5.3 Notwithstanding the above, in no event shall any Participant receive a Disability Benefit if he or she was not enrolled for the maximum disability insurance coverage available under the Long-Term Disability Plan at the time of disability, or if he or she has not maintained such coverage through the time of termination of employment, unless the Participant was not then eligible for coverage under the Long-Term Disability Plan. Section 6. Surviving Spouse’s Benefits      6.1 Upon the death of a Participant or Vested Former Participant for whom payment of the Retirement Benefit has commenced in the form of a joint and 50% survivor annuity, the only death benefit provided by the Plan shall be the survivor portion of such annuity. No death benefit shall be provided by the Plan upon the death of a Participant or Vested Former Participant for whom payment of the Retirement Benefit commenced in any other form prior to death.      6.2 Upon the death of a Participant or Vested Former Participant who has completed at least five (5) years of Vesting Service with the Corporation or an Affiliate and has attained age fifty-five (55), his or her Surviving Spouse will be entitled to a Surviving Spouse’s Benefit under this Plan equal to fifty percent (50%) of the Retirement Benefit that would have been provided from the Plan had the Participant or Vested Former Participant commenced payment of the Retirement Benefit on the date of his or her death. Except as provided in Section 6.4, payment of the Surviving Spouse Benefit will be made in a straight life annuity based on the life of the Surviving Spouse and will commence as of the first day of the month following the death of the Participant or Vested Former Participant. 11 --------------------------------------------------------------------------------        6.3 Upon the death of a Participant or Vested Former Participant who has completed at least five (5) years of Vesting Service with the Corporation or an Affiliate and has not attained age fifty-five (55), his or her Surviving Spouse will be entitled to a Surviving Spouse’s Benefit under this Plan equal to fifty percent (50%) of the Retirement Benefit that would have been provided from the Plan had the Participant or Vested Former Participant terminated employment with the Corporation or an Affiliate on the date of his or her death and elected to have the payment of such benefit commence at age fifty-five (55). Except as provided in Section 6.4, payment of the Surviving Spouse Benefit will be made in a straight life annuity based on the life of the Surviving Spouse and will commence as of the first day of the month coincident with or next following the month in which the Participant or Vested Former Participant would have attained age fifty-five (55).      6.4 (a) If a Participant or a Vested Former Participant, while he or she was a Participant, has made an Election under Section 4.5 and such Election is effective on the date of such Participant’s or Vested Former Participant’s death, the Surviving Spouse’s Benefit payable to a Surviving Spouse of such Participant or Vested Former Participant will be payable in the form or combination of forms of payment so elected by such Participant or Vested Former Participant pursuant to such Election. The amount of any lump sum payment under this Section 6.4 shall be the present value of the applicable portion of the Surviving Spouse’s Benefit payable under the Plan, as defined in this Section 6, and such present value shall be determined using the actuarial assumptions set forth in Section 4.5(a). Any lump sum distribution of a Surviving Spouse’s Benefit under the Plan shall fully satisfy all present and future Plan liability with respect to such Surviving Spouse for such portion or all of such Surviving Spouse’s Benefit so distributed.           (b) Any portion of a Surviving Spouse’s Benefit provided under Section 6.2 or 6.3, which is payable as an annuity shall be paid in the manner and at such time as set forth in Section 6.2 or 6.3, as applicable, and any such benefit which is payable as a lump sum shall be paid sixty (60) days after the date when annuity payments commence, or would commence if any portion of such Surviving Spouse’s Benefit were payable as an annuity as set forth in Section 6.2 or 6.3, as applicable.      6.5 Notwithstanding the foregoing provisions of Section 6, the amount of a Surviving Spouse’s Benefit shall be reduced by one (1) percentage point for each year (including a half year or more as a full year) in excess of ten (10) that the age of the Participant or Vested Former Participant exceeds the age of the Surviving Spouse. Section 7. Committee      7.1 The Board and the Committee severally (and not jointly) shall be responsible for the administration of the Plan. Any member of the Committee may resign at will by notice to the Board or may be removed at any time (with or without cause) by the Board.      7.2 The members of the Committee may, from time to time, allocate responsibilities among themselves, and may delegate to any management committee, employee, 12 --------------------------------------------------------------------------------   director or agent its responsibility to perform any act hereunder, including, without limitation, those matters involving the exercise of discretion, provided that such delegation shall be subject to revocation at any time at its discretion.      7.3 The Committee (and its delegees) shall have the exclusive authority to interpret the provisions of the Plan and construe all of its terms (including, without limitation, all disputed and uncertain terms), to adopt, amend, and rescind rules and regulations for the administration of the Plan, and generally to conduct and administer the Plan and to make all determinations in connection with the Plan as may be necessary or advisable. All such actions of the Committee shall be conclusive and binding upon all Participants, Former Participants, Vested Former Participants and Surviving Spouses. All deference permitted by law shall be given to such interpretations, determinations and actions.      7.4 Any action to be taken by the Committee shall be taken by a majority of its members, either at a meeting or by written instrument approved by such majority in the absence of a meeting. A written resolution or memorandum signed by one (1) Committee member and the secretary of the Committee shall be sufficient evidence to any person of any action taken pursuant to the Plan.      7.5 Any person, corporation or other entity may serve in more than one (1) fiduciary capacity under the Plan. Section 8. Miscellaneous      8.1 The Committee may, in its sole discretion, terminate, suspend or amend this Plan at any time or from time to time, in whole or in part, to the fullest extent permitted under Code Section 409A. The Committee may delegate its authority to amend the Plan at any time, in its sole discretion. The Chief Executive Officer of the Corporation shall have the authority to amend Section 2.1 of the Plan to add restrictions on eligibility for participation in the Plan and to remove restrictions previously added to Section 2.1 pursuant to the authority granted in this sentence. Notwithstanding the foregoing, no termination, suspension or amendment of the Plan may adversely affect a Participant’s or Vested Former Participant’s vested benefit under the Plan, or a retired Participant’s or Vested Former Participant’s right or the right of a Surviving Spouse to receive or to continue to receive a benefit in accordance with the Plan as in effect on the date immediately preceding the date of such termination, suspension or amendment. The preceding sentence shall not restrict in any way the Committee’s discretion to amend or delete Section 8.3 of the Plan at any time prior to a Change in Control.      8.2 Nothing contained herein will confer upon any Participant, Former Participant or Vested Former Participant the right to be retained in the service of the Corporation or any Affiliate, nor will it interfere with the right of the Corporation or any Affiliate to discharge or otherwise deal with Participants, Former Participants or Vested Former Participants with respect to matters of employment without regard to the existence of the Plan. 13 --------------------------------------------------------------------------------        8.3 (a) Notwithstanding anything in this Plan to the contrary, if a Participant has less than five (5) years of Vesting Service at the time of a Change in Control, and as a result of the Change in Control, and before he or she completes five (5) years of Vesting Service, (i) the Plan is terminated, (ii) the Participant is removed from further participation in the Plan, or (iii) the Participant’s employment with the Corporation or an Affiliate is terminated as a result of action initiated directly or indirectly by the Corporation or an Affiliate, such Participant shall be entitled to a Retirement Benefit equal to twenty percent (20%) of his or her Average Final Compensation, or, if that amount cannot be determined, the amount that would be the Participant’s Average Final Compensation if he or she terminated employment with the Corporation or an Affiliate on the date he or she becomes eligible for a Retirement Benefit under this Section 8.3(a), and the Corporation will remain obligated to pay all benefits under the Plan.           (b) Notwithstanding anything in this Plan to the contrary, upon the occurrence of a Change in Control,                (i) no reduction under Section 4.3 shall be made in a Participant’s or Vested Former Participant’s Retirement Benefit, notwithstanding his or her termination of employment or Retirement prior to age sixty (60) following such Change in Control;                (ii) the provisions of Section 3.4(a) and (b) shall not apply to any Participant, Vested Former Participant or Surviving Spouse;                (iii) each Participant with less than five (5) years of Vesting Service who is entitled to a Retirement Benefit under Section 8.3(a) shall receive a lump sum distribution of the present value of such Retirement Benefit within thirty (30) days from the earlier of the first date that a distribution to the Participant is permissible under Code Section 409A as a result of termination of the Plan, or the date his or her employment with the Corporation or an Affiliate is terminated; and                (iv) each Participant who is not included in (iii) above and who is not already receiving a Retirement Benefit under the Plan shall receive           (A) within thirty (30) days of the date of such Change in Control, a lump sum distribution of the present value of his or her accrued Retirement Benefit under the Plan as of the applicable date, and           (B) within thirty (30) days from the earlier of the first date that a distribution to the Participant is permissible under Code Section 409A as a result of termination of the Plan, or the date his or her employment with the Corporation or an Affiliate is terminated, a lump sum distribution of the present value of his or her additional Retirement Benefit accrued after the applicable event in (A) computed as of the applicable date herein set forth in (B). In determining the amount of the lump sum distributions to be paid under this Section 8.3, the actuarial assumptions described in Section 4.5(a) shall be used. 14 --------------------------------------------------------------------------------        8.4 Participants and Vested Former Participants shall have the status of general unsecured creditors of the Corporation and this Plan constitutes a mere promise by the Corporation to make benefit payments at the time or times required hereunder. It is the intention of the Corporation that this Plan be unfunded for tax purposes and for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended and any trust created by the Corporation in meeting its obligations under the Plan shall meet the requirements necessary to retain such unfunded status.      8.5 To the maximum extent permitted by law, no benefit under the Plan shall be assignable or subject in any manner to alienation, sale, transfer, claims of creditors, pledge, attachment or encumbrances of any kind.      8.6 The Corporation may withhold from any benefit under the Plan an amount sufficient to satisfy its tax withholding obligations under any applicable federal, state, local or foreign law or regulation. In addition, the Corporation may withhold from any wages or other compensation payable to a Participant or Vested Former Participant an amount sufficient to satisfy its tax withholding obligations, including but not limited to its obligations under the Federal Insurance Contributions Act, with respect to benefits accrued under the Plan prior to the date such benefits are paid.      8.7 The Plan is established under and will be construed according to the laws of the State of New Jersey, without regard to principles of conflicts of law, to the extent such laws are not preempted by ERISA. By claiming a right to benefits under the Plan, any Participant, Vested Former Participant, Surviving Spouse or beneficiary of such person agrees to submit to the exclusive jurisdiction and venue of any state or federal court in New Jersey to resolve disputes arising hereunder.      8.8 For tax purposes and for purposes of Title I of ERISA, the Plan is intended to qualify as an unfunded “top-hat” plan maintained primarily for the purpose of providing deferred compensation for a select group of management or highly-compensated employees and shall be interpreted accordingly.      8.9 Notwithstanding any other provision herein, the Plan is intended to comply with Code Section 409A and shall at all times be interpreted and administered in accordance with such intent. To the extent that any provision of the Plan violates Code Section 409A, such provision shall be automatically reformed, if possible, to comply with Code Section 409A or stricken from the Plan. 15

Exhibit 10.1 SEPARATION AGREEMENT THIS SEPARATION AGREEMENT (the “Agreement”) is dated as of July 5, 2006, by and between X-RITE, INCORPORATED, a Michigan corporation with its principal office located at 3100 44th Street, S.W., Grandville, Michigan 49418 (“X-Rite”), and Peter M. Banks (“Banks”). WHEREAS, Banks currently serves on the Board of Directors of X-Rite (the “Board of Directors”) and on the Nominating and Governance Committee (the “NGC”) and the Compensation Committee of the Board of Directors (the “Compensation Committee” and, together with the NGC, the “Committees”); and WHEREAS, Banks desires to resign from the Board of Directors and the Committees, and X-Rite desires to provide Banks with certain compensation in consideration of his service on the Board of Directors and his performance of the Consulting Services (as defined below), all on the terms and conditions set forth herein. NOW, THEREFORE, X-Rite and Banks hereby agree as follows:   1. Resignation. Banks hereby resigns from the Board of Directors, the NGC and the Compensation Committee, effective as of immediately prior to the completion of the acquisition by X-Rite of a majority of the issued shares of Amazys Holding AG (“Amazys”) pursuant to the Transaction Agreement between X-Rite and Amazys dated January 30, 2006 (the “Termination Date”).   2. Director Emeritus Status. X-Rite shall take such action as is necessary to cause Banks to attain Director Emeritus status in accordance with X-Rite’s Amended and Restated Bylaws (the “Bylaws”) effective as of the Termination Date and continuing for a period of five (5) years thereafter (the “Term”). In accordance with the Bylaws, during the Term, Banks shall (i) be given notices of all meetings of the Board of Directors and (ii) be entitled to attend and participate in all such meetings, provided that Banks shall not be entitled to vote and shall not be counted for purposes of determining a quorum. As provided in the Bylaws, during the Term, Banks shall receive an annual cash retainer fee equal to the lesser of (A) the annual cash retainer fee in place as of the Termination Date or (B) the annual cash retainer fee in place at any time during the Term, and shall be entitled to reimbursement for expenses of attendance at meetings of the Board of Directors.   3. Consulting Services. From and after the Termination Date, Banks shall perform such consulting services for X-Rite as the Board of Directors or Chief Executive Officer of X-Rite may reasonably request from time to time (the “Consulting Services”). For the avoidance of doubt, Banks’ attendance and participation at meetings of the Board of Directors as a Director Emeritus shall not constitute Consulting Services under this Agreement.   4. Compensation. In consideration of Banks’ past service and his performance of the Consulting Services, X-Rite shall provide to Banks:     (a) a cash payment in the amount of One Thousand United States Dollars ($1,000.00) for each day Banks provides the Consulting Services, payable within thirty (30) days following Banks’ provision of the Consulting Services; and     (b) an option to acquire 8,000 shares of X-Rite’s common stock, par value $0.10 per share, at a price per share equal to the fair market value of such shares on the day immediately preceding X-Rite’s 2006 annual meeting of shareholders (the “Annual Meeting”), which option shall be granted to Banks promptly following the Annual Meeting. -------------------------------------------------------------------------------- Banks acknowledges and agrees that, except for annual retainer and meeting fees payable to Banks for the period prior to the Termination Date and except as expressly provided herein, X-Rite shall have no obligation to pay or provide to Banks any compensation, payment or other consideration of any kind.   5. Confidentiality. Banks shall forever hold in strictest confidence and shall not use or disclose any confidential information, technique, process, development, or experimental work, trade secret, customer lists, or other secret and confidential matter relating to the products, services, sales, employees, or business of X-Rite. In addition, Banks agrees that he will not use such information for his benefit or the benefit of any third party.   6. Status; Taxes. The relationship of Banks to X-Rite shall be that of an independent contractor and nothing in this Agreement shall be deemed to create any employment or agency relationship between X-Rite and Banks. Banks shall be responsible for, and shall timely file all reports related to, all personal income and other payroll taxes payable with respect to compensation received hereunder and accepts exclusive responsibility for all contributions required under social security laws and unemployment compensation laws or other payments under any laws of similar character.   7. Notice. All notices and other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to Banks at the address set forth under his signature, or to X-Rite at its principal executive offices to the attention of the Secretary, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt.   8. Complete Agreement. This Agreement contains the full and complete understanding of the parties hereto with regard to the subject matter contained herein. No other agreements or undertakings of the parties shall in any manner limit or alter the nature and scope of the terms hereof unless in writing duly executed by both parties and expressly providing that the same shall be controlling over any conflicting terms contained herein.   9. Assignment. This Agreement is personal as to the rights and interests of Banks, and as such, Banks may not assign or transfer his rights, duties or obligations under this Agreement, in whole or in part, without the prior written consent of X-Rite.   10. Waiver. The failure of X-Rite or Banks to insist, in any one or more instances, upon performance of any of the terms or conditions of this Agreement, shall not be construed as a waiver or relinquishment of any rights granted hereunder or the future performance of any such term, covenant or condition. No amendment or waiver of any provision of this Agreement shall in any event be effective unless the same shall be in writing and signed by the parties hereto, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.   11. Governing Law. This Agreement was entered into in the State of Michigan and shall be construed and interpreted in accordance with the laws of the State of Michigan as applied to contracts made and to be performed in the State of Michigan. Any action arising out of or to enforce this Agreement must be brought in courts in the State of Michigan. The parties consent to the jurisdiction of the courts in the State of Michigan and to service of process by registered mail, return receipt requested, or by any other manner provided by law.   - 2 - -------------------------------------------------------------------------------- IN WITNESS WHEREOF, X-Rite has caused this Agreement to be executed by a duly authorized corporate officer and Banks has executed this Agreement as of the date and year first above written.   X-RITE: X-RITE, INCORPORATED By:   /s/ Mary E Chowning Name:   Mary E. Chowning Title:   Chief Financial Officer BANKS: /s/ Peter M. Banks Peter M. Banks 5602 Newanga Avenue Santa Rosa, California 95405   - 3 -

AMENDMENT NO. 2 TO AGREEMENT AND PLAN OF MERGER   This AMENDMENT NO. 2 TO AGREEMENT AND PLAN OF MERGER is entered into as of August 8, 2006 (this “Amendment”) among NOVASTAR RESOURCES LTD., a Nevada corporation (“Company”), TP ACQUISITION CORP., a Delaware corporation and wholly-owned subsidiary of Company (“Acquisition Sub”), and THORIUM POWER, INC., a Delaware corporation (“Thorium Power”). Capitalized terms used, but not otherwise defined, herein have the meanings ascribed to such terms in the Agreement (as defined below).   BACKGROUND   The Parties entered into an Agreement and Plan of Merger on February 14, 2006 (the “Agreement”) relating to the acquisition by Company of one hundred percent (100%) of the outstanding common stock of Thorium Power through a reverse merger of Acquisition Sub with and into Thorium Power. The Agreement was thereafter amended on June 12, 2006. The Parties now desire to enter into this Amendment to further modify the terms of the Agreement as more specifically set forth herein.   AGREEMENT   NOW, THEREFORE, in consideration of the mutual promises of the parties hereto, and of good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:   1. Amendment to Section 1.2(a). Section 1.2(a) of the Agreement is deleted in its entirety and in lieu thereof the following new Section 1.2(a) is inserted:   “(a)         Purchase Price.   (i) At the Closing, each issued and outstanding share of Thorium Power’s common stock, $0.05 par value per share (the “Thorium Power Common Stock”) other than shares of Thorium Power Common Stock held by Company shall be converted into the right to receive 25.628 shares of Company’s common stock, $0.001 par value per share (the “Company Common Stock”).   (ii) At the Closing, each Exchangeable Security that has an exercise price of $5.00 or $1.00 (constituting the only prices at which Exchangeable Securities are exercisable) shall be converted into the right to receive 22.965 and 12.315 shares of Company Common Stock, respectively.   (iii) All shares of Thorium Power Common Stock and all Exchangeable Securities will no longer be outstanding and will automatically be cancelled and retired and shall cease to exist, and each holder of a certificate representing any such shares of Thorium Power Common Stock or certificate or other instrument evidencing any such Exchangeable Securities that are so exchanged shall cease to have any rights with respect thereto, except the right to receive the shares of Company Common Stock to be issued in consideration therefor upon the surrender of such certificate or other instrument in accordance with Section 1.2(c), without interest.   -------------------------------------------------------------------------------- (iv) Any securities convertible into or exercisable for shares of Thorium Power Common Stock (the “Thorium Power Convertible Securities”) immediately prior to the Effective Time (other than the Exchangeable Securities) will become, at the Effective Time, securities exercisable for such number of shares of Company Common Stock as the holder of such securities would have received had such holder converted such securities into Thorium Power Common Stock immediately prior to the Closing. Appropriate adjustment will be made to any exercise or conversion price of such securities.”   2.             Agreement. In all other respects, the Agreement shall remain in full force and effect.   3.            Counterparts. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] --------------------------------------------------------------------------------   IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment as of the date first above written.           NOVASTAR RESOURCES LTD.               By:   /s/ Seth Grae   -------------------------------------------------------------------------------- Name: Seth Grae   Title: President and Chief Executive Officer           TP ACQUISITION CORP.               By:   /s/ Seth Grae   -------------------------------------------------------------------------------- Name: Seth Grae   Title: President and Chief Executive Officer         THORIUM POWER, INC.               By:   /s/ Seth Grae   -------------------------------------------------------------------------------- Name: Seth Grae   Title: President and Chief Executive Officer     --------------------------------------------------------------------------------

Exhibit 10.1 [Smurfit-Stone Container Corporation Letterhead] May 11, 2006 Mr. Steven J. Klinger 5475 Red Bark Way Atlanta, GA   30338 Dear Steve: On behalf of our Board of Directors, I am pleased to offer you the position of President and Chief Operating Officer of Smurfit-Stone Container Corporation and its subsidiaries. In this role, you would be responsible for all of the company’s ongoing business operations. You would report directly to me and have your principal office in St. Louis, Missouri, and would serve on the company’s Executive Committee. The terms of your employment would be set forth in an Employment Agreement, which would contain terms and conditions identical to those in place with the Company’s Chief Financial Officer. The Employment Agreement would have an “evergreen” term of two (2) years, and would also include customary protections in the event of a change of control of the company and customary restrictive covenants (non-competition and non-disclosure). The Board of Directors has authorized me to convey its intention to provide you with the following compensation package: ·                  Base salary of $750,000 per year; ·                  Target award level of 100% of base salary under the company’s Management Incentive Plan, prorated and guaranteed for 2006 ($435,000); ·                  Within 30 days of your hire date, you would be awarded 300,000 stock options under the 2004 Long-Term Incentive Plan, with three-year corporate performance targets identical to the stock options granted to senior management in March 2006; ·                  One-time cash signing bonus of $750,000 plus an award of 75,000 restricted stock units under the 2004 Long-Term Incentive Plan, which would vest 100% on the third anniversary (or earlier in the event of a change of control of the company), but which could be deferred at your option, to replace your forfeited retention bonuses from your current employer; ·                  Within 30 days of your hire date, you would be granted 150,000 stock options and 52,500 restricted stock units under the 2004 Long-Term Incentive Plan, which vest 100% on the third anniversary, with a guaranteed  2007 target  LTIP award of 75% of the award granted to me and anticipated future LTIP awards at 75% of the award granted to me; -------------------------------------------------------------------------------- Mr. Steven J. Klinger Page 2 ·                  Participation in all insurance and qualified retirement plans made available to senior management from time to time, which as you know are always subject to change. ·                  Financial and tax planning services equal to those provided to me; ·                  Company-paid membership in one country club of your choosing in the St. Louis area; and ·                  Payment of all expenses in connection with your relocation to the St. Louis area, in accordance with our customary policies and procedures. We would provide a company-paid apartment in the St. Louis area for up to two years, after which time we would expect you to relocate to the St. Louis area. We are willing to review this issue again at the conclusion of the initial two-year period based on the circumstances at that time. As a further inducement for you to join Smurfit-Stone, the company would provide you with a supplemental non-qualified pension arrangement equivalent to that set forth in the Officer Retirement Agreement, dated April 25, 2002 between you and Georgia-Pacific Corporation. As is customary in these arrangements, your overall pension benefit from Smurfit-Stone would be offset by retirement benefits received from Georgia-Pacific. We will need to have further discussions to tailor this benefit to your personal financial situation. The Company will be required to promptly disclose your hiring, but will afford you the opportunity to review and approve the press release announcing your hiring in advance, except where, in our reasonable opinion, immediate disclosure is required by law. The additional terms and conditions of your employment will be set forth in your Employment Agreement and the other documents setting forth the benefits described above, and this letter will supplement your Employment Agreement. Your employment would, of course, be subject to the normal pre-employment conditions (i.e. background check, physical examination, drug test). In order for us to begin drafting the necessary documentation and processing your employment, I invite you to sign the extra copy of this letter and return it to me at your earliest convenience.   Sincerely yours,               Smurfit-Stone Container Corporation                         By:   /s/ Patrick J. Moore         Patrick J. Moore         Chairman, President and         Chief Executive Officer           ACCEPTED AND AGREED         THIS 11TH DAY OF MAY, 2006                             /s/ Steven J. Klinger             Steven J. Klinger           --------------------------------------------------------------------------------

  EXHIBIT 10.71   CREDIT AGREEMENT Dated as of July 21, 2006 among HERBALIFE INTERNATIONAL, INC., as Borrower, HERBALIFE LTD., WH INTERMEDIATE HOLDINGS LTD., HBL LTD., WH LUXEMBOURG HOLDINGS S.à.R.L., HLF LUXEMBOURG HOLDINGS S.à R.L., WH CAPITAL CORPORATION, WH LUXEMBOURG INTERMEDIATE HOLDINGS S.à.R.L., HERBALIFE INTERNATIONAL LUXEMBOURG S.à.R.L., HV HOLDINGS LTD., HERBALIFE DISTRIBUTION LTD., HERBALIFE LUXEMBOURG DISTRIBUTION S.à.R.L., THE SUBSIDIARY GUARANTORS PARTY HERETO, as Guarantors, THE LENDERS PARTY HERETO, COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK, B.A. “RABOBANK INTERNATIONAL”, NEW YORK BRANCH, HSBC BANK USA, NATIONAL ASSOCIATION, BANK OF AMERICA, N.A., FORTIS CAPITAL CORP., and CITICORP USA, INC. as Co-Documentation Agents, J.P. MORGAN SECURITIES INC. and MORGAN STANLEY SENIOR FUNDING, INC., as Co-Syndication Agents, MERRILL LYNCH, PIERCE, FENNER & SMITH, INCORPORATED, J.P. MORGAN SECURITIES INC., and MORGAN STANLEY SENIOR FUNDING, INC., as Joint Lead Arrangers and Joint Bookrunners, MERRILL LYNCH CAPITAL CORPORATION, as Administrative Agent and Collateral Agent     --------------------------------------------------------------------------------   TABLE OF CONTENTS               Page   ARTICLE I Definitions     6   SECTION 1.01. Defined Terms     6   SECTION 1.02. Classification of Loans and Borrowings     30   SECTION 1.03. Terms Generally     30   SECTION 1.04. Accounting Terms; GAAP     30             ARTICLE II The Credits     31   SECTION 2.01. Commitments     31   SECTION 2.02. Loans     31   SECTION 2.03. Borrowing Procedure     33   SECTION 2.04. Evidence of Debt; Repayment of Loans     33   SECTION 2.05. Fees     34   SECTION 2.06. Interest on Loans     35   SECTION 2.07. Termination and Reduction of Commitments     36   SECTION 2.08. Interest Elections     37   SECTION 2.09. Amortization of Term Borrowings     38   SECTION 2.10. Optional and Mandatory Prepayments of Loans     38   SECTION 2.11. Alternate Rate of Interest     42   SECTION 2.12. Increased Costs     42   SECTION 2.13. Breakage Payments     44   SECTION 2.14. Payments Generally; Pro Rata Treatment; Sharing of Set-offs     44   SECTION 2.15. Taxes     46   SECTION 2.16. Mitigation Obligations; Replacement of Lenders     48   SECTION 2.17. Letters of Credit     49   SECTION 2.18. Facility Increase     53             ARTICLE III Representations and Warranties     54   SECTION 3.01. Organization; Powers     54   SECTION 3.02. Authorization; Enforceability     54   SECTION 3.03. Governmental Approvals; No Conflicts     55   SECTION 3.04. Financial Statements     55   SECTION 3.05. Properties     55   SECTION 3.06. Equity Interests and Subsidiaries; Consent     56   SECTION 3.07. Litigation; Compliance with Laws     56   SECTION 3.08. Agreements     57   SECTION 3.09. Federal Reserve Regulations     57   SECTION 3.10. Investment Company Act     57   SECTION 3.11. Use of Proceeds     57   SECTION 3.12. Taxes     57   SECTION 3.13. No Material Misstatements     57   SECTION 3.14. Labor Matters     58   SECTION 3.15. Solvency     58   SECTION 3.16. Employee Benefit Plans     58   SECTION 3.17. Environmental Matters     59   SECTION 3.18. Insurance     60   SECTION 3.19. Security Documents     60   1 --------------------------------------------------------------------------------                 Page   SECTION 3.20. Material Adverse Changes     61             ARTICLE IV Conditions of Lending     61   SECTION 4.01. All Credit Extensions     61   SECTION 4.02. Initial Credit Extension     62             ARTICLE V Affirmative Covenants     66   SECTION 5.01. Financial Statements, Reports, Etc.     66   SECTION 5.02. Litigation and Other Notices     69   SECTION 5.03. Existence; Businesses and Properties     69   SECTION 5.04. Insurance     70   SECTION 5.05. Taxes     70   SECTION 5.06. Employee Benefits     71   SECTION 5.07. Maintaining Records; Access to Properties and Inspections     71   SECTION 5.08. Use of Proceeds     71   SECTION 5.09. Compliance with Environmental Laws; Environmental Reports     71   SECTION 5.10. Interest Rate Protection     72   SECTION 5.11. Additional Collateral; Additional Guarantors     72   SECTION 5.12. Security Interests; Further Assurances     73   SECTION 5.13. Know-Your-Customer Rules     74   SECTION 5.14. Post-Closing Matters     75             ARTICLE VI Negative Covenants     75   SECTION 6.01. Indebtedness     75   SECTION 6.02. Liens     77   SECTION 6.03. Investments, Loans and Advances     79   SECTION 6.04. Mergers, Consolidations, Sales and Purchases of Assets     81   SECTION 6.05. Dividends     82   SECTION 6.06. Transactions with Affiliates     84   SECTION 6.07. Financial Covenants     85   SECTION 6.08. Limitation on Modifications of Indebtedness; Modifications of Certificate of Incorporation, Other Constitutive Documents or Bylaws and Certain Other Agreements, Etc.     85   SECTION 6.09. Limitation on Certain Restrictions on Subsidiaries     86   SECTION 6.10. Sale and Leaseback Transactions     86   SECTION 6.11. Holding Companies.     86   SECTION 6.12. Business     86   SECTION 6.13. Limitation on Accounting Changes     87   SECTION 6.14. Fiscal Year     87             ARTICLE VII Guarantee     87   SECTION 7.01. The Guarantee     87   SECTION 7.02. Obligations Unconditional     87   SECTION 7.03. Reinstatement     89   SECTION 7.04. Subrogation; Subordination     89   SECTION 7.05. Remedies     89   SECTION 7.06. Instrument for the Payment of Money     90   SECTION 7.07. General Limitation on Guarantee Obligations     90   SECTION 7.08. Continuing Guarantee     90   SECTION 7.09. Release of Guarantors     90   2 --------------------------------------------------------------------------------                 Page   ARTICLE VIII Events of Default     91             ARTICLE IX Collateral Account; Application of Collateral Proceeds     94   SECTION 9.01. Collateral Account     94   SECTION 9.02. Proceeds of Casualty Events and Collateral Dispositions     95   SECTION 9.03. Application of Proceeds     95             ARTICLE X The Administrative Agent and the Collateral Agent     96             ARTICLE XI Miscellaneous     98   SECTION 11.01. Notices     98   SECTION 11.02. Waivers; Amendment     99   SECTION 11.03. Expenses; Indemnity     101   SECTION 11.04. Successors and Assigns     102   SECTION 11.05. Survival of Agreement     104   SECTION 11.06. Counterparts; Integration; Effectiveness     105   SECTION 11.07. Severability     105   SECTION 11.08. Right of Set-off     105   SECTION 11.09. Governing Law; Jurisdiction; Consent to Service of Process     105   SECTION 11.10. WAIVER OF JURY TRIAL     106   SECTION 11.11. Headings     106   SECTION 11.12. Confidentiality     106   SECTION 11.13. Interest Rate Limitation     107   SECTION 11.14. USA Patriot Act Notice     107         ANNEXES           Annex I   Amortization Table Annex II   Lenders’ Notice Information and Commitments Annex III   Limitations on Guarantees and Indemnities Under Applicable Foreign Laws       SCHEDULES           Schedule 1.01(a)   Deposit Accounts Schedule 1.01(b)   Immaterial Subsidiaries Schedule 1.01(e)   Subsidiary Guarantors Schedule 3.03   Governmental Approvals; Compliance with Laws Schedule 3.06(a)   Subsidiaries; Non-Guarantor Subsidiaries Schedule 3.07   Litigation Schedule 3.08   Material Agreements Schedule 3.18   Insurance Schedule 4.02(g)   Local Counsel Schedule 5.14   Post-Closing Matters Schedule 6.01   Existing Indebtedness Schedule 6.02   Existing Liens Schedule 6.03   Existing Investments 3 --------------------------------------------------------------------------------         EXHIBITS           Exhibit A   Form of Administrative Questionnaire Exhibit B   Form of Assignment and Acceptance Exhibit C   Form of Borrowing Request Exhibit D   Form of Interest Election Request Exhibit E   [Reserved] Exhibit F   Form of U.S. Security Agreement Exhibit G   Form of Intercompany Note Exhibit H   Form of Joinder Agreement Exhibit I   Form of Perfection Certificate Exhibit J-1   Form of Revolving Note Exhibit J-2   Form of Term Note Exhibit K   Form of Financial Officer’s Compliance Certificate Exhibit L   Form of Financial Condition Certificate Exhibit M   Form of Letter of Credit Request 4 --------------------------------------------------------------------------------   CREDIT AGREEMENT      This CREDIT AGREEMENT (as amended, restated, supplemented or otherwise modified from time to time, this “Agreement”), dated as of July 21, 2006, is among HERBALIFE INTERNATIONAL, INC., a Nevada corporation (“Borrower”); HERBALIFE LTD., a Cayman Islands exempted company with limited liability (“Holdings”); WH INTERMEDIATE HOLDINGS LTD., a Cayman Islands exempted company with limited liability and a direct wholly-owned subsidiary of Holdings (“Parent”); HBL LTD., a Cayman Islands exempted company with limited liability and a direct wholly-owned subsidiary of Parent (“Cayman III”); WH LUXEMBOURG HOLDINGS S.à.R.L., a Luxembourg corporation and a direct wholly-owned subsidiary of Parent (“Luxembourg Holdings”); HERBALIFE INTERNATIONAL LUXEMBOURG S.à.R.L., a Luxembourg corporation and a direct wholly-owned subsidiary of Luxembourg Holdings (“HIL”); HLF LUXEMBOURG HOLDINGS, S.à.R.L., a Luxembourg corporation and a direct wholly-owned subsidiary of Luxembourg Holdings (“New Lux”); WH CAPITAL CORPORATION, a Nevada corporation and a direct wholly-owned subsidiary of New Lux (“WH Capital”); WH LUXEMBOURG INTERMEDIATE HOLDINGS S.à.R.L., a Luxembourg corporation and a direct wholly-owned subsidiary of WH Capital (“Luxembourg Intermediate Holdings”); HV HOLDINGS LTD., a Cayman Islands exempted company with limited liability and a direct wholly-owned subsidiary of Parent ( “HV”); HERBALIFE DISTRIBUTION LTD., a Cayman Islands exempted company with limited liability and a direct wholly-owned subsidiary of HV ( “Cayman Distribution”); HERBALIFE LUXEMBOURG DISTRIBUTION S.à.R.L., a Luxembourg corporation and a direct wholly-owned subsidiary of HIL (“Luxembourg Distribution”); EACH OF THE SUBSIDIARY GUARANTORS LISTED ON THE SIGNATURE PAGES HERETO OR FROM TIME TO TIME BECOMING A PARTY HERETO BY EXECUTION OF A JOINDER AGREEMENT (together with Holdings, Parent, Cayman III, Luxembourg Holdings, HIL, HIL Swiss, New Lux, WH Capital, Luxembourg Intermediate Holdings, HV, Cayman Distribution, Luxembourg Distribution and each other Subsidiary Guarantor from time to time executing a Guarantee (defined herein) as required hereunder, the “Guarantors”); THE LENDERS PARTY HERETO; MERRILL LYNCH, PIERCE, FENNER & SMITH, INCORPORATED, J.P. MORGAN SECURITIES INC. and MORGAN STANLEY SENIOR FUNDING, INC., as joint lead arrangers and joint bookrunners (in such capacity, the “Arrangers”); COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK, B.A. “RABOBANK INTERNATIONAL”, NEW YORK BRANCH, HSBC BANK USA, NATIONAL ASSOCIATION, BANK OF AMERICA, N.A., FORTIS CAPITAL CORP. and CITICORP USA, INC., as co-documentation agents (in such capacity, the “Co-Documentation Agents”); J.P. MORGAN SECURITIES INC. and MORGAN STANLEY SENIOR FUNDING, INC., as co-syndication agents (in such capacity, the "Co-Syndication Agents”); MERRILL LYNCH CAPITAL CORPORATION, as administrative agent for the Lenders (in such capacity, the “Administrative Agent”); MERRILL LYNCH CAPITAL CORPORATION, as collateral agent for the Secured Parties (defined herein) (in such capacity, the “Collateral Agent”); and RABOBANK INTERNATIONAL, as Issuing Bank. WITNESSETH:      WHEREAS, Borrower has requested that the Lenders extend certain credit facilities to Borrower hereunder, the proceeds of which will be used to (a) repay all outstanding obligations under that certain Credit Agreement dated as of December 21, 2004 (as amended, amended and restated, supplemented or otherwise modified as of the date hereof, the “Existing Credit Agreement”) among Borrower, the guarantors party thereto, the lenders party thereto, Rabobank International, as documentation agent, Merrill Lynch, Pierce, Fenner & Smith, Incorporated, as 5 --------------------------------------------------------------------------------   syndication agent, Morgan Stanley Funding, Inc. and Merrill Lynch, Pierce, Fenner & Smith, Incorporated, as joint lead arrangers and joint bookrunners, Morgan Stanley Senior Funding, Inc., as administrative agent, and Morgan Stanley & Co., Incorporated, as collateral agent (the “Refinancing”); (b) redeem all of the Holdings Senior Notes (as defined herein) (the “Redemption” and, together with the Refinancing and all other transactions contemplated hereby and in connection therewith, the “Transactions”); (c) repay the related fees and expenses incurred in connection with the Transactions (collectively “Transaction Costs”); and (d) fund ongoing working capital and general corporate needs of Holdings and its Subsidiaries, all subject to the terms and conditions contained herein;      WHEREAS, each of Holdings, Parent, Cayman III, Luxembourg Holdings, HIL, HIL Swiss, New Lux, WH Capital, Luxembourg Intermediate Holdings, HV, Cayman Distribution, Luxembourg Distribution and the other Subsidiary Guarantors desires to guarantee Borrower’s obligations hereunder and under the other applicable Loan Documents, as each will benefit from the Loans (as defined below) made hereunder; and      WHEREAS, the Lenders are willing to make such credit facilities available upon and subject to the terms and conditions contained herein.      NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants contained herein, the parties hereto agree as follows: ARTICLE I Definitions      SECTION 1.01. Defined Terms. As used in this Agreement, the following terms shall have the meanings specified below:      “ABR,” when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate.      “ABR Borrowing” means a Borrowing comprised of ABR Loans.      “ABR Loan” means any ABR Term Loan or ABR Revolving Loan.      “ABR Revolving Loan” means any Revolving Loan bearing interest at a rate determined by reference to the Alternate Base Rate in accordance with the provisions of Article II.      “ABR Term Loan” means any Term Loan bearing interest at a rate determined by reference to the Alternate Base Rate in accordance with the provisions of Article II.      “Additional Lender” has the meaning assigned to such term in Section 2.18.      “Additional Term Loan Commitment” has the meaning assigned to such term in Section 2.18.      “Additional Term Loans” has the meaning assigned to such term in Section 2.18.      “Administrative Agent” has the meaning assigned to such term in the preamble hereto. 6 --------------------------------------------------------------------------------        “Administrative Agent Fees” has the meaning assigned to such term in Section 2.05(b).      “Administrative Questionnaire” means an Administrative Questionnaire in the form of Exhibit A, or such other form as may be supplied from time to time by the Administrative Agent.      “Affiliate” means, when used with respect to a specified person, another person that directly, or indirectly through one or more intermediaries, Controls, is Controlled by or is under common Control with the person specified; provided, however, that, for purposes of Section 6.06, the term “Affiliate” shall also include any person that directly or indirectly owns more than 10% of any class of Equity Interests of the person specified or that is an officer or director of the person specified.      “Agents” means each of the Co-Syndication Agents, the Co-Documentation Agents, the Administrative Agent and the Collateral Agent.      “Agreement” has the meaning assigned to such term in the preamble hereto.      “Alternate Base Rate” means, for any day, a rate per annum (rounded upward, if necessary, to the next 1/100 of 1%) equal to the greater of (a) the Base Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 0.50%. If the Administrative Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Federal Funds Effective Rate for any reason, including the inability or failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms of the definition thereof, the Alternate Base Rate shall be determined without regard to clause (b) of the preceding sentence until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate due to a change in the Base Rate or the Federal Funds Effective Rate shall be effective on the effective date of such change in the Base Rate or the Federal Funds Effective Rate, respectively.      “Applicable Commitment Fee Percentage” means an amount per annum equal to (i) with respect to the Revolving Commitment, 0.375% and (ii) with respect to the Term Loan Commitment, 0.75%.      “Applicable Margin” means (i) for the first two full quarters after the Closing Date (A)(I) 1.25% in the case of Revolving Loans maintained as Eurodollar Loans and (II) 0.25% in the case of Revolving Loans maintained as ABR Loans and (B)(I) 1.50% in the case of Term Loans maintained as Eurodollar Loans and (II) 0.50% in the case of Term Loans maintained as ABR Loans and (ii) for the period after the first two full quarters after the Closing Date (A) the Applicable Margin for Revolving Loans shall be determined by reference to the Debt Rating and the Applicable Percentage set forth below; provided, in the event of a split rating, the higher of such Debt Ratings shall be used to determine the Applicable Margin, except that, if there is a two-tier difference in the Debt Ratings, the Debt Rating one notch higher than the lower of the two Debt Ratings shall be used to determine the Applicable Margin and (B)(I) 1.50% in the case of Term Loans maintained as Eurodollar Loans and (II) 0.50% in the case of Term Loans maintained as ABR Loans. 7 --------------------------------------------------------------------------------             Senior Credit       Facilities Rating   Applicable Percentage Moody’s/S&P   (Revolving Loans)     Eurodollar   ABR ³ Ba1/BB+   1.25%   0.25% <Ba1/BB+   1.50%   0.50%      “Arrangers” has the meaning assigned to such term in the preamble hereto.      “Asset Sale” means (a) any conveyance, sale, lease, sublease, assignment, transfer or other disposition (including by way of merger or consolidation and including any sale and leaseback transaction) of any property (including stock of any of Holdings’ Subsidiaries by the holder thereof) by Holdings or any of its Subsidiaries to any person other than a Loan Party or any Subsidiary thereof (other than sales and other dispositions of inventory in the ordinary course of business) and (b) any issuance or sale by any Subsidiary of Holdings of its Equity Interests to any person other than a Loan Party.      “Assignment and Acceptance” means an assignment and acceptance entered into by a Lender and its assignee, and accepted by the Administrative Agent, in the form of Exhibit B, or such other form as shall be approved by the Administrative Agent.      “Attributable Indebtedness” means, when used with respect to any sale and leaseback transaction, as at the time of determination, the present value (discounted at a rate equivalent to Borrower’s then-current weighted-average cost of funds for borrowed money as at the time of determination, compounded on a semi-annual basis) of the total obligations of the lessee for rental payments during the remaining term of the lease included in any such sale and leaseback transaction.      “Bankruptcy Code” means Title 11 of the United States Code entitled “Bankruptcy,” as now and hereafter in effect, or any successor statute.      “Base Rate” means, for any day, a rate per annum that is from time to time published in the “Money Rates” section of the Wall Street Journal as being the “Prime Rate” (or, if more than one rate is published as the Prime Rate, then the highest of such rates). The Base Rate will change as of the date of publication in the Wall Street Journal of a Base Rate that is different from that published on the preceding Business Day. In the event that The Wall Street Journal shall, for any reason, fail or cease to publish the Base Rate, Administrative Agent shall choose a reasonably comparable index or source to use as the basis for the Base Rate.      “Board” means the Board of Governors of the Federal Reserve System of the United States of America.      “Borrower” has the meaning assigned to such term in the preamble hereto.      “Borrowing” means Loans made of the same Class and Type and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect.      “Borrowing Request” means a request by Borrower in accordance with the terms of Section 2.03 and substantially in the form of Exhibit C, or such other form as shall be approved by the Administrative Agent. 8 --------------------------------------------------------------------------------        “Business Day” means any day other than a Saturday, Sunday or day on which banks in New York City are authorized or required by law to close; provided, however, that when used in connection with a Eurodollar Loan, the term “Business Day” does not include any day on which banks are not open for dealings in dollar deposits in the London interbank market.      “Capital Expenditures” means, with respect to any person, for any period, the aggregate of all expenditures of such person and its Consolidated Subsidiaries for the acquisition of fixed or capital assets which should be capitalized under GAAP on a consolidated balance sheet of such person and its Consolidated Subsidiaries. Notwithstanding the foregoing, Capital Expenditures shall not include (i) expenditures up to the amount of Net Cash Proceeds from Asset Sales (other than through leases) in accordance with this Agreement, (ii) expenditures of Net Cash Proceeds from a Casualty Event in accordance with this Agreement, and (iii) expenditures made in connection with Permitted Acquisitions.      “Capital Lease Obligations” of any person means the obligations of such person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP.      “Cash Equivalent” means, as to any person: (a) securities issued or directly, unconditionally and fully guaranteed or insured by the United States or any agency or instrumentality thereof (provided that, the full faith and credit of the United States is pledged in support thereof) having maturities of not more than one year from the date of acquisition by such person; (b) time deposits and certificates of deposit of any Lender (or affiliate thereof) or any commercial bank having, or that is the principal banking subsidiary of a bank holding company organized under the laws of the United States, any state thereof, the District of Columbia or any country (or political subdivision thereof) which is a member of the Organization for Economic Cooperation and Development having, capital and surplus aggregating in excess of $500 million with maturities of not more than one year from the date of acquisition by such person; (c) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (a) above entered into with any bank meeting the qualifications specified in clause (b) above; (d) commercial paper issued by any person incorporated in the United States rated at least A-2 or the equivalent thereof by S&P or at least P-2 or the equivalent thereof by Moody’s, and in each case maturing not more than one year after the date of acquisition by such person; (e) investments in money market or mutual funds substantially all of whose assets are comprised of securities of the types described in clauses (a) through (d) above; (f) demand deposit accounts (including the deposit accounts identified on Schedule 1.01(a)) maintained in the ordinary course of business; (g) investments in tax-exempt obligations of any state of the United States of America, or any municipality of any such state, in each case rated “AA” or better by S&P, “Aa2” or better by Moody’s or an equivalent rating by any other credit rating agency of recognized national standing, provided that, such obligations mature within six months from the date of acquisition thereof; and (h) investments in mutual funds or variable rate notes that invest primarily in tax exempt obligations of the types described in clauses (a)-(g) above.      “Casualty Event” means, with respect to any property (including Real Property) of any person, any loss of title with respect to such property or any loss of or damage to or destruction of, or any condemnation or other taking (including by any Governmental Authority) of, such property for which such person or any of its subsidiaries receives insurance proceeds or proceeds of a condemnation award or other compensation. “Casualty Event” includes any taking of all or any part of any Real Property of any person or any part thereof, in or by condemnation or other 9 --------------------------------------------------------------------------------   eminent domain proceedings pursuant to any law, or by reason of the temporary requisition of the use or occupancy of all or any part of any Real Property of any person or any part thereof by any Governmental Authority, civil or military.      “Cayman III” has the meaning assigned to such term in the preamble hereof.      “Cayman Distribution” has the meaning assigned to such term in the preamble hereof.      “CERCLA” has the meaning assigned thereto in the definition of “Environmental Law.”      A “Change in Control” is deemed to have occurred if: (a) Holdings at any time ceases to own, directly or indirectly, 100% of the capital stock of Borrower and each Guarantor (other than Holdings); (b) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders, is or becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that for purposes of this clause (b) such person or group is deemed to have “beneficial ownership” of all securities that any such person or group has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of Voting Stock representing more than 35% of the voting power of the total outstanding Voting Stock; (c) a Change of Control (as defined in the Holdings Senior Note Agreement) or a “change of control” or similar event, however denominated shall occur under and as defined under any other indenture or Material Agreement to which Borrower or any Subsidiary is a party; or (d) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of Holdings (together with any new directors whose election to such Board of Directors or whose nomination for election by the stockholders of Holdings was approved by a vote of at least a majority of the directors of Holdings then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of Holdings.      “Change in Law” means (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Lender or Issuing Bank (or for purposes of Section 2.12(b), by any lending office of such Lender or by such Lender’s or Issuing Bank’s holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement.      “Charges” has the meaning assigned to such term in Section 11.13.      “Class” when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans or Term Loans.      “Closing Date” means the date of the initial Credit Extension.      “Co-Documentation Agent” has the meaning assigned to such term in the preamble hereto.      “Co-Syndication Agent” has the meaning assigned to such term in the preamble hereto.      “Collateral” means all of the Security Agreement Collateral and all other property of whatever kind and nature pledged as collateral under any Security Document. 10 --------------------------------------------------------------------------------        “Collateral Account” has the meaning assigned to such term in the U.S. Security Agreement.      “Collateral Agent” has the meaning assigned to such term in the preamble hereto.      “Commercial Letter of Credit” means any letter of credit or similar instrument issued for the account of Borrower for the benefit of a Loan Party or any of their respective Subsidiaries, for the purpose of providing the primary payment mechanism in connection with the purchase of any materials, goods or services in the ordinary course of business of such Loan Party or Subsidiary, as the case may be.      “Commitment” means, with respect to any Lender, such Lender’s Revolving Commitment or Term Loan Commitment, as the context shall require.      “Commitment Fee” has the meaning assigned to such term in Section 2.05(a).      “Commitment Letter” means the Commitment Letter, dated June 27, 2006, among Herbalife International, Inc., Merrill Lynch, Pierce, Fenner & Smith, Incorporated, Merrill Lynch Capital Corporation, JPMorgan Chase Bank, N.A., J.P. Morgan Securities Inc. and Morgan Stanley Senior Funding, Inc., as amended.      “Companies” means Holdings and its Subsidiaries; and “Company” means any one of them.      “Consolidated Companies” means Holdings and its Consolidated Subsidiaries.      “Consolidated Current Assets” means, with respect to any person as at any date of determination, the total assets of such person and its Consolidated Subsidiaries that are properly classified as current assets on a consolidated balance sheet of such person and its Consolidated Subsidiaries in accordance with GAAP.      “Consolidated Current Liabilities” means, with respect to any person as at any date of determination, the total liabilities of such person and its Consolidated Subsidiaries that are properly classified as current liabilities (other than the current portion of any Loans or Capital Lease Obligations) on a consolidated balance sheet of such person and its Consolidated Subsidiaries in accordance with GAAP.      “Consolidated EBITDA” means, with respect to any person for any period, Consolidated Net Income for such period, adjusted, in each case only to the extent (and in the same proportion) deducted in determining Consolidated Net Income, without duplication, by (x) adding thereto (i) Consolidated Interest Expense, (ii) provision for taxes based on income, (iii) depreciation, (iv) amortization (including amortization of deferred fees and the accretion of original issue discount), (v) all other noncash items subtracted in determining Consolidated Net Income (including any noncash compensation charge arising from any grant of stock, stock options or other equity-based awards of such person or any of its Subsidiaries and noncash losses or charges related to impairment of goodwill and other intangible assets and excluding any noncash charge that results in an accrual of a reserve for cash charges in any future period) for such period, (vi) nonrecurring expenses and charges, (vii) aggregate cash payments made in respect of the Tax Indemnity in respect of any period prior to the Closing Date, not to exceed $15 million for any fiscal year and (viii) Transactions Costs; and (y) subtracting therefrom the 11 --------------------------------------------------------------------------------   aggregate amount of all noncash items, determined on a consolidated basis, to the extent such items were added in determining Consolidated Net Income for such period.      “Consolidated Indebtedness” means, with respect to any person as at any date of determination, the aggregate amount of all Indebtedness (including the then outstanding principal amount of all Loans, all Capital Lease Obligations and all LC Exposure) of such person and its Consolidated Subsidiaries on a consolidated basis as determined in accordance with GAAP.      “Consolidated Interest Coverage Ratio” means, as of the last day of any fiscal quarter of Holdings, the ratio computed for the period consisting of such fiscal quarter and each of the three immediately preceding fiscal quarters of: (a) Consolidated EBITDA (for all such fiscal quarters) to (b) Consolidated Interest Expense (for all such fiscal quarters).      “Consolidated Interest Expense” means, with respect to any person for any period, the total consolidated cash interest expense (including that portion attributable to Capital Leases Obligations) of such person and its Consolidated Subsidiaries for such period (calculated without regard to any limitations on the payment thereof and including commitment fees, letter-of-credit fees and net amounts payable under Interest Rate Protection Agreements) determined in accordance with GAAP.      “Consolidated Net Income” means, with respect to any person for any period, the consolidated net after tax income of such person and its Consolidated Subsidiaries determined in accordance with GAAP, but excluding in any event (a) net earnings or loss of any other person (other than a Subsidiary of Holdings) in which such person or any of its Consolidated Subsidiaries has an ownership interest, except (in the case of any such net earnings) to the extent such net earnings shall have actually been received by such person or any of its Consolidated Subsidiaries in the form of cash distributions and (b) the income (or loss) of any other person accrued prior to the date it becomes a Subsidiary of such person or any of its Consolidated Subsidiaries or is merged into or consolidated with such person or any of its Consolidated Subsidiaries or that other person’s assets are acquired by such person or its Consolidated Subsidiaries after the Closing Date.      “Consolidated Subsidiaries” means, as to any person, all subsidiaries of such person that are consolidated with such person for financial reporting purposes in accordance with GAAP.      “Contested Collateral Lien Conditions” means, with respect to any Permitted Lien of the type described in Sections 6.02(a), (b) and (d), the following conditions:      (a) any proceeding instituted contesting such Lien shall conclusively operate to stay the sale or forfeiture of any portion of the Collateral on account of such Lien;      (b) the appropriate Loan Party shall maintain cash reserves in an amount sufficient to pay and discharge such Lien in accordance with GAAP; and      (c) such Lien shall in all respects be subject and subordinate in priority to the Lien and security interest created and evidenced by the Security Documents, except if and to the extent that the law or regulation creating, permitting or authorizing such Lien provides that such Lien is or must be superior to the Lien and security interest created and evidenced by the Security Documents. 12 --------------------------------------------------------------------------------        “Contingent Obligation” means, as to any person, any obligation of such person guaranteeing or intended to guarantee any Indebtedness, leases, dividends or other obligations (“primary obligations”) of any other person (the “primary obligor”) in any manner, whether directly or indirectly, including any obligation of such person, whether or not contingent, (a) to purchase any such primary obligation or any property constituting direct or indirect security therefor; (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor; (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation; or (d) otherwise to assure or hold harmless the holder of such primary obligation against loss in respect thereof; provided, however, that the term “Contingent Obligation” shall not include (w) endorsements of instruments for deposit or collection in the ordinary course of business, (x) any product warranties issued on products by Holdings or any of its Subsidiaries in the ordinary course of business, (y) any obligation to buy back products in the ordinary course of business made pursuant to the buyback policy of Holdings and its Subsidiaries or pursuant to applicable Requirements of Law, and (z) any operating lease guarantees (other than in respect of Synthetic Lease Obligations) executed by Borrower in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made (or, if less, the maximum amount of such primary obligation for which such person may be liable pursuant to the terms of the instrument evidencing such Contingent Obligation) or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such person is required to perform thereunder) as determined by such person in good faith.      “Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a person, whether through the ownership of voting securities, by contract or otherwise, and the terms “Controlling” and “Controlled” have meanings correlative thereto.      “Control Agreement” has the meaning assigned to such term in the U.S. Security Agreement.      “Credit Extension” has the meaning assigned to such term in Section 4.01.      “Debt Issuance” means the incurrence by Holdings or any of its Subsidiaries of any Indebtedness after the Closing Date (other than as permitted by Section 6.01).      “Debt Rating” means the Moody’s Rating and/or the S&P Rating, as the context may require.      “Default” means any event or condition that is, or upon notice or lapse of time would constitute, an Event of Default.      “Delayed Draw Closing Date” means the date that the Lenders with a Term Loan Commitment make the initial Term Loans hereunder.      “Designated Subsidiaries” means Herbalife (China) Health Products Ltd., Herbalife Dominicana, S.A., Herbalife Del Ecuador, S.A., Herbalife International SDN. BHD. and Herbalife International Products N.V. 13 --------------------------------------------------------------------------------        “Dividend” with respect to any person means that such person has paid a dividend or returned any equity capital to its stockholders or made any other distribution, payment or delivery of property (other than common stock of such person) or cash to its stockholders as such, or redeemed, retired, purchased or otherwise acquired, directly or indirectly, for consideration any shares of any class of its capital stock outstanding on or after the Closing Date (or any options or warrants issued by such person with respect to its capital stock), or set aside any funds for any of the foregoing purposes. Without limiting the foregoing, “Dividend” with respect to any person also includes all payments made by such person with respect to any stock appreciation rights, plans, equity incentive or achievement plans or any similar plans or setting aside of any funds for the foregoing purposes.      “dollars” or “$”means the lawful money of the United States of America.      “Domesticated Foreign Subsidiary” means a Foreign Subsidiary which has become domesticated into the United States.      “environment” means ambient air, surface water and groundwater (including potable water, navigable water and wetlands), the land surface or subsurface strata, natural resources such as flora and fauna, the workplace or as otherwise defined in any Environmental Law.      “Environmental Claim” means any written accusation, allegation, notice of violation, investigation or potential liability claim, demand, order, directive, cost recovery action or other cause of action by, or on behalf of, any Governmental Authority or any person for damages, injunctive or equitable relief, personal injury (including sickness, disease or death), Response action costs, tangible or intangible property damage, natural resource damages, nuisance, pollution, any adverse effect on the environment caused by any Hazardous Material, or for fines, penalties, restrictions or modification of operations or equipment, resulting from or based upon (a) the existence, or the continuation of the existence, of a Release (including sudden or non-sudden, accidental or non-accidental Releases of Hazardous Material); (b) exposure to any Hazardous Material; (c) the presence, use, handling, transportation, storage, treatment or disposal of any Hazardous Material; or (d) the violation or alleged violation of any Environmental Law or Environmental Permit.      “Environmental Law” means any and all applicable present and future treaties, laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, or the common law relating in any way to the protection or preservation of the environment (including preservation or reclamation of natural resources), the management, Release or threatened Release of any Hazardous Material or to public or occupational health and safety matters, including The Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. §§ 9601 et seq. (collectively “CERCLA”), the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976 and Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. §§ 6901 et seq., the Federal Water Pollution Control Act, as amended by the Clean Water Act of 1977, 33 U.S.C. §§ 1251 et seq., the Clean Air Act of 1970, as amended, 42 U.S.C. §§ 7401 et seq., the Toxic Substances Control Act of 1976, 15 U.S.C. §§ 2601 et seq., the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. §§ 651 et seq., the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. §§ 11001 et seq., the Safe Drinking Water Act of 1974, as amended, 42 U.S.C. §§ 300(f) et seq., the Hazardous Materials Transportation Act, 49 U.S.C. §§ 5101 et seq., and any similar or implementing state, 14 --------------------------------------------------------------------------------   local or foreign law, and all amendments to or regulations promulgated under, any of the foregoing.      “Environmental Permit” means any permit, approval, authorization, certificate, license, variance, filing or permission required by or from any Governmental Authority pursuant to any Environmental Law.      “Equity Interest” means, with respect to any person, any and all shares, interests, participations or other equivalents, including membership interests (however designated, whether voting or non-voting), of capital of such person, including, if such person is a partnership, partnership interests (whether general or limited) and any other interest (other than an interest constituting Indebtedness) or participation that confers on a person the right to receive a share of the profits and losses of, or distributions of assets of, such partnership, whether outstanding on or issued after the Closing Date.      “ERISA” means the Employee Retirement Income Security Act of 1974, as the same may be amended from time to time.      “ERISA Affiliate” means, with respect to any employer any trade or business (whether or not incorporated) that, together with such employer, is treated as a single employer under Section 414(b), (c), (m) or (o) of the Tax Code.      “ERISA Event” means (a) any “reportable event,” as defined in Section 4043 of ERISA or the regulations issued thereunder, with respect to a Plan (other than an event for which the 30-day notice period is waived by regulation); (b) the existence with respect to any Plan of an “accumulated funding deficiency” (as defined in Section 412 of the Tax Code or Section 302 of ERISA), whether or not waived, the failure to make by its due date a required installment under Section 412(m) of the Tax Code with respect to any Plan or the failure to make any required contribution to a Multiemployer Plan; (c) the filing pursuant to Section 412(d) of the Tax Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by any Company or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by any Company or any of its ERISA Affiliates from the PBGC or a plan administrator of any notice relating to the intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan, or the occurrence of any event or condition that could reasonably be expected to constitute grounds under ERISA for the termination of, or the appointment of a trustee to administer, any Plan; (f) the provision to an affected party by the administrator of any Plan pursuant to Section 4041(a)(2) of ERISA of a notice of intent to terminate such plan in a distress termination described in Section 4041(c) of ERISA; (g) the withdrawal by any Company or any of its ERISA Affiliates from any Plan with two or more contributing sponsors or the termination of any such Plan resulting in liability to any Company or any of their respective Affiliates pursuant to Section 4063 or 4064 of ERISA; (h) the receipt by any Company or any of its ERISA Affiliates of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA; (i) making of any amendment to any Plan that could result in the imposition of a lien or the posting of a bond or other security; (j) the occurrence of a nonexempt prohibited transaction (within the meaning of Section 4975 of the Tax Code or Section 406 of ERISA) that could result in a Material Adverse Effect; (k) the imposition of a Lien pursuant to Section 401(a)(29) or 412(n) of the Tax Code or pursuant to ERISA with respect to any Plan; and (l) the assertion of a material claim (other than routine claims for benefits) against any Plan or the assets thereof, or against any Company or any of its ERISA Affiliates in connection with any Plan. 15 --------------------------------------------------------------------------------        “Eurodollar Borrowing” means a Borrowing comprised of Eurodollar Loans.      “Eurodollar Loan” means any Eurodollar Revolving Loan or Eurodollar Term Loan.      “Eurodollar Revolving Loan” means any Revolving Loan bearing interest at a rate determined by reference to the LIBOR Rate in accordance with the provisions of Article II.      “Eurodollar Term Loan” means any Term Loan bearing interest at a rate determined by reference to the LIBOR Rate in accordance with the provisions of Article II.      “Event of Default” has the meaning assigned to such term in Article VIII.      “Excess Cash Flow” means, for any fiscal year of Holdings, the sum, without duplication, of      (a) Consolidated EBITDA of Holdings for such fiscal year; plus      (b) losses from Asset Sales; plus      (c) reductions to noncash working capital of Holdings and its Consolidated Subsidiaries for such fiscal year (i.e., the decrease, if any, in Consolidated Current Assets minus Consolidated Current Liabilities from the beginning to the end of such fiscal year); minus      (d) the amount of any cash income taxes payable by Holdings and its Consolidated Subsidiaries with respect to such fiscal year; minus      (e) Consolidated Interest Expense of Holdings during such fiscal year; minus      (f) Capital Expenditures made in cash in accordance with Section 6.07(c) during such fiscal year, to the extent funded from internally generated funds; minus      (g) permanent repayments of Indebtedness made by Holdings and its Consolidated Subsidiaries during such fiscal year (including payments of principal in respect of the Revolving Loans to the extent there is an equivalent reduction in the Revolving Commitments hereunder); minus      (h) aggregate cash payments made in respect of the Tax Indemnity not to exceed $15.0 million in any fiscal year; minus      (i) additions to noncash working capital of Holdings and its Consolidated Subsidiaries for such fiscal year (i.e., the increase, if any, in Consolidated Current Assets minus Consolidated Current Liabilities from the beginning to the end of such fiscal year); minus      (j) gains from Asset Sales.      “Exchange Act” means the Securities Exchange Act of 1934, as amended.      “Excluded Taxes” means, with respect to the Administrative Agent, any Lender, the Issuing Bank or any other recipient of any payment to be made by or on account of any obligation of Borrower hereunder, (a) foreign, federal, state or local income or franchise taxes imposed on 16 --------------------------------------------------------------------------------   (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is doing business, is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United States of America and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by Borrower under Section 2.16), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement (or designates a new lending office) or is attributable to such Foreign Lender’s failure to comply with Section 2.15(e), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from Borrower with respect to such withholding tax pursuant to Section 2.15(a).      “Existing Credit Agreement” has the meaning assigned to such term in the recitals hereto.      “Federal Funds Effective Rate” means, for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for the day for such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it.      “Fee Letter” means the Fee Letter, dated June 27, 2006, among Herbalife International, Inc., Merrill Lynch, Pierce, Fenner & Smith, Incorporated, Merrill Lynch Capital Corporation, JPMorgan Chase Bank, N.A., J.P. Morgan Securities Inc. and Morgan Stanley Senior Funding, Inc., as amended.      “Fees” mean the Commitment Fees, the Administrative Agent Fees, the LC Participation Fees and the Fronting Fees.      “Financial Officer” means, as applied to any person, the Chief Financial Officer, Chief Accounting Officer, Treasurer or Controller of such person.      “FIRREA” means the Federal Institutions Reform, Recovery and Enforcement Act of 1989.      “Foreign Lender” means any Lender that is not a United States person within the meaning of Section 7701(a)(30) of the Tax Code.      “Foreign Plan” means any employee benefit plan, program, policy, arrangement or agreement that would be an “employee pension benefit plan” under Section 3(2) of ERISA if such plan, program, policy, arrangement or agreement was not maintained outside the United States primarily for the benefit of persons substantially all of whom are nonresident aliens with respect to which any Company could incur liability.      “Foreign Security Agreements” means each security, pledge or similar agreement necessary or desirable to evidence the grant of a security interest or pledge of assets of any Subsidiary Guarantor that is a Foreign Subsidiary and that is required hereunder, in each case in form and substance satisfactory to the Collateral Agent and as such agreement may thereafter be amended, supplemented or otherwise modified from time to time. 17 --------------------------------------------------------------------------------        “Foreign Subsidiary” means a Subsidiary that is organized under the laws of a jurisdiction other than the United States or any state thereof or the District of Columbia.      “Fronting Fees” has the meaning assigned to such term in Section 2.05(c).      “GAAP” means generally accepted accounting principles in the United States.      “Governmental Authority” means any federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory body.      “Guaranteed Obligations” has the meaning assigned to such term in Section 7.01.      “Guarantees” means the guarantees issued pursuant to Article VII (or pursuant to any other form of guarantee required by applicable Requirements of Law and in form and substance reasonably satisfactory to the Administrative Agent) by Holdings, Parent, the LuxCos, HIL Swiss, Cayman III, WH Capital and the Subsidiary Guarantors.      “Guarantors” has the meaning assigned to such term in the preamble hereof.      “Hazardous Materials” means all pollutants, contaminants, chemicals, wastes, substances and constituents including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls (“PCBs”) or PCB-containing materials or equipment, radon gas, infectious or medical wastes and all other substances or wastes, of any nature subject to regulation, or that can give rise to liability under any Environmental Law.      “Hedging Agreement” means any Interest Rate Protection Agreement, foreign currency exchange agreement, commodity price protection agreement or other interest or currency exchange rate or commodity price hedging arrangement.      “HIL Swiss” means HIL Swiss International G.m.b.H., a limited liability company organized under to the laws of Switzerland.      “Holding Companies” means, collectively, Holdings, Parent, Cayman III, Luxembourg Holdings, New Lux, WH Capital, Luxembourg Intermediate Holdings and, individually, each of the foregoing.      “Holdings” has the meaning assigned to such term in the preamble hereto.      “Holdings Senior Note Agreement” means that certain Indenture dated as of March 8, 2004 (as in effect on the date hereof) by and among Holdings and WH Capital, as issuers, and The Bank of New York, as trustee.      “Holdings Senior Note Documents” means the Holdings Senior Notes, the Holdings Senior Note Agreement, and all other documents executed and delivered with respect to either of the foregoing.      “Holdings Senior Notes” means the $275.0 million in the aggregate principal amount of 91/2% Notes due 2011 issued by Holdings and WH Capital under the Holdings Senior Note Agreement.      “HV” has the meaning assigned to such term in the preamble hereof. 18 --------------------------------------------------------------------------------        “Immaterial Subsidiary” means a Subsidiary that generates less than $1.0 million of net sales during any fiscal year (or, in the case of a Subsidiary without prior operating history, is reasonably projected by Borrower to generate less than $1.0 million of net sales during its first full year of operation). Notwithstanding the foregoing, Herbalife Hungary Trading, Limited and Herbalife International SDN, BHD shall be deemed Immaterial Subsidiaries. All Immaterial Subsidiaries in existence on the Closing Date are identified on Schedule 1.01(b).      “Indebtedness” of any person means, without duplication, (a) all obligations of such person for borrowed money; (b) all obligations of such person evidenced by bonds, debentures, notes or similar instruments; (c) all obligations of such person upon which interest charges are customarily paid or accrued; (d) all obligations of such person under conditional sale or other title retention agreements relating to property purchased by such person; (e) all obligations of such person issued or assumed as the deferred purchase price of property or services (excluding trade accounts payable incurred in the ordinary course of business); (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such person, whether or not the obligations secured thereby have been assumed; (g) all Capital Lease Obligations, Purchase Money Obligations and Synthetic Lease Obligations of such person; (h) all obligations of such person in respect of Hedging Agreements; provided that, the amount of Indebtedness of the type referred to in this clause (h) of any person shall be zero unless and until such Indebtedness shall be terminated, in which case the amount of such Indebtedness shall be the termination payment due thereunder by such person; (i) all obligations of such person as an account party in respect of letters of credit, letters of guaranty and bankers’ acceptances; (j) all Attributable Indebtedness of such person; and (k) all Contingent Obligations of such person in respect of Indebtedness or obligations of others of the kinds referred to in clauses (a) through (j) above. The Indebtedness of any person shall include the Indebtedness of any other entity (including any partnership in which such person is a general partner) to the extent such person is liable therefor as a result of such person’s ownership interest in or other relationship with such entity, except to the extent that the terms of such Indebtedness provide that such person is not liable therefor.      “Indemnified Taxes” means Taxes other than Excluded Taxes.      “Indemnitee” has the meaning assigned to such term in Section 11.03(b).      “Information” has the meaning assigned to such term in Section 11.12.      “Intellectual Property” has the meaning assigned to such term in the U.S. Security Agreement.      “Intercompany Note” means a promissory note, substantially in the form of Exhibit G, evidencing Indebtedness payable by a payor Company to a payee Loan Party.      “Interest Election Request” means a request by Borrower to convert or continue a Revolving Borrowing or Term Borrowing in accordance with Section 2.08(b), substantially in the form of Exhibit D.      “Interest Payment Date” means (a) with respect to any ABR Loan, the last day of each March, June, September and December to occur during the period that such Loan is outstanding and the final maturity date of such Loan; and (b) with respect to any Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part, and in the case of 19 --------------------------------------------------------------------------------   a Eurodollar Loan with an Interest Period of more than three-months’ duration, each day prior to the last day of such Interest Period that occurs at intervals of three-months’ duration after the first day of such Interest Period.      “Interest Period” means, with respect to any Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one, two, three or six, or if available by all Lenders, one week, nine months or twelve months thereafter (provided that one week Interest Periods may only be used for purposes of minimizing breakage costs in connection with a proposed prepayment of all or a portion of the Loans) provided that, (A) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day; and (B) any Interest Period that commences on the last Business Day of a calendar month, or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period, shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing.      “Interest Rate Protection Agreement” means any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement or similar agreement or arrangement designed to protect Holdings or its Subsidiaries against fluctuations in interest rates and not entered into for speculation.      “internally generated funds” means funds not constituting the proceeds of any Loan, Debt Issuance, Asset Sale, insurance recovery or Indebtedness (in each case without regard to the exclusions from the definition thereof).      “Investments” has the meaning assigned to such term in Section 6.03.      “Issuing Bank” means, as the context may require, (a) Cooperatieve Centrale Raiffeisen-Boerenleenbank, B.A. “Rabobank International”, New York Branch with respect to Letters of Credit issued by it; (b) any other Lender that may become an Issuing Bank pursuant to Section 2.17(i), with respect to Letters of Credit issued by such Lender; or (c) collectively, all of the foregoing.      “Joinder Agreement” means a joinder agreement substantially in the form of Exhibit H.      “LC Commitment” means the commitment of the Issuing Bank to issue Letters of Credit pursuant to Section 2.17.      “LC Disbursement” means a payment or disbursement made by the Issuing Bank pursuant to a Letter of Credit.      “LC Exposure” means at any time the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time, plus (b) the aggregate principal amount of all LC Disbursements that have not yet been reimbursed at such time. The LC Exposure of any Revolving Lender at any time shall mean its Pro Rata Percentage of the aggregate LC Exposure at such time.      “LC Participation Fee” has the meaning assigned to such term in Section 2.05(c). 20 --------------------------------------------------------------------------------        “LC Sub-Account” has the meaning assigned to such term in Section 9.01(d).      “Leases” means any and all leases, subleases, tenancies, options, concession agreements, rental agreements, occupancy agreements, franchise agreements, access agreements and any other agreements (including all amendments, extensions, replacements, renewals, modifications and/or guarantees thereof), whether or not of record and whether now in existence or hereafter entered into, affecting the use or occupancy of all or any portion of any Real Property.      “Lenders” means (a) the financial institutions listed on Annex II (other than any such financial institution that has ceased to be a party hereto pursuant to an Assignment and Acceptance) and (b) any financial institution that has become a party hereto pursuant to an Assignment and Acceptance.      “Lender Affiliate” means with respect to any Lender that is a fund that invests in bank loans, any other fund that invests in commercial loans and is managed or advised by the same investment advisor as such Lender or by an Affiliate of such advisor.      “Letter of Credit” means any (i) Standby Letter of Credit and (ii) Commercial Letter of Credit, in each case, issued or to be issued by an Issuing Bank for the account of Borrower pursuant to Section 2.17.      “Letter of Credit Request” means a request by Borrower in accordance with the terms of Section 2.17 and substantially in the form of Exhibit M, or such other form as shall be approved by the Administrative Agent and the Issuing Bank.      “Leverage Ratio” means, as of the last day of any fiscal quarter of Holdings, the ratio of: (a) Consolidated Indebtedness of Holdings on such date to (b) Consolidated EBITDA of Holdings computed for the period consisting of such fiscal quarter and each of the three immediately preceding fiscal quarters.      “LIBOR Rate” means, with respect to any Eurodollar Borrowing for any Interest Period therefor, the rate per annum determined by the Administrative Agent to be the arithmetic mean (rounded to the nearest 1/100th of 1%) of the offered rates for deposits in dollars with a term comparable to such Interest Period that appears on the Telerate British Bankers Assoc. Interest Settlement Rates Page (as defined below) at approximately 11:00 a.m., London, England time, on the second full Business Day preceding the first day of such Interest Period; provided, however, that (i) if no comparable term for an Interest Period is available, the LIBOR Rate shall be determined using the weighted average of the offered rates for the two terms most nearly corresponding to such Interest Period, and (ii) if there shall at any time no longer exist a Telerate British Bankers Assoc. Interest Settlement Rates Page, “LIBOR Rate” shall mean, with respect to each day during each Interest Period pertaining to Eurodollar Borrowings comprising part of the same Borrowing, the rate per annum equal to the rate at which the Administrative Agent determines that prime banks are offered deposits in dollars at approximately 11:00 a.m., London, England time, two Business Days prior to the first day of such Interest Period in the London interbank market for delivery on the first day of such Interest Period for the number of days comprised therein and in an amount comparable to its portion of the amount of such Eurodollar Borrowing to be outstanding during such Interest Period. “Telerate British Bankers Assoc. Interest Settlement Rates Page” means the display designated as Page 3750 on the Telerate System Incorporated Service (or such other page as may replace such page on such service for the purpose of displaying the rates at which dollar deposits are offered by leading banks in the London interbank deposit market). 21 --------------------------------------------------------------------------------        “Lien” means, with respect to any property, (a) any mortgage, deed of trust, lien, pledge, encumbrance, claim, charge, assignment, hypothecation, security interest or encumbrance of any kind, any other type of preferential arrangement in respect of such property, including any easement, right-of-way or other encumbrance on title to Real Property, in each of the foregoing cases whether voluntary or imposed by law; and (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such property.      “Loan Documents” means this Agreement, each Guarantee, the Letters of Credit, the Notes (if any) and the Security Documents.      “Loan Parties” means Holdings, Parent, Cayman III, the LuxCos, WH Capital, Borrower, and each other Guarantor.      “Loan” means, as the context may require, a Revolving Loan or a Term Loan.      “LuxCos” means Luxembourg Holdings, New Lux and Luxembourg Intermediate Holdings.      “Luxembourg Distribution” has the meaning assigned to such term in the preamble hereof.      “Luxembourg Holdings” has the meaning assigned to such term in the preamble hereof.      “Luxembourg Intermediate Holdings” has the meaning assigned to such term in the preamble hereof.      “Margin Stock” has the meaning assigned to such term in Regulation U.      “Material Adverse Effect” means (a) a material adverse effect on the business, property, results of operations or condition, financial or otherwise, of Holdings and its Subsidiaries, taken as a whole; (b) material impairment of the ability of the Loan Parties to perform their obligations under any Loan Document; (c) material impairment of the rights of or benefits or remedies available to the Lenders or the Collateral Agent under any Loan Document; or (d) a material adverse effect on the Collateral or the Liens in favor of the Collateral Agent (for its benefit and for the benefit of the other Secured Parties) on the Collateral or the priority of such Liens.      “Material Agreement” means those agreements, documents or instruments to which Holdings or any of its Subsidiaries is a party and which the breach thereof by such party or failure by such party to maintain such agreement, document or instrument in effect would reasonably be expected to have a Material Adverse Effect.      “Maximum Rate” has the meaning assigned to such term in Section 11.13.      “Moody’s” means Moody’s Investors Service, Inc.      “Moody’s Rating” means the debt rating of Borrower’s senior secured debt rating most recently announced by Moody’s.      “Multiemployer Plan” means a multiemployer plan within the meaning of Section 4001(a)(3) of ERISA (a) to which any Company or any of its ERISA Affiliates is then making or 22 --------------------------------------------------------------------------------   accruing an obligation to make contributions, (b) to which any Company or any ERISA Affiliate has within the preceding five plan years made contributions, or (c) with respect to which any Company or any ERISA Affiliate could incur liability.      “Net Cash Proceeds” means:      (a) with respect to any Asset Sale, the cash proceeds received by any Loan Party (including cash proceeds subsequently received (as and when received by any Loan Party) in respect of noncash consideration initially received) net of (i) selling expenses (including reasonable brokers’ fees or commissions, legal fees, transfer and similar taxes and Borrower’s reasonable and good faith estimate of income, franchise, sales, and other applicable taxes required to be paid by Holdings or any of its Subsidiaries in connection with such Asset Sale in the taxable year that such sale is consummated or in the immediately succeeding taxable year, the computation of which shall take into account the reduction in tax liability resulting from any available operating losses and net operating loss carryovers, tax credits, and tax credit carry forwards, and similar tax attributes; (ii) amounts escrowed or provided as a reserve, in accordance with GAAP, against any liabilities under any indemnification obligations or purchase price adjustment associated with such Asset Sale (provided that, to the extent and at the time any such amounts are released from such escrow or reserve, such amounts shall constitute Net Cash Proceeds); (iii) Borrower’s good faith estimate of payments required to be made with respect to unassumed liabilities relating to the assets sold within 90 days of such Asset Sale (provided that, to the extent such cash proceeds are not used to make payments in respect of such unassumed liabilities within 90 days of such Asset Sale, such cash proceeds shall constitute Net Cash Proceeds); and (iv) the principal amount, premium or penalty, if any, interest and other amounts on any Indebtedness for borrowed money that is secured by a senior Lien on the asset sold in such Asset Sale and that is repaid with such proceeds (other than any such Indebtedness assumed by the purchaser of such asset);      (b) with respect to any Debt Issuance, the cash proceeds thereof, net of customary fees, commissions, discounts, costs and other expenses incurred in connection therewith; and      (c) with respect to any Casualty Event, the cash insurance proceeds, condemnation awards and other compensation received in respect thereof, net of all reasonable costs and expenses incurred in connection with the collection of such proceeds, awards or other compensation in respect of such Casualty Event.      “New Lux” has the meaning assigned to such term in the preamble hereof.      “New Wholly Owned Subsidiary” has the meaning assigned to such term in Section 5.11(b).      “Non-Guarantor Subsidiary” means (a) all of the Companies designated on Schedule 3.06(a) (as in effect on the Closing Date) as a “Non-Guarantor Subsidiary”, (b) each Subsidiary that has been and remains released from its Guarantee in accordance with Section 7.09 hereof, and (c) each New Wholly Owned Subsidiary that is not required to become a Guarantor hereunder in accordance with Section 5.11.      “Notes” means any notes evidencing the Term Loans or Revolving Loans issued pursuant to this Agreement, if any, substantially in the form of Exhibit J-1 or J-2, as applicable. 23 --------------------------------------------------------------------------------        “Obligations” means (a) obligations of each Loan Party from time to time arising under or in respect of the due and punctual payment of (i) the principal of and premium, if any, and interest (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) on the Loans, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, (ii) each payment required to be made by each Loan Party under this Agreement in respect of any Letter of Credit, when and as due, including payments in respect of reimbursement of disbursements, interest thereon and obligations to provide cash collateral, and (iii) all other monetary obligations, including fees, costs, expenses and indemnities, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), of each Loan Party under this Agreement and the other Loan Documents; (b) the due and punctual performance of all covenants, agreements, obligations and liabilities of each Loan Party under or pursuant to this Agreement and the other Loan Documents; (c) the due and punctual payment and performance of all obligations of each Loan Party under each Hedging Agreement entered into with any counterparty that was a Lender or Affiliate of a Lender at the time such Hedging Agreement was entered into; and (d) the due and punctual payment and performance of all obligations in respect of overdrafts and related liabilities owed to any Lender, any Affiliate of a Lender, the Administrative Agent or the Collateral Agent arising from treasury, depositary and cash management services or in connection with any automated clearinghouse transfer of funds.      “Officers’ Certificate” means, as applied to any person, a certificate executed on behalf of such person by its Chairman of the Board (if an officer), its Chief Executive Officer, its President or one of its Vice Presidents (or an equivalent officer) or by its Chief Financial Officer, Vice President-Finance or its Treasurer (or an equivalent officer), each in their official (and not individual) capacity.      “Other Taxes” means any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made under any Loan Document or from the execution, delivery or enforcement of, or otherwise with respect to, any Loan Document.      “Parent” has the meaning assigned to such term in the preamble hereto.      “Participant” has the meaning assigned to such term in Section 11.04(e).      “PBGC” means the Pension Benefit Guaranty Corporation referred to and defined in ERISA.      “Perfection Certificate” means a certificate in the form of Exhibit I-1.      “Permitted Acquisitions” means any acquisition of 100% of the issued and outstanding Equity Interests of, or assets constituting a business, division or product line of, any other person, provided, that (a) Holdings shall be in compliance on a pro forma basis with Section 6.07(a) and (b) after giving effect to such acquisition as of the last measurement date (to be determined on a basis consistent with Article 1 of Regulation S-X promulgated under the Securities Act of 1933 (as amended) and as interpreted by the staff of the Securities and Exchange Commission as of January 1, 1997) which pro forma adjustments shall be certified by the principal financial officer or principal accounting officer of Holdings using the historical financial statements of the acquired business and the consolidated financial statements of Holdings and its Subsidiaries 24 --------------------------------------------------------------------------------   which shall be reformulated (i) as if such acquisition and any other acquisitions which have been consummated during such period, any Indebtedness or other liabilities incurred or repaid in connection with any such acquisition had been consummated or incurred or repaid at the beginning of such period (and assuming that such Indebtedness bears interest during any portion of the applicable measurement period prior to the relevant acquisition at the interest rates applicable to outstanding Loans as of the date of calculation of such pro forma adjustments), (ii) solely if quantifiable based on the underlying accounting records of such property, entity or business unit, (iii) only if factually supportable and (iv) otherwise in conformity with certain procedures to be agreed upon between Administrative Agent and the Borrower, all such calculations to be in form and substance reasonably satisfactory to Administrative Agent and (b) no Default or Event of Default shall have occurred and be continuing or result therefrom and (c) the Borrower shall have complied with the provisions of Section 5.11.      “Permitted Holders” means the Sponsors and their Affiliates.      “Permitted Liens” has the meaning assigned to such term in Section 6.02.      “person” means any natural person, corporation, business trust, joint venture, association, company, limited liability company, partnership or government, or any agency or political subdivision thereof.      “Plan” means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Tax Code or Section 307 of ERISA, and in respect of which any Company or any of its ERISA Affiliates is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA or with respect to which any Company could incur liability.      “Preferred Stock” means, with respect to any person, any and all preferred or preference Equity Interests (however designated) of such person whether now outstanding or issued after the Closing Date.      “Pro Rata Percentage” of any Revolving Lender at any time means the percentage of the total Revolving Commitment represented by such Lender’s Revolving Commitment.      “property” means any right, title or interest in or to property or assets of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible and including Equity Interests or other ownership interests of any person and whether now in existence or owned or hereafter entered into or acquired.      “Purchase Money Obligation” means, for any person, the obligations of such person in respect of Indebtedness incurred for the purpose of financing all or any part of the purchase price of any property (including Equity Interests of any person) or the cost of installation, construction or improvement of any property or assets and any refinancing thereof; provided, however, that such Indebtedness is incurred within 90 days after such acquisition of such property by such person.      “Real Property” means, collectively, all right, title and interest (including any leasehold estate) in and to any and all parcels of or interests in real property owned, leased or operated by any person, whether by lease, license or other means, together with, in each case, all easements, hereditaments and appurtenances relating thereto, all improvements and appurtenant fixtures and 25 --------------------------------------------------------------------------------   equipment, all general intangibles and contract rights and other property and rights incidental to the ownership, lease or operation thereof.      “Redemption” has the meaning assigned to such term in the recitals hereto.      “Register” has the meaning assigned to such term in Section 11.04(c).      “Refinancing” has the meaning assigned to such term in the recitals hereto.      “Regulation D” means Regulation D of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.      “Regulation T” means Regulation T of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.      “Regulation U” means Regulation U of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.      “Regulation X” means Regulation X of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.      “Release” means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, disposing, depositing, dispersing, emanating or migrating of any Hazardous Material in, into, onto or through the environment.      “Released Guarantor” has the meaning assigned to such term in Section 7.09.      “Required Lenders” means, at any time, Lenders having Loans, LC Exposure and unused Revolving Commitments representing at least a majority of the sum of all Loans outstanding, LC Exposure and unused Revolving Commitments at such time.      “Requirements of Law” means, collectively, any and all requirements of any Governmental Authority including any and all laws, ordinances, rules, regulations or similar statutes or case law.      “Response” means (a) “response” as such term is defined in CERCLA, 42 U.S.C. § 9601(24), and (b) all other actions required by any Governmental Authority or voluntarily undertaken to: (i) clean up, remove, treat, abate or in any other way address any Hazardous Material in the environment; (ii) prevent the Release or threat of Release, or minimize the further Release, of any Hazardous Material; or (iii) perform studies and investigations in connection with, or as a precondition to, clause (i) or (ii) above.      “Responsible Officer” of any corporation means any executive officer or Financial Officer of such corporation and any other officer or similar official thereof responsible for the administration of the obligations of such corporation in respect of this Agreement.      “Revolving Availability Period” means the period from and including the Closing Date to but excluding the earlier of the Revolving Maturity Date and the date of termination of the Revolving Commitments.      “Revolving Borrowing” means a Borrowing comprised of Revolving Loans. 26 --------------------------------------------------------------------------------        “Revolving Commitment” means, with respect to each Lender, the commitment of such Lender to make Revolving Loans hereunder as set forth on Annex II, or in the Assignment and Acceptance pursuant to which such Lender assumed its Revolving Commitment, as applicable, as the same may be (a) reduced from time to time pursuant to Section 2.07 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 11.04. The amount of each Lender’s Revolving Commitment is set forth on Annex II, or in the Assignment and Acceptance pursuant to which such Lender shall have assumed its Revolving Commitment, as applicable. The aggregate amount of the Lenders’ Revolving Commitments as of the Closing Date is $100.0 million.      “Revolving Commitment Fee” has the meaning assigned to such term in Section 2.05(a).      “Revolving Exposure” means, with respect to any Lender at any time, the aggregate principal amount at such time of all outstanding Revolving Loans of such Lender, plus the aggregate amount at such time of such Lender’s LC Exposure.      “Revolving Lender” means a Lender with a Revolving Commitment.      “Revolving Loans” means a Loan made by the Lenders to Borrower pursuant to Section 2.01(b).      “Revolving Maturity Date” means the sixth anniversary of the Closing Date.      “S&P” mean Standard & Poor’s Rating Service, a division of The McGraw-Hill Companies.      “S&P Rating” means the rating of Borrower’s senior secured debt rating most recently announced by S&P.      “Secured Parties” has the meaning assigned to such term in the Security Documents.      “Securities Act” means the Securities Act of 1933, as amended.      “Security Agreements” means, collectively, the U.S. Security Agreement and each Foreign Security Agreement.      “Security Agreement Collateral” has the meaning set forth in any Security Agreement delivered on the Closing Date or thereafter pursuant to the terms of this Agreement.      “Security Documents” means the Security Agreements, the Perfection Certificate and each other security document or pledge agreement required by applicable local law to grant a valid, perfected security interest in any property acquired or developed, and all instruments of perfection required by this Agreement or any Security Agreement to be filed with respect to the security interests in property and fixtures created pursuant to any Security Agreement and any other document or instrument utilized to pledge as collateral for the Obligations any property of whatever kind or nature.      “Sponsor” means each of Whitney V, L.P., Whitney Strategic Partners V, L.P. and CCG Investments (BVI), L.P. 27 --------------------------------------------------------------------------------        “Standby Letter of Credit” means any standby letter of credit or similar instrument issued for the purpose of supporting (a) workers’ compensation liabilities of Borrower or any Subsidiary, (b) the obligations of third-party insurers of Borrower or any Subsidiary arising by virtue of the laws of any jurisdiction requiring third-party insurers to obtain such letters of credit, or (c) performance, payment, deposit or surety obligations of Borrower or any Subsidiary if required by law or governmental rule or regulation or in accordance with custom and practice in the industry.      “Subsidiary” means, with respect to any person (the “parent”) at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent’s consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or (b) that is, as of such date, otherwise Controlled, by the parent or one or more Subsidiaries of the parent or by the parent and one or more subsidiaries of the parent.      “Subsidiary Guarantor” means each Subsidiary listed on Schedule 1.01(e), each other Subsidiary that is or becomes a party to this Agreement pursuant to Section 5.11 (but excluding any Released Guarantor that remains released from its Guarantee in accordance with Section 7.09).      “Synthetic Lease” means, as applied to any person, any lease (including leases that may be terminated by the lessee at any time) of any property (whether real, personal or mixed) (a) that is not a capital lease in accordance with GAAP and (b) in respect of which the lessee retains or obtains ownership of the property so leased for federal income tax purposes, other than any such lease under which that person is the lessor.      “Synthetic Lease Obligation” means the monetary obligation of a person under a Synthetic Lease.      “Tax Code” means the Internal Revenue Code of 1986, as amended.      “Tax Indemnity” means that certain indemnity payable by Holdings and Borrower to certain shareholders of Holdings in respect of certain tax matters as set forth in that certain Indemnification Agreement dated as of December 1, 2004 among Holdings, Whitney Strategic Partners V, L.P., Whitney Private Debt Fund, L.P., Green River Offshore Fund, CCG Investments (BVI), L.P., CCG Associates-QP, LLC, CCG Associates-AI, LLC, CCG AV, LLC-Series C, CCG AV, LLC-Series E, CCG CI, LLC, and GGC Administration, LLC.      “Tax Refund” has the meaning assigned to such term in Section 2.15(f).      “Tax Return” means all returns, statements, filings, attachments and other documents or certifications required to be filed in respect of Taxes or any amendments thereof or thereto.      “Taxes” mean any and all present or future taxes, duties, levies, fees, assessments, imposts, deductions, charges or withholdings, whether computed on a separate, consolidated, unitary, combined or other basis and any and all liabilities (including interest, fines, penalties or additions to tax) with respect to the foregoing. 28 --------------------------------------------------------------------------------        “Term Lender” means a Lender with an outstanding Term Loan.      “Term Loan” means the term loans made by the Lenders to Borrower on the Delayed Draw Closing Date; unless the context otherwise requires, “Term Loan” includes any term loans made by the Lenders to Borrower pursuant to any Additional Term Loan Commitments extended in accordance with Section 2.18. Each Term Loan shall be either an ABR Term Loan or a Eurodollar Term Loan.      “Term Loan Commitment” means, with respect to each Lender, the commitment, if any, of such Lender to make a Term Loan hereunder on the Delayed Draw Closing Date, expressed as an amount representing the maximum principal amount of the Term Loan to be made by such Lender hereunder. The initial amount of each Lender’s Term Loan Commitment is set forth in Annex II. The initial aggregate amount of the Lenders’ Term Loan Commitments is $200.0 million. Unless the context otherwise requires, “Term Loan Commitments” includes any Additional Term Loan Commitments.      “Term Loan Commitment Fee” has the meaning assigned to such term in Section 2.05(d).      “Term Loan Maturity Date” means the seventh anniversary of the Closing Date.      “Term Loan Repayment Date” haves the meaning assigned to such term in Section 2.09(a).      “Transaction Costs” has the meaning assigned to such term in the recitals hereto.      “Transaction Documents” means any and all documents entered into or delivered in connection with the Transactions, including, without limitation, the Loan Documents delivered on the Closing Date and documents entered into in connection with the Redemption.      “Transactions” has the meaning assigned to such term in the recitals hereto.      “Type,” when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the LIBOR Rate or the Alternate Base Rate.      “UCC” has the meaning set forth in the U.S. Security Agreement.      “U.S. Security Agreement” means a Security Agreement substantially in the form of Exhibit F among the Loan Parties and Collateral Agent for the benefit of the Secured Parties, as the same may be amended in accordance with the terms thereof and hereof, or such other agreements reasonably acceptable to Collateral Agent as shall be necessary to comply with applicable Requirements of Law and effective to grant to Collateral Agent (on behalf of the Secured Parties) a perfected, first-priority security interest in the Security Agreement Collateral covered thereby.      “WH Capital” has the meaning assigned to such term in the recitals hereto.      “Voting Stock” means any class or classes of capital stock of Holdings pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect at least a majority of the Board of Directors of Holdings. 29 --------------------------------------------------------------------------------        “Wholly Owned Subsidiary” means, as to any person, (a) any corporation 100% of whose capital stock (other than directors’ qualifying shares) is at the time owned by such person and/or one or more Wholly Owned Subsidiaries of such person and (b) any partnership, association, joint venture, limited liability company or other entity in which such person and/or one or more Wholly Owned Subsidiaries of such person have a 100% equity interest at such time.      “Withdrawal Liability” means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.      SECTION 1.02. Classification of Loans and Borrowings. For purposes of this Agreement, Loans may be classified and referred to by Class (e.g., a “Revolving Loan”) or by Type (e.g., a “Eurodollar Loan”) or by Class and Type (e.g., a “Eurodollar Revolving Loan”). Borrowings also may be classified and referred to by Class (e.g., a “Revolving Borrowing”) or by Type (e.g., a “Eurodollar Borrowing”) or by Class and Type (e.g., a “Eurodollar Revolving Borrowing”).      SECTION 1.03. Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include,” “includes” and “including” shall be deemed to be modified by the phrase “without limitation.” The word “will” shall be construed to have the same meaning and effect as the word “shall.” Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument of other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified in accordance with the provisions hereof and thereof; (b) any reference herein to any person shall be construed to include such person’s successors and assigns; (c) the words “herein,” “hereof” and “hereunder,” and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision of this Agreement; (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to articles and sections of, and exhibits and schedules to, this Agreement; and (e) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. All references to the knowledge of any Company or to facts known by any Company shall mean actual knowledge of any Responsible Officer of any Loan Party or any of its Subsidiaries.      SECTION 1.04. Accounting Terms; GAAP. Except as otherwise expressly provided herein, all accounting terms not otherwise defined herein shall have the meanings assigned to them in conformity with GAAP, as in effect from time to time. Financial statements and other information required to be delivered by Holdings to Lenders pursuant to Sections 5.01(a), (b) and (c) shall be prepared in accordance with GAAP as in effect at the time of such preparation. Notwithstanding the foregoing, calculations in connection with the definitions, covenants and other provisions hereof shall utilize accounting principles and policies in conformity with those used to prepare the historical financial statements delivered on the Closing Date. If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Loan Document, and Borrower, the Administrative Agent or the Required Lenders shall so request, the Administrative Agent, the Lenders and Borrower shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of the Required Lenders); provided that, until so amended, such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein. 30 --------------------------------------------------------------------------------   ARTICLE II The Credits      SECTION 2.01. Commitments. Subject to the terms and conditions and relying upon the representations and warranties herein set forth:      (a) each Term Lender agrees, severally and not jointly, to make a Term Loan to Borrower on the Delayed Draw Closing Date in a principal amount equal to its Term Loan Commitment; and      (b) each Revolving Lender agrees, severally and not jointly to make Revolving Loans to Borrower, at any time and from time to time after the Closing Date, and until the earlier of the Revolving Maturity Date and the termination of the Commitment of such Lender in accordance with the terms hereof, in an aggregate principal amount at any time outstanding that will not result in such Lender’s Revolving Exposure exceeding such Lender’s Revolving Commitment. Amounts paid or prepaid in respect of Term Loans may not be reborrowed. Within the limits set forth in clause (b) above and subject to the terms, conditions and limitations set forth herein, Borrower may borrow, pay or prepay and reborrow Revolving Loans.      SECTION 2.02. Loans.      (a) Each Loan shall be made as part of a Borrowing consisting of Loans made by the Lenders ratably in accordance with their applicable Commitments; provided, however, that the failure of any Lender to make any Loan shall not in itself relieve any other Lender of its obligation to lend hereunder (it being understood, however, that no Lender shall be responsible for the failure of any other Lender to make any Loan required to be made by such other Lender). Except for Loans deemed made pursuant to Section 2.02(f), Loans comprising any Borrowing shall be in an aggregate principal amount that is (i) an integral multiple of $1.0 million or (ii) equal to the remaining available balance of the applicable Commitments.      (b) Subject to Sections 2.11 and 2.12, each Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans as Borrower may request pursuant to Section 2.03. Each Lender may at its option make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that, any exercise of such option shall not affect the obligation of Borrower to repay such Loan in accordance with the terms of this Agreement. Borrowings of more than one Type may be outstanding at the same time; provided, however, that Borrower shall not be entitled to request any Borrowing that, if made, would result in more than ten Eurodollar Borrowings outstanding hereunder at any time. For purposes of the foregoing, Borrowings having different Interest Periods, regardless of whether they commence on the same date, shall be considered separate Borrowings.      (c) Except with respect to Loans made pursuant to Section 2.02(f), each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds to such account in New York City as the Administrative Agent may designate not later than 12:00 noon, New York City time, and the Administrative Agent shall promptly credit the amounts so received to an account as 31 --------------------------------------------------------------------------------   directed by Borrower in the applicable Borrowing Request maintained with the Administrative Agent or, if a Borrowing shall not occur on such date because any condition precedent herein specified shall not have been met, return the amounts so received to the respective Lenders.      (d) Unless the Administrative Agent shall have received notice from a Lender prior to the date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender’s portion of such Borrowing, the Administrative Agent may assume that such Lender has made such portion available to the Administrative Agent on the date of such Borrowing in accordance with Section 2.02(c), and the Administrative Agent may, in reliance upon such assumption, make available to Borrower on such date a corresponding amount. If the Administrative Agent shall have so made funds available, then, to the extent that such Lender shall not have made such portion available to the Administrative Agent, such Lender and Borrower severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to Borrower until the date such amount is repaid to the Administrative Agent at (i) in the case of Borrower, the interest rate applicable at the time to the Loans comprising such Borrowing and (ii) in the case of such Lender, a rate determined by the Administrative Agent to represent its cost of overnight or short-term funds (which determination shall be conclusive absent manifest error). If such Lender shall repay to the Administrative Agent such corresponding amount, such amount shall constitute such Lender’s Loan as part of such Borrowing for purposes of this Agreement.      (e) Notwithstanding any other provision of this Agreement, Borrower shall not be entitled to request, or to elect to convert or continue, any Borrowing of Eurodollar Loans if the Interest Period requested with respect thereto would end after the Revolving Maturity Date or the Term Loan Maturity Date, as applicable.      (f) If the Issuing Bank shall not have received from Borrower the payment required to be made by Section 2.17(e) within the time specified in such section, the Issuing Bank will promptly notify the Administrative Agent of the LC Disbursement and the Administrative Agent will promptly notify each Revolving Lender of such LC Disbursement and its Pro Rata Percentage thereof. Each Revolving Lender shall pay by wire transfer of immediately available funds to the Administrative Agent on such date (or, if such Revolving Lender shall have received such notice later than 12:00 noon, New York City time, on any day, not later than 11:00 a.m., New York City time, on the immediately following Business Day), an amount equal to such Lender’s Pro Rata Percentage of such LC Disbursement (it being understood that such amount shall be deemed to constitute an ABR Revolving Loan of such Lender, and such payment shall be deemed to have reduced the LC Exposure), and the Administrative Agent will promptly pay to the Issuing Bank amounts so received by it from the Revolving Lenders. The Administrative Agent will promptly pay to the Issuing Bank any amounts received by it from Borrower pursuant to Section 2.17(e) prior to the time that any Revolving Lender makes any payment pursuant to this Section 2.02(f); any such amounts received by the Administrative Agent thereafter will be promptly remitted by the Administrative Agent to the Revolving Lenders that shall have made such payments and to the Issuing Bank, as their interests may appear. If any Revolving Lender shall not have made its Pro Rata Percentage of such LC Disbursement available to the Administrative Agent as provided above, such Lender and Borrower severally agree to pay interest on such amount, for each day from and including the date such amount is required to be paid in accordance 32 --------------------------------------------------------------------------------   with this Section 2.02(f) to but excluding the date such amount is paid, to the Administrative Agent for the account of the Issuing Bank at (i) in the case of Borrower, a rate per annum equal to the interest rate applicable to Revolving Loans pursuant to Section 2.06(a), and (ii) in the case of such Lender, for the first such day, the Federal Funds Effective Rate, and for each day thereafter, the Alternate Base Rate.      SECTION 2.03. Borrowing Procedure. To request a Borrowing (including in respect of a Borrowing of the Term Loans to be made hereunder), Borrower shall notify the Administrative Agent of such request by telephone (promptly confirmed by telecopy) or by delivering a duly completed Borrowing Request (a) in the case of a Eurodollar Borrowing, not later than 2:00 p.m., New York City time, three Business Days before the date of the proposed Borrowing or (b) in the case of an ABR Borrowing, not later than 2:00 p.m., New York City time, one Business Day before the date of the proposed Borrowing; provided that, any such notice of an ABR Revolving Borrowing to finance the reimbursement of an LC Disbursement as contemplated by Section 2.17(e) may be given not later than 11:00 a.m., New York City time, on the date of the proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed not later than 3:00 p.m., New York City time, on such Business Day by hand delivery or telecopy to the Administrative Agent of a written Borrowing Request substantially in the form of Exhibit C and signed by Borrower. Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.02:      (a) the aggregate amount of such Borrowing;      (b) the date of such Borrowing, which shall be a Business Day;      (c) whether such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing;      (d) in the case of a Eurodollar Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term “Interest Period”; and      (e) the location and number of Borrower’s account to which funds are to be disbursed, which shall comply with the requirements of Section 2.02. If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period is specified with respect to any requested Eurodollar Revolving Borrowing, then Borrower shall be deemed to have selected an Interest Period of one month’s duration. Promptly following receipt of a Borrowing Request in accordance with this Section 2.03, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender’s Loan to be made as part of the requested Borrowing.      SECTION 2.04. Evidence of Debt; Repayment of Loans. (a) Borrower hereby unconditionally promises to pay to (i) each Lender holding Term Loans, the principal amount of each Term Loan of such Lender as provided in Section 2.09; and (ii) each Revolving Lender, the then unpaid principal amount of each Revolving Loan of such Lender on the Revolving Maturity Date.      (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of Borrower to such Lender resulting from each 33 --------------------------------------------------------------------------------   Loan made by such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time under this Agreement.      (c) The Administrative Agent shall maintain accounts in which it will record (i) the amount of each Loan made hereunder, the Type and Class thereof and the Interest Period applicable thereto; (ii) the amount of any principal or interest due and payable or to become due and payable from Borrower to each Lender hereunder; and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender’s share thereof.      (d) The entries made in the accounts maintained pursuant to Sections 2.04(b) and (c) shall be prima facie evidence of the existence and amounts of the obligations therein recorded (in the absence of manifest error); provided, however, that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligations of Borrower to repay the Loans in accordance with their terms.      (e) Any Lender may request that Loans of any Class made by it be evidenced by a Note. In such event, Borrower shall prepare, execute and deliver to such Lender a Note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in a form approved by the Administrative Agent. Thereafter, the Loans evidenced by such Note and interest thereon shall at all times (including after assignment pursuant to Section 11.04) be represented by one or more Notes in such form payable to the order of the payee named therein (or, if such Note is a registered note, to such payee and its registered assigns). All payments shall be made on the dates due, in immediately available funds, to the Administrative Agent for distribution, if and as appropriate, among the Lenders.      SECTION 2.05. Fees.      (a) Revolving Commitment Fee. Borrower agrees to pay to each Revolving Lender, a revolving commitment fee (a “Revolving Commitment Fee”) equal to the Applicable Commitment Fee Percentage times the average daily unused amount of the Revolving Commitments of such Revolving Lender. All Revolving Commitment Fees shall be payable quarterly in arrears on the last Business Day of March, June, September and December in each year (commencing with the first such date to occur after the Closing Date) and on each date (including the Revolving Maturity Date) on which the Revolving Commitment of such Lender shall expire or be terminated as provided herein. All Revolving Commitment Fees shall be computed on the basis of the actual number of days elapsed in a year of 360 days. The Revolving Commitment Fee due to each Lender shall commence to accrue on the Closing Date and shall cease to accrue on the date on which the Revolving Commitment of such Lender shall expire or be terminated as provided herein.      (b) Administrative Agent Fees. Borrower agrees to pay to the Administrative Agent, for its own account, the administrative fees set forth in the Fee Letter or such other fees payable in the amounts and at the times separately agreed upon between Borrower and the Administrative Agent (the “Administrative Agent Fees”). 34 --------------------------------------------------------------------------------        (c) LC and Fronting Fees. Borrower agrees to pay (i) to each Revolving Lender a participation fee (“LC Participation Fee”) with respect to its participations in Letters of Credit, which shall accrue at a rate equal to the Applicable Margin from time to time used to determine the interest rate on Eurodollar Revolving Loans pursuant to Section 2.06 on the average daily amount of such Lender’s LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the Closing Date to but excluding the later of the date on which such Lender’s Revolving Commitment terminates and the date on which such Lender ceases to have any LC Exposure, and (ii) to the Issuing Bank a fronting fee (“Fronting Fee”), which shall accrue at the rate of 0.125% per annum on the average daily amount of the LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the Closing Date to but excluding the later of the date of termination of the Revolving Commitments and the date on which there ceases to be any LC Exposure, as well as the Issuing Bank’s standard fees with respect to the issuance, amendment, renewal or extension of any Letter of Credit or processing of drawings thereunder. LC Participation Fees and Fronting Fees accrued through and including the last day of March, June, September and December of each year shall be payable on the third Business Day following such last day, commencing on the first such date to occur after the Closing Date; provided that, all such fees shall be payable on the date on which the Revolving Commitments terminate and any such fees accruing after the date on which the Revolving Commitments terminate shall be payable on demand. Any other fees payable to the Issuing Bank pursuant to this Section 2.05(c) shall be payable within ten days after demand. All LC Participation Fees and Fronting Fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day).      (d) Term Loan Commitment Fee. Borrower agrees to pay to each Lender with a Term Loan Commitment, a term loan commitment fee (a “Term Loan Commitment Fee”) equal to the Applicable Commitment Fee Percentage times the unused amount of the Term Loan Commitments of such Lender. All Term Loan Commitment Fees shall be payable in arrears on the date on which the Term Loan Commitment of such Lender shall expire or be terminated as provided herein. All Term Loan Commitment Fees shall be computed on the basis of the actual number of days elapsed in a year of 360 days. The Term Loan Commitment Fee due to each Lender shall commence to accrue on the Closing Date and shall cease to accrue on the date on which the Term Loan Commitment of such Lender shall expire or be terminated as provided herein. All Fees shall be paid on the dates due, in immediately available funds, to the Administrative Agent for distribution, if and as appropriate, among the Lenders, except that the Fronting Fees shall be paid directly to the Issuing Bank. Once paid, none of the Fees shall be refundable under any circumstances.      SECTION 2.06. Interest on Loans.      (a) Subject to the provisions of Section 2.06(c), the Loans comprising each ABR Borrowing shall bear interest at a rate per annum equal to the Alternate Base Rate plus the Applicable Margin in effect from time to time.      (b) Subject to the provisions of Section 2.06(c), the Loans comprising each Eurodollar Borrowing shall bear interest at a rate per annum equal to the LIBOR Rate for 35 --------------------------------------------------------------------------------   the Interest Period in effect for such Borrowing plus the Applicable Margin in effect from time to time.      (c) Notwithstanding the foregoing, upon the occurrence and during the continuation of any Event of Default, and at the election of the Required Lenders following written notice thereof to the Borrower, the outstanding principal amount of all Loans and, to the extent permitted by applicable law, any interest payments thereon and any fees and other amounts hereunder, in each case that are due and payable and have not been paid, shall thereafter bear interest (including post-petition interest in any proceeding under the Bankruptcy Code or other applicable bankruptcy laws) payable upon demand at a rate that is 2% per annum in excess of the interest rate otherwise applicable under this Agreement with respect to the applicable Loans (or, in the case of any such fees and other amounts, at a rate that is 2% per annum in excess of the interest rate otherwise payable under this Agreement for ABR Loans); provided that, in the case of Eurodollar Loans, upon the expiration of the Interest Period in effect at the time any such increase in interest rate is effective, such Eurodollar Rate Loans, at the time the Borrower is notified in accordance with Section 2.08(c), shall thereupon become ABR Loans and shall thereafter bear interest payable upon demand at a rate that is 2% per annum in excess of the interest rate otherwise payable under this Agreement for ABR Loans. Payment or acceptance of the increased rates of interest provided for in this Section 2.06(c) is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of Administrative Agent or any Lender.      (d) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan and, in the case of Revolving Loans, upon termination of the Revolving Commitments; provided that, (i) interest accrued pursuant to Section 2.06(c) shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan (other than a prepayment of an ABR Revolving Loan prior to the end of the Revolving Availability Period), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (iii) in the event of any conversion of any Eurodollar Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion.      (e) All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the Alternate Base Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable Alternate Base Rate or LIBOR Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error.      SECTION 2.07. Termination and Reduction of Commitments.      (a) The Revolving Commitments and the LC Commitment shall automatically terminate on the Revolving Maturity Date.      (b) Borrower may at any time terminate, or from time to time reduce, the Revolving Commitments; provided that, (i) each reduction of the Revolving Commitments shall be in an amount that is an integral multiple of $500,000 and not less than $1.0 million and (ii) the Revolving Commitments shall not be terminated or reduced 36 --------------------------------------------------------------------------------   if, after giving effect to any concurrent prepayment of the Revolving Loans in accordance with Section 2.10(b), the sum of the Revolving Exposures would exceed the aggregate amount of Revolving Commitments.      (c) Borrower shall notify the Administrative Agent of any election to terminate or reduce the Revolving Commitments under Section 2.07(b) at least three Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of such notice, the Administrative Agent shall advise the Lenders of the contents thereof. Each notice delivered by Borrower pursuant to this Section 2.07(b) shall be irrevocable. Any termination or reduction of the Revolving Commitments shall be permanent. Each reduction of the Revolving Commitments shall be made ratably among the Revolving Lenders in accordance with their respective Revolving Commitments.      (d) The Term Loan Commitments shall terminate on the earliest to occur of (i) the Delayed Draw Closing Date, (ii) that date that is 45 days after the Closing Date and (iii) the termination of the Term Loan Commitments in accordance with Article VIII.      SECTION 2.08. Interest Elections.      (a) Each Revolving Borrowing and Term Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurodollar Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a Eurodollar Borrowing, may elect Interest Periods therefor, all as provided in this Section 2.08. Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing.      (b) To make an election pursuant to this Section 2.08, Borrower shall notify the Administrative Agent of such election by telephone by the time that a Borrowing Request would be required under Section 2.03 if Borrower were requesting a Revolving Borrowing or Term Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Interest Election Request substantially in the form of Exhibit D.      (c) Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.02:      (i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing); 37 --------------------------------------------------------------------------------        (ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day;      (iii) whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and      (iv) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term “Interest Period”. If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an Interest Period, then (except in the case of clause (iv) above) Borrower shall be deemed to have selected an Interest Period of one month’s duration.      (d) Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof and of such Lender’s portion of each resulting Borrowing.      (e) If an Interest Election Request with respect to a Eurodollar Borrowing is not timely delivered prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies Borrower, then, after the occurrence and during the continuance of a Default, (i) no outstanding Borrowing may be converted to or continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar Borrowing shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto.      SECTION 2.09. Amortization of Term Borrowings.      (a) Borrower shall pay to the Administrative Agent, for the account of the Term Lenders, on the dates set forth on Annex I, or if any such date is not a Business Day, on the next preceding Business Day (each such date being a “Term Loan Repayment Date”), a principal amount of the Term Loans (as adjusted from time to time pursuant to Sections 2.09(b) and 2.10) equal to the amount set forth on Annex I for such date (less all mandatory and optional prepayments made thereon), together in each case with accrued and unpaid interest on the principal amount to be paid to but excluding the date of such payment.      (b) To the extent not previously paid, all Term Loans shall be due and payable on the Term Loan Maturity Date.      SECTION 2.10. Optional and Mandatory Prepayments of Loans.      (a) Optional Prepayments. Borrower shall have the right at any time and from time to time to prepay any Borrowing, in whole or in part, subject to the requirements of this Section 2.10; provided that, each partial prepayment shall be in an amount that is an integral multiple of $1.0 million and, in the case of any prepayment of the Term Loans, not less than $5.0 million. 38 --------------------------------------------------------------------------------        (b) Revolving Loan Prepayments. In the event of any termination of all the Revolving Commitments, Borrower shall, on the date of such termination, repay or prepay all its outstanding Revolving Borrowings and replace all outstanding Letters of Credit, cause the issuance of backstop letters of credit, and/or deposit an amount equal to the LC Exposure in the LC Sub-Account. In the event of any partial reduction of the Revolving Commitments, (i) at or prior to the effective date of such reduction, the Administrative Agent shall notify Borrower and the Revolving Lenders of the sum of the Revolving Exposures after giving effect thereto and (ii) if the sum of the Revolving Exposures would exceed the aggregate amount of Revolving Commitments after giving effect to such reduction or termination, then Borrower shall, on the date of such reduction or termination, repay or prepay Revolving Borrowings and/or replace or cash collateralize outstanding Letters of Credit in an amount sufficient to eliminate such excess.      (c) Asset Sales. Not later than five Business Days following the receipt of any Net Cash Proceeds of any Asset Sale (in the case of Asset Sales by non-U.S. parties, to the extent such amounts can be repatriated to the United States without materially adverse tax or other economic consequences taking into account the amount of proceeds received from such Asset Sale as determined by the Administrative Agent (after consultation with Borrower)), Borrower shall apply 100% of the Net Cash Proceeds received with respect thereto to make prepayments in accordance with Sections 2.10(i) and (j); provided that:      (i) no such prepayment shall be required with respect to (A) any Asset Sale permitted by Sections 6.04(b)(i), 6.04(d), 6.04(e), 6.04(g), 6.04(i), and 6.04(k), (B) the disposition of assets subject to a condemnation or eminent domain proceeding or insurance settlement to the extent it does not constitute a Casualty Event, (C) Asset Sales resulting in no more than $2.5 million in Net Cash Proceeds in any fiscal year and (D) an issuance of Equity Interests by a Non-Guarantor Subsidiary to another Non-Guarantor Subsidiary; and      (ii) so long as no Default or Event of Default shall then exist or would arise therefrom, no such prepayment shall be required to the extent that Borrower shall have delivered an Officers’ Certificate to the Administrative Agent on or prior to such date stating that the Net Cash Proceeds of such Asset Sale will be used to purchase replacement assets or other assets useful in such person’s business within 270 days of such Asset Sale and setting forth estimates of the proceeds to be so expended; provided, however, that if any portion of such Net Cash Proceeds are not reinvested in accordance with this clause (ii), such unused portion shall be applied on the last day of such period as a mandatory prepayment as provided in this Section 2.10(c).      (d) Debt Issuance. Upon any Debt Issuance after the Closing Date, Borrower shall make prepayments in accordance with Sections 2.10(h) and (i) in an aggregate principal amount equal to 100% of the Net Cash Proceeds of such Debt Issuance.      (e) [Reserved] 39 --------------------------------------------------------------------------------        (f) Casualty Events. Not later than one Business Day following the receipt of any Net Cash Proceeds from a Casualty Event (in the case of a Casualty Event by non-U.S. parties, to the extent such amounts can be repatriated to the United States without materially adverse tax or other economic consequences taking into account the amount of proceeds received from such Casualty Event as determined by the Administrative Agent (after consultation with Borrower)), Borrower shall make prepayments in accordance with Sections 2.10(i) and (j) in an amount equal to 100% of such Net Cash Proceeds; provided, however, that:      (i) so long as no Default or Event of Default then exists or would arise therefrom, the Net Cash Proceeds thereof shall not be required to be so applied on such date to the extent that Borrower has delivered an Officers’ Certificate to the Collateral Agent on or prior to such date stating that such proceeds shall be used to fund the acquisition of property used or usable in the business of a Loan Party or a Subsidiary thereof or repair, replace or restore the property in accordance with the provisions of the applicable Security Document in respect of which such Casualty Event has occurred, in each case within 270 days following the date of the receipt of such Net Cash Proceeds;      (ii) to the extent such Casualty Event affects any of the Collateral, all property acquired to effect any repair, replacement or restoration of such Collateral shall be made subject to the Lien of the Security Documents in accordance with the provisions of Section 5.11;      (iii) if all or any portion of such Net Cash Proceeds shall not be so applied within such 270-day period, such unused portion shall be applied on the last day of such period as a mandatory prepayment as provided in this Section 2.10(f); and      (iv) no such prepayment shall be required with respect to Casualty Events resulting in no more than $1.0 million in Net Cash Proceeds in any fiscal year.      (g) Excess Cash Flow. Within 10 days of the date of the delivery of the audited annual financial statements contemplated by Section 5.01(a), commencing with the fiscal year ending on December 31, 2006, Borrower shall make prepayments in accordance with Section 2.10(i)(ii) and Section 2.10(j) in an aggregate principal amount equal to 50% of Excess Cash Flow for the fiscal year then ended; provided, that if the Moody’s Rating is equal to or greater than Ba1 and the S&P Rating is equal to or greater than BB+, then Borrower shall make prepayments in accordance with Section 2.10(i)(ii) and Section 2.10(j) in an aggregate principal amount equal to 25% of Excess Cash Flow for the fiscal year then ended; provided, further, in the event of a split rating, the higher of such Debt Ratings shall be used to determine the applicable percentage above, except that, if there is a two tier difference in the Debt Ratings, the Debt Rating one notch higher than the lower of the two Debt Ratings shall be used to determine the applicable percentage above.      (h) Redemption of Holdings Senior Notes. If Holdings does not redeem all of the aggregate principal amount of Holdings Senior Notes outstanding as of the Closing Date within 45 days after the Closing Date, (i) the Borrower shall make prepayments in 40 --------------------------------------------------------------------------------   accordance with Section 2.10(i) and Section 2.10(j), in an aggregate principal amount equal to the excess of (x) the sum of (A) all Term Loans outstanding as of such date plus (B) all Holdings Senior Notes outstanding as of such date over (y) the aggregate principal amount of all Holdings Senior Notes outstanding as of the Closing Date and (ii) all unused Term Loan Commitments outstanding as of such date shall immediately terminate.      (i) Application of Prepayments.      (i) Optional prepayments under this Agreement shall be applied to Loans of the Class and Type (and, in the case of prepayment of Term Loans, to reduce the scheduled installments of principal) as specified by Borrower in the applicable notice of prepayment in Section 2.10(j); provided that, in the event Borrower fails to specify the Loans to which any such prepayment shall be applied, such prepayment shall be applied first to repay outstanding Revolving Loans to the full extent thereof, and second to repay outstanding Term Loans to the full extent thereof. Mandatory prepayments of Term Loans made under this Agreement shall be applied to reduce the remaining scheduled installments of principal due in respect of the Term Loans under Section 2.09 pro rata on the basis of the respective amounts thereof then unpaid. After application of mandatory prepayments pursuant to the immediately preceding sentence and to the extent there are mandatory prepayment amounts remaining after such application, any such remaining portion of the mandatory prepayment amounts shall be applied (i) to prepay the Revolving Loans to the full extent thereof and to further permanently reduce the Revolving Commitments ratably among the Revolving Lenders by the amount of such prepayment (and Borrower shall comply with Section 2.10(b)), and (ii) then, to the extent of any remaining portion of the mandatory prepayment amounts, to further permanently reduce the Revolving Commitments ratably among the Revolving Lenders to the full extent thereof.      (ii) Amounts to be applied pursuant to this Section 2.10 to the prepayment of Term Loans and Revolving Loans shall be applied, as applicable, first to reduce outstanding ABR Term Loans and ABR Revolving Loans, respectively. Any amounts remaining after each such application shall be applied to prepay Eurodollar Term Loans or Eurodollar Revolving Loans, as applicable. Notwithstanding the foregoing, if the amount of any prepayment of Loans required under this Section 2.10 shall be in excess of the amount of the ABR Loans at the time outstanding, only the portion of the amount of such prepayment as is equal to the amount of such outstanding ABR Loans shall be immediately prepaid and, at the election of Borrower, the balance of such required prepayment shall be either (x) deposited in the Collateral Account and applied to the prepayment of Eurodollar Loans on the last day of the then next-expiring Interest Period for Eurodollar Loans (with all interest accruing thereon for the account of Borrower) or (y) prepaid immediately, together with any amounts owing to the Lenders under Section 2.13. Notwithstanding any such deposit in the Collateral 41 --------------------------------------------------------------------------------   Account, interest shall continue to accrue on such Loans until prepayment.      (j) Notice of Prepayment. Borrower shall notify the Administrative Agent by telephone (confirmed by telecopy) of any prepayment hereunder (i) in the case of prepayment of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time, three Business Days before the date of prepayment, (ii) in the case of prepayment of an ABR Borrowing, not later than 11:00 a.m., New York City time, one Business Day before the date of prepayment, and (iii) in the case of any mandatory prepayment under Section 2.10(g), not later than 11:00 a.m., New York City time, ten Business Days before the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date, the principal amount of each Borrowing or portion thereof to be prepaid and, in the case of a mandatory prepayment, a reasonably detailed calculation of the amount of such prepayment. Promptly following receipt of any such notice, the Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment of any Borrowing shall be in an amount that would be permitted in the case of an advance of a Borrowing of the same Type as provided in Section 2.02, except as necessary to apply fully the required amount of a mandatory prepayment. Each prepayment of a Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the extent required by Section 2.06.      SECTION 2.11. Alternate Rate of Interest. If prior to the commencement of any Interest Period for a Eurodollar Borrowing:      (a) the Administrative Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the LIBOR Rate for such Interest Period; or      (b) the Administrative Agent is advised by the Required Lenders that the LIBOR Rate for such Interest Period will not adequately and fairly reflect the cost to such Lenders of making or maintaining their Loans included in such Borrowing for such Interest Period; then the Administrative Agent shall give notice thereof to Borrower and the Lenders by telephone or telecopy as promptly as practicable thereafter and, until the Administrative Agent notifies Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such Borrowing shall be made as an ABR Borrowing.      SECTION 2.12. Increased Costs.      (a) If any Change in Law shall:      (i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender or the Issuing Bank; or      (ii) impose on any Lender or the Issuing Bank or the London interbank market any other condition affecting this Agreement or 42 --------------------------------------------------------------------------------   Eurodollar Loans made by such Lender or any Letter of Credit or participation therein; and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Loan (or of maintaining its obligation to make any such Loan) or to increase the cost to such Lender or the Issuing Bank of participating in, issuing or maintaining any Letter of Credit or to reduce the amount of any sum received or receivable by such Lender or the Issuing Bank hereunder (whether of principal, interest or otherwise) (except for purposes of this subsection (a) any such increased cost or reduction resulting from Taxes or Other Taxes (as to which Section 2.15 shall govern)), then Borrower will pay to such Lender or the Issuing Bank, as the case may be, such additional amount or amounts as will compensate such Lender or the Issuing Bank, as the case may be, for such additional costs incurred or reduction suffered.      (b) If any Lender or the Issuing Bank determines that any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Lender’s or the Issuing Bank’s capital or on the capital of such Lender’s or the Issuing Bank’s holding company, if any, as a consequence of this Agreement or the Loans made by, or participations in Letters of Credit held by, such Lender, or the Letters of Credit issued by the Issuing Bank, to a level below that which such Lender or the Issuing Bank or such Lender’s or the Issuing Bank’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s or the Issuing Bank’s policies and the policies of such Lender’s or the Issuing Bank’s holding company with respect to capital adequacy), then from time to time Borrower will pay to such Lender or the Issuing Bank, as the case may be, such additional amount or amounts as will compensate such Lender or the Issuing Bank or such Lender’s or the Issuing Bank’s holding company for any such reduction suffered.      (c) A certificate of a Lender or the Issuing Bank setting forth the amount or amounts necessary to compensate such Lender or the Issuing Bank or its holding company, as the case may be, as specified in Section 2.12(a) or Section 2.12(b), in detail sufficient to allow the Borrower to verify the computation thereof, shall be delivered to Borrower and shall be conclusive absent manifest error. Borrower shall pay such Lender or the Issuing Bank, as the case may be, the amount shown as due on any such certificate within ten days after receipt thereof.      (d) Failure or delay on the part of any Lender or the Issuing Bank to demand compensation pursuant to this Section 2.12 shall not constitute a waiver of such Lender’s or the Issuing Bank’s right to demand such compensation; provided that, Borrower shall not be required to compensate a Lender or the Issuing Bank pursuant to this Section 2.12 for any increased costs or reductions incurred more than 180 days prior to the date that such Lender or the Issuing Bank, as the case may be, notifies Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender’s or the Issuing Bank’s intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof.      (e) Borrower shall pay to each Lender, as long as such Lender shall be required to maintain reserves under Regulation D with respect to “Eurocurrency liabilities” within the meaning of Regulation D, or under any similar or successor regulation with respect 43 --------------------------------------------------------------------------------   Eurocurrency liabilities or Eurocurrency funding, additional interest on the unpaid principal amount of each Eurodollar Loan equal to the actual costs of such reserves allocated to such Eurodollar Loan by such Lender (as determined by such Lender in good faith, which determination shall be conclusive), which shall be due and payable on each date on which interest is payable on such LIBOR Loan, provided Borrower shall have received at least 10 days’ prior notice (with a copy to the Administrative Agent) of such additional interest from such Lender. If a Lender fails to give notice 10 days prior to the relevant interest payment date, such additional interest shall be due and payable 10 days from receipt of such notice.      SECTION 2.13. Breakage Payments. In the event of (a) the payment of any principal of any Eurodollar Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Revolving Loan or Term Loan on the date specified in any notice delivered pursuant hereto or (d) the assignment of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto as a result of a request by Borrower pursuant to Section 2.16, then, in any such event, Borrower shall compensate each Lender for the reasonable loss, cost and expense attributable to such event. In the case of a Eurodollar Loan, such loss, cost or expense to any Lender shall be deemed to include an amount determined by such Lender to be the excess, if any, of (i) the amount of interest that would have accrued on the principal amount of such Loan had such event not occurred, at the LIBOR Rate that would have been applicable to such Loan, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Loan), over (ii) the amount of interest that would accrue on such principal amount for such period at the interest rate that such Lender would bid were it to bid, at the commencement of such period, for dollar deposits of a comparable amount and period from other banks in the Eurodollar market. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section 2.13, in detail sufficient to allow the Borrower to verify the computation thereof, shall be delivered to Borrower and shall be conclusive absent manifest error. Borrower shall pay such Lender the amount shown as due on any such certificate within ten days after receipt thereof.      SECTION 2.14. Payments Generally; Pro Rata Treatment; Sharing of Set-offs.      (a) Borrower shall make each payment required to be made by it hereunder or under any other Loan Document (whether of principal, interest, fees or reimbursement of LC Disbursements, or of amounts payable under Section 2.12, 2.13 or 2.15, or otherwise) on or before the time expressly required hereunder or under such other Loan Document for such payment (or, if no such time is expressly required, prior to 2:00 p.m., New York City time), on the date when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at its offices at 4 World Financial Center, 22nd Floor, New York, New York 10080, Attention: Nancy Meadows, except payments to be made directly to the Issuing Bank as expressly provided herein and except that payments pursuant to Sections 2.12, 2.13, 2.15 and 11.03 shall be made directly to the persons entitled thereto and payments pursuant to other Loan Documents shall be made to the persons specified therein. The Administrative Agent shall distribute any such payments received by it for the account of any other person to the appropriate recipient promptly 44 --------------------------------------------------------------------------------   following receipt thereof. If any payment under any Loan Document shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments under each Loan Document shall be made in dollars.      (b) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, unreimbursed LC Disbursements, interest and fees then due hereunder, such funds shall be applied (i) first towards payment of interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second towards payment of principal and unreimbursed LC Disbursements then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal and unreimbursed LC Disbursements then due to such parties.      (c) If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Revolving Loans, Term Loans or participations in LC Disbursements resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Revolving Loans, Term Loans and participations in LC Disbursements and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Revolving Loans, Term Loans and participations in LC Disbursements of the other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Revolving Loans, Term Loans and participations in LC Disbursements; provided that, (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this Section 2.14(c) shall not be construed to apply to any payment made by Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment or sale of a participation in any of its Loans or participations in LC Disbursements to any assignee or participant, other than to Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this Section 2.14(c) shall apply). Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of Borrower in the amount of such participation.      (d) Unless the Administrative Agent shall have received notice from Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders or the Issuing Bank hereunder that Borrower will not make such payment, the Administrative Agent may assume that Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders or the Issuing Bank, as the case may be, the amount due. In such event, if Borrower has not in fact made such payment, then each of the Lenders or the Issuing Bank, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or Issuing Bank with interest 45 --------------------------------------------------------------------------------   thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.      (e) If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.02(f), 2.14(d), 2.17(d) or 11.03(d), then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for the account of such Lender to satisfy such Lender’s obligations under such sections until all such unsatisfied obligations are fully paid.      SECTION 2.15. Taxes.      (a) Any and all payments by or on account of any obligation of Borrower hereunder or under any other Loan Document shall be made without set-off, counterclaim or other defense and free and clear of and without deduction or withholding for any and all Indemnified Taxes or Other Taxes; provided that, if Borrower shall be required by law to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions or withholdings (including deductions or withholdings applicable to additional sums payable under this Section 2.15) the Administrative Agent, Lender or Issuing Bank (as the case may be) receives an amount equal to the sum it would have received had no such deductions or withholdings been made, (ii) Borrower shall make such deductions or withholdings and (iii) Borrower shall pay the full amount deducted or withheld to the relevant Governmental Authority in accordance with applicable law.      (b) In addition, Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.      (c) Borrower shall indemnify the Administrative Agent, each Lender and the Issuing Bank, within ten Business Days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Administrative Agent, such Lender or the Issuing Bank, as the case may be, on or with respect to any payment by or on account of any obligation of Borrower hereunder or under any other Loan Document (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section 2.15) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. If in the reasonable opinion of Borrower, any amount has been paid to, by or on behalf of the Administrative Agent, any Lender or the Issuing Bank (as the case may be) pursuant to clause (a), (b) or this (c) of this Section 2.15 with respect to Taxes or Other Taxes which are not correctly or legally asserted, the Administrative Agent, such Lender or the Issuing Bank (as the case may be) will cooperate with Borrower in seeking to obtain a refund for the benefit of Borrower of such amount, provided that, the rendering of any such cooperation by the Administrative Agent, such Lender, or the Issuing Bank, would not, in the reasonable opinion of the Administrative Agent, such Lender, or the Issuing Bank, (i) cause the Administrative Agent, such Lender, or the Issuing Bank, to incur any expense or liability (which is not otherwise paid in full by Borrower prior to or at the time that such expense or liability is incurred) or (ii) have any adverse effect on the Administrative Agent, such Lender, or the Issuing Bank. 46 --------------------------------------------------------------------------------   A certificate as to the amount of such payment or liability, in detail sufficient to allow the Borrower to verify the computation thereof, delivered to Borrower by a Lender or the Issuing Bank, or by the Administrative Agent on its own behalf or on behalf of a Lender or the Issuing Bank, shall be conclusive absent manifest error. If the Administrative Agent, any Lender, or the Issuing Bank receives a written notice of Tax assessment from any Governmental Authority regarding any Tax in respect of which indemnification may be required pursuant to this Section 2.15(c), the Administrative Agent, such Lender, or the Issuing Bank, as the case may be, shall notify Borrower within 120 days following the receipt of such notice that such notice has been received; provided, however, that the failure of the Administrative Agent, such Lender, or the Issuing Bank to provide such notice shall not relieve Borrower of its obligation to make any indemnification payment under this Agreement.      (d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by Borrower to a Governmental Authority, Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.      (e) On or before the Closing Date in the case of the Administrative Agent, any Lender or the Issuing Bank, or on or before the acceptance of any appointment as the Administrative Agent in the case of a successor Agent, or on or before the effective date of an Assignment and Acceptance pursuant to which it became a Lender in the case of an assignee, or on or prior to the date that any Lender becomes an Issuing Bank pursuant to Section 2.17(i), and if otherwise reasonably requested from time to time by Borrower or the Administrative Agent, within 30 days of such request, the Administrative Agent, each Lender or the Issuing Bank which is not a U.S. Person within the meaning of Section 7701(a)(30) of the Tax Code shall provide to each of the Administrative Agent and Borrower two duly completed and signed copies of Internal Revenue Service Forms W-8BEN, or W-8ECI or successor form(s), as the case may be, certifying as to such Administrative Agent’s, Lender’s or Issuing Bank’s (if applicable) status for purposes of determining exemption from United States withholding taxes with respect to all payments to be made to the Administrative Agent, each Lender or the Issuing Bank under this Agreement. Until Borrower and the Administrative Agent have received such forms and indicating that payments under this Agreement are subject to an exemption from or reduction of United States withholding tax, Borrower or the Administrative Agent (if not withheld by Borrower) shall withhold taxes from such payments at the applicable statutory rate, without any obligation to “gross-up” or make the Administrative Agent, such Lender or Issuing Bank whole under clause (a) of this Section. In the case of an Administrative Agent, Lender, or Issuing Bank that is subject to a reduction of, rather than exemption from, United States withholding tax, the obligation of Borrower to “gross-up” under clause (a) of this Section shall not apply in respect of the amount of United States withholding tax that the Administrative Agent, such Lender, or the Issuing Bank is subject to at the time they become a party to this Agreement (provided, however, that in the case of an assignee that becomes a Lender pursuant to Section 11.04, the obligation of Borrower to “gross-up” under clause (a) of this Section, or indemnify for Indemnified Taxes under clause (c) of this Section, shall apply in respect of the amount of United States withholding tax that is applicable to payments made on or after the date upon which the assignee first becomes a Lender to the same extent that Borrower would have been obligated to “gross-up” under clause (a) of this Section, or indemnify for 47 --------------------------------------------------------------------------------   Indemnified Taxes under clause (c) of this Section, had the Administrative Agent, relevant Lender, or the Issuing Bank, as the case may be, not made such assignment to such assignee).      (f) If (i) the Administrative Agent, any Lender, or the Issuing Bank receives a cash refund in respect of an overpayment of Indemnified Taxes or Other Taxes from a Governmental Authority with respect to, and actually resulting from, an amount of Indemnified Taxes or Other Taxes actually paid to or on behalf of the Administrative Agent, such Lender, or Issuing Bank by Borrower (a “Tax Refund”) and (ii) the Administrative Agent, such Lender, or the Issuing Bank, as the case may be, determines in its reasonable opinion that such Tax Refund has been correctly paid by such Governmental Authority and will not be required to be repaid to such Governmental Authority, then the Administrative Agent, such Lender, or the Issuing Bank, as the case may be, shall use its reasonable efforts to notify Borrower of such Tax Refund and to forward the proceeds of such Tax Refund (or relevant portion thereof) to Borrower as reduced by any expense or liability incurred by the Administrative Agent, such Lender, or the Issuing Bank, as the case may be, in connection with obtaining such Tax Refund.      SECTION 2.16. Mitigation Obligations; Replacement of Lenders.      (a) Mitigation of Obligations. If any Lender requests compensation under Section 2.12, or if Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.15, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the reasonable judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.12 or 2.15, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.      (b) Replacement of Lenders. If any Lender requests compensation under Section 2.12, or if Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.15, or if any Lender defaults in its obligation to fund Loans hereunder, then Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 11.04), all of its interests, rights and obligations under this Agreement to an assignee selected by Borrower that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that, (i) Borrower shall have received the prior written consent of the Administrative Agent (and, if a Revolving Commitment is being assigned, the Issuing Bank), which consent shall not unreasonably be withheld; (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and participations in LC Disbursements, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or Borrower (in the case of all other amounts); and (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.12 or payments required to be made pursuant to Section 2.15, such assignment will result in a material reduction in such compensation or payments. A 48 --------------------------------------------------------------------------------   Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling Borrower to require such assignment and delegation cease to apply.      SECTION 2.17. Letters of Credit.      (a) General. Subject to the terms and conditions set forth herein, Borrower may request the issuance of Letters of Credit for its own account or the account of any other Loan Party or Subsidiary thereof in a form reasonably acceptable to the Administrative Agent and the Issuing Bank, at any time and from time to time during the Revolving Availability Period (provided that, Borrower shall be a co-applicant with respect to each Letter of Credit issued for the account of or in favor of another Loan Party or Subsidiary). In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter-of-credit application or other agreement submitted by Borrower to, or entered into by Borrower with, the Issuing Bank relating to any Letter of Credit, the terms and conditions of this Agreement shall control.      (b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions. To request the issuance of a Letter of Credit (or the amendment, renewal or extension of an outstanding Letter of Credit), Borrower shall hand deliver or telecopy (or transmit by electronic communication, if arrangements for doing so have been approved by the Issuing Bank) to the Issuing Bank and the Administrative Agent (at least three Business Days in advance of the requested date of issuance, amendment, renewal or extension, or such shorter period as is acceptable to such respective Issuing Bank) a duly completed Letter of Credit Request, together with such other information as shall be necessary to prepare, amend, renew or extend such Letter of Credit. If requested by the Issuing Bank, Borrower also shall submit a letter-of-credit application on the Issuing Bank’s standard form in connection with any request for a Letter of Credit. A Letter of Credit shall be issued, amended, renewed or extended only if (and upon issuance, amendment, renewal or extension of each Letter of Credit, Borrower shall be deemed to represent and warrant that) after giving effect to such issuance, amendment, renewal or extension, (i) the LC Exposure shall not exceed $25.0 million, (ii) the total Revolving Exposures shall not exceed the total Revolving Commitments, (iii) the stated amount of each Letter of Credit shall be no less than $500,000, or such lesser amount as is acceptable to the Issuing Bank, and (iv) each Letter of Credit shall be denominated in dollars.      (c) Expiration Date. Each Letter of Credit shall expire no later than the close of business on the earlier of (i) in the case of a Standby Letter of Credit, (x) the date one year after the date of the issuance of such Standby Letter of Credit (or, in the case of any renewal or extension thereof, one year after such renewal or extension) and (y) the date that is 15 Business Days prior to the Revolving Maturity Date and (ii) in the case of a Commercial Letter of Credit, (x) the date that is 180 days after the date of issuance of such Commercial Letter of Credit (or, in the case of any renewal or extension thereof, one year after such renewal or extension) and (y) the date that is 15 Business Days prior to the Revolving Maturity Date.      (d) Participations. By the issuance of a Letter of Credit (or an amendment to a Letter of Credit increasing the amount thereof) and without any further action on the part of the Issuing Bank or the Lenders, the Issuing Bank hereby grants to each Revolving Lender, and each Revolving Lender hereby acquires from the Issuing Bank, a 49 --------------------------------------------------------------------------------   participation in such Letter of Credit equal to such Lender’s Pro Rata Percentage of the aggregate amount available to be drawn under such Letter of Credit. In consideration and in furtherance of the foregoing, each Revolving Lender hereby absolutely and unconditionally agrees to pay to the Administrative Agent, for the account of the Issuing Bank, such Lender’s Pro Rata Percentage of each LC Disbursement made by the Issuing Bank and not reimbursed by Borrower on the date due as provided in Section 2.17(e), or of any reimbursement payment required to be refunded to Borrower for any reason. Each Lender acknowledges and agrees that its obligation to acquire participations pursuant to this Section 2.17(d) in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including any amendment, renewal or extension of any Letter of Credit or the occurrence and continuance of a Default or Event of Default or reduction or termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever.      (e) Reimbursement. If the Issuing Bank shall make any LC Disbursement in respect of a Letter of Credit, Borrower shall reimburse such LC Disbursement by paying to the Issuing Bank an amount equal to such LC Disbursement not later than 2:00 p.m., New York City time, on the date that such LC Disbursement is made, if Borrower shall have received notice of such LC Disbursement prior to 11:00 a.m., New York City time on such date, or, if such notice has not been received by Borrower prior to such time on such date, then not later than 2:00 p.m., New York City time, on (i) the Business Day that Borrower receives such notice, if such notice is received prior to 11:00 a.m., New York City time, on the day of receipt, or (ii) the Business Day immediately following the day that Borrower receives such notice, if such notice is not received prior to such time on the day of receipt; provided that, Borrower may, subject to the conditions to borrowing set forth herein, request in accordance with Section 2.03 that such payment be financed with an ABR Revolving Borrowing in an equivalent amount and, to the extent so financed, Borrower’s obligation to make such payment shall be discharged and replaced by the resulting ABR Revolving Borrowing. If Borrower fails to make such payment when due, the Issuing Bank shall notify the Administrative Agent and the Administrative Agent shall notify each Revolving Lender of the applicable LC Disbursement, the payment then due from Borrower in respect thereof and such Lender’s Pro Rata Percentage thereof. Promptly following receipt of such notice, each Revolving Lender shall pay to the Administrative Agent its Pro Rata Percentage of the unreimbursed LC Disbursement in the same manner as provided in Section 2.02(f), with respect to Loans made by such Lender, and the Administrative Agent shall promptly pay to the Issuing Bank the amounts so received by it from the Revolving Lenders. Promptly following receipt by the Administrative Agent of any payment from Borrower pursuant to this Section 2.17(e), the Administrative Agent shall, to the extent that Revolving Lenders have made payments pursuant to this Section 2.17(e) to reimburse the Issuing Bank, distribute such payment to such Lenders and the Issuing Bank as their interests may appear. Any payment made by a Revolving Lender pursuant to this Section 2.17(e) to reimburse the Issuing Bank for any LC Disbursement (other than the funding of ABR Revolving Loans as contemplated above) shall not constitute a Loan and shall not relieve Borrower of its obligation to reimburse such LC Disbursement.      (f) Obligations Absolute. The obligation of Borrower to reimburse LC Disbursements as provided in Section 2.17(e) shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter of Credit or this Agreement, or any term or 50 --------------------------------------------------------------------------------   provision therein, (ii) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect, (iii) payment by the Issuing Bank under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit, or (iv) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section 2.17(f), constitute a legal or equitable discharge of, or provide a right of set-off against, the obligations of Borrower hereunder. Neither the Administrative Agent, the Lenders nor the Issuing Bank, nor any of their Affiliates, shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of the Issuing Bank; provided that, the foregoing shall not be construed to excuse the Issuing Bank from liability to Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by Borrower to the extent permitted by applicable law) suffered by Borrower that are caused by the Issuing Bank’s failure to exercise care when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree that, in the absence of gross negligence or willful misconduct on the part of the Issuing Bank (as finally determined by a court of competent jurisdiction), the Issuing Bank shall be deemed to have exercised care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, with respect to documents presented that appear on their face to be in substantial compliance with the terms of a Letter of Credit, the Issuing Bank may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit.      (g) Disbursement Procedures. The Issuing Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit. The Issuing Bank shall promptly notify the Administrative Agent and Borrower by telephone (confirmed by telecopy) of such demand for payment and whether the Issuing Bank has made or will make an LC Disbursement thereunder; provided that, any failure to give or delay in giving such notice shall not relieve Borrower of its obligation to reimburse the Issuing Bank and the Revolving Lenders with respect to any such LC Disbursement (other than with respect to the timing of such reimbursement obligation set forth in Section 2.17(e)).      (h) Interim Interest. If the Issuing Bank shall make any LC Disbursement, then, unless Borrower shall reimburse such LC Disbursement in full on the date such LC Disbursement is made, the unpaid amount thereof shall bear interest, for each day from and including the date such LC Disbursement is made to but excluding the date that Borrower reimburses such LC Disbursement, at the rate per annum then applicable to ABR Revolving Loans; provided that, if Borrower fails to reimburse such LC Disbursement when due pursuant to Section 2.17(e), then Section 2.06(c) shall apply. Interest accrued pursuant to this Section 2.17(h) shall be for the account of the Issuing 51 --------------------------------------------------------------------------------   Bank, except that interest accrued on and after the date of payment by any Revolving Lender pursuant to Section 2.17(e) to reimburse the Issuing Bank shall be for the account of such Lender to the extent of such payment.      (i) Resignation or Removal of the Issuing Bank; Additional Issuing Banks. The Issuing Bank may resign as Issuing Bank or be replaced at any time by written agreement among Borrower, the Administrative Agent, the replaced Issuing Bank and the successor Issuing Bank. Borrower may, at any time and from time to time with the consent of the Administrative Agent (which consent shall not be unreasonably withheld) and such Lender, by written agreement designate one or more additional Lenders to act as an issuing bank under the terms of this Agreement. The Administrative Agent shall notify the Lenders of any such replacement of the Issuing Bank or any such additional Issuing Bank. At the time any such replacement shall become effective, Borrower shall pay all unpaid fees accrued for the account of the replaced Issuing Bank pursuant to Section 2.05(c). From and after the effective date of any such replacement or addition, as applicable, (i) the successor or additional Issuing Bank shall have all the rights and obligations of the Issuing Bank under this Agreement with respect to Letters of Credit to be issued thereafter by such Lender, and (ii) references herein and in the other Loan Documents to the term “Issuing Bank” shall be deemed to refer to such successor or such addition to any previous Issuing Bank, or to such successor or such addition and all previous Issuing Banks, as the context shall require. After the replacement of an Issuing Bank hereunder, the replaced Issuing Bank shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Bank under this Agreement with respect to Letters of Credit issued by it prior to such replacement, but shall not be required to issue additional Letters of Credit. If at any time there is more than one Issuing Bank hereunder, Borrower may, in its discretion, select which Issuing Bank is to issue any particular Letter of Credit.      (j) Cash Collateralization. If any Event of Default shall occur and be continuing, on the Business Day that Borrower receives notice from the Administrative Agent or the Required Lenders (or, if the maturity of the Loans has been accelerated, Revolving Lenders with LC Exposure representing greater than 50% of the total LC Exposure) demanding the deposit of cash collateral pursuant to this Section 2.17(j), Borrower shall deposit in the LC Sub-Account, in the name of the Collateral Agent and for the benefit of the Lenders, an amount in cash equal to the LC Exposure as of such date plus any accrued and unpaid interest thereon; provided that, the obligation to deposit such cash collateral shall become effective immediately, and such deposit shall become immediately due and payable, without demand or other notice of any kind, upon the occurrence of any Event of Default with respect to Borrower described in paragraph (g) or (h) of Article VIII. Each such deposit shall be held by the Collateral Agent as collateral for the payment and performance of the obligations of Borrower under this Agreement. The Collateral Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Other than any interest earned on the investment of such deposits, which investments shall be made at the option and sole discretion of the Collateral Agent and at the risk and expense of Borrower, such deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such account shall be invested in Cash Equivalents and applied by the Collateral Agent to reimburse the Issuing Bank for LC Disbursements for which it has not been reimbursed and, to the extent not so applied, shall be held for the satisfaction of the reimbursement obligations of Borrower for the LC Exposure at such time or, if the maturity of the Loans has been accelerated (but subject to the consent of Revolving 52 --------------------------------------------------------------------------------   Lenders with LC Exposure representing greater than 50% of the total LC Exposure), be applied to satisfy other Obligations of Borrower under this Agreement. If Borrower is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount plus any accrued interest or realized profits or such amounts (to the extent not applied as aforesaid) shall be returned to Borrower within three Business Days after all Events of Default have been cured or waived.      SECTION 2.18. Facility Increase. Borrower may by written notice to the Administrative Agent elect to request on one or more occasions (i) the establishment of one or more additional term loan commitments (each, an “Additional Term Loan Commitment”; and the term loans made pursuant to such Additional Term Loan Commitments are referred to herein as “Additional Term Loans”) and/or (ii) an increase in the aggregate Revolving Commitments, so long as after giving affect to any such request the aggregate amount of Additional Term Loan Commitments and increases in the aggregate Revolving Commitments does not exceed $200.0 million. Each such notice shall specify (a) the date (each, an “Increased Amount Date”) on which Borrower proposes that the Additional Term Loan Commitments and/or increase in Revolving Commitments, as the case may be, shall be effective, which shall be a date not less than 10 Business Days nor more than 90 days after the date on which such notice is delivered to the Administrative Agent or such earlier date as may reasonably be acceptable to the Administrative Agent and (b) the amount of the Additional Term Loan Commitments being requested (which shall be in minimum increments of $5.0 million and a minimum amount of $25.0 million, or the amount equal to the then remaining Additional Term Loan Commitment. Each Revolving Lender shall, by notice to the Borrower and the Administrative Agent given not more than 10 days after the date of the Borrower’s notice, either agree to increase its Revolving Commitments by all or a portion of such Revolving Lender’s pro rata portion of the offered amount or decline to increase its Revolving Commitment (and any Revolving Lender that does not deliver such a notice within such period of 10 days shall be deemed to have so declined). Each Term Lender shall, by notice to the Borrower and the Administrative Agent given not more than 10 days after the date of the Borrower’s notice, either agree to make such Additional Term Loan Commitment by all or a portion of such Term Lender’s pro rata portion of the offered amount or decline to make such Additional Term Loan Commitment (and any Term Lender that does not deliver such a notice within such period of 10 days shall be deemed to have so declined). In the event that, on the 10th day after the Borrower shall have delivered a notice pursuant to this Section 2.18, the amount of the Additional Term Loan Commitments agreed to are less than the Additional Term Loan Commitments requested by the Borrower, the Borrower may arrange for one or more banks or other entities to extend Additional Term Loan Commitments in an aggregate amount equal to the unsubscribed amount; provided, however, that each Additional Lender, if not already a Lender hereunder, shall be subject to the prior approval of the Administrative Agent (and, in the case of an increase in the Revolving Commitments, the Issuing Bank), which consent shall not be unreasonably withheld or delayed (each, an “Additional Lender”); provided that any Lender approached to provide all or a portion of the Additional Term Loan Commitments or increase in Revolving Commitments, as the case may be, may elect or decline, in its sole discretion, to provide an Additional Term Loan Commitment or increase its Revolving Commitment. Any such Additional Term Loan Commitments and increase in the aggregate Revolving Commitments shall become effective, as of such Increased Amount Date; provided that (1) no Default or Event of Default shall exist on the Increased Amount Date before or immediately after giving effect to such Additional Term Loan Commitments or increase in Revolving Commitments, as the case may be; (2) Borrower shall be in pro forma compliance with each of the covenants set forth in Section 6.07 as of the last day of the most recently ended fiscal quarter for which financial statements are available to Borrower after giving effect to such Additional Term Loan Commitments or increase in Revolving Commitments, as the case may be; 53 --------------------------------------------------------------------------------   and (3) the Additional Term Loan Commitments or increase in Revolving Commitments, as the case may be, shall be effected pursuant to one or more joinder agreements (in form and substance reasonable acceptable) executed and delivered by Borrower, Administrative Agent and the corresponding Lenders, and each of which shall be recorded in the Register. Any Additional Term Loans made on an Increased Amount Date shall, for all purposes, constitute “Term Loans” hereunder. On any Increased Amount Date on which any Additional Term Loan Commitments are effective, subject to the satisfaction of the foregoing terms and conditions, (i) each Additional Lender with an Additional Term Loan Commitment shall make an Additional Term Loan to Borrower in an amount equal to its Additional Term Loan Commitment, and (ii) each Additional Lender with an Additional Term Loan Commitment shall become a Lender hereunder with respect to the Additional Term Loan Commitment and the Additional Term Loans made pursuant thereto. Administrative Agent shall notify Lenders promptly upon receipt of Borrower’s notice of each Increased Amount Date of the Additional Term Loan Commitments or the increase in Revolving Commitments and the Additional Lenders, if any.      The terms and provisions of the Additional Term Loans and Additional Term Loan Commitments shall be identical to the initial Term Loans made hereunder. The Additional Term Loans will constitute Obligations hereunder for all purposes of this Agreement and the Security Documents and will be secured by the Collateral securing the other Obligations. The parties hereto acknowledge and agree that the Administrative Agent may hereunder or pursuant to any Joinder Agreement may, without the consent of any other Lenders, effect such amendments to this Agreement and the other Loan Documents as may be necessary or appropriate, in the opinion of the Administrative Agent, to effect the provisions of this Section 2.18, including, without limitation, conforming amendments (which may be in the form of an amendment and restatement) to provide for the Additional Term Loans to share ratably in the benefits of this Agreement and the other Loan Documents with the Term Loans and Revolving Loans; provided that such amendments may not alter the obligations of the Loan Parties under the Loan Documents except as provided in this Section. ARTICLE III Representations and Warranties      Each of the Loan Parties, as applicable, represents and warrants to the Administrative Agent, the Collateral Agent, the Issuing Bank and each of the Lenders that:      SECTION 3.01. Organization; Powers. Each Company (a) is duly organized and validly existing under the laws of the jurisdiction of its organization, (b) has all requisite power and authority to carry on its business as now conducted, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, and (c) is qualified and in good standing (to the extent such concept is applicable in the applicable jurisdiction) to do business in every jurisdiction where such qualification is required, except in such jurisdictions where the failure to so qualify, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.      SECTION 3.02. Authorization; Enforceability. The Transactions to be entered into by each Loan Party are within such Loan Party’s powers and have been duly authorized by all necessary action. This Agreement has been duly executed and delivered by each Loan Party and constitutes, and each other Loan Document to which any Loan Party is to be a party, when executed and delivered by such Loan Party, will constitute, a legal, valid and binding obligation 54 --------------------------------------------------------------------------------   of such Loan Party, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.      SECTION 3.03. Governmental Approvals; No Conflicts. Except as set forth on Schedule 3.03, the Transactions (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except (i) such as have been obtained or made and are in full force and effect, (ii) filings necessary to perfect Liens created under the Loan Documents and (iii) consents, approvals, registrations, filings or actions the failure of which to obtain or perform could not reasonably be expected to result in a Material Adverse Effect; (b) will not violate (i) any applicable law or regulation except for violations that could not reasonably be expected to result in a Material Adverse Effect, or (ii) the charter, bylaws or other organizational documents of any Company (other than any Immaterial Subsidiary) or any order of any Governmental Authority; (c) will not violate, result in a default or require any consent or approval under any indenture, agreement or other instrument binding upon any Company or its assets, or give rise to a right thereunder to require any payment to be made by any Company, except for violations, defaults or the creation of such rights that could not reasonably be expected to result in a Material Adverse Effect; and (d) will not result in the creation or imposition of any Lien on any asset of any Company, except Liens created under the Loan Documents and Permitted Liens.      SECTION 3.04. Financial Statements. All financial statements delivered to the Lenders by Borrower have been prepared in accordance with GAAP applied on a consistent basis throughout the periods presented (except as disclosed therein, and in the case of interim financial statements for the absence of footnotes and year-end adjustments). The unaudited pro forma financial statements and the notes thereto delivered to the Lenders by Borrower have been prepared on a basis consistent with the historical financial statements of Holdings and its Subsidiaries and give effect to assumptions used in the preparation thereof on a reasonable basis and in good faith and present fairly in all material respects the historical transactions and the proposed Transactions.      SECTION 3.05. Properties.      (a) Each Loan Party has good title to, or valid leasehold interests in or other valid rights to use, all of such Company’s Real Property, and all of such Loan Party’s personal property material to its business. Title to all such property held by such Loan Party is free and clear of all Liens except for Permitted Liens. The property of the Companies, taken as a whole, (i) is in good operating order, condition and repair (ordinary wear and tear excepted) (except to the extent such condition could not reasonably be expected to result in a Material Adverse Effect) and (ii) constitutes all the properties that are required for the business and operations of the Companies as currently conducted.      (b) Each Company owns, or is licensed to use, all Intellectual Property used in the conduct of its business as currently conducted, except for those the failure to own or license that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. No claim has been asserted and is pending by any person challenging or questioning the use of any such Intellectual Property or the validity or effectiveness of any such Intellectual Property, nor does any Company know of any valid basis for any such claim. The use of such Intellectual Property by each Company does 55 --------------------------------------------------------------------------------   not infringe the rights of any person, except for such claims and infringements that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.      (c) No Company has received any notice of, nor has any knowledge of, the occurrence or pendency or contemplation of any Casualty Event, zoning change, variance or special zoning exception affecting or that would affect all or any portion of the property that would reasonably be expected to have a Material Adverse Effect.      SECTION 3.06. Equity Interests and Subsidiaries; Consent.      (a) Schedule 3.06(a) sets forth a list of (i) all Subsidiaries of Holdings and their jurisdiction of organization as of the Closing Date; (ii) the number of shares of each class of its Equity Interests authorized, and the number outstanding, on the Closing Date and the number of shares covered by all outstanding options, warrants, rights of conversion or purchase and similar rights at the Closing Date of each such Subsidiary; and (iii) a designation as to whether such Subsidiary constitutes a Non-Guarantor Subsidiary. Schedule 3.06(a) designates the only Subsidiaries of Borrower that constitute Non-Guarantor Subsidiaries on the Closing Date. Such schedule may be amended from time to time without the prior written consent of the Administrative Agent so long as the Loan Parties and their Subsidiaries comply with all related obligations under this Agreement (including obligations described in Section 5.11 hereof). All Equity Interests of each direct and indirect Subsidiary of Holdings are duly and validly issued, are fully paid and non-assessable. Each Loan Party is the record and beneficial owner of, and has good and marketable title to, the Equity Interests pledged by it under the applicable Security Agreement, free of any and all Liens, rights or claims of other persons, except for the security interest created by the Security Agreements.      (b) No consent of any person including any other general or limited partner, any other member of a limited liability company, any other shareholder or any trust beneficiary is necessary or desirable in connection with the creation, perfection or first priority status of the security interest of the Collateral Agent in any Equity Interests, pledged to the Collateral Agent for the benefit of the Secured Parties under any Security Agreement or the exercise by the Collateral Agent of the voting or other rights provided for in any Security Agreement or the exercise of remedies in respect thereof.      SECTION 3.07. Litigation; Compliance with Laws.      (a) Except as set forth on Schedule 3.07, there are no investigations, actions, suits or proceedings at law or in equity by or before any Governmental Authority now pending or, to the knowledge of any Company, threatened against or affecting any Company or any business, property or rights of any such person (i) that involve any Loan Document or the Transactions or (ii) as to which there is a reasonable possibility of an adverse determination and that could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect.      (b) Except for matters covered by Section 3.17, no Company or any of its property is in violation of, nor will the continued operation of their property as currently conducted violate, any Requirements of Law (including any zoning or building ordinance, code or approval or any building permits) or any restrictions of record or agreements affecting the Real Property or is in default with respect to any judgment, writ, 56 --------------------------------------------------------------------------------   injunction, decree or order of any Governmental Authority, in each case where such violation or default could reasonably be expected to result in a Material Adverse Effect.      SECTION 3.08. Agreements.      (a) No Company is a party to any agreement or instrument or subject to any corporate or other constitutional restriction that has resulted or could reasonably be expected to result in a Material Adverse Effect.      (b) No Company is in default in any manner under any provision of any indenture or other agreement or instrument evidencing Indebtedness, or any other agreement or instrument to which it is a party or by which it or any of its property are or may be bound, where such default could reasonably be expected to result in a Material Adverse Effect.      (c) Schedule 3.08 accurately and completely lists all Material Agreements (other than Leases of Real Property) to which any Loan Party is a party that were in effect on the Closing Date and Borrower has delivered to the Administrative Agent complete and correct copies of all such Material Agreements, including any amendments, supplements or modifications with respect thereto in effect as of the Closing Date.      SECTION 3.09. Federal Reserve Regulations.      (a) No Company is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of buying or carrying Margin Stock.      (b) No part of the proceeds of any Loan or any Letter of Credit will be used in any manner, whether directly or indirectly, for any purpose that violates, or that is inconsistent with, the provisions of the regulations of the Board, including Regulation T, U or X. The pledge of the Securities Collateral (as defined in the Security Agreement) pursuant to the Security Agreements does not violate such regulations.      SECTION 3.10. Investment Company Act. No Company is an “investment company” or a company “controlled” by an “investment company,” as defined in, or subject to regulation under, the Investment Company Act of 1940, as amended.      SECTION 3.11. Use of Proceeds. Borrower will use the proceeds of the Loans (a) to finance a portion of the Transactions, (b) to pay fees and expenses related thereto and (c) for general corporate purposes of Holdings and its Subsidiaries.      SECTION 3.12. Taxes. Each Company has (a) filed or caused to be filed all federal Tax Returns and all material state, local and foreign Tax Returns or materials required to have been filed by it and (b) duly paid or caused to be duly paid all Taxes (whether or not shown on any Tax Return) due and payable by it and all assessments received by it, except Taxes that are being contested in good faith by appropriate proceedings and for which such Company shall have set aside on its books adequate reserves in accordance with GAAP.      SECTION 3.13. No Material Misstatements. No written information, report, financial statement, exhibit or schedule furnished by or on behalf of any Company to any Agent or any Lender in connection with the negotiation of any Loan Document or included therein or delivered pursuant thereto, taken together with all related information so furnished, contained, 57 --------------------------------------------------------------------------------   contains or will contain (when delivered) any material misstatement of fact or omitted, omits or will omit (when delivered) to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were, are or will be made, not misleading as of the date such information is dated or certified; provided that, to the extent any such information, report, financial statement, exhibit or schedule was based upon or constitutes a forecast, projection or pro forma adjustment, each Company represents only that it acted in good faith and utilized reasonable assumptions and due care in the preparation of such information, report, financial statement, exhibit or schedule (it being understood that, with respect to projected financial information, actual results may vary significantly from such projected results).      SECTION 3.14. Labor Matters. As of the Closing Date, there are no strikes, lockouts or slowdowns against any Company pending or, to the knowledge of any Company, threatened which could reasonably be expected to result in a Material Adverse Effect. The hours worked by and payments made to employees of any Company have not been in violation of the Fair Labor Standards Act or any other applicable federal, state, local or foreign law dealing with such matters in any manner that could reasonably be expected to result in a Material Adverse Effect. All payments due from any Company, or for which any claim may be made against any Company, on account of wages and employee health and welfare insurance and other benefits, have been paid or accrued as a liability on the books of such Company except where the failure to do so could not reasonably be expected to result in a Material Adverse Effect. The consummation of the Transactions will not give rise to any right of termination or right of renegotiation on the part of any union under any collective bargaining agreement to which any Company is bound.      SECTION 3.15. Solvency. Immediately after the consummation of the Transactions to occur on the Closing Date and immediately following the making of each Loan and after giving effect to the application of the proceeds of each Loan, (a) the fair value of the assets of the Loan Parties, taken as a whole, will exceed their debts and liabilities, subordinated, contingent or otherwise; (b) the present fair saleable value of the property of the Loan Parties, taken as a whole, will be greater than the amount that will be required to pay the probable liability of their collective debts and other liabilities, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured; (c) the Loan Parties, taken as a whole, will be able to pay their debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (d) the Loan Parties, taken as a whole, will not have unreasonably small capital with which to conduct the business in which they are engaged as such business is now conducted and is proposed to be conducted following the Closing Date.      SECTION 3.16. Employee Benefit Plans.      (a) Each Company and its ERISA Affiliates are in compliance in all material respects with the applicable provisions of ERISA and the Tax Code and the regulations and published interpretations thereunder. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events, could reasonably be expected to result in a Material Adverse Effect. No liability to the PBGC (other than required premium payments), the Internal Revenue Service, any Plan or any trust established under Title IV of ERISA has been or is expected to be incurred by any Company or any ERISA Affiliate. No Company or any of its ERISA Affiliates sponsor, contribute, participate in or have any liability under a plan established under Title IV of ERISA or a Multiemployer Plan. 58 --------------------------------------------------------------------------------        (b) Each Foreign Plan has been maintained in substantial compliance with its terms and with the requirements of any and all applicable laws, statutes, rules, regulations and orders and has been maintained, where required, in good standing with applicable regulatory authorities, except when such failure to comply is not reasonably expected to result in a Material Adverse Effect. No Company has incurred any material obligation in connection with the termination of or withdrawal from any Foreign Plan that is reasonably expected to result in a Material Adverse Effect. The present value of the accrued benefit liabilities (whether or not vested) under each Foreign Plan that is funded, determined as of the end of the most recently ended fiscal year of the respective Company on the basis of actuarial assumptions, each of which is reasonable, did not exceed the current value of the assets of such Foreign Plan by an amount that is reasonably expected to result in a Material Adverse Effect.      SECTION 3.17. Environmental Matters.      (a) The Real Property of the Companies does not contain, and has not previously contained, therein, thereon or thereunder, including the soil and groundwater thereunder, any Hazardous Materials in amounts or concentrations that (i) constitute or constituted a violation of, (ii) require a Response under, or (iii) could give rise to liability under, Environmental Laws, which violations, Response and liabilities, in the aggregate, could reasonably be expected to result in a Material Adverse Effect;      (b) All operations of the Companies are in compliance, and, to the knowledge of the Companies, the Real Property is, and in the last three years such operations and the Real Property have been in compliance, with all Environmental Laws and all necessary permits have been obtained and are in effect, except to the extent that such non-compliance or failure to obtain any necessary permits, in the aggregate, could not reasonably be expected to result in a Material Adverse Effect;      (c) There have been no Releases or threatened Releases by any Company or, to their knowledge, by any other party, at, from, under or proximate to the Real Property or otherwise in connection with the operations of any Company, which Releases or threatened Releases, in the aggregate, could reasonably be expected to result in a Material Adverse Effect;      (d) None of the Companies has received any notice of an Environmental Claim in connection with the Real Property or operations of any Company or with regard to any person whose liabilities for environmental matters any of the Companies has retained or assumed, in whole or in part, contractually, by operation of law or otherwise, that, in the aggregate, could reasonably be expected to result in a Material Adverse Effect;      (e) Hazardous Materials have not been transported from Real Property of the Companies by or on behalf of any of the Companies, nor have Hazardous Materials been generated, treated, stored or disposed of at, on or under any of such Real Property in a manner that could give rise to liability under, or in violation of, any Environmental Law, nor has any Company retained or assumed any liability, contractually, by operation of law or otherwise, with respect to the generation, treatment, storage, transport or disposal of Hazardous Materials, which transportation, generation, treatment, storage or disposal, or retained or assumed liabilities, in the aggregate, could reasonably be expected to result in a Material Adverse Effect; 59 --------------------------------------------------------------------------------        (f) No Lien has been recorded, or to the knowledge of any Company threatened, under any Environmental Law with respect to any owned Real Property or relating to any operations or assets of any Company;      (g) No Real Property of the Companies is (i) listed or proposed for listing on the National Priorities List under CERCLA or (ii) to the knowledge of the Companies, listed on the Comprehensive Environmental Response, Compensation and Liability Information System promulgated pursuant to CERCLA, or (iii) to the knowledge of the Companies, included on any similar list maintained by any Governmental Authority (except in the case of clauses (ii) and (iii), for listings relating to events or conditions that could not reasonably be expected to have a Material Adverse Effect); and      (h) No Company is currently conducting any Response pursuant to any Environmental Law with respect to any Real Property or any other location except such waste management activities, air emission or water discharges which are conducted in compliance with Environmental Laws in the normal course of the Companies’ operations or any other Response that could not reasonably be expected to result in a Material Adverse Effect.      SECTION 3.18. Insurance. Schedule 3.18 sets forth a true, complete and correct description of all insurance maintained by each Loan Party as of the Closing Date. As of such date, such insurance is in full force and effect and all premiums have been duly paid. Each Company has insurance in such amounts and covering such risks and liabilities as are in accordance with normal industry practice.      SECTION 3.19. Security Documents.      (a) The Security Agreements are effective to create in favor of the Collateral Agent, for the benefit of the Secured Parties, a legal, valid and enforceable security interest in and Lien on the Security Agreement Collateral and, when (i) financing statements and other filings in appropriate form are filed in the appropriate governmental offices and (ii) the Loan Parties have complied with Article III of the U.S. Security Agreement, the security interest granted under the U.S. Security Agreement shall constitute a fully perfected Lien on, and security interest in, all right, title and interest of the grantors thereunder in such Collateral (other than (A) the Intellectual Property and (B) such Collateral in which a security interest cannot be perfected under the Uniform Commercial Code as in effect at the relevant time in the relevant jurisdiction for filing), in each case subject to no Liens other than Permitted Liens.      (b) When the appropriate financing statements are filed in the appropriate filing offices and the U.S. Security Agreement is filed in the United States Patent and Trademark Office and the United States Copyright Office, the security interests granted under the U.S. Security Agreement shall constitute a fully perfected Lien on, and security interest in, all right, title and interest of the grantors thereunder in the Intellectual Property (as defined in the U.S. Security Agreement), in each case subject to no Liens other than Permitted Liens (it being understood that subsequent recordings in the United States Patent and Trademark Office and the United States Copyright Office may be necessary to perfect a Lien on registered trademarks, trademark applications and copyrights acquired by the grantors after the Closing Date). 60 --------------------------------------------------------------------------------        (c) Each Security Document delivered pursuant to Section 5.11 will, upon execution and delivery thereof, be effective to create in favor of the Collateral Agent, for the ratable benefit of the Secured Parties, a legal, valid and enforceable Lien on all of the Loan Parties’ right, title and interest in and to the Collateral described therein, and when such Security Document is filed or recorded in the appropriate offices as may be required under applicable law, such Security Document will constitute a fully perfected Lien on, and security interest in, all right, title and interest of the Loan Parties in such Security Agreement Collateral, in each case subject to no Liens other than the applicable Permitted Liens.      SECTION 3.20. Material Adverse Changes. Since December 31, 2005, there has been no change that could reasonably be expected to result in a Material Adverse Effect. ARTICLE IV Conditions of Lending      The obligations of the Lenders to make Loans and of the Issuing Bank to issue Letters of Credit hereunder are subject to the satisfaction of the following conditions:      SECTION 4.01. All Credit Extensions. On the date of each Borrowing (including the date that the Term Loans hereunder are made), and on the date of each issuance, amendment, extension or renewal of a Letter of Credit (each such event being called a “Credit Extension”):      (a) The Administrative Agent shall have received a notice of such Borrowing as required by Section 2.03 (or such notice shall have been deemed given in accordance with Section 2.03) or, in the case of the issuance, amendment, extension or renewal of a Letter of Credit, the Issuing Bank and the Administrative Agent shall have received a notice requesting the issuance, amendment, extension or renewal of such Letter of Credit as required by Section 2.17(b).      (b) No Default or Event of Default shall have occurred and be continuing and no Default or Event of Default will result from such Borrowing.      (c) Each of the representations and warranties set forth in Article III hereof or in any other Loan Document shall be true and correct in all material respects (except that any representation and warranty that is qualified as to “materiality” or “Material Adverse Effect” shall be true and correct in all respects) on and as of the date of such Credit Extension with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date (in which case shall have been true and correct in all material respects (except that those that are qualified as to “materiality” or “Material Adverse Effect” shall be true and correct in all respects) on and as of such earlier date). Each Credit Extension shall be deemed to constitute a representation and warranty by Borrower and each other Loan Party on the date of such Credit Extension as to the matters specified in paragraphs (b) and (c) above. 61 --------------------------------------------------------------------------------        SECTION 4.02. Initial Credit Extension. The effectiveness of this Agreement is subject to the fulfillment, to the satisfaction of the Administrative Agent, of each of the following conditions:      (a) Loan Documents. All legal matters incident to this Agreement, the Borrowings and extensions of credit hereunder and the other Loan Documents shall be satisfactory to the Lenders, to the Issuing Bank and to the Administrative Agent and the Administrative Agent shall have received a duly executed counterpart of each of the Loan Documents, including, without limitation, this Agreement, each Security Agreement and the Perfection Certificate.      (b) Corporate Documents. The Administrative Agent shall have received:      (i) a certificate of the Secretary or Assistant Secretary of each Loan Party dated the Closing Date and certifying (A) that attached thereto is a true and complete copy of the certificate or articles of incorporation or other constitutive documents, including all amendments thereto certified as of a recent date by the Secretary of State (or like official) of the jurisdiction of its organization (if such document is of a type that may be so certified), (B) that attached thereto is a true and complete copy of the bylaws or other organizational documents of each Loan Party as in effect on the Closing Date and at all times since a date prior to the date of the resolutions described in clause (C) below, (C) that attached thereto is a true and complete copy of resolutions duly adopted by the Board of Directors or other governing body of such person authorizing the execution, delivery and performance of the Loan Documents to which such person is a party and, in the case of Borrower, the borrowings hereunder, and that such resolutions have not been modified, rescinded or amended and are in full force and effect and (D) as to the incumbency and specimen signature of each officer executing any Loan Document or any other document delivered in connection herewith on behalf of such person (together with a certificate of another officer as to the incumbency and specimen signature of the Secretary or Assistant Secretary executing the certificate in this clause (i));      (ii) certificates as to the good standing of each Loan Party as of a recent date, from the Secretary of State (or like official) of the jurisdiction of its organization, to the extent such certificates or their equivalent are issued by such jurisdiction; and      (iii) such other documents as the Administrative Agent, the Issuing Bank or the Lenders may reasonably request.      (c) Officer’s Certificate. The Administrative Agent shall have received a certificate, dated the Closing Date and signed by a Financial Officer of Borrower, confirming compliance with the conditions precedent set forth in Section 4.01 and stating that each of Holdings and its Subsidiaries is compliance with all applicable Requirements of Law, including all applicable environmental laws and regulations, except to the extent such noncompliance could not reasonably be expected to have a Material Adverse Effect.      (d) Redemption of the Holdings Senior Notes and Other Transactions, Etc. 62 --------------------------------------------------------------------------------        (i) The Lenders shall be reasonably satisfied with the form and substance of the Transaction Documents; the Transactions scheduled to occur on the Closing Date shall have been consummated or shall be consummated simultaneously on the Closing Date, in each case in all material respects in accordance with the terms hereof and the terms of the Transaction Documents (and without the waiver or amendment of any such terms not approved by the Administrative Agent and the Arrangers).      (ii) The Administrative Agent shall have received copies of the Holdings Senior Note Documents certified by a Responsible Officer of Holdings as true, complete and current.      (iii) The Refinancing shall have been consummated in full to the satisfaction of the Lenders with all Liens in favor of the lenders to the Existing Credit Agreement being unconditionally released; the Administrative Agent shall have received a “pay-off” letter with respect to all debt being refinanced in the Refinancing; the Administrative Agent shall have received from any person holding any Lien securing any such debt, such UCC (or other) termination statements, mortgage releases, releases of assignments of leases and rents and other instruments, in each case in proper form for recording, as the Administrative Agent shall have reasonably requested to release and terminate of record the Liens securing such debt.      (iv) The Lenders shall be reasonably satisfied with the capitalization, the terms and conditions of any equity arrangements, the ownership, management, tax, corporate, legal or other organizational structure of Borrower and each Guarantor.      (v) Holdings shall have delivered or shall deliver substantially contemporaneously with the closing hereunder to the indenture trustee (with a copy to the Administrative Agent) under the Holdings Senior Note Agreement a notice of redemption of all Holdings Senior Notes.      (e) Indebtedness. After giving effect to the Transactions (other than the Redemption) and the other transactions contemplated hereby, no Company shall have outstanding any Indebtedness, Preferred Stock or minority interests other than (i) the Loans and extensions of credit hereunder, (ii) the Holdings Senior Notes, (iii) the Indebtedness described on Schedule 6.01 attached hereto and (iv) the minority interests described on Schedule 3.06(a) attached hereto.      (f) Financial Statements; Pro Forma Balance Sheet; Projections. The Lenders shall have received, reviewed, and be reasonably satisfied with, (i) the unaudited consolidated balance sheets and related statements of income, stockholders’ equity and cash flows of Holdings and its Subsidiaries for each fiscal quarter of the fiscal year in which the Closing Date occurs ended prior to 45 days prior to the Closing Date and for the comparable periods of the preceding fiscal year; (ii) the pro forma consolidated balance sheets and statements of income for Holdings and its Subsidiaries, as well as the pro forma levels of EBITDA and other operating data, for the fiscal year ended December 31, 2005 and each fiscal quarter of the fiscal year in which the Closing Date 63 --------------------------------------------------------------------------------   occurs ended prior to 45 days prior to the Closing Date and for the comparable periods of the preceding fiscal year, after giving effect to the transactions contemplated hereby; and (iii) final forecasts of the financial performance of Holdings and its Subsidiaries. The forecasts provided to the Lenders and any cost savings shall be included in such financial statements prepared in accordance with GAAP only to the extent permitted to be included in pro forma financial statements set forth in a registration statement filed with the Securities and Exchange Commission.      (g) Opinions of Counsel. The Administrative Agent shall have received, on behalf of itself, the other Agents, the Arrangers, the Lenders and the Issuing Bank, a favorable written opinion of Gibson, Dunn & Crutcher LLP, special counsel for certain of the Loan Parties, and of each other local counsel listed on Schedule 4.02(g), in each case (A) in form reasonably acceptable to the Administrative Agent, (B) dated the Closing Date, (C) addressed to the Agents, the Arrangers, the Issuing Bank, and the Lenders and (D) covering such other matters relating to the Loan Documents and the Transactions as the Administrative Agent shall reasonably request.      (h) Requirements of Law. The Administrative Agent shall be satisfied that the Transactions shall be in full compliance with all material Requirements of Law, including Regulations T, U and X of the Board.      (i) Financial Condition Certificate. The Administrative Agent shall have received a certificate from the chief financial officer of Borrower, substantially in the form of Exhibit L, dated the Closing Date and with appropriate attachments, demonstrating, after giving effect to the Transaction, the solvency of the Loan Parties on a consolidated basis.      (j) Consents. The Administrative Agent shall be satisfied that all material consents and approvals required from Governmental Authorities and third parties in connection with the Transactions have been obtained and remain in effect, and there shall be no governmental or judicial action (or any adverse development therein), actual or threatened, that the Lenders shall reasonably determine has or could have, singly or in the aggregate, a Material Adverse Effect or could materially and adversely affect the ability of Holdings and its Subsidiaries to fully and timely perform their respective obligations under the Transaction Documents, or the ability of the parties to consummate the financings contemplated hereby or the other Transactions.      (k) Litigation. Except as set forth on Schedule 3.07, there shall be no litigation, public or private, or administrative proceedings, governmental investigation or other legal or regulatory developments that, singly or in the aggregate, could reasonably be expected to result in a Material Adverse Effect, or could materially and adversely affect the ability of Holdings and its Subsidiaries to fully and timely perform their respective obligations under the Transaction Documents, or the ability of the parties to consummate the financings contemplated hereby or the other Transactions.      (l) Sources and Uses. The sources and uses of the Loans shall be as set forth in Section 3.11.      (m) Fees and Expenses. The Arrangers, Lenders and Administrative Agent shall have received all fees and other amounts due and payable on or prior to the Closing Date, including, to the extent invoiced, reimbursement or payment of all reasonable out-of- 64 --------------------------------------------------------------------------------   pocket expenses (including the reasonable legal fees and expenses of Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to the Administrative Agent and other foreign and local counsel to the Administrative Agent) required to be reimbursed or paid by Borrower hereunder or under any other Loan Document.      (n) Personal Property Requirements. The Collateral Agent shall have received from each Loan Party (except to the extent the Administrative Agent determines that any of the following is not commercially feasible, taking into account the cost to procure and the effectiveness and enforceability under local law):      (i) all certificates, agreements or instruments representing or evidencing the Pledged Equity Interests and the Pledged Intercompany Debt (each as defined in the U.S. Security Agreement) accompanied by instruments of transfer and stock powers endorsed in blank;      (ii) all other certificates, agreements, including Control Agreements, or instruments necessary to perfect security interests in all Chattel Paper, all Instruments, all Deposit Accounts and all Investment Property of each Loan Party (as each such term is defined in the U.S. Security Agreement and to the extent required by the terms of the U.S. Security Agreement);      (iii) UCC financing statements in appropriate form for filing under the UCC and such other documents under applicable Requirements of Law in each jurisdiction as may be necessary or appropriate to perfect the Liens created, or purported to be created, by the Security Documents;      (iv) certified copies of Requests for Information (Form UCC-11), tax lien, judgment lien, bankruptcy and pending lawsuit searches or equivalent reports or lien search reports, each of a recent date listing all effective financing statements, lien notices or comparable documents that name (A) any domestic Loan Party as debtor and that are filed in those state and county jurisdictions in which any of the property of such domestic Loan Party is located and the state and county jurisdictions in which such domestic Loan Party’s principal place of business is located, and (B) any foreign Loan Party, to the extent obtainable from the District of Columbia, none of which encumber the Collateral covered or intended to be covered by the Security Documents (other than those relating to Liens acceptable to the Collateral Agent);      (v) delivery of such documents and instruments and instruments as the Collateral Agent may request for filing with the United States Patent, Trademark and Copyright Offices, and the execution and/or delivery of such other security and other documents, and the taking of all actions as may be necessary or, in the reasonable opinion of the Collateral Agent, desirable, to perfect the Liens created, or purported to be created, by the Security Agreements;      (vi) any documents required to be submitted to the Collateral Agent by the Loan Parties as may be necessary or desirable to perfect the 65 --------------------------------------------------------------------------------   security interest of the Collateral Agent pursuant to each Foreign Security Agreement; and      (vii) evidence acceptable to the Collateral Agent of payment by the Loan Parties of all applicable recording taxes, fees, charges, costs and expenses required for the recording of the Security Documents.      (o) Insurance. The Administrative Agent shall have received a copy of, or a certificate as to coverage under, the insurance policies required by Section 5.04 and the applicable provisions of the Security Documents, each of which shall be endorsed or otherwise amended to include a “standard” or “New York” lender’s loss payable endorsement and to name the Collateral Agent as additional insured, in form and substance satisfactory to the Administrative Agent.      (p) Subsidiary Guarantors. Each Subsidiary Guarantor listed on Schedule 1.01(e) that is a Foreign Subsidiary and is not a signatory to this Agreement (including, without limitation, HIL Swiss) shall have executed and delivered a Guarantee in form and substance satisfactory to the Administrative Agent.      (q) Ratings. The Administrative Agent shall have received certified copies of the Moody’s Rating and the S&P Rating. ARTICLE V Affirmative Covenants      Each Loan Party covenants and agrees with each Lender that so long as this Agreement shall remain in effect and until the Commitments have been terminated and the principal of and interest on each Loan, all Fees and all other expenses or amounts payable under any Loan Document shall have been paid in full and all Letters of Credit have been canceled or have expired and all amounts drawn thereunder have been reimbursed in full, unless the Required Lenders shall otherwise consent in writing, each Loan Party will, and will cause each of its Subsidiaries to:      SECTION 5.01. Financial Statements, Reports, Etc. In the case of Borrower, furnish to the Administrative Agent and each Lender:      (a) Annual Reports. Contemporaneously with the date on which consolidated financial statements for such year are required to be delivered to the Securities and Exchange Commission under the Exchange Act, (i) the consolidated balance sheet of Holdings as of the end of such fiscal year and related consolidated statements of income, cash flows and stockholders’ equity for such fiscal year, and notes thereto (including a note with a balance sheet and statements of income and cash flows separating out the Loan Parties (other than Holdings) from the Non-Guarantor Subsidiaries), all prepared in accordance with Regulation S-X under the Securities Act and in a manner acceptable to the Securities and Exchange Commission and accompanied by an opinion of KPMG LLP or other independent public accountants of recognized national standing satisfactory to the Administrative Agent (which opinion shall not be qualified as to scope or contain any going concern or other qualification), stating that such financial statements fairly present, in all material respects, the consolidated financial condition, results of operations, cash 66 --------------------------------------------------------------------------------   flows and changes in stockholders’ equity of the Consolidated Companies as of the end of and for such fiscal year in accordance with GAAP; and (ii) a management’s discussion and analysis of the financial condition and results of operations for such fiscal year, as compared to the previous fiscal year;      (b) Quarterly Reports. Contemporaneously with the date on which consolidated financial statements for such year are required to be delivered to the Securities and Exchange Commission under the Exchange Act, (i) the consolidated balance sheet of Holdings as of the end of such fiscal quarter and related consolidated statements of income and cash flows for such fiscal quarter and for the then elapsed portion of the fiscal year, in comparative form with the consolidated statements of income and cash flows for the comparable periods in the previous fiscal year, and notes thereto (including a note with a balance sheet and statements of income and cash flows separating out the Loan Parties from the Non-Guarantor Subsidiaries), all prepared in accordance with Regulation S-X under the Securities Act and in a manner acceptable to the Securities and Exchange Commission and accompanied by a certificate of a Financial Officer stating that such financial statements fairly present, in all material respects, the consolidated financial condition, results of operations and cash flows of the Consolidated Companies as of the date and for the periods specified in accordance with GAAP and on a basis consistent with the audited financial statements referred to in Section 5.01(a), subject to normal year-end audit adjustments and the absence of footnotes; and (ii) a management’s discussion and analysis of the financial condition and results of operations for such fiscal quarter and the then elapsed portion of the fiscal year, as compared to the comparable periods in the previous fiscal year;      (c) Financial Officer’s Compliance Certificate. (i) Concurrently with any delivery of financial statements under Sections 5.01(a) and (b), a certificate of a Financial Officer certifying that no Default or Event of Default has occurred or, if such a Default or Event of Default has occurred, specifying the nature and extent thereof and any corrective action taken or proposed to be taken with respect thereto; (ii) concurrently with any delivery of financial statements under Sections 5.01(a) and (b), a certificate of a Financial Officer, substantially in the form of Exhibit K attached hereto, setting forth computations in reasonable detail satisfactory to the Administrative Agent demonstrating compliance with the covenants contained in Section 6.07 and, in the case of Section 5.01(a), setting forth Borrower’s calculation of Excess Cash Flow (if applicable); and (iii) in the case of Section 5.01(a) above, a report of the accounting firm opining on or certifying such financial statements stating that in the course of its regular audit of the financial statements of Holdings and its Subsidiaries, which audit was conducted in accordance with GAAP, nothing came to their attention that caused them to believe that the any Loan Party failed to comply with the terms, covenants, provisions or conditions of Article VI of this Agreement, insofar as they relate to financial and accounting matters, or if any Default or Event of Default has been noted, specifying the nature and extent thereof;      (d) Public Reports. Promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by any Company with the Securities and Exchange Commission, or any Governmental Authority succeeding to any or all of the functions of said Commission, or with any national securities exchange, as the case may be; 67 --------------------------------------------------------------------------------        (e) Management Letters. Promptly after the receipt thereof by any Company, a copy of any “management letter” received by any such person from its certified public accountants and management’s responses thereto;      (f) Budgets. At least once in any calendar year, and in any event within 30 days of the date the below referenced budget or strategic plan, as the case may be, is approved by the Board of Directors of Holdings, (i) an annual budget of Holdings and its Subsidiaries in form reasonably satisfactory to the Administrative Agent (including budgeted statements of income by each of Borrower’s business units and sources and uses of cash and balance sheets) prepared by Holdings for each fiscal month of the fiscal year covered by such budget prepared in detail and (ii) a strategic plan prepared in summary form; and, in the case of the annual budget, such budget shall be prepared in detail with appropriate presentation and discussion of the principal assumptions upon which such budget is based, accompanied by the statement of a Financial Officer of each of Holdings and Borrower to the effect that the budget is a reasonable estimate for the period covered thereby (it being understood that actual results may vary significantly from any such projected or forecasted results);      (g) Annual Meetings with Lenders. Within 120 days after the close of each fiscal year of Borrower (commencing with fiscal year 2006), each of Holdings and Borrower shall, at the request of the Administrative Agent or Required Lenders, hold a meeting (at a mutually agreeable location and time and at the expense of the participating Lenders (other than with respect to the cost of the location of such meeting, which shall be paid by Borrower)) with all Lenders who choose to attend such meeting at which meeting shall be reviewed the financial results of the previous fiscal year and the financial condition of the Companies and the budgets presented for the current fiscal year of the Companies;      (h) Notices in Connection with the Holdings Senior Note Documents. Until the Redemption has been consummated, promptly following the delivery or receipt by any Loan Party of any written notice or other written communication pursuant to or in connection with any Holdings Senior Note Document, a copy of such notice or communication; and      (i) Other Information. Promptly, from time to time, such other information regarding the operations, business affairs and financial condition of any Company, or compliance with the terms of any Loan Document, as the Administrative Agent or any Lender may reasonably request.      (j) Deemed Delivery. Information required to be delivered pursuant to clauses (a), (b) and (d) of this Section shall be deemed to have been delivered on the date on which the Borrower posts such information on the Borrower’s website on the Internet at http://ir.herbalife.com/phoenix.zhtml?c=183888&p=irol-irhome, at www.sec.gov/edgar/searchedgar/webusers.htm or at another website identified in a notice to the Administrative Agent and the Lenders and accessible by the Lenders without charge, provided that the Borrower shall deliver paper copies of the information required to be delivered pursuant to clauses (a), (b) and (d) to any Lender that requests such delivery. 68 --------------------------------------------------------------------------------        SECTION 5.02. Litigation and Other Notices. Furnish to the Administrative Agent and each Lender prompt written notice upon any Responsible Officer of a Loan Party becoming aware of the following:      (a) any Default or Event of Default, specifying the nature and extent thereof and the corrective action (if any) taken or proposed to be taken with respect thereto;      (b) the filing or commencement of, or any threat or notice of intention of any person to file or commence, any action, suit or proceeding, whether at law or in equity by or before any Governmental Authority (i) against any Company (or any Affiliate thereof) that could reasonably be expected to result in a Material Adverse Effect or (ii) with respect to any Loan Document;      (c) any development that has resulted in, or could reasonably be expected to result in a Material Adverse Effect;      (d) the occurrence of a Casualty Event in excess of $1.0 million; provided that the Net Cash Proceeds of any such event (whether in the form of insurance proceeds, condemnation awards or otherwise) are to be applied in accordance with the applicable provisions of this Agreement and the Security Documents; and      (e) the incurrence of any material Lien (other than Permitted Liens) on, or claim asserted against any of the Collateral.      SECTION 5.03. Existence; Businesses and Properties.      (a) Do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence, except as otherwise expressly permitted under Section 6.05 or, in the case of any Subsidiary, where the failure to perform such obligations, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.      (b) Do or cause to be done all things necessary to obtain, preserve, renew, extend and keep in full force and effect the rights, licenses, permits, franchises, authorizations, patents, copyrights, trademarks and trade names material to the conduct of its business; comply with all applicable Requirements of Law (including any and all zoning, building, Environmental Law, ordinance, code or approval or any building permits or any restrictions of record or agreements affecting the Real Property) and decrees and orders of any Governmental Authority, whether now in effect or hereafter enacted, except where the failure to comply, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect; pay and perform its obligations under all Leases, except where the failure to comply, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect; and at all times maintain and preserve all property material to the conduct of such business and keep such property in good repair, working order and condition and from time to time make, or cause to be made, all needful and proper repairs, renewals, additions, improvements and replacements thereto necessary in order that the business carried on in connection therewith may be properly conducted at all times; provided, however, that nothing in this Section 5.03(b) shall prevent (i) sales of assets, consolidations or mergers by or involving any Company in accordance with Section 6.04; (ii) the withdrawal by any Company of its qualification as a foreign corporation in any jurisdiction where such withdrawal, individually or in the 69 --------------------------------------------------------------------------------   aggregate, could not reasonably be expected to result in a Material Adverse Effect; or (iii) the abandonment by any Company of any property, rights, franchises, licenses, trademarks, tradenames, copyrights or patents that such person reasonably determines are not useful to its business.      SECTION 5.04. Insurance.      (a) Keep its insurable property adequately insured at all times by financially sound and reputable insurers; maintain such other insurance, to such extent and against such risks, including fire, flood (provided that, with respect to flood insurance, the Borrower shall not be required to acquire flood insurance to the extent such coverage is not available on commercially reasonable terms) and other risks insured against by extended coverage, as is customary with companies in the same or similar businesses operating in the same or similar locations, including public liability insurance against claims for personal injury or death or property damage occurring upon, in, about or in connection with the use of any property owned, occupied or controlled by it, to the extent obtainable on commercially reasonable terms; and maintain such other insurance as may be required by law.      (b) All such insurance shall (i) provide that no cancellation, material reduction in amount or material change in coverage thereof shall be effective until at least 30 days after receipt by the Collateral Agent of written notice thereof; (ii) name the Collateral Agent as insured party or loss payee; (iii) if reasonably requested by the Collateral Agent, include a breach-of-warranty clause; and (iv) be reasonably satisfactory in all other respects to the Collateral Agent.      (c) Notify the Administrative Agent and the Collateral Agent immediately whenever any separate insurance concurrent in form or contributing in the event of loss with that required to be maintained under this Section 5.04 is taken out by any Company; and promptly deliver to the Administrative Agent and the Collateral Agent a duplicate original copy of such policy or policies.      (d) Borrower shall deliver to the Administrative Agent and the Collateral Agent and the Lenders a report of a reputable insurance broker annually with respect to such insurance and such supplemental reports with respect thereto as the Administrative Agent or the Collateral Agent may from time to time reasonably request.      SECTION 5.05. Taxes. Pay and discharge promptly when due all Taxes before the same shall become delinquent or in default, as well as all lawful claims for labor, materials and supplies or otherwise that, if unpaid, might give rise to a Lien (other than a Permitted Lien) upon such properties or any part thereof; provided, however, that such payment and discharge shall not be required with respect to any such Taxes, as well as all lawful claims for labor, materials and supplies or otherwise, so long as the validity or amount thereof shall be contested in good faith by appropriate proceedings and the applicable Company shall have set aside on its books adequate reserves with respect thereto in accordance with GAAP and such proceeding (or orders entered in connection with such proceedings) operate to prevent the forfeiture or sale of the property or assets subject to any such Lien and suspend collection of the contested Tax and enforcement of a Lien and, in the case of Collateral, the applicable Company shall have otherwise complied with the provisions of the applicable Security Document in connection with such nonpayment. 70 --------------------------------------------------------------------------------        SECTION 5.06. Employee Benefits. (a) Comply in all material respects with the applicable provisions of ERISA and the Tax Code, and (b) furnish to the Administrative Agent (i) as soon as possible after, and in any event within ten days after any Responsible Officer of the Companies or their ERISA Affiliates or any ERISA Affiliate knows or has reason to know that any ERISA Event has occurred that, alone or together with any other ERISA Event, could reasonably be expected to result in liability of the Companies or their ERISA Affiliates under Title IV of ERISA, Section 302 of ERISA or Section 401(a)(29) or 412(n) of the Tax Code in any amount or other liability in an aggregate amount exceeding $1.0 million, a statement of a Financial Officer of Holdings setting forth details as to such ERISA Event and the action, if any, that the Companies propose to take with respect thereto, and (ii) upon request by the Administrative Agent, copies of: (w) each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) filed by any Company or any ERISA Affiliate with the Internal Revenue Service with respect to each Plan, (x) the most recent actuarial valuation report for each Plan, (y) all notices received by any Company or any ERISA Affiliate from a Multiemployer Plan sponsor or any governmental agency concerning an ERISA Event, and (z) such other documents or governmental reports or filings relating to any Plan (or employee benefit plan sponsored or contributed to by any Company) as the Administrative Agent shall reasonably request.      SECTION 5.07. Maintaining Records; Access to Properties and Inspections. Keep proper books of record and account (i) in which full, true and correct entries are made in conformity with GAAP and in all material respects in conformity with all Requirements of Law, and (ii) in which all material dealings and transactions in relation to its business and activities are recorded. Each Company will permit any representatives designated by the Administrative Agent or any Lender to visit and inspect the financial records and the property of such Company at reasonable times during normal business hours and upon reasonable advance notice (no more frequently than twice during any fiscal year of Holdings and at the sole cost and expense of the Lenders unless a Default or Event of Default shall have occurred and be continuing) and to make extracts from and copies of such financial records, and permit any representatives designated by the Administrative Agent or any Lender to discuss the affairs, finances and condition of any Company with and be advised as to the same by the officers thereof and the independent accountants therefor.      SECTION 5.08. Use of Proceeds. Use the proceeds of the Loans and request the issuance of Letters of Credit only for the purposes set forth in Section 3.11.      SECTION 5.09. Compliance with Environmental Laws; Environmental Reports.      (a) Comply and cause all lessees and other persons occupying Real Property, to the extent owned, operated or otherwise controlled by any Company, to comply, in all material respects with all Environmental Laws and Environmental Permits applicable to its operations and property and obtain and renew all material Environmental Permits applicable to its operations and property and conduct any Response in accordance with Environmental Laws; provided, however, that no Company shall be required to comply with the foregoing to the extent that either (i) its obligation to do so is being contested in good faith and by proper proceedings and appropriate reserves are being maintained with respect to such circumstances in accordance with GAAP or (ii) the failure to so comply could not reasonably be expected to result in a Material Adverse Effect.      (b) If a Default caused by reason of a breach of Section 3.17 or 5.09(a) shall have occurred and be continuing for more than 20 days without the Companies commencing activities reasonably likely to cure such Default, at the written request of the 71 --------------------------------------------------------------------------------   Required Lenders through the Administrative Agent, provide to the Lenders within 45 days after such request, at the expense of Borrower, an environmental site assessment report regarding the matters that are the subject of such default, including where appropriate, any soil and/or groundwater sampling prepared by an environmental consulting firm and in form and substance reasonably acceptable to the Administrative Agent and indicating the presence or absence of Hazardous Materials and the estimated cost of any compliance or Response to address them in connection with such Default.      SECTION 5.10. Interest Rate Protection. No later than the 90th day after the Closing Date, Borrower shall enter into, for a minimum of three years after the Closing Date, Interest Rate Protection Agreements acceptable to the Administrative Agent that result in an amount to be determined by the Administrative Agent of up to 25% of the aggregate principal amount of Terms Loans outstanding hereunder being effectively subject to a fixed or maximum interest rate acceptable to the Administrative Agent.      SECTION 5.11. Additional Collateral; Additional Guarantors.      (a) Subject to this Section 5.11 and except to the extent the Administrative Agent (after consultation with Borrower) determines that any of the following is not commercially reasonable (taking into account the expense of obtaining the same, the ability of Borrower or the relevant Subsidiary to obtain any necessary approvals or consents required to be obtained under applicable law in connection therewith, and the effectiveness and enforceability thereof under applicable law), with respect to any assets acquired after the Closing Date by Borrower or any other Loan Party that are intended to be subject to the Lien created by any of the Security Documents but that are not so subject, and with respect to any assets held by Borrower or any other Loan Party on the Closing Date not made subject to a Lien created by any of the Security Documents but of a type intended to be subject to the Lien created by the applicable Security Documents (but, in any event, excluding any assets described in Section 5.11(b)), promptly (and in any event within 60 days after the acquisition thereof or upon the Administrative Agent’s request): (i) execute and deliver to the Collateral Agent such amendments or supplements to the relevant Security Documents or such other documents as the Collateral Agent shall deem necessary or advisable to grant to the Collateral Agent, for its benefit and for the benefit of the other Secured Parties, a Lien on such properties or assets, subject to no Liens other than Permitted Liens, and (ii) take all actions necessary to cause such Lien to be duly perfected to the extent required by such Security Document in accordance with all applicable Requirements of Law, including the filing of financing statements in such jurisdictions as may be reasonably requested by the Collateral Agent. Borrower or any such Loan Party shall otherwise take such actions and execute and/or deliver to the Collateral Agent such documents as the Collateral Agent shall require to confirm the validity, perfection and priority of the Lien of Security Documents against such after-acquired properties or assets, and such assets held on the Closing Date not made subject to a Lien created by any of the Security Documents.      (b) To the extent the Administrative Agent (after consultation with Borrower) determines that any of the following is commercially reasonable (taking into account the expense (including taxes) of obtaining the same, the ability of Borrower or the relevant Subsidiary to obtain any necessary approvals or consents required to be obtained under applicable law in connection therewith, and the effectiveness and enforceability thereof under applicable law), with respect to any person that becomes, after the Closing Date, a Wholly Owned Subsidiary directly owned by a Loan Party and organized under the laws 72 --------------------------------------------------------------------------------   of the United States, Cayman Islands, Luxembourg, England and Wales, Japan, Mexico, Switzerland or a political subdivision of any thereof (a “New Wholly Owned Subsidiary”), promptly, and in any event no later than 60 days after each such person becomes a New Wholly Owned Subsidiary, cause such Subsidiary (i) to become a Guarantor and deliver to the Collateral Agent the certificates representing the Equity Interests of such Subsidiary (provided, that, in no event shall the stock of any such Subsidiary be required to be pledged if such pledge is illegal under applicable law and no reasonable alternative structure can be devised having substantially the same effect as such pledge that would not be illegal under applicable law), together with undated stock powers executed and delivered in blank by a duly authorized officer of such Subsidiary’s parent, as the case may be, and all Intercompany Notes owing from such Subsidiary to any Loan Party; and (ii) (A) to execute a Joinder Agreement or such comparable documentation, in form and substance reasonably satisfactory to the Administrative Agent, and (B) to take all actions reasonably necessary or advisable to cause the Lien created by each Security Agreement to be duly perfected to the extent required by such agreement in accordance with all applicable Requirements of Law, including the filing of financing statements in such jurisdictions as may be reasonably requested by the Collateral Agent (provided, that any such Subsidiary shall not be required to comply with clause (ii)(A) and (B) above if satisfying such requirements is illegal under applicable law and no reasonable alternative structure can be devised having substantially the same effect as such pledge that would not be illegal under applicable law).      (c) Notwithstanding anything to the contrary contained herein, in the case of any (x) New Wholly Owned Subsidiary that has not previously become (and, if so, does not remain) a Guarantor or (y) other Non-Guarantor Subsidiary directly owned by a Loan Party, 66% of the Equity Interests of any such Subsidiary (and 100% of the Equity Interests of any Domesticated Foreign Subsidiary) (exclusive, however, of Herbalife China LLC, Herbalife Del Ecuador, S.A., Herbalife International Products, N.V. or any Immaterial Subsidiary) shall be subject to a Lien or be required to be pledged under the applicable Loan Document (except to the extent the Administrative Agent, after consultation with Borrower, determines that such Lien or pledge is not commercially reasonable (taking into account the expense, including taxes, of obtaining the same, the ability of Borrower or such Subsidiary to obtain any necessary approvals or consents required to be obtained under applicable law in connection therewith, and the effectiveness and enforceability thereof under applicable law)); and, in any event, no Loan Party shall be required to deliver any supplemental Loan Document to give effect to this clause (c) that is governed by any law other than the laws of the United States, Cayman Islands, Luxembourg, England and Wales, Japan, Mexico, Switzerland or any political subdivision of any thereof).      SECTION 5.12. Security Interests; Further Assurances.(a)(i) Promptly, upon the reasonable request of the Administrative Agent, any Lender or the Collateral Agent, at Borrower’s expense, execute, acknowledge and deliver, or cause the execution, acknowledgment and delivery of, and thereafter register, file or record, or cause to be registered, filed or recorded, in an appropriate governmental office, any document or instrument supplemental to or confirmatory of the Security Documents or otherwise deemed by Administrative Agent or the Collateral Agent reasonably necessary or desirable for the continued validity, perfection and priority of the Liens on the Collateral covered thereby superior and prior to the rights of all third persons other than the holders of Permitted Liens and subject to other Liens except as permitted by the Security Documents, or use commercially reasonable efforts to obtain any consents as may be necessary or appropriate in connection therewith, to the extent contemplated hereby; (ii) 73 --------------------------------------------------------------------------------   deliver or cause to be delivered to the Administrative Agent and the Collateral Agent from time to time such other documentation, consents, authorizations, approvals and orders in form and substance reasonably satisfactory to the Administrative Agent and the Collateral Agent as the Administrative Agent or the Collateral Agent shall deem necessary to perfect or maintain the Liens on the Collateral pursuant to the Security Documents; and (iii) upon the exercise by the Administrative Agent or the Collateral Agent of any power, right, privilege or remedy pursuant to any Loan Document that requires any consent, approval, registration, qualification or authorization of any Governmental Authority or any other person, execute and deliver and/or obtain all applications, certifications, instruments and other documents and papers that the Administrative Agent or the Collateral Agent may be so required to obtain (other than in respect of any registration under the Securities Act).      (b) Each Loan Party shall, at its own cost and expense, take any and all actions necessary to defend title to the Collateral against all persons and to defend the security interest of the Collateral Agent in the Collateral and the priority thereof against any Lien not expressly permitted pursuant to Section 6.02. Notwithstanding anything to the contrary contained herein, if an Event of Default has occurred and is continuing, the Administrative Agent and the Collateral Agent shall have the right to require any Loan Party to execute and deliver documentation, consents, authorizations, approvals and orders in form and substance reasonably satisfactory to the Administrative Agent and the Collateral Agent as the Administrative Agent and the Collateral Agent shall deem necessary to grant to the Collateral Agent, for its benefit and for the benefit of the other Secured Parties, a valid and perfected Lien subject to no Liens other than Permitted Liens on such assets and properties not otherwise required hereunder, except to the extent such requirements are illegal under applicable law, and no reasonable alternative structure can be devised having substantially the same effect as such actions that would not be illegal under applicable law. If the Administrative Agent, the Collateral Agent or the Required Lenders determine that they are required by law or regulation to have appraisals prepared in respect of the Real Property of any Loan Party constituting Collateral, Borrower shall provide to the Administrative Agent appraisals that satisfy the applicable requirements of the Real Estate Appraisal Reform Amendments of FIRREA and are in form and substance satisfactory to the Administrative Agent and the Collateral Agent.      SECTION 5.13. Know-Your-Customer Rules.      If :      (a) (i) the introduction of or any change in (or in the interpretation, administration or application of) any law or regulation made after the date of this Agreement;      (ii) any change in the status of a Loan Party after the date of this Agreement; or      (iii) a proposed assignment or transfer by a Lender of any of its rights and obligations under this Agreement to a party that is not a Lender prior to such assignment or transfer,      obliges the Administrative Agent or any Lender (or, in the case of clause (iii) above, any prospective new Lender) to comply with “know your customer” or similar identification procedures in circumstances where the necessary 74 --------------------------------------------------------------------------------   information is not already available to it, each Loan Party shall promptly upon the request of the Administrative Agent or any Lender supply, or procure the supply of, such documentation and other evidence as is reasonably requested by the Administrative Agent (for itself or on behalf of any Lender) or any Lender (for itself or, in the case of the event described in clause (iii) above, on behalf of any prospective new Lender) in order for the Administrative Agent, such Lender or, in the case of the event described in clause (iii) above, any prospective new Lender to carry out and be satisfied it has complied with all necessary “know your customer” or other similar checks under all applicable laws and regulations pursuant to the transactions contemplated in the Loan Documents.      (b) Each Lender shall promptly upon the request of the Administrative Agent supply, or procure the supply of, such documentation and other evidence as is reasonably requested by the Administrative Agent (for itself) in order for the Administrative Agent to carry out and be satisfied it has complied with all necessary “know your customer” or other similar checks under all applicable laws and regulations pursuant to the transactions contemplated in the Loan Documents.      SECTION 5.14. Post-Closing Matters. Execute and deliver the documents and complete the tasks set forth on Schedule 5.14, in each case within the time limits specified on such schedule or as such time as may be extended by the Collateral Agent in its sole discretion. ARTICLE VI Negative Covenants      Each Loan Party covenants and agrees with each Lender that, so long as this Agreement shall remain in effect and until the Commitments have been terminated and the principal of and interest on each Loan, all Fees and all other expenses or amounts payable under any Loan Document have been paid in full and all Letters of Credit have been canceled or have expired and all amounts drawn thereunder have been reimbursed in full, unless the Required Lenders shall otherwise consent in writing, no Loan Party will, nor will any Loan Party cause or permit any of its Subsidiaries to:      SECTION 6.01. Indebtedness. Incur, create, assume or permit to exist, directly or indirectly, any Indebtedness, except:      (a) Indebtedness incurred pursuant to this Agreement and the other Loan Documents;      (b) Indebtedness under Interest Rate Protection Agreements entered into in compliance with Section 5.10 and such other non-speculative Interest Rate Protection Agreements that may be entered into from time to time by any Company and that such Company in good faith believes will provide protection against fluctuations in interest rates with respect to floating rate Indebtedness then outstanding, and permitted to remain outstanding, pursuant to the other provisions of this Section 6.01;      (c) Indebtedness under Hedging Agreements (other than Interest Rate Protection Agreements) entered into from time to time by any Company in accordance with Section 6.03(c); 75 --------------------------------------------------------------------------------        (d) intercompany Indebtedness of the Companies outstanding to the extent permitted by Sections 6.03(d), (k), (l), (m), (n) and (o);      (e) Indebtedness of a Company in respect of Purchase Money Obligations, Synthetic Leases and Capital Lease Obligations and refinancings or renewals thereof, in an aggregate amount not to exceed at any time outstanding (i) if in respect of lease obligations incurred in connection with the establishment of new real estate leasehold interests, $100.0 million, so long as such payments are made over not less than ten years, (ii) if in respect of the build out and related tenant improvements for the new leasehold interests contemplated by the preceding clause (i), $25.0 million, and (iii) otherwise $20.0 million outstanding at any time;      (f) Indebtedness in respect of workers’ compensation claims, self-insurance obligations, performance bonds, surety appeal or similar bonds and completion guarantees provided by a Company in the ordinary course of its business;      (g) (i) Indebtedness (other than as described in clause (iii) below) actually outstanding on the Closing Date and listed on Schedule 6.01, provided, that, any such scheduled Indebtedness that constitutes intercompany Indebtedness (A) owing to a Loan Party by a Loan Party must be subordinated to the Obligations of the Loan Parties in accordance with a subordination agreement in form and substance reasonably satisfactory to the Administrative Agent, and (B) shall be permitted under Section 6.03; (ii) refinancings or renewals thereof, provided, that, (A) any such refinancing Indebtedness is in an aggregate principal amount not greater than the aggregate principal amount of the Indebtedness being renewed or refinanced, plus the amount of any premiums required to be paid thereon and fees and expenses associated therewith, (B) such refinancing Indebtedness has a later or equal final maturity and longer or equal weighted average life than the Indebtedness being renewed or refinanced and (C) the covenants, events of default subordination and other provisions thereof (including any guarantees thereof) shall be, in the aggregate, not materially less favorable to the Lenders than those contained in the Indebtedness being renewed or refinanced; and (iii) the Holdings Senior Notes (including any notes issued in exchange therefor in accordance with any registration rights agreement entered into in connection with the issuance of the Holdings Senior Notes);      (h) so long as no Default or Event of Default exists or would result therefrom, Indebtedness of Borrower in respect of the Tax Indemnity, so long as Borrower is not obligated to make payments in excess of $15.0 million in any fiscal year and the obligation to make any such payment relates to a taxable year that closed prior to the Closing Date;      (i) other Indebtedness of a Company or any Subsidiary thereof not to exceed $25.0 million in aggregate principal amount at any time outstanding;      (j) Indebtedness assumed in connection with a Permitted Acquisition so long as such Indebtedness is in existence at the time of the consummation of the Permitted Acquisition and is not created in anticipation thereof;      (k) Indebtedness of a Company or any Subsidiary thereof incurred in respect of bank guarantees, letters of credit or similar instruments to support local regulatory, 76 --------------------------------------------------------------------------------        solvency, consumer requirements and tax disputes not to exceed $25.0 million in the aggregate at any time outstanding; and      (l) Indebtedness of a Company or any Subsidiary thereof incurred in connection with the acquisition of a corporate jet designated by Borrower to the Administrative Agent for an aggregate purchase price (including (i) fees and expenses related to such purchase and (ii) costs associated with retrofitting, refurbishing or otherwise modifying such airplane) not to exceed $20.0 million; provided, however, that notwithstanding anything to the contrary herein, no Subsidiary of Holdings (other than WH Capital) may guarantee or otherwise become liable for any obligations in respect of the Holdings Senior Notes or any other Holdings Senior Note Document.      SECTION 6.02. Liens. Create, incur, assume or permit to exist, directly or indirectly, any Lien on any property now owned or hereafter acquired by it or on any income or revenues or rights in respect of any thereof, except (each of the following being the “Permitted Liens”):      (a) inchoate Liens for Taxes not yet due and payable or delinquent and Liens for Taxes (including in respect of deposits made in respect of such Taxes) that (i) are being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP, which proceedings (or orders entered in connection with such proceedings) have the effect of preventing the forfeiture or sale of the property or assets subject to any such Lien, or (ii) in the case of any such charge or claim that has or may become a Lien against any of the Collateral, such Lien and the contest thereof shall satisfy the Contested Collateral Lien Conditions;      (b) Liens in respect of property of a Company or any Subsidiary thereof imposed by law that were incurred in the ordinary course of business and do not secure Indebtedness for borrowed money, such as carriers’, warehousemen’s, materialmen’s, landlords’, workmen’s, suppliers’, repairmen’s and mechanics’ Liens and other similar Liens arising in the ordinary course of business (i) for amounts not yet overdue or (ii) for amounts that are overdue and that are being contested in good faith by appropriate proceedings, so long as (A) adequate reserves have been established in accordance with GAAP, and (B) in the case of any such Lien that has or may become a Lien against any of the Collateral, such Lien and the contest thereof shall satisfy the Contested Collateral Lien Conditions;      (c) easements, rights-of-way, restrictions (including zoning restrictions), covenants, encroachments, protrusions and other similar charges or encumbrances, and minor title deficiencies on or with respect to any Real Property, in each case whether now or hereafter in existence, not (i) securing Indebtedness and (ii) individually or in the aggregate materially interfering with the conduct of the business of the Companies at such Real Property;      (d) Liens arising out of judgments or awards not resulting in an Event of Default and in respect of which such Company shall in good faith be prosecuting an appeal or proceedings for review in respect of which there shall be secured a subsisting stay of execution pending such appeal or proceedings; 77 --------------------------------------------------------------------------------        (e) Liens (other than any Lien imposed by ERISA or Section 401(a)(29) or 412(n) or the Tax Code) (i) imposed by law or deposits made in connection therewith in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other types of social security; (ii) incurred in the ordinary course of business to secure the performance of tenders, statutory obligations (other than excise taxes), surety, stay, customs and appeal bonds, statutory bonds, bids, leases, government contracts, trade contracts, performance and return of money bonds and other similar obligations (including obligations imposed by the applicable laws of foreign jurisdictions and exclusive of obligations for the payment of borrowed money); or (iii) arising by virtue of deposits made in the ordinary course of business to secure liability for premiums to insurance carriers; provided that, (x) with respect to clauses (i), (ii) and (iii) above such Liens are set amounts not yet due and payable or delinquent or, to the extent such amounts are so due and payable, such amounts are being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP, which proceedings for orders entered in connection with such proceedings have the effect of preventing the forfeiture or sale of the property or assets subject to any such Lien, (y) to the extent such Liens are not imposed by law, such Liens shall in no event encumber any property other than cash and Cash Equivalents, and (z) in the case of any such Lien against any of the Collateral, such Lien and the contest thereof shall satisfy the Contested Collateral Lien Conditions;      (f) Liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale of goods entered into by a Company or any Subsidiary thereof in the ordinary course of business in accordance with the past practices of a Company or Subsidiary;      (g) Liens arising pursuant to Purchase Money Obligations, Synthetic Lease Obligations or Capital Lease Obligations incurred pursuant to Section 6.01(e); provided that, (i) the Indebtedness secured by any such Lien (including refinancings thereof) does not exceed 100% of the cost (including financing cost) of the property being acquired or leased at the time of the incurrence of such Indebtedness and (ii) any such Liens attach only to the property being financed pursuant to such Purchase Money Obligations, Synthetic Lease Obligations or Capital Lease Obligations and directly related assets, such as proceeds (including insurance proceeds), products, accessions and substitutions, and do not encumber any other property of any Company;      (h) bankers’ Liens, rights of set-off and other similar Liens existing solely with respect to cash and Cash Equivalents on deposit in one or more accounts maintained by a Company or any Subsidiary, in each case granted in the ordinary course of business in favor of the bank or banks with which such accounts are maintained, securing amounts owing to such bank with respect to cash management and operating account arrangements, including those involving pooled accounts and netting arrangements; provided that, in no case shall any such Liens secure (either directly or indirectly) the repayment of any Indebtedness;      (i) Liens on assets of a person (and its Subsidiaries) existing at the time such person is acquired or merged with or into or consolidated with a Company or any of its Subsidiaries (and not created in anticipation or contemplation thereof); provided that, such Liens do not extend to assets not subject to such Liens at the time of acquisition (other than improvements thereon) and, in respect of a Replacement Lien, such Liens do not encumber any property other than the property subject thereto on the date such person 78 --------------------------------------------------------------------------------   is acquired or merged with or into or consolidated with a Company or any of its Subsidiaries;      (j) Liens pursuant to the Security Documents;      (k) Liens in existence on the Closing Date and set forth on Schedule 6.02, including Liens replacing such Liens (“Replacement Liens”); provided that, (i) the aggregate principal amount of the Indebtedness, if any, secured by such Liens does not increase; and (ii) such Liens do not encumber any property other than the property subject thereto on the Closing Date;      (l) Licenses of Intellectual Property (i) granted by Holdings and its Subsidiaries in the ordinary course of business and not interfering in any material respect with the ordinary conduct of the business of Holdings and its Subsidiaries and (ii) between or among the Loan Parties;      (m) cash deposits required to secure obligations in respect of (i) letters of credit and bank guarantees actually outstanding on the Closing Date and listed on Schedule 6.01 and (ii) refinancings or renewals thereof permitted under Section 6.01(g);      (n) restrictions on transfers of securities imposed by applicable securities laws;      (o) Liens securing Indebtedness permitted under Section 6.01(k) in an amount not to exceed $25.0 million at any one time;      (p) Liens securing Indebtedness and other obligations in an amount not to exceed $25.0 million at any one time; and      (q) Liens securing Indebtedness permitted under Section 6.01(1) in an amount not to exceed $20.0 million; provided, however, that no Liens shall be permitted to exist, directly or indirectly, on any Securities Collateral (as defined in the U.S. Security Agreement) except to the extent permitted under Section 6.02(m) above).      SECTION 6.03. Investments, Loans and Advances. Directly or indirectly, lend money or credit or make advances to any person, or purchase or acquire any stock, obligations or securities of, or any other interest in, or make any capital contribution to, any other person, or purchase or own a futures contract or otherwise become liable for the purchase or sale of currency or other commodities at a future date in the nature of a futures contract (all of the foregoing, collectively, “Investments”), except that the following shall be permitted:      (a) the Companies may consummate the Transactions in accordance with the provisions of the Transaction Documents;      (b) Holdings and its Subsidiaries may (i) acquire and hold accounts receivables owing to any of them if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary terms, (ii) acquire and hold cash and Cash Equivalents, (iii) endorse negotiable instruments for collection in the ordinary course of business, or (iv) make lease, utility and other similar deposits in the ordinary course of business; 79 --------------------------------------------------------------------------------        (c) the Loan Parties may enter into Interest Rate Protection Agreements to the extent permitted by Section 6.01(b) and may enter into and perform its obligations under Hedging Agreements entered into in the ordinary course of business and so long as any such Hedging Agreement is not speculative in nature;      (d) any Loan Party may make an Investment in any other Loan Party; provided that, if such Investment is in the form of an intercompany loan, such loan shall be (i) evidenced by an Intercompany Note, (ii) pledged (and delivered) by such Loan Party that is the lender of such intercompany loan as Collateral pursuant to the applicable Security Agreement and (iii) subordinated to the prior payment in full of the Obligations pursuant to a subordination agreement in form and substance reasonably satisfactory to the Administrative Agent;      (e) Holdings and its Subsidiaries may make Investments in the form of advances to employees for travel, relocation and like expenses, in each case, in the ordinary course of business and consistent with such Company’s past practices;      (f) Holdings and its Subsidiaries may make Investments in the form of loans and advances not to exceed $7.0 million in the aggregate at any one time outstanding pursuant to this Section 6.03(f) to employees, directors and distributors of Holdings and its Subsidiaries for the purpose of funding the purchase of Equity Interests of Holdings by such employees, directors and distributors;      (g) Holdings and its Subsidiaries may sell or transfer amounts to the extent permitted by Section 6.04;      (h) Investments in securities of trade creditors or customers in the ordinary course of business and consistent with such Company’s past practices that are received in the settlement of bona fide disputes or pursuant to any plan of reorganization or liquidation or similar arrangement upon the bankruptcy or insolvency of such trade creditors or customers;      (i) Investments made by Holdings or any Subsidiary as a result of consideration received in connection with an Asset Sale or other transaction effected in compliance with Section 6.04;      (j) Investments outstanding on the Closing Date and identified on Schedule 6.03;      (k) the Loan Parties may make Investments in other persons, including Non-Guarantor Subsidiaries; provided that, (i) after giving pro forma effect to each such Investment, the aggregate amount of all such Investments made by all Loan Parties on and after the Closing Date pursuant to this Section 6.03(k) that are outstanding at any time does not exceed $100.0 million (excluding any amounts invested in any Non-Guarantor Subsidiary that subsequently becomes a Guarantor (effective only upon such person becoming a Guarantor and only for so long as such person remains a Guarantor)) and (ii) if such Investment is in the form of an intercompany loan, such loan shall be (A) evidenced by an Intercompany Note and (B) pledged (and delivered) by the Loan Party that is the lender of such intercompany loan as Collateral pursuant to the applicable Security Agreement; 80 --------------------------------------------------------------------------------        (l) the Loan Parties may make Investments in Non-Guarantor Subsidiaries for the purposes of enabling such Non-Guarantor Subsidiaries to comply with statutory obligations imposed by Governmental Authorities; provided that, if such Investment is in the form of an intercompany loan, each such intercompany loan shall be evidenced by an Intercompany Note and shall be pledged (and delivered) by the Loan Party that is the lender of such intercompany loan as Collateral pursuant to the applicable Security Agreement; provided, further that after giving pro forma effect to each such Investment, the aggregate amount of all such Investments made by all Loan Parties on and after the Closing Date pursuant to this Section 6.03(l) that are outstanding at any time does not exceed $25.0 million (excluding any amounts invested in any Non-Guarantor Subsidiary that subsequently becomes a Guarantor (effective only upon such person becoming a Guarantor and only for so long as such person remains a Guarantor));      (m) Investments by the Loan Parties in Non-Guarantor Subsidiaries; provided, that, (i) such Investments are contemporaneously or within five Business Days remitted to the Loan Parties, and (ii) such Investments are made to facilitate repatriation of monies to the United States;      (n) Investments by Non-Guarantor Subsidiaries in Loan Parties;      (o) Investments by Non-Guarantor Subsidiaries in Non-Guarantor Subsidiaries;      (p) Investments by Borrower in the Collateral Account and LC Sub-Account;      (q) Permitted Acquisitions; and      (r) so long as no Default or Event of Default exists or would result therefrom, Investments resulting from the purchase, repurchase, redemption or other acquisition for value of Holdings Senior Notes.      SECTION 6.04. Mergers, Consolidations, Sales and Purchases of Assets. Wind up, liquidate or dissolve its affairs or enter into any transaction of merger or consolidation, or convey, sell, lease or otherwise dispose of all or any part of its property or assets (other than sales and other dispositions of inventory in the ordinary course of business), or purchase or otherwise acquire (in one or a series of related transactions) any part of the property or assets (other than purchases or other acquisitions of assets used or useful in the Companies’ business, but not all or substantially all of a person’s assets) of any person, except that:      (a) Capital Expenditures shall be permitted to the extent permitted by Section 6.07(c);      (b) (i) Asset Sales of used, worn out, obsolete or surplus property by any Company in the ordinary course of business and the abandonment or other Asset Sale of Intellectual Property that is, in the reasonable judgment of Borrower, no longer economically practicable to maintain or useful in the conduct of the business of the Companies, taken as a whole, shall be permitted; (ii) any Company shall be permitted to barter obsolete inventory for advertising media and for other ordinary course trade purposes; and (iii) subject to Section 2.10(c), sell, lease or otherwise dispose of any assets, provided that, the aggregate consideration received in respect of all Asset Sales pursuant to this clause (iii) shall not exceed $6.0 million in any four fiscal quarters of Holdings; 81 --------------------------------------------------------------------------------        (c) Investments shall be permitted to the extent permitted by Section 6.03;      (d) Holdings and its Subsidiaries may sell Cash Equivalents in the ordinary course of business;      (e) Holdings and its Subsidiaries may lease (as lessee or lessor) real or personal property and may guaranty such lease in the ordinary course of business;      (f) any Subsidiary may be merged into Borrower (as long as Borrower is the surviving corporation of such merger and remains a Wholly Owned Subsidiary of Holdings) or any other Wholly Owned Subsidiary Guarantor; provided, however, that the Lien on and security interest in such property granted in favor of the Collateral Agent under the Security Documents shall be maintained in accordance with the provisions of Section 5.11;      (g) (i) any Loan Party or any Subsidiary thereof (in any case, other than Borrower) may merge, convey, sell, transfer, assign or otherwise dispose of assets to Borrower or any other Loan Party and (ii) Borrower may convey, sell, transfer, assign or otherwise dispose of assets constituting Equity Interests of Designated Subsidiaries and other intangible assets relating to the operations of such Foreign Subsidiary to HIL;      (h) Holdings and its Subsidiaries may incur Liens that are not prohibited hereunder;      (i) any Non-Guarantor Subsidiary may merge, convey, sell, transfer, assign or otherwise dispose of assets to any Company;      (j) Holdings and its Subsidiaries may make Investments pursuant to and in accordance with Section 6.03;      (k) licenses and sublicenses by any Company of software, Intellectual Property and other general intangibles in the ordinary course of business and which do not materially interfere with the ordinary conduct of business of such Company;      (l) Holdings and its Subsidiaries may settle, release or surrender tort or other litigation claims in the ordinary course of business;      (m) any Non-Guarantor Subsidiary and any Immaterial Subsidiary may voluntarily dissolve, liquidate or wind up; and      (n) Holdings may sell its capital stock to officers, directors, distributors and employees of Holdings and its Subsidiaries. To the extent the Required Lenders waive the provisions of this Section 6.04 with respect to the sale of any Collateral, or any Collateral is sold as permitted by this Section 6.04, such Collateral (unless sold to a Company) shall be sold free and clear of the Liens created by the Security Documents, and the Agents shall take all actions deemed appropriate to effect the foregoing.      SECTION 6.05. Dividends. Pay any Dividends with respect to any Company, except that: 82 --------------------------------------------------------------------------------        (a) any Subsidiary of Borrower (i) may pay cash Dividends to Borrower or any Wholly Owned Subsidiary of Borrower and (ii) if such Subsidiary is not a Wholly Owned Subsidiary of Borrower, may pay cash Dividends to its shareholders generally so long as Borrower or its Subsidiary that owns the equity interest or interests in the Subsidiary paying such Dividends receives at least its proportionate share thereof (based upon its relative holdings of Equity Interests in the Subsidiary paying such Dividends and taking into account the relative preferences, if any, of the various classes of Equity Interests in such Subsidiary);      (b) any Non-Guarantor Subsidiary (i) may pay cash Dividends to its parent and (ii) if such Non-Guarantor Subsidiary is not a Wholly Owned Subsidiary, may pay cash Dividends to its shareholders generally so long as the Subsidiary of Holdings that owns the Equity Interest in the Subsidiary paying such Dividends receives at least its proportionate share thereof (based upon its relative holdings of Equity Interests in the Subsidiary paying such Dividends and taking into account the relative preferences, if any, of the various classes of Equity Interests in such Subsidiary)      (c) so long as no Default or Event of Default exists or would result therefrom, Borrower and each Guarantor may pay Dividends for the purpose of enabling Holdings to, and Holdings may, repurchase outstanding shares of its capital stock (or options to purchase such common stock) following the death, disability, retirement or termination of employment of current or former employees, officers, distributors or directors of any Company; provided that, (i) all amounts used to effect such repurchases are obtained by Holdings from a substantially concurrent issuance of its capital stock (or exercise of options to purchase such capital stock) to other employees, members of management, distributors, executive officers or directors of Holdings, Borrower or any of its Subsidiaries; or (ii) to the extent the proceeds used to effect any repurchase pursuant to this clause (ii) are not obtained as described in preceding clause (i), the aggregate amount of Dividends paid by Holdings pursuant to this Section 6.05(c) (exclusive of amounts paid as described pursuant to preceding clause (i)) shall not exceed $10.0 million in the aggregate on and after the Closing Date plus the amount of any key-man life insurance proceeds actually received in any fiscal year of Holdings;      (d) so long as no Default or Event of Default exists or would result therefrom, Borrower and each Guarantor may pay cash Dividends for the purpose of paying, so long as all proceeds thereof are promptly used to pay, each Loan Party’s operating expenses incurred in the ordinary course of business and other corporate overhead costs and expenses (including legal and accounting expenses and similar expenses); provided that, the aggregate amount of Dividends paid pursuant to this Section 6.05(d) shall not exceed $150,000 in any fiscal year of Holdings;      (e) so long as, after giving effect to any such cash Dividend on a pro forma basis, no Default or Event of Default exists or would result therefrom, Borrower and each Guarantor may pay cash Dividends for the purpose of enabling Holdings to pay (so long as all proceeds thereof are used by Holdings to pay) regularly scheduled payments of stated interest (and any applicable withholding tax gross-up payments or other tax indemnity payments in respect thereof) on, or the redemption price (including any premium required and interest on amounts redeemed) in respect of, the Holdings Senior Notes (pursuant to the terms of the Holdings Senior Note Documents as in effect on the Closing Date), so long as, until such time as the amount of cash Dividends made by Borrower pursuant to this Section 6.05(e) are applied to the payment of such regularly 83 --------------------------------------------------------------------------------   scheduled payments of stated interest (and any applicable withholding tax gross-up payments or other tax indemnity payments in respect thereof) on, or the redemption price (including any premium required and interest on amounts redeemed) in respect of, the Holdings Senior Notes, the Collateral Agent shall have a valid and perfected Lien on and security interest in such proceeds in accordance with Sections 5.11 and 5.12;      (f) so long as no Default or Event of Default exists or would result therefrom, Holdings and any Subsidiary of Holdings may make Dividends in respect of any stock appreciation rights, plans, equity incentive or achievement plans or any similar plan, so long as such rights or similar plans are approved by the board of directors of Holdings (or a duly constituted committee thereof);      (g) so long as no Default or Event of Default exists or would result therefrom, any Subsidiary of Holdings may purchase the capital stock of Holdings in connection with the exercise of stock option or similar arrangements by a director, officer or employee of such Subsidiary; provided, that such capital stock is immediately granted to the applicable director, officer or employee of such Subsidiary;      (h) Borrower and each Guarantor may pay cash Dividends to allow Holdings to pay cash Dividends so long as (i) no Default or Event of Default exists or would result therefrom and (ii) after giving effect to any such Dividend by Holdings the aggregate amount of Dividends paid by Holdings after the Closing Date pursuant to this Section 6.05(h) does not exceed the sum of (i) $300.0 million plus (ii) 50% of cumulative Consolidated Net Income of Holdings and its Subsidiaries for the period (taken as one accounting period) from the beginning of the first fiscal quarter of the 2007 fiscal year to the last day of the fiscal quarter most recently ended prior to the date of the Dividend to be made by Holdings for which financial statements are available; and      (i) Borrower and its direct and indirect parent companies may pay cash Dividends to their respective parent companies (and such parent companies may pay cash Dividends) to the extent of U.S. federal and state income and other tax obligations of WH Capital to the extent that such U.S. federal and state income and tax obligations are reasonably attributable to income or operations of the Borrower and any of its Subsidiaries. Any payments made pursuant to this Section 6.05(i) shall, no later than the 30th day after receipt, either be used to pay such obligations to the applicable taxing authority or be remitted to the Borrower.      SECTION 6.06. Transactions with Affiliates. Enter into, directly or indirectly, any transaction or series of related transactions, whether or not in the ordinary course of business, with any Affiliate of any Company, other than in the ordinary course of business and on terms and conditions substantially as favorable to such Company as would reasonably be obtained by such Company at that time in a comparable arm’s-length transaction with a person other than an Affiliate, except that:      (a) Dividends that are not otherwise restricted hereby may be made;      (b) loans may be made and other transactions may be entered into between and among any Company and its Affiliates to the extent permitted by Sections 6.01 and 6.03;      (c) assets sales permitted by Section 6.04 may be consummated; 84 --------------------------------------------------------------------------------        (d) customary fees may be paid to non-officer directors of the Loan Parties, and customary indemnities may be provided to all directors of the Loan Parties;      (e) transactions between or among the Loan Parties may be effected; and      (f) the Transactions may be effected.      SECTION 6.07. Financial Covenants.      (a) Maximum Leverage Ratio. Permit the Leverage Ratio of Holdings, as of the last day of the fiscal quarter of Holdings ending on September 30, 2006 and every fiscal quarter thereafter, to exceed 2.50:1.00.      (b) Minimum Interest Coverage Ratio. Permit the Consolidated Interest Coverage Ratio of Holdings, as of the last day of the fiscal quarter of Holdings ending on September 30, 2006 and every fiscal quarter thereafter, to be less than 4.00:1.00.      (c) Limitation on Capital Expenditures. (i) Make any Capital Expenditures, other than Capital Expenditures made by Holdings and its Consolidated Subsidiaries (A) which in the aggregate do not exceed $62.5 million in any fiscal year or (B) for purposes of (i) acquiring the office buildings designated by Borrower to the Administrative Agent for an aggregate purchase price for all such acquisitions not to exceed $50.0 million and (ii) the build out and tenant improvements for the new leasehold interests contemplated by Section 6.01(e) which in the aggregate do not exceed $25.0 million or (C) for purposes of acquiring a corporate jet designated by Borrower to the Administrative Agent for an aggregate purchase price (including (i) fees and expenses related to such purchase and (ii) costs associated with retrofitting, refurbishing or otherwise modifying such airplane) not to exceed $20.0 million. (ii) Notwithstanding anything to the contrary contained in clause (i) above, to the extent that the Capital Expenditures made by Holdings and its Consolidated Subsidiaries in any period set forth in clause (i) above are less than the amount permitted to be made in such period (without giving effect to any additional amount available as a result of this clause (ii)), the amount of such difference may be carried forward and used to make Capital Expenditures in the next succeeding fiscal year of Holdings.      SECTION 6.08. Limitation on Modifications of Indebtedness; Modifications of Certificate of Incorporation, Other Constitutive Documents or Bylaws and Certain Other Agreements, Etc.      (a) Amend or modify, or permit the amendment or modification of, any provision of any agreement comprising a Material Agreement other than any amendments, modifications, agreements or changes pursuant to this clause (a) that could not reasonably be expected to result in a Material Adverse Effect; and      (b) In respect of the Borrower, amend, modify or change its articles of incorporation or other constitutive documents (including by the filing or modification of any certificate of designation) or bylaws, or any agreement entered into by it, with respect to its capital stock (including any shareholders’ agreement) that could reasonably be expected to result in a Material Adverse Effect. 85 --------------------------------------------------------------------------------        SECTION 6.09. Limitation on Certain Restrictions on Subsidiaries. Directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Subsidiary of Borrower to (a) pay dividends or make any other distributions on its capital stock or any other interest or participation in its profits owned by Borrower or any Subsidiary of Borrower, or pay any Indebtedness owed to Borrower or a Subsidiary of Borrower; (b) make loans or advances to Borrower or any of Borrower’s Subsidiaries; or (c) transfer any of its properties to Borrower or any of Borrower’s Subsidiaries, except for such encumbrances or restrictions existing under or by reason of (i) applicable law, (ii) this Agreement and the other Loan Documents, (iii) customary provisions restricting subletting or assignment of any lease governing a leasehold interest of Borrower or a Subsidiary of Borrower, (iv) existing restrictions under Indebtedness existing on the Closing Date and described in Schedule 6.01 attached hereto, (v) restrictions with respect solely to any Subsidiary of Holdings imposed pursuant to a binding agreement which has been entered into for the sale or disposition of all of the Equity Interests or assets of such Subsidiary; provided that, such restrictions apply solely to the Equity Interests or assets of such Subsidiary which are being sold, (vi) in connection with and pursuant to refinancings permitted under this Agreement, replacements of restrictions imposed pursuant to clause (iv) or this clause (vi) that are not more restrictive taken as a whole than those being replaced and do not apply to any other person or assets other than those that would have been covered by the restrictions in the Indebtedness so refinanced or replaced, or (vii) customary provisions with respect to the disposition or distribution of assets in joint venture agreements and other similar agreements relating solely to the assets subject to such agreement.      SECTION 6.10. Sale and Leaseback Transactions. Enter into any arrangement, directly or indirectly, with any person whereby it shall sell or transfer any property, real or personal, used or useful in its business, whether now owned or hereafter acquired, and thereafter rent or lease such property or other property that it intends to use for substantially the same purpose or purposes as the property being sold or transferred, except such transactions among Loan Parties, unless (i) the sale of such property is permitted by Section 6.04 and (ii) any Liens arising in connection with its use of such property are permitted by Section 6.02.      SECTION 6.11. Holding Companies. Notwithstanding anything to the contrary contained in this Agreement, with respect to the Holding Companies, (i) incur, directly or indirectly, any Indebtedness other than the Obligations under the Loan Documents to which any such Company is a party, the Holdings Senior Notes and any intercompany Indebtedness between Holding Companies permitted hereunder or incurred in connection with the payments required to consummate the Transactions, (ii) create or suffer to exist any Lien upon any property or assets now owned or hereafter acquired by such Company other than the Liens permitted to exist under Sections 6.02(a), (b), (d), (h), (j) and (l), (iii) engage in any business or own any assets other than holding the Equity Interest of such Company’s direct Subsidiaries, claims against another Company, proceeds received in connection with the Transactions, and activities reasonably related to each of the foregoing; (iv) consolidate with or merge with or into, or convey, transfer (except in connection with the Transactions) or lease all or any portion of its assets to, any person other than a Loan Party or (iv) sell or otherwise dispose of any Equity Interest of any of such Company’s Subsidiaries other than to Loan Party.      SECTION 6.12. Business. Holding and its Subsidiaries, engage (directly or indirectly) in any business other than those businesses in which Borrower and its Subsidiaries are engaged on the Closing Date (or that are incidental, complementary or substantially related thereto or are reasonable extensions thereof). 86 --------------------------------------------------------------------------------        SECTION 6.13. Limitation on Accounting Changes. Make or permit any change in accounting policies or reporting practices without the consent of the Required Lenders, which consent shall not be unreasonably withheld, except changes that, in the aggregate, could not reasonably be expected to result in a Material Adverse Effect or are required by GAAP.      SECTION 6.14. Fiscal Year. Change its fiscal year-end to a date other than December 31. ARTICLE VII Guarantee      SECTION 7.01. The Guarantee. The Guarantors hereby irrevocably and unconditionally, jointly and severally guarantee as primary obligors and not as sureties to each Secured Party and their respective successors and assigns the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) of the principal of and interest on (including any interest, fees, costs or charges that would accrue but for the provisions of Title 11 of the United States Code after any bankruptcy or insolvency petition under Title 11 of the United States Code) the Loans made by the Lenders to, and the Notes held by each Lender of, Borrower, and all other Obligations from time to time owing to the Secured Parties by any Loan Party under any Loan Document or Interest Rate Protection Agreement relating to the Loans, in each case strictly in accordance with the terms thereof (such obligations being herein collectively called the “Guaranteed Obligations”). The Guarantors hereby irrevocably and unconditionally, jointly and severally agree that if Borrower or other Guarantor(s) shall fail to pay in full when due (whether at stated maturity, by acceleration or otherwise) any of the Guaranteed Obligations, the Guarantors will promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Guaranteed Obligations, the same will be promptly paid in full when due (whether at extended maturity, by acceleration or otherwise) in accordance with the terms of such extension or renewal.      SECTION 7.02. Obligations Unconditional. The obligations of the Guarantors under Section 7.01 shall constitute a guaranty of payment (and not of collection) and are absolute, irrevocable and unconditional, joint and several (except to the extent otherwise limited in accordance with applicable Requirements of Law as described in Annex III attached hereto or in any other Guarantee required by applicable Requirements of Law), irrespective of the value, genuineness, validity, regularity or enforceability of the Guaranteed Obligations of Borrower under this Agreement, the Notes, if any, or any other agreement or instrument referred to herein or therein, or any substitution, release or exchange of any other guarantee of or security for any of the Guaranteed Obligations and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a surety or Guarantor (except for payment in full). Without limiting the generality of the foregoing, it is agreed that the occurrence of any one or more of the following shall not alter or impair the liability of the Guarantors hereunder, which shall remain absolute, irrevocable and unconditional under any and all circumstances as described above:      (i) at any time or from time to time, without notice to the Guarantors, the time for any performance of or compliance with any of the Guaranteed Obligations shall be extended, or such performance or compliance shall be waived; 87 --------------------------------------------------------------------------------        (ii) any of the acts mentioned in any of the provisions of this Agreement or the Notes, if any, or any other agreement or instrument referred to herein or therein shall be done or omitted;      (iii) the maturity of any of the Guaranteed Obligations shall be accelerated, or any of the Guaranteed Obligations shall be amended in any respect, or any right under the Loan Documents or any other agreement or instrument referred to herein or therein shall be amended or waived in any respect or any other guarantee of any of the Guaranteed Obligations or any security therefor shall be released or exchanged in whole or in part or otherwise dealt with;      (iv) any Lien or security interest granted to, or in favor of, the Issuing Bank or any Lender or Agent as security for any of the Guaranteed Obligations shall fail to be perfected; or      (v) the release of any other Guarantor.      The Guarantors hereby expressly waive diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that any Loan Party exhaust any right, power or remedy or proceed against Borrower under this Agreement or the Notes, if any, or any other agreement or instrument referred to herein or therein, or against any other person under any other guarantee of, or security for, any of the Guaranteed Obligations. The Guarantors waive any and all notice of the creation, renewal, extension, waiver, termination or accrual of any of the Guaranteed Obligations and notice of or proof of reliance by any Secured Party upon this Guarantee or acceptance of this Guarantee, and the Guaranteed Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred in reliance upon this Guarantee, and all dealings between Borrower and the Secured Parties shall likewise be conclusively presumed to have been had or consummated in reliance upon this Guarantee. This Guarantee shall be construed as a continuing, absolute, irrevocable and unconditional guarantee of payment without regard to any right of offset with respect to the Guaranteed Obligations at any time or from time to time held by the Secured Parties, and the obligations and liabilities of the Guarantors hereunder shall not be conditioned or contingent upon the pursuit by the Secured Parties or any other person at any time of any right or remedy against Borrower or against any other person that may be or become liable in respect of all or any part of the Guaranteed Obligations or against any collateral or guarantee therefor or right of offset with respect thereto. This Guarantee shall remain in full force and effect and be binding in accordance with and to the extent of its terms upon the Guarantors and the successors and assigns thereof, and shall inure to the benefit of the Lenders, and their respective successors and assigns, notwithstanding that from time to time during the term of this Agreement there may be no Guaranteed Obligations outstanding.      For purposes of this paragraph only, references to the “principal” include each Loan Party and references to the “creditor” include each Secured Party. In accordance with Section 2856 of the California Civil Code, each Guarantor waives all rights and defenses (i) available to such Guarantor by reason of Sections 2787 through 2855, 2899, and 3433 of the California Civil Code, including all rights or defenses such Guarantor may have by reason of protection afforded to the principal with respect to any of the Guaranteed Obligations, or to any other guarantor of any of the Guaranteed Obligations with respect to any of such guarantor’s obligations under its guarantee, in either case in accordance with the antideficiency or other laws of the State of California limiting or discharging the principal’s Indebtedness or such other guarantor’s 88 --------------------------------------------------------------------------------   obligations, including Sections 580a, 580b, 580d and 726 of the California Code of Civil Procedure; and (ii) arising out of an election of remedies by the creditor, even though such election, such as a nonjudicial foreclosure with respect to security for any Guaranteed Obligation (or any obligation of any other guarantor of any of the Guaranteed Obligations), has destroyed such Guarantor’s right of subrogation and reimbursement against the principal (or such other guarantor) by the operation of Section 580d of the California Code of Civil Procedure or otherwise. No other provision of this Guarantee shall be construed as limiting the generality of any of the covenants and waivers set forth in this paragraph. As provided below, this Agreement shall be governed by, and shall be construed and enforced in accordance with the laws of the State of New York. This paragraph is included solely out of an abundance of caution, and shall not be construed to mean that any of the above-referenced provisions of California law are in any way applicable to this Agreement or to any of the Guaranteed Obligations.      SECTION 7.03. Reinstatement. The obligations of the Guarantors under this Article VII shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of Holdings, Borrower or any other Loan Party in respect of the Guaranteed Obligations is rescinded or must be otherwise restored by any holder of any of the Guaranteed Obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise. The Guarantors jointly and severally (except to the extent otherwise limited in accordance with applicable Requirements of Law as described in Annex III attached hereto or in any other Guarantee required by applicable Requirements of Law) agree that they will indemnify each Secured Party on demand for all reasonable costs and expenses (including reasonable fees of counsel) incurred by such Secured Party in connection with such rescission or restoration, including any such costs and expenses incurred in defending against any claim alleging that such payment constituted a preference, fraudulent transfer or similar payment under any bankruptcy, insolvency or similar law, other than any costs or expenses resulting from the gross negligence, bad faith or willful misconduct of such Secured Party.      SECTION 7.04. Subrogation; Subordination. Each Guarantor hereby agrees that until the indefeasible payment and satisfaction in full in cash of all Guaranteed Obligations and the expiration and termination of the Commitments of the Lenders under this Agreement it shall not exercise any right or remedy arising by reason of any performance by it of its guarantee in Section 7.01, whether by subrogation or otherwise, against Borrower or any other Guarantor of any of the Guaranteed Obligations or any security for any of the Guaranteed Obligations. The payment of any amounts due with respect to any indebtedness of Borrower or any other Guarantor now or hereafter owing to any Guarantor or Borrower by reason of any payment by such Guarantor under the Guarantee in this Article VII is hereby subordinated to the prior indefeasible payment in full in cash of the Guaranteed Obligations. In addition, any Indebtedness of the Guarantors now or hereafter held by any Guarantor is hereby subordinated in right of payment in full in cash to the Guaranteed Obligations. Each Guarantor agrees that it will not demand, sue for or otherwise attempt to collect any such indebtedness of Borrower or any other Guarantor to such Guarantor until the Obligations shall have been indefeasibly paid in full in cash. If, notwithstanding the preceding sentence, any Guarantor shall, prior to the indefeasible payment in full in cash of the Guaranteed Obligations, collect, enforce or receive any amounts in respect of such indebtedness, such amounts shall be collected, enforced and received by such Guarantor as trustee for the Secured Parties and be paid over to Administrative Agent on account of the Guaranteed Obligations without affecting in any manner the liability of such Guarantor under the other provisions of the guaranty contained herein.      SECTION 7.05. Remedies. The Guarantors jointly and severally (except to the extent otherwise limited in accordance with applicable Requirements of Law as described in 89 --------------------------------------------------------------------------------   Annex III attached hereto) agree that, as between the Guarantors and the Lenders, the obligations of Borrower under this Agreement and the Notes, if any, may be declared to be forthwith due and payable as provided in Article VIII (and shall be deemed to have become automatically due and payable in the circumstances provided in said Article VIII) for purposes of Section 7.01, notwithstanding any stay, injunction or other prohibition preventing such declaration (or such obligations from becoming automatically due and payable) as against Borrower and that, in the event of such declaration (or such obligations being deemed to have become automatically due and payable), such obligations (whether or not due and payable by Borrower) shall forthwith become due and payable by the Guarantors for purposes of Section 7.01.      SECTION 7.06. Instrument for the Payment of Money. Each Guarantor hereby acknowledges that the guarantee in this Article VII constitutes an instrument for the payment of money, and consents and agrees that any Lender or Agent, at its sole option, in the event of a dispute by such Guarantor in the payment of any moneys due hereunder, shall have the right to bring a motion-action under New York CPLR Section 3213 to the extent permitted thereunder.      SECTION 7.07. General Limitation on Guarantee Obligations. In any action or proceeding involving any state corporate law, or any state, federal or foreign bankruptcy, insolvency, reorganization or other law affecting the rights of creditors generally, if the obligations of any Guarantor under Section 7.01 would otherwise be held or determined to be void, voidable, invalid or unenforceable, or subordinated to the claims of any other creditors, on account of the amount of its liability under Section 7.01, then, notwithstanding any other provision to the contrary, the amount of such liability shall, without any further action by such Guarantor, any Loan Party or any other person, be automatically limited and reduced to the highest amount that is valid and enforceable and not subordinated to the claims of other creditors as determined in such action or proceeding.      SECTION 7.08. Continuing Guarantee. The Guarantees in this Article VII are continuing guarantees of payment, and shall apply to all Guaranteed Obligations whenever arising.      SECTION 7.09. Release of Guarantors. If at any time after the Closing Date and in connection with the Guarantee of any Loan Party in this Article VII (i) subject to the requirements of Section 5.11(c), in the case of a Foreign Subsidiary, the Administrative Agent (after consultation with Borrower) determines that in the case of any existing Guarantor, it would not be commercially reasonable for such Guarantor to remain a Guarantor (taking into account the expense (including taxes), the ability of Borrower or such Guarantor to obtain any necessary approvals or consents required to be obtained under applicable law (but have not been previously obtained) in connection therewith, and the effectiveness and enforceability thereof under applicable law) or (ii) such Guarantee becomes illegal under applicable law and such Loan Party delivers to the Administrative Agent, the Lenders and the Collateral Agent a legal opinion from its counsel to such effect, and no reasonable alternative structure can be devised having substantially the same effect as the issuance of a Guarantee that would not be illegal under applicable law, then, so long as such Guarantor has been released or is contemporaneously released under any other guaranty such Guarantor may be a party to, in case of each of the immediately preceding clauses (i) and (ii), the Collateral Agent shall (at the expense of Borrower) take all action necessary to release its security interest in that portion of the Security Agreement Collateral owned by such Guarantor (provided, however, that 66% of the Equity Interests of such Guarantor (and 100% of the Equity Interests of any Domesticated Foreign Subsidiary) shall not be released from the Security Agreement Collateral)), and such Guarantor shall be released from its obligations in respect of the Guarantees in this Article VII (such Guarantor being hereinafter 90 --------------------------------------------------------------------------------   referred to as a “Released Guarantor,” so long as it continues to be a Non-Guarantor Subsidiary), which release from such Guarantees, in the case of an event described in the immediately preceding clause (i), shall become effective as of the closing of the last day of the taxable year that immediately precedes the date that the Administrative Agent makes a determination described in such clause (i); provided that, such Released Guarantor shall continue to be subject to Section 5.11(b). ARTICLE VIII Events of Default      In case of the happening of any of the following events (“Events of Default”):      (a) default shall be made in the payment of any principal of any Loan or the reimbursement with respect to any LC Disbursement when and as the same shall become due and payable, whether at the due date thereof (including a Term Loan Repayment Date) or at a date fixed for prepayment thereof or by acceleration thereof or otherwise;      (b) default shall be made in the payment of any interest on any Loan or any Fee or any other amount (other than an amount referred to in paragraph (a) above) due under any Loan Document, when and as the same shall become due and payable, and such default shall continue unremedied for a period of five Business Days;      (c) any representation or warranty made or deemed made in or in connection with any Loan Document or the borrowings or issuances of Letters of Credit hereunder, or any representation, warranty, statement or information contained in any report, certificate, financial statement or other instrument furnished in connection with or pursuant to any Loan Document, shall prove to have been false or misleading in any material respect when so made, deemed made or furnished;      (d) default shall be made in the due observance or performance by any Company of any covenant, condition or agreement contained in Section 5.02, 5.03, 5.08, or 5.14 or in Article VI;      (e) default shall be made in the due observance or performance by any Company of any covenant, condition or agreement contained in any Loan Document (other than those specified in paragraph (a), (b) or (d) above), or under any Hedging Agreement entered into with any Lender or Affiliate of a Lender, and such default shall continue unremedied or shall not be waived for a period of 30 days after the earlier of (i) an officer of such Company becoming aware of such default or (ii) receipt by Borrower and such Company of notice from the Administrative Agent or any Lender of such default; provided, however, that with respect to any default in obligations under Section 5.09(a), such 30-day period shall be extended if the relevant Company has commenced and continues diligently to pursue prudent and necessary response actions and otherwise complies with Section 5.09(b) and any applicable Environmental Laws;      (f) any Company (other than any Immaterial Subsidiary) shall (i) fail to pay any principal or interest, regardless of amount, due in respect of any Indebtedness (other than the Obligations) when and as the same shall become due and payable (after all applicable grace periods have expired); or (ii) fail to observe or perform any other term, covenant, 91 --------------------------------------------------------------------------------   condition or agreement contained in any agreement or instrument evidencing or governing any such Indebtedness if the effect of any failure referred to in this clause (ii) is to cause, or to permit the holder or holders of such Indebtedness or a trustee on its or their behalf (with or without the giving of notice, the lapse of time or both) to cause, such Indebtedness to become due prior to its stated maturity; provided that, it shall not constitute an Event of Default pursuant to this paragraph (f) unless the aggregate amount of all such Indebtedness referred to in clauses (i) and (ii) exceeds $10.0 million at any one time;      (g) an involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of any Company (other than any Immaterial Subsidiary), or of a substantial part of the property or assets of any Company (other than any Immaterial Subsidiary), under the Bankruptcy Code, or any other federal, state or foreign bankruptcy, insolvency, receivership or similar law; (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for any Company (other than any Immaterial Subsidiary) or for a substantial part of the property or assets of any Company; or (iii) the winding-up or liquidation of any Company (other than any Immaterial Subsidiary); and such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered;      (h) any Company (other than any Immaterial Subsidiary) shall (i) voluntarily commence any proceeding or file any petition seeking relief under the Bankruptcy Code, or any other federal, state or foreign bankruptcy, insolvency, receivership or similar law; (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or the filing of any petition described in paragraph (g) above; (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for any Company (other than any Immaterial Subsidiary) or for a substantial part of the property or assets of any Company (other than any Immaterial Subsidiary); (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding; (v) make a general assignment for the benefit of creditors; (vi) become unable, admit in writing its inability or fail generally to pay its debts as they become due; (vii) take any action for the purpose of effecting any of the foregoing; or (viii) wind up or liquidate (except as otherwise permitted under Section 6.04);      (i) one or more judgments for the payment of money in an aggregate amount in excess of $10.0 million (to the extent not covered by insurance as to which the insurer does not dispute coverage thereof) shall be rendered against any Company or any combination thereof and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed;      (j) an ERISA Event occurs, an event of noncompliance with respect to any Foreign Plan occurs or, if the present value of the accrued benefit liabilities (whether or not vested) under any Foreign Plan that is funded, determined as of the end of the most recently ended fiscal year of the respective Loan Party on the basis of actuarial assumptions proper under applicable foreign law, exceeds the current value of the assets of such Foreign Plan by more than $2.5 million, that in the opinion of the Required Lenders, when taken together with all other such ERISA Events, noncompliance and underfunding, could reasonably be expected to result in liability to any Company or its ERISA Affiliates in an aggregate amount exceeding $2.5 million; 92 --------------------------------------------------------------------------------        (k) any security interests and Liens on an asset or assets of the Loan Parties whose fair market value in the aggregate is greater than $500,000, purported to be created by any Security Document shall cease to be in full force and effect, or shall cease to give the Collateral Agent, for the benefit of the Secured Parties, the Liens, rights, powers and privileges purported to be created and granted under such Security Documents (including a perfected first priority security interest in and Lien on all of the Collateral thereunder (except as otherwise expressly provided in such Security Documents)) in favor of the Collateral Agent, or shall be asserted by Holdings, Borrower or any other Loan Party not to be a valid, perfected, first priority (except as otherwise expressly provided in this Agreement or such Security Document) security interest in or Lien on the Collateral covered thereby;      (l) any Guarantee or any Security Document shall cease to be in full force and effect, except to the extent expressly permitted to be released hereunder in accordance with Section 7.09;      (m) any Loan Document or any material provisions thereof shall at any time and for any reason be declared by a court of competent jurisdiction to be null and void, or a proceeding shall be commenced by any Loan Party or any other person, or by any Governmental Authority, seeking to establish the invalidity or unenforceability thereof (exclusive of questions of interpretation of any provision thereof), or any Loan Party shall repudiate or deny that it has any liability or obligation for the payment of principal or interest or other obligations purported to be created under any Loan Document; or      (n) there shall have occurred a Change in Control; then, and in every such event (other than an event described in paragraph (g) or (h) above), and at any time thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Required Lenders shall, by notice to Borrower, take any or all of the following actions, at the same or different times: (i) terminate forthwith the Commitments (including any unused Term Loan Commitments); (ii) declare the Loans then outstanding to be forthwith due and payable in whole or in part, whereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and any unpaid accrued Fees and all other liabilities of Borrower accrued hereunder and under any other Loan Document, shall become forthwith due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by Borrower and the Guarantors, anything contained herein or in any other Loan Document to the contrary notwithstanding; and (iii) direct Borrower to pay (and Borrower hereby agrees upon receipt of such notice, or upon the occurrence of any event specified in paragraph (g) or (h) above to pay) to the Administrative Agent such additional amounts of cash, to be invested in Cash Equivalents and held as security for Borrower’s reimbursement Obligations in respect of Letters of Credit then outstanding, equal to the LC Exposure at such time. In any event described in paragraph (g) or (h) above, the Commitments (including any unused Term Loan Commitments) shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and any unpaid accrued Fees and all other liabilities of Borrower accrued hereunder and under any other Loan Document, shall automatically become due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by Borrower and the Guarantors, anything contained herein or in any other Loan Document to the contrary notwithstanding. 93 --------------------------------------------------------------------------------   ARTICLE IX Collateral Account; Application of Collateral Proceeds      SECTION 9.01. Collateral Account.      (a) The Collateral Agent is hereby authorized to establish and maintain at its office at 4 World Financial Center, 22nd Floor, New York, NY 10080, Attention: Nancy Meadows, in the name of the Collateral Agent with a copy to Skadden, Arps, Slate, Meagher & Flom LLP, Four Times Square, New York, NY 10036, Attention: Robert A. Copen and pursuant to a Control Agreement, a restricted deposit account designated “Collateral Account.” Each Loan Party shall deposit into the Collateral Account from time to time (i) the cash proceeds of any of the Collateral (including pursuant to any disposition thereof) to the extent contemplated herein or in any other Loan Document, and (ii) any cash such Loan Party is required to pledge as additional collateral security hereunder pursuant to the Loan Documents.      (b) The balance from time to time in the Collateral Account shall constitute part of the Collateral and shall not constitute payment of the Obligations until applied as hereinafter provided. So long as no Event of Default has occurred and is continuing or will result therefrom, the Collateral Agent shall, within two Business Days of receiving a request of the applicable Loan Party for release of cash proceeds constituting (i) Net Cash Proceeds from the Collateral Account, remit such cash proceeds on deposit in the Collateral Account to or upon the order of such Loan Party, so long as such Loan Party has satisfied the conditions relating thereto set forth in Section 9.02; (ii) Net Cash Proceeds from any sale or other disposition of Collateral from the Collateral Account, remit such cash proceeds on deposit in the Collateral Account, so long as such Loan Party has satisfied the conditions relating thereto set forth in Section 9.02; and (iii) with respect to the LC Sub-Account at such time as all Letters of Credit shall have been terminated and all of the liabilities in respect of the Letters of Credit have been indefeasibly paid in full. At any time following the occurrence and during the continuance of an Event of Default, the Collateral Agent may (and, if instructed by the Required Lenders as specified herein, shall) in its (or their) discretion apply or cause to be applied (subject to collection) the balance from time to time outstanding to the credit of the Collateral Account to the payment of the Obligations in the manner specified in Section 9.03, subject, however, in the case of amounts deposited in the LC Sub-Account, to the provisions of Sections 2.17(j) and 9.03. The Loan Parties shall have no right to withdraw, transfer or otherwise receive any funds deposited in the Collateral Account except to the extent specifically provided herein.      (c) Amounts on deposit in the Collateral Account shall be invested from time to time in Cash Equivalents as the applicable Loan Party (or, after the occurrence and during the continuance of an Event of Default, the Collateral Agent) shall determine, which Cash Equivalents shall be held in the name and be under the control of the Collateral Agent (or any sub-agent); provided that, at any time after the occurrence and during the continuance of an Event of Default, the Collateral Agent may (and, if instructed by the Required Lenders as specified herein, shall) in its (or their) discretion at any time and from time to time elect to liquidate any such Cash Equivalents and to apply or cause to be applied the proceeds thereof to the payment of the Obligations in the manner specified in Section 9.03. 94 --------------------------------------------------------------------------------        (d) Amounts deposited into the Collateral Account as cover for liabilities in respect of Letters of Credit under any provision of this Agreement requiring such cover shall be held by the Administrative Agent in a separate sub-account designated as the “LC Sub-Account” (the “LC Sub-Account”).      SECTION 9.02. Proceeds of Casualty Events and Collateral Dispositions.      (a) So long as no Event of Default shall have occurred and be continuing, in the event there shall be any Net Cash Proceeds in respect of any Casualty Event or from any Asset Sale of Collateral, the applicable Loan Party shall have the right, at such Loan Party’s option, to apply such Net Cash Proceeds in accordance with the applicable provisions of this Agreement.      (b) In the event any Net Cash Proceeds are required to be deposited in the Collateral Account in accordance with Section 2.10, the Collateral Agent shall not release any part of such Net Cash Proceeds until the applicable Loan Party has furnished to the Collateral Agent (i) an Officers’ Certificate setting forth: (A) a brief description of the reason for the release, (B) the dollar amount of the expenditures to be made, or costs incurred by such Loan Party in connection with such release and (C) each request for payment shall be made on at least ten day’s prior notice to the Collateral Agent and such request shall state that the properties acquired in connection with such release have a fair market value at least equal to the amount of such Net Cash Proceeds requested to be released from the Collateral Account; and (ii) all security agreements and other items required by the provisions of Sections 5.11 and 5.12 to, among other things, subject such reinvestment properties or assets to the Lien of the Security Documents in favor of the Collateral Agent, for its benefit and for the benefit of the other Secured Parties.      SECTION 9.03. Application of Proceeds. The proceeds received by the Collateral Agent in respect of any sale of, collection from or other realization upon all or any part of the Collateral pursuant to the exercise by the Collateral Agent of its remedies shall be applied, together with any other sums then held by the Collateral Agent pursuant to this Agreement, promptly by the Collateral Agent as follows:      (a) First, to the payment of all reasonable costs and expenses, fees, commissions and taxes of such sale, collection or other realization, including compensation to the Collateral Agent and its agents and counsel, and all expenses, liabilities and advances made or incurred by the Collateral Agent in connection therewith, together with interest on each such amount at the highest rate then in effect under this Agreement from and after the date such amount is due, owing or unpaid until paid in full;      (b) Second, to the payment of all other reasonable costs and expenses of such sale, collection or other realization, including compensation to the other Secured Parties and their agents and counsel and all costs, liabilities and advances made or incurred by the other Secured Parties in connection therewith, together with interest on each such amount at the highest rate then in effect under this Agreement from and after the date such amount is due, owing or unpaid until paid in full;      (c) Third, without duplication of amounts applied pursuant to clauses (a) and (b) above, to the indefeasible payment in full in cash, pro rata, of (i) interest, principal and other amounts constituting Obligations (other than the Obligations arising under the Interest Rate Protection Agreements), in each case equally and ratably in accordance with 95 --------------------------------------------------------------------------------   the respective amounts thereof then due and owing and (ii) the Obligations arising under the Interest Rate Protection Agreements in accordance with the terms of the Interest Rate Protection Agreements; and      (d) Fourth, the balance, if any, to the person lawfully entitled thereto (including the applicable Loan Party or its successors or assigns). In the event that any such proceeds are insufficient to pay in full the items described in clauses (a) through (c) of this Section 9.03, the Loan Parties shall remain liable for any deficiency. ARTICLE X The Administrative Agent and the Collateral Agent      Each of the Lenders and the Issuing Bank hereby irrevocably appoints the Administrative Agent (it being understood that reference in this Article X to the Administrative Agent shall be deemed to include the Collateral Agent) as its agent and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms of the Loan Documents, together with such actions and powers as are reasonably incidental thereto.      The bank serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent, and such bank and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with Borrower or any Subsidiary or other Affiliate thereof as if it were not the Administrative Agent hereunder.      The Administrative Agent shall not have any duties or obligations except those expressly set forth in the Loan Documents. Without limiting the generality of the foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default or Event of Default has occurred and is continuing; (b) the Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated by the Loan Documents that the Administrative Agent is required to exercise in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 11.02); and (c) except as expressly set forth in the Loan Documents, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to Borrower or any of its Subsidiaries that is communicated to or obtained by the bank serving as Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 11.02) or in the absence of its own gross negligence or willful misconduct. The Administrative Agent shall not be deemed to have knowledge of any Default or an Event of Default unless and until written notice of a Default is given to the Administrative Agent by Borrower or a Lender, and the Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with any Loan Document; (ii) the contents of any certificate, report or other document delivered thereunder or in connection therewith; (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth in any Loan Document; (iv) the validity, enforceability, effectiveness or 96 --------------------------------------------------------------------------------   genuineness of any Loan Document or any other agreement, instrument or document; or (v) the satisfaction of any condition set forth in Article IV or elsewhere in any Loan Document, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent.      The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper person.      The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper person, and shall not incur any liability for relying thereon. The Administrative Agent may consult with legal counsel (who may be counsel for Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.      The Administrative Agent may perform any and all its duties and exercise its rights and powers by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers through their respective Affiliates. The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and to the Affiliates of each Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent.      The Administrative Agent may resign as administrative agent hereunder at any time upon at least 30-days’ prior notice to the Lenders, the Issuing Bank and Borrower. Upon any such resignation, the Required Lenders shall have the right, in consultation with Borrower, to appoint a successor from among the Lenders. If no successor shall have been so appointed by the Required Lenders or shall have accepted appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may, on behalf of the Lenders and the Issuing Bank, appoint a successor Administrative Agent, which successor shall be a commercial banking institution organized under the laws of the United States (or any state thereof) or a United States branch or agency of a commercial banking institution, and having combined capital and surplus of at least $250.0 million; provided, however, that if such retiring Administrative Agent is unable to find a commercial banking institution which is willing to accept such appointment and which meets the qualifications set forth above, the retiring Administrative Agent’s resignation shall nevertheless thereupon become effective, and the Lenders shall assume and perform all of the duties of the Administrative Agent hereunder until such time, if any, as the Required Lenders appoint a successor as provided above. Upon the acceptance by a successor of its appointment as Administrative Agent hereunder, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. The fees payable by Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between Borrower and such successor. After the Administrative Agent’s resignation hereunder, the provisions of this Article X and Section 11.03 shall continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective Affiliates in respect of any actions taken or omitted to be taken by any of them while it was acting as Administrative Agent.      Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each 97 --------------------------------------------------------------------------------   Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or related agreement or any document furnished hereunder or thereunder.      The Lenders identified in this Agreement, the Co-Syndication Agents and the Co-Documentation Agents shall not have any right, power, obligation, liability, responsibility or duty under this Agreement other than those applicable to all Lenders. Without limiting the foregoing, neither the Co-Syndication Agents nor the Co-Documentation Agents shall have or be deemed to have a fiduciary relationship with any Lender. Each Lender hereby makes the same acknowledgments with respect to the Co-Syndication Agents and the Co-Documentation Agents as it makes with respect to the Administrative Agent or any other Lender in this Article X. Notwithstanding the foregoing, the parties hereto acknowledge that the Co-Documentation Agents and Co-Syndication Agents hold such titles in name only, and that such titles confer no additional rights or obligations relative to those conferred on any Lender hereunder. ARTICLE XI Miscellaneous      SECTION 11.01. Notices. Notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows:           (a) if to any Loan Party, to Borrower at: Herbalife International, Inc. 1800 Century Park East Los Angeles, California 90067 Attention: William D. Lowe Phone: (310) 410-9600 Telecopy No.: (310) 557-3913;           With a copy to: Gibson, Dunn & Crutcher LLP 2029 Century Park East Los Angeles, California 90067-3026 Attention: Brian D. Kilb, Esq. Phone: (310) 552-8500 Telecopy No.: (310) 551-8741;           (b) if to the Administrative Agent or the Collateral Agent, to it at: Merrill Lynch Capital Corporation 4 World Financial Center 22nd Floor New York, New York 10080 Attention: Nancy Meadows 98 --------------------------------------------------------------------------------   Phone: (212) 449-2879 Telecopy No.: (212) 738-1186 Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, NY 10036 Attention: Robert A. Copen Phone: (212) 735-3536 Telecopy No.: (917) 777-3536; and      (c) if to a Lender, to it at its address (or telecopy number) set forth on Annex II or in the Assignment and Acceptance pursuant to which such Lender shall have become a party hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt if delivered by hand or overnight courier service or sent by telecopy or by certified or registered mail, in each case delivered, sent or mailed (properly addressed) to such party as provided in this Section 11.01 or in accordance with the latest unrevoked direction from such party given in accordance with this Section 11.01, and failure to deliver courtesy copies of notices and other communications shall in no event affect the validity or effectiveness of such notices and other communications.      SECTION 11.02. Waivers; Amendment.      (a) No failure or delay by the Administrative Agent, the Collateral Agent, the Issuing Bank or any Lender in exercising any right or power hereunder or under any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent, the Collateral Agent, the Issuing Bank and the Lenders hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of any Loan Document or consent to any departure by any Loan Party therefrom shall in any event be effective unless the same shall be permitted by Section 11.02(b), and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan or issuance of a Letter of Credit shall not be construed as a waiver of any Default or Event of Default, regardless of whether the Administrative Agent, the Collateral Agent, any Lender or the Issuing Bank may have had notice or knowledge of such Default or Event of Default at the time.      (b) Neither this Agreement nor any other Loan Document nor any provision hereof or thereof may be waived, amended or modified except, in the case of this Agreement, pursuant to an agreement or agreements in writing entered into by Borrower and the Required Lenders or, in the case of any other Loan Document, pursuant to an agreement or agreements in writing entered into by the Administrative Agent and the Loan Party or Loan Parties that are parties thereto, in each case with the written consent of the Required Lenders; provided that, no such agreement shall (i) increase the Commitment of any Lender without the written consent of such Lender; (ii) reduce the principal amount of any Loan or LC Disbursement or reduce the rate of interest thereon, 99 --------------------------------------------------------------------------------   or reduce any Fees payable hereunder, without the written consent of each Lender affected thereby (except in connection with any waiver of the applicability of any post-default increase in interest rates); (iii) postpone the maturity of any Loan, or any scheduled date of payment of or installment otherwise due on the principal amount of any Term Loan under Section 2.09, or the required date of reimbursement of any LC Disbursement, or any date for the payment of any interest or fees payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Commitment or postpone the scheduled date of expiration of any Letter of Credit beyond the Revolving Maturity Date, without the written consent of each Lender affected thereby; (iv) change Section 2.14(b) or (c) in a manner that would alter the pro rata sharing of payments or set-offs required thereby without the written consent of each Lender; (v) change the percentage set forth in the definition of “Required Lenders” or any other provision of any Loan Document (including this Section 11.02(b)) specifying the number or percentage of Lenders (or Lenders of any Class) required to waive, amend or modify any rights thereunder or make any determination or grant any consent thereunder without the written consent of each Lender (or each Lender of such Class, as the case may be); (vi) except as otherwise expressly permitted under this Agreement, (A) release Holdings, Parent, Cayman III, any of the LuxCos and WH Capital from their respective Guarantees or limit its liability in respect of such Guarantee or (B) release all or substantially all of the Subsidiary Guarantors from their Guarantees, or limit the liability of all or substantially all of the Subsidiary Guarantors in respect of their Guarantees, in each case without the written consent of each Lender; (vii) release all or substantially all of the Collateral from the Liens of the Security Documents or alter the relative priorities of the Obligations entitled to the Liens of the Security Documents (except in connection with securing additional Obligations equally and ratably with the other Obligations), in each case without the written consent of each Lender; or (viii) change any provisions of any Loan Document in a manner that by its terms adversely affects the rights in respect of payments due to Lenders holding Loans of any Class differently than those holding Loans of any other Class without the written consent of Lenders holding a majority in interest of the outstanding Loans and unused Commitments of each affected Class; provided further that, (1) no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent, the Collateral Agent, or the Issuing Bank without the prior written consent of the Administrative Agent, the Collateral Agent, or the Issuing Bank, as the case may be; and (2) any waiver, amendment or modification of this Agreement that by its terms affects the rights or duties under this Agreement of the Revolving Lenders (but not the Term Lenders) or the Term Lenders (but not the Revolving Lenders) may be effected by an agreement or agreements in writing entered into by Borrower and the requisite percentage in interest of the affected Class of Lenders that would be required to consent thereto under this Section 11.02(b) if such Class of Lenders were the only Class of Lenders hereunder at the time. Notwithstanding the foregoing, any provision of this Agreement may be amended by an agreement in writing entered into by Borrower, the Required Lenders and the Administrative Agent (and, if its rights or obligations are affected thereby, the Issuing Bank) if (x) by the terms of such agreement the Commitment of each Lender not consenting to the amendment provided for therein shall terminate upon the effectiveness of such amendment and (y) at the time such amendment becomes effective, each Lender not consenting thereto receives payment in full of the principal of and interest accrued on each Loan made by it and all other amounts owing to it or accrued for its account under this Agreement. 100 --------------------------------------------------------------------------------             (c) If, in connection with any proposed change, waiver, discharge or termination of any of the provisions of this Agreement as contemplated by Section 11.02(b), the consent of the Required Lenders is obtained but the consent of one or more of such other Lenders whose consent is required is not obtained, then Borrower shall have the right to replace one or more of such non-consenting Lender or Lenders (so long as all non- consenting Lenders are so replaced) with one or more persons pursuant to Section 2.16 so long as at the time of such replacement each such new Lender consents to the proposed change, waiver, discharge or termination. SECTION 11.03. Expenses; Indemnity.      (a) Borrower agrees to pay all reasonable out-of-pocket expenses (including reasonable legal fees and expenses of counsel, expenses incurred in connection with due diligence and travel, courier, reproduction, printing and delivery expenses) incurred by the Administrative Agent, the Arrangers and the Issuing Bank in connection with the syndication of the credit facilities provided for herein and the preparation, execution and delivery, administration of this Agreement and the other Loan Documents or in connection with any amendments, modifications, enforcement costs or waivers of the provisions hereof or thereof (whether or not the transactions hereby or thereby contemplated shall be consummated), or incurred by the Administrative Agent, the Arrangers or any Lender in connection with the enforcement or protection of its rights in connection with this Agreement and the other Loan Documents or in connection with the Loans made or Letters of Credit issued hereunder, including the reasonable fees, charges and disbursements of Skadden, Arps, Slate, Meagher & Flom LLP, special counsel for the Administrative Agent and the Collateral Agent (and one local counsel in each foreign jurisdiction where the Administrative Agent deems such local counsel advisable and any additional counsel to the Lenders required in the event of a conflict of interest), and, in connection with any such enforcement or protection, the fees, charges and disbursements of any consultants and advisors in connection with any out-of-court workout or in any bankruptcy case.      (b) Except to the extent otherwise limited in accordance with applicable Requirements of Law as described in Annex III attached hereto, the Loan Parties agree, jointly and severally, to indemnify the Agents, the Arrangers, each Lender, and the Issuing Bank, each Affiliate of any of the foregoing persons, and each of their respective directors, officers, trustees, employees and agents (each such person being called an “Indemnitee”) against, and to hold each Indemnitee harmless from, all reasonable out-of-pocket costs and any and all losses, claims, damages, liabilities and related expenses, including reasonable counsel fees, charges and disbursements, incurred by or asserted against any Indemnitee arising out of, in any way connected with, or as a result of (i) any actual or proposed use of the proceeds of the Loans or issuances of Letters of Credit; (ii) any claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not any Indemnitee is a party thereto; or (iii) any actual or alleged presence or Release or threatened Release of Hazardous Materials, on, under or from any property owned, leased or operated by any Company, or any Environmental Claim related in any way to any Company; provided that, such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the bad faith, gross negligence or willful misconduct of such Indemnitee. No Loan Party shall assert any claim against any Indemnitee for special, indirect, consequential, punitive or exemplary damages on any theory of liability in 101 --------------------------------------------------------------------------------   connection in any way with this Agreement or any Loan Document or any agreement or instrument contemplated hereby or thereby or referred to herein or therein, the transactions contemplated hereby or thereby, any Loan, Letter of Credit or the use of the proceeds thereof or any act or omission or event occurring in connection therewith.      (c) The provisions of this Section 11.03 shall remain operative and in full force and effect regardless of the expiration of the term of this Agreement, the consummation of the transactions contemplated hereby, the repayment of any of the Loans, the expiration of the Commitments, the expiration of any Letter of Credit, the invalidity or unenforceability of any term or provision of this Agreement or any other Loan Document, or any investigation made by or on behalf of the Agents, the Arrangers, the Issuing Bank or any Lender. All amounts due under this Section 11.03 shall be payable on written demand therefor accompanied by reasonable documentation with respect to any reimbursement, indemnification or other amount requested.      (d) To the extent that the Loan Parties fail to pay any amount required to be paid by it to the Agents, the Arrangers or the Issuing Bank under Section 11.03(a) or (b), each Lender severally agrees to pay to the Agents, the Arrangers or the Issuing Bank, as the case may be, such Lender’s pro rata share (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided that, the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against any of the Agents, the Arrangers or the Issuing Bank in its capacity as such. For purposes hereof, a Lender’s “pro rata share” shall be determined based upon its share of the sum of the total Revolving Exposure, outstanding Term Loans and unused Commitments at the time.      SECTION 11.04. Successors and Assigns.      (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby (including any Affiliate of the Issuing Bank that issues any Letter of Credit), except that no Loan Party may assign or otherwise transfer any of its rights or obligations hereunder (except in a transaction permitted under Section 6.04(f) or 6.04(g)) without the prior written consent of each Lender (and any attempted assignment or transfer by any Loan Party without such consent shall be null and void). Nothing in this Agreement, express or implied, shall be construed to confer upon any person (other than the parties hereto, their respective successors and assigns permitted hereby (including any Affiliate of the Issuing Bank that issues any Letter of Credit) and, to the extent expressly contemplated hereby, the Affiliates of each of the Agents, the Issuing Bank and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.      (b) Any Lender may assign to one or more assignees (other than Holdings or any of its Affiliates or Subsidiaries) all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided that, (i) except in the case of an assignment to a Lender, an Affiliate of a Lender or a Lender Affiliate, each of Borrower and the Administrative Agent (and, in the case of an assignment of all or a portion of a Revolving Commitment or any Lender’s obligations in respect of its LC Exposure, the Issuing Bank) must give their prior written consent to such assignment (which consent shall not be unreasonably withheld or delayed); (ii) except in the case of an assignment to a Lender, an Affiliate of a Lender or a Lender Affiliate, any assignment made in connection with the primary syndication of 102 --------------------------------------------------------------------------------   the Commitment and Loans by the Arrangers or an assignment of the entire remaining amount of the assigning Lender’s Commitment or Loans, the amount of the Commitment or Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall be in a principal amount that is an integral multiple of $500,000 and not less than $1.0 million, unless each of Borrower and the Administrative Agent otherwise consent; (iii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement, except that this clause (iii) shall not be construed to prohibit the assignment of a proportionate part of all the assigning Lender’s rights and obligations in respect of one Class of Commitments or Loans; (iv) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance; and (v) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire; provided further that, any consent of Borrower otherwise required under this Section 11.04(b) shall not be required if a Default or an Event of Default under Article VIII has occurred and is continuing. Subject to acceptance and recording thereof pursuant to Section 11.04(d), from and after the effective date specified in each Assignment and Acceptance the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement (provided that, any liability of Borrower to such assignee under Section 2.12, 2.13 or 2.15 shall be limited to the amount, if any, that would have been payable thereunder by Borrower in the absence of such assignment), and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.12, 2.13, 2.15 and 11.03). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section 11.04(b) shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with Section 11.04(e).      (c) The Administrative Agent, acting for this purpose as an agent of Borrower, shall maintain at one of its offices in Stamford, Connecticut a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans and LC Disbursements owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive and Borrower, the Administrative Agent, the Issuing Bank and the Lenders may treat each person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by Borrower, the Issuing Bank and any Lender, at any reasonable time and from time to time upon reasonable prior notice.      (d) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee, the assignee’s completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder) and any written consent to such assignment required by Section 11.04(b), together with payment to the Administrative Agent of a registration and processing fee of $3,500 (provided that the Administrative Agent may, in its sole discretion, waive any such fee), the Administrative Agent shall accept such Assignment and Acceptance and record the information 103 --------------------------------------------------------------------------------   contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this Section 11.04(d).      (e) Any Lender may, without the consent of Borrower, the Administrative Agent or the Issuing Bank, sell participations to one or more banks or other entities (a “Participant”) in all or a portion of such Lender’s rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided that, (i) such Lender’s obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) Borrower, the Administrative Agent, the Issuing Bank and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce the Loan Documents and to approve any amendment, modification or waiver of any provision of the Loan Documents; provided that, such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 11.02(b) that affects such Participant. Subject to Section 11.04(f), Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.12, 2.13 and 2.15 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to Section 11.04(b), provided, that the respective Lender shall provide to the Borrower written notice of the name and address of such Participant, which notice may be delivered via email or facsimile, in each case, with a copy thereof to the Borrower via U.S. mail. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 11.08 as though it were a Lender; provided that, such Participant agrees to be subject to Section 2.14(c) as though it were a Lender, provided, further, that the respective Lender shall provide to the Borrower written notice of the name and address of such Participant, which notice may be delivered via email or facsimile, in each case, with a copy thereof to the Borrower via U.S. mail.      (f) A Participant shall not be entitled to receive any greater payment under Section 2.12, 2.13 or 2.15 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the prior written consent of Borrower. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 2.15 unless Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of Borrower, to comply with Section 2.15(e) as though it were a Lender.      (g) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank, and the other provisions of this Section 11.04 shall not apply to any such pledge or assignment of a security interest; provided that, no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.      SECTION 11.05. Survival of Agreement. All covenants, agreements, representations and warranties made by the Loan Parties in the Loan Documents and in the certificates or other instruments delivered in connection with or pursuant to this Agreement or any other Loan 104 --------------------------------------------------------------------------------   Document shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of the Loan Documents and the making of any Loans and issuance of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Agents, the Issuing Bank or any Lender may have had notice or knowledge of any Default or Event of Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not expired or terminated. The provisions of Sections 2.12, 2.14, 2.15 and 11.03 and Article X shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Letters of Credit and the Commitments or the termination of this Agreement or any provision hereof.      SECTION 11.06. Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement, the other Loan Documents, the Commitment Letter and the Fee Letter constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement.      SECTION 11.07. Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.      SECTION 11.08. Right of Set-off. If an Event of Default shall have occurred and be continuing, each Lender and each of its Affiliates are hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final (other than deposits in trust accounts)) at any time held and other obligations at any time owing by such Lender or Affiliate to or for the credit or the account of any Loan Party against any of and all the obligations of any Loan Party now or hereafter existing under this Agreement held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured. The rights of each Lender under this Section 11.08 are in addition to other rights and remedies (including other rights of set-off) that such Lender may have.      SECTION 11.09. Governing Law; Jurisdiction; Consent to Service of Process.      (a) THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK (INCLUDING SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK). 105 --------------------------------------------------------------------------------        (b) Each Loan Party hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to any Loan Document, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement or any other Loan Document shall affect any right that the Administrative Agent, the Issuing Bank or any Lender may otherwise have to bring any action or proceeding relating to this Agreement or any other Loan Document against any Loan Party or its properties in the courts of any jurisdiction.      (c) Each Loan Party hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any other Loan Document in any court referred to in Section 11.09(b). Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.      (d) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 11.01. Nothing in this Agreement or any other Loan Document will affect the right of any party to this Agreement to serve process in any other manner permitted by law.      SECTION 11.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 11.10.      SECTION 11.11. Headings. Article and section headings and the table of contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement.      SECTION 11.12. Confidentiality. Each of the Administrative Agent, the Issuing Bank and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Lender Affiliates’ directors, 106 --------------------------------------------------------------------------------   officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential pursuant to the terms hereof); (b) to the extent requested by any regulatory authority; (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process; (d) to any other party to this Agreement; (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder; (f) subject to an agreement containing provisions substantially the same as those of this Section 11.12, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or (ii) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to Borrower and its obligations; (g) with the consent of Borrower; or (h) to the extent such Information (i) is publicly available at the time of disclosure or becomes publicly available other than as a result of a breach of this Section 11.12, or (ii) becomes available to the Administrative Agent, the Issuing Bank or any Lender on a nonconfidential basis from a source other than Borrower or any Subsidiary. For the purposes of this Section 11.12, “Information” shall mean all information received from a Company or any Subsidiary on a confidential basis relating to a Company or any Subsidiary or its business, other than any such information that is available to the Administrative Agent, the Issuing Bank or any Lender on a nonconfidential basis prior to disclosure by Borrower or any Subsidiary. Any person required to maintain the confidentiality of Information as provided in this Section 11.12 shall be considered to have complied with its obligation to do so if such person has exercised the same degree of care to maintain the confidentiality of such Information as such person would accord to its own confidential information.      SECTION 11.13. Interest Rate Limitation. Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges and other amounts that are treated as interest on such Loan under applicable law (collectively the “Charges”), shall exceed the maximum lawful rate (the “Maximum Rate”) that may be contracted for, charged, taken, received or reserved by the Lender holding such Loan in accordance with applicable law, the rate of interest payable in respect of such Loan hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan but were not payable as a result of the operation of this Section 11.13 shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Effective Rate to the date of repayment, shall have been received by such Lender.      SECTION 11.14. USA Patriot Act Notice. Each Lender and the Agents (for the Agents and not on behalf of any Lender) hereby notifies Borrower that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-5 (signed into law on October 26, 2001)) (the “Act”), it is required to obtain, verify and record information that identifies Borrower, which information includes the name and address of Borrower and other information that will allow such Lender or the Agent, as applicable, to identify Borrower in accordance with the Act. [signature pages follow] 107 --------------------------------------------------------------------------------        IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.             HERBALIFE INTERNATIONAL, INC., a Nevada corporation, as Borrower       By:           Name:           Title:           WH CAPITAL CORPORATION, a Nevada corporation, as a Guarantor       By:           Name:           Title:           HERBALIFE INTERNATIONAL OF AMERICA, INC., a Nevada corporation, as a Guarantor       By:           Name:           Title:           HERBALIFE INTERNATIONAL OF EUROPE, INC., a California corporation, as a Guarantor       By:           Name:           Title:           HERBALIFE INTERNATIONAL COMMUNICATIONS, INC., a California corporation, as a Guarantor       By:           Name:           Title:         Credit Agreement   --------------------------------------------------------------------------------               HERBALIFE INTERNATIONAL DISTRIBUTION, INC., a California corporation, as a Guarantor       By:           Name:           Title:           HERBALIFE TAIWAN, INC., a California corporation, as a Guarantor       By:           Name:           Title:           HERBALIFE INTERNATIONAL (THAILAND), LTD., a California corporation, as a Guarantor       By:           Name:           Title:           HERBALIFE INTERNATIONAL DO BRASIL LTDA., a corporation dually organized in Brazil and Delaware, as a Guarantor       By:           Name:           Title:         Credit Agreement   --------------------------------------------------------------------------------               HERBALIFE LTD., a Cayman Islands exempted company with limited liability, as a Guarantor       By:           Name:           Title:           WH INTERMEDIATE HOLDINGS LTD., a Cayman Islands exempted company with limited liability, as a Guarantor       By:           Name:           Title:           HBL LTD., a Cayman Islands exempted company with limited liability, as a Guarantor       By:           Name:           Title:           HV HOLDINGS LTD., a Cayman Islands exempted company with limited liability, as a Guarantor       By:           Name:           Title:           HERBALIFE DISTRIBUTION LTD., a Cayman Islands exempted company with limited liability, as a Guarantor       By:           Name:           Title:         Credit Agreement   --------------------------------------------------------------------------------               WH LUXEMBOURG HOLDINGS S.à.R.L., a Luxembourg corporation, as a Guarantor       By:           Name:           Title:           HLF LUXEMBOURG HOLDINGS S.à R.L., a Luxembourg corporation, as a Guarantor       By:           Name:           Title:           WH LUXEMBOURG INTERMEDIATE HOLDINGS S.à.R.L., a Luxembourg corporation, as a Guarantor       By:           Name:           Title:           HERBALIFE INTERNATIONAL LUXEMBOURG S.À.R.L., a Luxembourg corporation, as a Guarantor       By:           Name:           Title:           HERBALIFE LUXEMBOURG DISTRIBUTION S.à.R.L., a Luxembourg corporation, as a Guarantor       By:           Name:           Title:         Credit Agreement   --------------------------------------------------------------------------------               MERRILL LYNCH, PIERCE, FENNER & SMITH, INCORPORATED, as Joint Lead Arranger and Joint Bookrunner       By:           Name:           Title:           MERRILL LYNCH CAPITAL CORPORATION, as a Lender, Administrative Agent and Collateral Agent       By:           Name:           Title:         Credit Agreement   --------------------------------------------------------------------------------               J.P. MORGAN SECURITIES INC., as Joint Lead Arranger, Joint Bookrunner and Co-Syndication Agent       By:           Name:           Title:           JPMORGAN CHASE BANK, N.A., as a Lender       By:           Name:           Title:         Credit Agreement   --------------------------------------------------------------------------------               MORGAN STANLEY SENIOR FUNDING, INC., as Joint Lead Arranger, Joint Bookrunner and Co-Syndication Agent       By:           Name:           Title:           MORGAN STANLEY & CO. INCORPORATED, as a Lender       By:           Name:           Title:         Credit Agreement   --------------------------------------------------------------------------------               COOPERATIEVE CENTRALE RAIFFEISEN- BOERENLEENBANK, B.A. “RABOBANK INTERNATIONAL”, NEW YORK BRANCH, as Co-Documentation Agent, a Lender and Issuing Bank     By:           Name:           Title:                 By:           Name:           Title:         Credit Agreement   --------------------------------------------------------------------------------               HSBC BANK USA, NATIONAL ASSOCIATION, as Co-Documentation Agent and a Lender       By:           Name:           Title:         Credit Agreement   --------------------------------------------------------------------------------               BANK OF AMERICA, N.A., as Co-Documentation Agent and a Lender       By:           Name:           Title:         Credit Agreement   --------------------------------------------------------------------------------               FORTIS CAPITAL CORP., as Co-Documentation Agent and a Lender       By:           Name:           Title:       Credit Agreement   --------------------------------------------------------------------------------                         CITICORP USA, INC., as Co-Documentation Agent and a Lender       By:           Name:           Title:         Credit Agreement   --------------------------------------------------------------------------------               [LENDERS], as a Lender       By:           Name:           Title:         Credit Agreement   --------------------------------------------------------------------------------   Annex I Amortization Table             Date     Term Loan Amount December 31, 2006     $ 500,000   March 31, 2007     $ 500,000   June 30, 2007     $ 500,000   September 30, 2007     $ 500,000   December 31, 2007     $ 500,000   March 31, 2008     $ 500,000   June 30, 2008     $ 500,000   September 30, 2008     $ 500,000   December 31, 2008     $ 500,000   March 31, 2009     $ 500,000   June 30, 2009     $ 500,000   September 30, 2009     $ 500,000   December 31, 2009     $ 500,000   March 31, 2010     $ 500,000   June 30, 2010     $ 500,000   September 30, 2010     $ 500,000   December 31, 2010     $ 500,000   March 31, 2011     $ 500,000   June 30, 2011     $ 500,000   September 30, 2011     $ 500,000   December 31, 2011     $ 500,000   March 31, 2012     $ 500,000   June 30, 2012     $ 500,000   September 30, 2012     $ 500,000   December 31, 2012     $ 500,000   March 31, 2013     $ 500,000   June 30, 2013     $ 500,000   Tranche B Maturity Date     $ 186,500,000   Annex I-1 --------------------------------------------------------------------------------   Annex II Lenders’ Notice Information and Commitments                   Lender   Revolving Commitment   Term Loan Commitment Merrill Lynch Capital Corporation   $ 5,000,000     $ 63,000,000   JPMorgan Chase Bank, N.A.   $ 15,000,000     $ 5,000,000   Morgan Stanley Senior Funding, Inc.   $ 5,000,000     $ 0   HSBC Bank USA, National Association   $ 12,000,000     $ 20,000,000   Cooperatieve Centrale Raiffeisen-Boerenleenbank, B.A. “Rabobank International”, New York Branch   $ 12,000,000     $ 20,000,000   Bank of America, N.A.   $ 16,500,000     $ 0   Citicorp USA, Inc.   $ 16,500,000     $ 0   Fortis Capital Corp.   $ 5,000,000     $ 15,000,000   General Electric Capital Corporation   $ 0     $ 20,000,000   The Governor and Company of the Bank of Ireland   $ 0     $ 20,000,000   Bayerische Hypo- Und Vereinsbank AG, New York Branch   $ 5,000,000     $ 10,000,000   Union Bank of California, N.A.   $ 5,000,000     $ 10,000,000   The CIT Group/Equipment Financing, Inc.   $ 0     $ 10,000,000   Comerica West Incorporated   $ 3,000,000     $ 7,000,000   Total   $ 100,000,000     $ 200,000,000   Merrill Lynch Capital Corporation Merrill Lynch Capital Corporation 4 World Financial Center 22nd Floor New York, NY 10080 Attention: Nancy Meadows Phone: (212) 449-2879 Telecopy No.: (212) 738-1186; and Merrill Lynch Bank USA Attention: Document Compliance Specialist 15 West South Temple, 3rd FL Salt Lake City, UT 84101 JPMorgan Chase Bank, N.A. JPMorgan Chase Bank, N.A. 1999 Avenue of the Stars Floor 27 Los Angeles, CA 90067-6022 Attention: Jana Chiat Phone: (310) 760-7274 Telecopy No.: (310) 860-7110; and J.P. Morgan Securities Inc. 1999 Avenue of the Stars Floor 27 Los Angeles, CA 90067-6022 Annex II-1 --------------------------------------------------------------------------------   Phone: (801) 526-8300 Telecopy No.: (801) 531-7470 Morgan Stanley Senior Funding, Inc. Morgan Stanley Senior Funding, Inc. One Pierrepont Plaza, 7th Floor 300 Cadman Plaza West Brooklyn, NY 11201 Attention: Joshua Rawlins/Darragh Dempsey Phone: (718) 754-7291/1288 Telecopy No.: (718) 754-7249/7250 Cooperatieve Centrale Raiffeisen-Boerenleenbank, B.A. “Rabobank International”, New York Branch Rabobank Support Services, Inc. Corp. Services – Loan Admin. 10 Exchange Place, 16th Floor Jersey City, NJ 07302 Attention: Alishia Hazell Phone: (201) 449-5319 Telecopy No.: (201) 449-5326; and Rabobank International 13355 Noel Road, Suite 1000 Dallas, TX 75240 Attention: J. David Thomas Phone: (972) 419-5266 Telecopy No.: (972) 419-6315 Citicorp USA, Inc. Citicorp USA, Inc. 388 Greenwich Street, 21st Floor New York, NY 10013 Attention: Rory Boyle Phone: (212) 816-7964 Telecopy No.: (646)291-1866 Attention: Lucy B. Nixon Phone: (310) 860-7257 Telecopy No.: (310) 860-7110 HSBC Bank USA, National Association HSBC Bank USA, National Association 660 S. Figueroa Street, Suite 800 Los Angeles, CA 90017 Attention: Steven Brennan Phone: (213) 553-8003 Telecopy No.: (213) 553-8056 Bank of America, N.A. Bank of America, N.A. 333 South Hope Street, Suite 1300 Los Angeles, CA 90071-1406 Attention: Matthew Koenig Phone: (213) 621-7190 Telecopy No.: (213) 621-3612 Fortis Capital Corp. Fortis Capital Corp. Two Emarcadero Center, Suite 1330 San Francisco, CA 94111 Attention: Ignacio Solveyra Phone: (415) 283-3009 Telecopy No.: (415) 283-3013 Annex II-2 --------------------------------------------------------------------------------   General Electric Capital Corporation General Electric Capital Corporation Corporate Financial Services 201 Merritt 7, P.O. Box 5201 Norwalk, CT 06856-5201 Attention: Ante Sucic Phone: (203) 956-4223 Telecopy No.: (203) 956-4003 Bayerische Hypo- Und Vereinsbank AG, New York Branch Bayerische Hypo- Und Vereinsbank AG, New York Branch 150 East 42nd Street New York, NY 10017 Attention: Marianne Weinzinger Phone: (212) 672-5352 Telecopy No.: (212) 672-5530 The CIT Group/Equipment Financing, Inc. The CIT Group/Equipment Financing, Inc. CIT Syndicated Loan Group One Stamford Plaza, 263 Tresser Blvd, 9th Floor Stamford, CT 06901 Attention: Vincent J. Devito Phone: (203) 564-1423 Telecopy No.: (203) 564-1482 The Governor and Company of the Bank of Ireland The Governor and Company of the Bank of Ireland Bank of Ireland Leveraged Finance U.S. Representative Office 75 Holly Hill Lane Greenwich, CT 06830 Attention: Eimear Lillis Phone: (203) 861-8969 Telecopy No.: (203) 552-0656 Union Bank of California, N.A. Union Bank of California, N.A. 445 S. Figueroa Street Los Angeles, CA 90071 Attention: Gail Boyle Phone: (213) 236-5076 Telecopy No.: (213) 236-7558 Comerica West Incorporated Comerica Bank 611 Anton Boulevard, 4th Floor Costa Mesa, CA 92626 Attention: Elise Walker Phone: (714) 433-3226 Telecopy No.: (714) 433-3236 Annex II-3 --------------------------------------------------------------------------------   Annex III Limitations on Guarantees and Indemnities Under Applicable Foreign Laws Limitations on the Guarantee Herbalife International Do Brasil Ltda. Central bank approval is necessary if cash has to be sent out of Brazil for the Guarantee. Limitations on the Guarantee Herbalife International (Thailand) Ltd. Under the Exchange Control Law, to collect on the Guarantee the beneficiary must receive approval from the Bank of Thailand to remit money. Limitation on the Guarantee by Herbalife International Luxembourg S.à.R.L. and Herbalife Luxembourg Distributions S.à.R.L. The obligations and liabilities of any guarantor which is incorporated under the laws of Luxembourg under this guarantee shall be limited, at any time, to an aggregate amount not exceeding ninety percent (90%) of such Guarantor’s capitaux propres where capitaux propres means such Luxembourg Guarantor’s shareholders’ equity (including the share capital, share premium, legal and statutory reserves, other reserves, profits or losses carried forward, investment subsidies and regulated provisions) as shown on the latest financial statements (“comptes annuels”) available at the date of the relevant payment hereunder and approved by the shareholders of the Guarantors and certified by the statutory or the independent auditor, as the case may be. Annex III-1

  REGISTRATION RIGHTS AGREEMENT   This Registration Rights Agreement (this “Agreement”) is made and entered into as of December 7, 2006, by and among Merchandise Creations, Inc., a Nevada corporation (the “Company”), and the purchasers listed on Schedule I hereto (the “Purchasers”).   This Agreement is being entered into pursuant to the Note and Warrant Purchase Agreement dated as of the date hereof among the Company and the Purchasers (the “Purchase Agreement”).   The Company and the Purchasers hereby agree as follows:     1. Definitions.   Capitalized terms used and not otherwise defined herein shall have the meanings given such terms in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings:   “Advice” shall have meaning set forth in Section 3(m).   “Affiliate” means, with respect to any Person, any other Person that directly or indirectly controls or is controlled by or under common control with such Person. For the purposes of this definition, “control,” when used with respect to any Person, means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise; and the terms of “affiliated,” “controlling” and “controlled” have meanings correlative to the foregoing.   “Board” shall have meaning set forth in Section 3(n).   “Business Day” means any day except Saturday, Sunday and any day which shall be a legal holiday or a day on which banking institutions in the state of New York generally are authorized or required by law or other government actions to close.   “Closing Date” means the date of the closing of the purchase and sale of the Notes and the Warrants pursuant to the Purchase Agreement.   “Commission” means the Securities and Exchange Commission.   “Common Stock” means the Company’s Common Stock, par value $0.001 per share.   “Effectiveness Date” means with respect to the Registration Statement the earlier of (A) the nintieth (90th) day following the Closing Date (or in the event the Registration Statement receives a “full review” by the Commission, the one hundred twentieth (120th) day following the Closing Date) or (B) the date which is within three (3) Business Days after the date on which the Commission informs the Company (i) that the Commission will not review the   --------------------------------------------------------------------------------   Registration Statement or (ii) that the Company may request the acceleration of the effectiveness of the Registration Statement and the Company makes such request; provided that, if the Effectiveness Date falls on a Saturday, Sunday or any other day which shall be a legal holiday or a day on which the Commission is authorized or required by law or other government actions to close, the Effectiveness Date shall be the following Business Day.   “Effectiveness Period” shall have the meaning set forth in Section 2.   “Event” shall have the meaning set forth in Section 7(e).   “Event Date” shall have the meaning set forth in Section 7(e).   “Exchange Act” means the Securities Exchange Act of 1934, as amended.   “Filing Date” means the sixtieth (60th) day following the Closing Date; provided that, if the Filing Date falls on a Saturday, Sunday or any other day which shall be a legal holiday or a day on which the Commission is authorized or required by law or other government actions to close, the Filing Date shall be the following Business Day.   “Holder” or “Holders” means the holder or holders, as the case may be, from time to time of Registrable Securities.   “Indemnified Party” shall have the meaning set forth in Section 5(c).   “Indemnifying Party” shall have the meaning set forth in Section 5(c).   “Losses” shall have the meaning set forth in Section 5(a).   “Person” means an individual or a corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or political subdivision thereof) or other entity of any kind.   “Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.   “Prospectus” means the prospectus included in the Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by the Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference in such Prospectus.   “Registrable Securities means (i) the shares of Common Stock issuable upon conversion of the Notes and (ii) the shares of Common Stock issuable upon exercise of the Warrants.   -2-   --------------------------------------------------------------------------------     “Registration Statement” means the registration statements and any additional registration statements contemplated by Section 2, including (in each case) the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference in such registration statement.   “Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.   “Rule 158” means Rule 158 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.   “Rule 415” means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.   “Rule 424” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.   “Securities Act” means the Securities Act of 1933, as amended.   “Special Counsel” means Kramer Levin Naftalis & Frankel LLP, for which the Holders will be reimbursed by the Company pursuant to Section 4.   “Warrants” means the warrants to purchase shares of Common Stock issued to the Purchasers pursuant to the Purchase Agreement.     2. Resale Registration.   On or prior to the Filing Date, the Company shall prepare and file with the Commission a “resale” Registration Statement providing for the resale of all Registrable Securities for an offering to be made on a continuous basis pursuant to Rule 415. The Registration Statement shall be on Form SB-2 (except if the Company is not then eligible to register for resale the Registrable Securities on Form SB-2, in which case such registration shall be on another appropriate form in accordance herewith and the Securities Act and the rules promulgated thereunder). Such Registration Statement shall cover to the extent allowable under the Securities Act and the rules promulgated thereunder (including Rule 416), such indeterminate number of additional shares of Common Stock resulting from stock splits, stock dividends or similar transactions with respect to the Registrable Securities. The Company shall (i) not permit any securities other than the Registrable Securities and the securities listed on Schedule II hereto to be included in the Registration Statement and (ii) use its best efforts to cause the Registration Statement to be declared effective under the Securities Act as promptly as possible after the filing thereof, but in any event prior to the Effectiveness Date, and to keep such Registration Statement continuously effective under the Securities Act until such date as is the earlier of (x)   -3-   --------------------------------------------------------------------------------   the date when all Registrable Securities covered by such Registration Statement have been sold or (y) the date on which the Registrable Securities may be sold without any restriction pursuant to Rule 144(k) as determined by the counsel to the Company pursuant to a written opinion letter, addressed to the Company’s transfer agent to such effect (the “Effectiveness Period”). The Company shall request that the effective time of the Registration Statement is 4:00 p.m. Eastern Time on the effective date. If at any time and for any reason, an additional Registration Statement is required to be filed because at such time the actual number of shares of Common Stock into which the Notes are convertible and the Warrants are exercisable plus the number of shares of Common Stock exceeds the number of shares of Registrable Securities remaining under the Registration Statement, the Company shall have twenty (20) Business Days to file such additional Registration Statement, and the Company shall use its best efforts to cause such additional Registration Statement to be declared effective by the Commission as soon as possible, but in no event later than sixty (60) days after filing. Notwithstanding anything to the contrary set forth in this Section 2, in the event the Commission does not permit the Company to register all of the Registrable Securities in the Registration Statement, the Company shall register in the Registration Statement such number of Registrable Securities as is permitted by the Commission, provided, however, that the number of Registrable Securities to be included in such Registration Statement or any subsequent registration statement shall be determined in the following order: (i) first, the shares of Common Stock issuable upon conversion of the Notes shall be registered on a pro rata basis among the holders of the Notes, and (ii) second, the shares of Common Stock issuable upon exercise of the Warrants shall be registered on a pro rata basis among the holders of the Warrants. In the event the Commission does not permit the Company to register all of the Registrable Securities in the Registration Statement, the Company shall use its best efforts to register the Registrable Securities, subject to the foregoing sentence, that were not registered in the Registration Statement as promptly as possible and in a manner permitted by the Commission, whether by filing a subsequent registration statement, providing demand registration rights, or otherwise.     3. Registration Procedures.   In connection with the Company’s registration obligations hereunder, the Company shall:   (a)          Prepare and file with the Commission, on or prior to the Filing Date, a Registration Statement on Form SB-2 (or if the Company is not then eligible to register for resale the Registrable Securities on Form SB-2 such registration shall be on another appropriate form in accordance herewith and the Securities Act and the rules promulgated thereunder) in accordance with the plan of distribution as set forth on Exhibit A hereto and in accordance with applicable law, and cause the Registration Statement to become effective and remain effective as provided herein; provided, however, that not less than five (5) Business Days prior to the filing of the Registration Statement or any related Prospectus or any amendment or supplement thereto, the Company shall (i) furnish to the Holders and any Special Counsel, copies of all such documents proposed to be filed, which documents will be subject to the review of such Holders and such Special Counsel, and (ii) cause its officers and directors, counsel and independent certified public accountants to respond to such inquiries as shall be necessary, in the reasonable opinion of Special Counsel, to conduct a reasonable review of such documents. The Company shall not file the Registration Statement or any such Prospectus or any amendments or supplements thereto to   -4-   --------------------------------------------------------------------------------   which the Holders of a majority of the Registrable Securities or any Special Counsel shall reasonably object in writing within three (3) Business Days of their receipt thereof.   (b)          (i) Prepare and file with the Commission such amendments, including post-effective amendments, to the Registration Statement as may be necessary to keep the Registration Statement continuously effective as to the applicable Registrable Securities for the Effectiveness Period and prepare and file with the Commission such additional Registration Statements as necessary in order to register for resale under the Securities Act all of the Registrable Securities; (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement, and as so supplemented or amended to be filed pursuant to Rule 424 (or any similar provisions then in force) promulgated under the Securities Act; (iii) respond as promptly as possible, but in no event later than ten (10) Business Days, to any comments received from the Commission with respect to the Registration Statement or any amendment thereto and as promptly as possible provide the Holders true and complete copies of all correspondence from and to the Commission relating to the Registration Statement; (iv) file the final prospectus pursuant to Rule 424 of the Securities Act no later than 9:00 a.m. Eastern Time on the Business Day following the date the Registration Statement is declared effective by the Commission; and (v) comply in all material respects with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by the Registration Statement during the Effectiveness Period in accordance with the intended methods of disposition by the Holders thereof set forth in the Registration Statement as so amended or in such Prospectus as so supplemented.   (c)          Notify the Holders of Registrable Securities and any Special Counsel as promptly as possible (and, in the case of (i)(A) below, not less than three (3) Business Days prior to such filing, and in the case of (iii) below, on the same day of receipt by the Company of such notice from the Commission) and (if requested by any such Person) confirm such notice in writing no later than one (1) Business Day following the day (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to the Registration Statement is filed; (B) when the Commission notifies the Company whether there will be a “review” of such Registration Statement and whenever the Commission comments in writing on such Registration Statement and (C) with respect to the Registration Statement or any post-effective amendment, when the same has become effective; (ii) of any request by the Commission or any other Federal or state governmental authority for amendments or supplements to the Registration Statement or Prospectus or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement covering any or all of the Registrable Securities or the initiation or threatening of any Proceedings for that purpose; (iv) if at any time any of the representations and warranties of the Company contained in any agreement contemplated hereby ceases to be true and correct in all material respects; (v) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; and (vi) of the occurrence of any event that makes any statement made in the Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to the Registration Statement, Prospectus or other documents so that, in the case of the Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact   -5-   --------------------------------------------------------------------------------   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.   (d)          Use its best efforts to avoid the issuance of, or, if issued, obtain the withdrawal of, as promptly as possible, (i) any order suspending the effectiveness of the Registration Statement or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction.   (e)          If requested by the Holders of a majority in interest of the Registrable Securities, (i) promptly incorporate in a Prospectus supplement or post-effective amendment to the Registration Statement such information as the Company reasonably agrees should be included therein and (ii) make all required filings of such Prospectus supplement or such post-effective amendment as soon as practicable after the Company has received notification of the matters to be incorporated in such Prospectus supplement or post-effective amendment.   (f)         If requested by any Holder, furnish to such Holder and any Special Counsel, without charge, at least one conformed copy of each Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference, and all exhibits to the extent requested by such Person (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission.   (g)         Promptly deliver to each Holder and any Special Counsel, without charge, as many copies of the Prospectus or Prospectuses (including each form of prospectus) and each amendment or supplement thereto as such Persons may reasonably request; and subject to the provisions of Sections 3(m) and 3(n), the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto.   (h)         Prior to any public offering of Registrable Securities, use its best efforts to register or qualify or cooperate with the selling Holders and any Special Counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any Holder requests in writing, to keep each such registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by a Registration Statement; provided, however, that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or to take any action that would subject it to general service of process in any such jurisdiction where it is not then so subject or subject the Company to any material tax in any such jurisdiction where it is not then so subject.   (i)          Cooperate with the Holders to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold pursuant to a Registration Statement, which certificates, to the extent permitted by the Purchase Agreement and applicable federal and state securities laws, shall be free of all restrictive legends, and to enable such Registrable   -6-   --------------------------------------------------------------------------------   Securities to be in such denominations and registered in such names as any Holder may request in connection with any sale of Registrable Securities.   (j)           Upon the occurrence of any event contemplated by Section 3(c)(vi), as promptly as possible, prepare a supplement or amendment, including a post-effective amendment, to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, neither the Registration Statement nor such Prospectus will contain 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.   (k)          Use its best efforts to cause all Registrable Securities relating to the Registration Statement to be listed or quoted on the OTC Bulletin Board or any other securities exchange, quotation system or market, if any, on which similar securities issued by the Company are then listed or traded as and when required pursuant to the Purchase Agreement.   (l)           Comply in all material respects with all applicable rules and regulations of the Commission and make generally available to its security holders all documents filed or required to be filed with the Commission, including, but not limited, to, earning statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 not later than 45 days after the end of any 12-month period (or 90 days after the end of any 12-month period if such period is a fiscal year) commencing on the first day of the first fiscal quarter of the Company after the effective date of the Registration Statement, which statement shall conform to the requirements of Rule 158.   (m)         The Company may require each selling Holder to furnish to the Company information regarding such Holder and the distribution of such Registrable Securities as is required by law to be disclosed in the Registration Statement, Prospectus, or any amendment or supplement thereto, and the Company may exclude from such registration the Registrable Securities of any such Holder who unreasonably fails to furnish such information within a reasonable time after receiving such request.   If the Registration Statement refers to any Holder by name or otherwise as the holder of any securities of the Company, then such Holder shall have the right to require (if such reference to such Holder by name or otherwise is not required by the Securities Act or any similar federal statute then in force) the deletion of the reference to such Holder in any amendment or supplement to the Registration Statement filed or prepared subsequent to the time that such reference ceases to be required.   Each Holder covenants and agrees that it will not sell any Registrable Securities under the Registration Statement until the Company has electronically filed the Prospectus as then amended or supplemented as contemplated in Section 3(g) and notice from the Company that the Registration Statement and any post-effective amendments thereto have become effective as contemplated by Section 3(c).   Each Holder agrees by its acquisition of such Registrable Securities that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in   -7-   --------------------------------------------------------------------------------   Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v), 3(c)(vi) or 3(n), such Holder will forthwith discontinue disposition of such Registrable Securities under the Registration Statement until such Holder’s receipt of the copies of the supplemented Prospectus and/or amended Registration Statement contemplated by Section 3(j), or until it is advised in writing (the “Advice”) by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement.   (n)          If (i) there is material non-public information regarding the Company which the Company’s Board of Directors (the “Board”) determines not to be in the Company’s best interest to disclose and which the Company is not otherwise required to disclose, (ii) there is a significant business opportunity (including, but not limited to, the acquisition or disposition of assets (other than in the ordinary course of business) or any merger, consolidation, tender offer or other similar transaction) available to the Company which the Board determines not to be in the Company’s best interest to disclose, or (iii) the Company is required to file a post-effective amendment to the Registration Statement to incorporate the Company’s quarterly and annual reports and audited financial statements on Forms 10-QSB and 10-KSB, then the Company may (x) postpone or suspend filing of a registration statement for a period not to exceed thirty (30) consecutive days or (y) postpone or suspend effectiveness of a registration statement for a period not to exceed twenty (20) consecutive days; provided that the Company may not postpone or suspend effectiveness of a registration statement under this Section 3(n) for more than forty-five (45) days in the aggregate during any three hundred sixty (360) day period; provided, however, that no such postponement or suspension shall be permitted for consecutive twenty (20) day periods arising out of the same set of facts, circumstances or transactions.     4. Registration Expenses.   All fees and expenses incident to the performance of or compliance with this Agreement by the Company, except as and to the extent specified in this Section 4, shall be borne by the Company whether or not the Registration Statement is filed or becomes effective and whether or not any Registrable Securities are sold pursuant to the Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses (A) with respect to filings required to be made with the OTC Bulletin Board and each other securities exchange or market on which Registrable Securities are required hereunder to be listed, if any (B) with respect to filing fees required to be paid to the National Association of Securities Dealers, Inc. and the NASD Regulation, Inc. and (C) in compliance with state securities or Blue Sky laws (including, without limitation, fees and disbursements of counsel for the Holders in connection with Blue Sky qualifications of the Registrable Securities and determination of the eligibility of the Registrable Securities for investment under the laws of such jurisdictions as the Holders of a majority of Registrable Securities may designate)), (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities and of printing prospectuses if the printing of prospectuses is requested by the holders of a majority of the Registrable Securities included in the Registration Statement), (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company and Special Counsel for the Holders, in the case of the Special Counsel, up to a maximum amount of $7,500, (v) Securities Act liability insurance, if the Company so desires such insurance, and (vi) fees and expenses of all other Persons retained by the Company in connection with the consummation of   -8-   --------------------------------------------------------------------------------   the transactions contemplated by this Agreement, including, without limitation, the Company’s independent public accountants (including the expenses of any comfort letters or costs associated with the delivery by independent public accountants of a comfort letter or comfort letters). In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit, the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder. The Company shall not be responsible for any discounts, commissions, transfer taxes or other similar fees incurred by the Holders in connection with the sale of the Registrable Securities.     5.   Indemnification.   (a)          Indemnification by the Company. The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors, managers, partners, members, shareholders, agents, brokers, investment advisors and employees of each of them, each Person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, agents and employees of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, costs of preparation and attorneys’ fees) and expenses (collectively, “Losses”), as incurred, arising out of or relating to any violation of securities laws or untrue or alleged untrue statement of a material fact contained in the Registration Statement, any Prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in the light of the circumstances under which they were made) not misleading, except to the extent, but only to the extent, that such untrue statements or omissions are based solely upon information regarding such Holder or such other Indemnified Party furnished in writing to the Company by such Holder expressly for use therein. The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding of which the Company is aware in connection with the transactions contemplated by this Agreement.   (b)          Indemnification by Holders. Each Holder shall, severally and not jointly, indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents and employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses (as determined by a court of competent jurisdiction in a final judgment not subject to appeal or review), as incurred, arising solely out of or based solely upon any untrue statement of a material fact contained in the Registration Statement, any Prospectus, or any form of prospectus, or in any amendment or supplement thereto, or arising solely out of or based solely upon any omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in the light of the circumstances under which they were made) not misleading, to the extent, but only to the extent, that such untrue statement or omission is contained in any information so furnished in writing by such Holder or other Indemnifying Party to the Company specifically for inclusion in the   -9-   --------------------------------------------------------------------------------   Registration Statement or such Prospectus. Notwithstanding anything to the contrary contained herein, each Holder shall be liable under this Section 5(b) for only that amount as does not exceed the net proceeds to such Holder as a result of the sale of Registrable Securities pursuant to such Registration Statement.   (c)          Conduct of Indemnification Proceedings. If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an “Indemnified Party”), such Indemnified Party promptly shall notify the Person from whom indemnity is sought (the “Indemnifying Party) in writing, and the Indemnifying Party shall be entitled to assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof; provided, that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have proximately and materially adversely prejudiced the Indemnifying Party.   An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such fees and expenses; or (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and such parties shall have been advised by counsel that a conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and such counsel shall be at the expense of the Indemnifying Party). The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld or delayed. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending or threatened Proceeding in respect of which any Indemnified Party is a party and indemnity has been sought hereunder, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding.   All fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten (10) Business Days of written notice thereof to the Indemnifying Party (regardless of whether it is ultimately determined that an Indemnified Party is not entitled to indemnification hereunder; provided, that the Indemnified Party shall reimburse all such fees and expenses to the extent it is finally judicially determined that such Indemnified Party is not entitled to indemnification hereunder).   (d)          Contribution. If a claim for indemnification under Section 5(a) or 5(b) is due but unavailable to an Indemnified Party because of a failure or refusal of a governmental   -10-   --------------------------------------------------------------------------------   authority to enforce such indemnification in accordance with its terms (by reason of public policy or otherwise), then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses, in such proportion as is appropriate to reflect the relative benefits received by the Indemnifying Party on the one hand and the Indemnified Party on the other from the offering of the Notes and the Warrants. If, but only if, the allocation provided by the foregoing sentence is not permitted by applicable law, the allocation of contribution shall be made in such proportion as is appropriate to reflect not only the relative benefits referred to in the foregoing sentence but also the relative fault, as applicable, of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in Section 5(c), any reasonable attorneys’ or other reasonable fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms. In no event shall any selling Holder be required to contribute an amount under this Section 5(d) in excess of the net proceeds received by such Holder upon sale of such Holder’s Registrable Securities pursuant to the Registration Statement giving rise to such contribution obligation.   The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.   The indemnity and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties pursuant to the law.     6. Rule 144.   As long as any Holder owns Notes, Warrants or Registrable Securities, the Company covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to Section 13(a) or 15(d) of the Exchange Act. As long as any Holder owns Notes, Warrants or Registrable Securities, if the Company is not required to file reports pursuant to Section 13(a) or 15(d) of the Exchange Act, it will prepare and furnish to the Holders and make publicly available in accordance with Rule 144(c) promulgated under the Securities Act annual and quarterly financial statements, together with a discussion and analysis of such financial statements in form and substance substantially similar to those that would otherwise be required to be included in reports required by Section 13(a) or 15(d) of the Exchange Act, as well as any   -11-   --------------------------------------------------------------------------------   other information required thereby, in the time period that such filings would have been required to have been made under the Exchange Act. The Company further covenants that it will take such further action as any Holder may reasonably request, all to the extent required from time to time to enable such Person to sell Conversion Shares and Warrant Shares without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 promulgated under the Securities Act, including providing any legal opinions relating to such sale pursuant to Rule 144. Upon the request of any Holder, the Company shall deliver to such Holder a written certification of a duly authorized officer as to whether it has complied with such requirements.     7. Miscellaneous.   (a)          Remedies. In the event of a breach by the Company or by a Holder, of any of their obligations under this Agreement, such Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company and each Holder agree that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate.   (b)          No Inconsistent Agreements. Neither the Company nor any of its subsidiaries has, as of the date hereof entered into and currently in effect, nor shall the Company or any of its subsidiaries, on or after the date of this Agreement, enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. Except as disclosed in Schedule 2.1(c) of the Purchase Agreement or Schedule II hereto, neither the Company nor any of its subsidiaries has previously entered into any agreement currently in effect granting any registration rights with respect to any of its securities to any Person. Without limiting the generality of the foregoing, without the written consent of the Holders of a majority of the then outstanding Registrable Securities, the Company shall not grant to any Person the right to request the Company to register any securities of the Company under the Securities Act unless the rights so granted are subject in all respects to the prior rights in full of the Holders set forth herein, and are not otherwise in conflict with the provisions of this Agreement.   (c)          No Piggyback on Registrations. Neither the Company nor any of its security holders (other than the Holders in such capacity pursuant hereto or as disclosed in Schedule 2.1(c) of the Purchase Agreement or Schedule II hereto) may include securities of the Company in the Registration Statement, and the Company shall not after the date hereof enter into any agreement providing such right to any of its securityholders, unless the right so granted is subject in all respects to the prior rights in full of the Holders set forth herein, and is not otherwise in conflict with the provisions of this Agreement.   (d)          Piggy-Back Registrations. If at any time when there is not an effective Registration Statement covering (i) Conversion Shares or (ii) Warrant Shares, the Company shall determine to prepare and file with the Commission a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity   -12-   --------------------------------------------------------------------------------   securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans, the Company shall send to each holder of Registrable Securities written notice of such determination and, if within thirty (30) days after receipt of such notice, or within such shorter period of time as may be specified by the Company in such written notice as may be necessary for the Company to comply with its obligations with respect to the timing of the filing of such registration statement, any such holder shall so request in writing, (which request shall specify the Registrable Securities intended to be disposed of by the Purchasers), the Company will cause the registration under the Securities Act of all Registrable Securities which the Company has been so requested to register by the holder, to the extent requisite to permit the disposition of the Registrable Securities so to be registered, provided that if at any time after giving written notice of its intention to register any securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register or to delay registration of such securities, the Company may, at its election, give written notice of such determination to such holder and, thereupon, (i) in the case of a determination not to register, shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay expenses in accordance with Section 4 hereof), and (ii) in the case of a determination to delay registering, shall be permitted to delay registering any Registrable Securities being registered pursuant to this Section 7(d) for the same period as the delay in registering such other securities. The Company shall include in such registration statement all or any part of such Registrable Securities such holder requests to be registered; provided, however, that the Company shall not be required to register any Registrable Securities pursuant to this Section 7(d) that are eligible for sale pursuant to Rule 144(k) of the Securities Act. In the case of an underwritten public offering, if the managing underwriter(s) or underwriter(s) should reasonably object to the inclusion of the Registrable Securities in such registration statement, then if the Company after consultation with the managing underwriter should reasonably determine that the inclusion of such Registrable Securities would materially adversely affect the offering contemplated in such registration statement, and based on such determination recommends inclusion in such registration statement of fewer or none of the Registrable Securities of the Holders, then (x) the number of Registrable Securities of the Holders included in such registration statement shall be reduced pro-rata among such Holders (based upon the number of Registrable Securities requested to be included in the registration), if the Company after consultation with the underwriter(s) recommends the inclusion of fewer Registrable Securities, or (y) none of the Registrable Securities of the Holders shall be included in such registration statement, if the Company after consultation with the underwriter(s) recommends the inclusion of none of such Registrable Securities; provided, however, that if securities are being offered for the account of other persons or entities as well as the Company, such reduction shall not represent a greater fraction of the number of Registrable securities intended to be offered by the Holders than the fraction of similar reductions imposed on such other persons or entities (other than the Company).   (e)          Failure to File Registration Statement and Other Events. The Company and the Purchasers agree that the Holders will suffer damages if the Registration Statement is not filed on or prior to the Filing Date and not declared effective by the Commission on or prior to the Effectiveness Date and maintained in the manner contemplated herein during the Effectiveness Period or if certain other events occur. The Company and the Holders further agree that it would not be feasible to ascertain the extent of such damages with precision. Accordingly,   -13-   --------------------------------------------------------------------------------   if (A) the Registration Statement is not filed on or prior to the Filing Date, or (B) the Registration Statement is not declared effective by the Commission on or prior to the Effectiveness Date, or (C) the Company fails to file with the Commission a request for acceleration in accordance with Rule 461 promulgated under the Securities Act within three (3) Business Days of the date that the Company is notified (orally or in writing, whichever is earlier) by the Commission that a Registration Statement will not be “reviewed,” or not subject to further review, or (D) the Registration Statement is filed with and declared effective by the Commission but thereafter ceases to be effective as to all Registrable Securities at any time prior to the expiration of the Effectiveness Period, without being succeeded immediately by a subsequent Registration Statement filed with and declared effective by the Commission, or (E) the Company has breached Section 3(n), or (F) trading in the Common Stock shall be suspended or if the Common Stock is no longer quoted on or delisted from the OTC Bulletin Board (or other principal exchange on which the Common Stock is traded) for any reason for more than three (3) Business Days in the aggregate (any such failure or breach being referred to as an “Event,” and for purposes of clauses (A) and (B) the date on which such Event occurs, or for purposes of clause (C) the date on which such three (3) Business Day period is exceeded, or for purposes of clause (D) after more than fifteen (15) Business Days, or for purposes of clause (F) the date on which such three (3) Business Day period is exceeded, being referred to as “Event Date”), the Company shall pay an amount in cash as liquidated damages to each Holder equal to one and one-half percent (1.5%) of the amount of the Holder’s initial investment in the Notes for each calendar month or portion thereof thereafter from the Event Date until the applicable Event is cured; provided, however, that in no event shall the amount of liquidated damages payable at any time and from time to time to any Holder pursuant to this Section 7(e) exceed an aggregate of ten percent (10%) of the amount of the Holder’s initial investment in the Notes. Notwithstanding anything to the contrary in this paragraph (e), if (a) any of the Events described in clauses (A), (B), (C), (D) or (F) shall have occurred, (b) on or prior to the applicable Event Date, the Company shall have exercised its rights under Section 3(n) hereof and (c) the postponement or suspension permitted pursuant to such Section 3(n) shall remain effective as of such applicable Event Date, then the applicable Event Date shall be deemed instead to occur on the second Business Day following the termination of such postponement or suspension. Liquidated damages payable by the Company pursuant to this Section 7(d) shall be payable on the first (1st) Business Day of each thirty (30) day period following the Event Date. Notwithstanding anything to the contrary contained herein, in no event shall any liquidated damages be payable with respect to the Warrants or the Warrant Shares.   (f)           Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and the Holders of seventy-five percent (75%) of the Registrable Securities outstanding.   (g)          Notices. Any notice, demand, request, waiver or other communication required or permitted to be given hereunder shall be in writing and shall be effective (a) upon hand delivery, telecopy or facsimile at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon   -14-   --------------------------------------------------------------------------------   actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be:   If to the Company: Merchandise Creations, Inc. 8201 Towne Main Drive, #1421 Plano, Texas 75024 Attention: Chief Executive Officer Tel. No.: (972) 987-5880 Fax No.: (972) 987-5880   with copies (which shall not constitute notice) to: Gary Agron, Esq. 5445 DTC Parkway, Suite 520 Greenwood Village, CO 80111 Tel No.: (303) 770-7254 Fax No.: (303) 770-7257     If to any Purchaser: At the address of such Purchaser set forth on Exhibit A to this Agreement, with copies to Purchaser’s counsel as set forth on Exhibit A or as specified in writing by such:     with copies (which shall not constitute notice) to: Kramer Levin Naftalis & Frankel LLP 1177 Avenue of the Americas New York, New York 10036 Attention: Christopher S. Auguste Tel No.: (212) 715-9100 Fax No.: (212) 715-8000 Any party hereto may from time to time change its address for notices by giving at least ten (10) days written notice of such changed address to the other party hereto.   (h)          Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns and shall inure to the benefit of each Holder and its successors and assigns. The Company may not assign this Agreement or any of its rights or obligations hereunder without the prior written consent of each Holder. Each Purchaser may assign its rights hereunder in the manner and to the Persons as permitted under the Purchase Agreement.   (i)           Assignment of Registration Rights. The rights of each Holder hereunder, including the right to have the Company register for resale Registrable Securities in accordance with the terms of this Agreement, shall be automatically assignable by each Holder to any Person of all or a portion of the Notes or the Registrable Securities if: (i) the Holder agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment, (ii) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of (a) the name and address of such transferee or assignee, and (b) the securities with respect to which such registration rights are being transferred or assigned, (iii) following such transfer or assignment the further disposition of such securities by the transferee or assignees is restricted under the   -15-   --------------------------------------------------------------------------------   Securities Act and applicable state securities laws, (iv) at or before the time the Company receives the written notice contemplated by clause (ii) of this Section, the transferee or assignee agrees in writing with the Company to be bound by all of the provisions of this Agreement, and (v) such transfer shall have been made in accordance with the applicable requirements of the Purchase Agreement. The rights to assignment shall apply to the Holders (and to subsequent) successors and assigns.   (j)           Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement and shall become effective when counterparts have been signed by each party and delivered to the other parties hereto, it being understood that all parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof.   (k)          Governing Law; Jurisdiction. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York, without giving effect to any of the conflicts of law principles which would result in the application of the substantive law of another jurisdiction. This Agreement shall not be interpreted or construed with any presumption against the party causing this Agreement to be drafted. The Company and the Holders agree that venue for any dispute arising under this Agreement will lie exclusively in the state or federal courts located in New York County, New York, and the parties irrevocably waive any right to raise forum non conveniens or any other argument that New York is not the proper venue. The Company and the Holders irrevocably consent to personal jurisdiction in the state and federal courts of the state of New York. The Company and the Holders consent to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing in this Section 7(k) shall affect or limit any right to serve process in any other manner permitted by law. The Company and the Holders hereby agree that the prevailing party in any suit, action or proceeding arising out of or relating to this Agreement or the Purchase Agreement, shall be entitled to reimbursement for reasonable legal fees from the non-prevailing party. The parties hereby waive all rights to a trial by jury.   (l)           Cumulative Remedies. The remedies provided herein are cumulative and not exclusive of any remedies provided by law.   (m)         Severability. If any term, provision, covenant or restriction of this Agreement is held to be invalid, illegal, void or unenforceable in any respect, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.     -16-   --------------------------------------------------------------------------------     (n)          Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.   (o)          Shares Held by the Company and its Affiliates. Whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Company or its Affiliates (other than any Holder or transferees or successors or assigns thereof if such Holder is deemed to be an Affiliate solely by reason of its holdings of such Registrable Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage.   (p)          Independent Nature of Purchasers. The Company acknowledges that the obligations of each Purchaser under the Transaction Documents are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser under the Transaction Documents. The Company acknowledges that the decision of each Purchaser to purchase Securities pursuant to the Purchase Agreement has been made by such Purchaser independently of any other Purchaser and independently of any information, materials, statements or opinions as to the business, affairs, operations, assets, properties, liabilities, results of operations, condition (financial or otherwise) or prospects of the Company or of its Subsidiaries which may have made or given by any other Purchaser or by any agent or employee of any other Purchaser, and no Purchaser or any of its agents or employees shall have any liability to any Purchaser (or any other person) relating to or arising from any such information, materials, statements or opinions. The Company acknowledges that nothing contained herein, or in any Transaction Document, and no action taken by any Purchaser pursuant hereto or thereto (including, but not limited to, the (i) inclusion of a Purchaser in the Registration Statement and (ii) review by, and consent to, such Registration Statement by a Purchaser) shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents. The Company acknowledges that each Purchaser shall be entitled to independently protect and enforce its rights, including without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. The Company acknowledges that for reasons of administrative convenience only, the Transaction Documents have been prepared by counsel for one of the Purchasers and such counsel does not represent all of the Purchasers. The Company acknowledges that it has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by the Purchasers. The Company acknowledges that such procedure with respect to the Transaction Documents in no way creates a presumption that the Purchasers are in any way acting in concert or as a group with respect to the Transaction Documents or the transactions contemplated hereby or thereby.           -17-   --------------------------------------------------------------------------------     [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]             IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights Agreement to be duly executed by their respective authorized persons as of the date first indicated above.   MERCHANDISE CREATIONS, INC.   By:_____________________________________ Name: Title:   PURCHASER:   By:_____________________________________ Name: Title:             -18-   --------------------------------------------------------------------------------     Schedule I Purchasers     Names and Addresses Investment Amount and Number of of Purchasers Warrants Purchased*     Vision Opportunity Master Fund, Ltd. Investment Amount: $8,000,000 20 W. 55th Street, 5th floor Series A Warrants: 1,777,777   New York, NY 10019 Series J Warrants: 3,555,555     Series B Warrants: 1,777,777       * Number of Warrants is calculated post 20-for-1 forward stock split to be effected on December 11, 2006.           -20-   --------------------------------------------------------------------------------     Schedule II Other Securities to be Included on the Registration Statement   None.           -21-   --------------------------------------------------------------------------------     Exhibit A Plan of Distribution   The selling security holders and any of their pledgees, donees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of common stock being offered under this prospectus on any stock exchange, market or trading facility on which shares of our common stock are traded or in private transactions. These sales may be at fixed or negotiated prices. The selling security holders may use any one or more of the following methods when disposing of shares:   • ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;   • block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;   • purchases by a broker-dealer as principal and resales by the broker-dealer for its account;   • an exchange distribution in accordance with the rules of the applicable exchange;   • privately negotiated transactions;   • to cover short sales made after the date that the registration statement of which this prospectus is a part is declared effective by the Commission;   • broker-dealers may agree with the selling security holders to sell a specified number of such shares at a stipulated price per share;   • a combination of any of these methods of sale; and   • any other method permitted pursuant to applicable law. The shares may also be sold under Rule 144 under the Securities Act of 1933, as amended (“Securities Act”), if available, rather than under this prospectus. The selling security holders have the sole and absolute discretion not to accept any purchase offer or make any sale of shares if they deem the purchase price to be unsatisfactory at any particular time. The selling security holders may pledge their shares to their brokers under the margin provisions of customer agreements. If a selling security holder defaults on a margin loan, the broker may, from time to time, offer and sell the pledged shares. Broker-dealers engaged by the selling security holders may arrange for other broker-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling security holders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, which commissions as to a particular broker or dealer may be in excess of customary commissions to the extent permitted by applicable law.   -22-   --------------------------------------------------------------------------------     If sales of shares offered under this prospectus are made to broker-dealers as principals, we would be required to file a post-effective amendment to the registration statement of which this prospectus is a part. In the post-effective amendment, we would be required to disclose the names of any participating broker-dealers and the compensation arrangements relating to such sales. The selling security holders and any broker-dealers or agents that are involved in selling the shares offered under this prospectus may be deemed to be “underwriters” within the meaning of the Securities Act in connection with these sales. Commissions received by these broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Any broker-dealers or agents that are deemed to be underwriters may not sell shares offered under this prospectus unless and until we set forth the names of the underwriters and the material details of their underwriting arrangements in a supplement to this prospectus or, if required, in a replacement prospectus included in a post-effective amendment to the registration statement of which this prospectus is a part. The selling security holders and any other persons participating in the sale or distribution of the shares offered under this prospectus will be subject to applicable provisions of the Exchange Act, and the rules and regulations under that act, including Regulation M. These provisions may restrict activities of, and limit the timing of purchases and sales of any of the shares by, the selling security holders or any other person. Furthermore, under Regulation M, persons engaged in a distribution of securities are prohibited from simultaneously engaging in market making and other activities with respect to those securities for a specified period of time prior to the commencement of such distributions, subject to specified exceptions or exemptions. All of these limitations may affect the marketability of the shares. If any of the shares of common stock offered for sale pursuant to this prospectus are transferred other than pursuant to a sale under this prospectus, then subsequent holders could not use this prospectus until a post-effective amendment or prospectus supplement is filed, naming such holders. We offer no assurance as to whether any of the selling security holders will sell all or any portion of the shares offered under this prospectus. We have agreed to pay all fees and expenses we incur incident to the registration of the shares being offered under this prospectus. However, each selling security holder and purchaser is responsible for paying any discounts, commissions and similar selling expenses they incur. We and the selling security holders have agreed to indemnify one another against certain losses, damages and liabilities arising in connection with this prospectus, including liabilities under the Securities Act.         -23-      

EXHIBIT 10.21 VALLEY FINANCIAL CORPORATION RESTRICTED STOCK AGREEMENT July 5, 2005 J. Randall Woodson Valley Bank Dear Randy, I am pleased to inform you that effective as of July 5, 2005, Valley Financial Corporation (the “Company”) approved a grant to you of shares of Company common stock, subject to the restrictions described below (the “Restricted Shares”). The grant is subject to the terms and conditions of this letter agreement (the “Agreement”) and the Valley Financial Corporation 2005 Key Employee Equity Award Plan (the “Plan”), a copy of which has been provided to you, receipt of which is hereby acknowledged. The terms of the Plan are incorporated into this Agreement by reference. In the case of any inconsistency between the Plan and this Agreement, the terms of the Plan shall control. Any term used in this Agreement that is defined in the Plan shall have the same meaning given to that term in the Plan. 3. Restricted Stock Award. The Company shall transfer 2,000 Restricted Shares to you as of July 5, 2005, (the “Grant Date”). The fair market value of the Restricted Shares as of the Grant Date has been determined by the Company to be $12.50 per share. You have the right to elect to include the value of the Restricted Shares in gross income in the year of transfer pursuant to Internal Revenue Code section 83(b) by completing the “Election to Include Value of Restricted Property in Gross Income in Year of Transfer Under Code Section 83(b)” form (the “83(b) Election Form”), attached as Exhibit A to this Agreement. 4. Restrictions. Except as provided in this Agreement, the Restricted Shares are nontransferable and are subject to a substantial risk of forfeiture. Your interest in the Restricted Shares shall become transferable and non-forfeitable (“Vested”) as of the date provided in Section 3 of this Agreement (the “Vesting Date”), if you are an employee of the Company as of the applicable Vesting Date and have been so employed throughout the period beginning on the date of this Agreement and ending on the applicable Vesting Date and all of the following conditions have been satisfied in their entirety based on the Company’s financial statements for the years ending December 31, 2005, 2006 and 2007, respectively:     a) The Company shall have total assets of at least $600,000,000.00 as of December 31, 2007; and --------------------------------------------------------------------------------   b) The Company shall have achieved at least 15% average annual earnings per share growth year to year for each of the three fiscal years ending December 31, 2005, 2006 and 2007; and     c) The Company shall have at least a 15% return on average equity for fiscal year 2007.     d) If any one of the above conditions are not satisfied in their entirety, the Restricted Shares will not vest and will be automatically forfeited on January 31, 2008 3. Vesting (a) Vesting Dates: January 31, 2008 (b) Death or Disability. If you die or become Disabled (as defined below) before all of the Restricted Shares become Vested, all of the Restricted Shares shall be transferable and non-forfeitable as of the date of your death or Disability. For purposes of this Agreement, the term “Disabled” or “Disability” means a condition resulting from bodily injury or disease that renders you unable to perform any and every duty pertaining to your employment with the Company. The Board of Directors of the Company, in its sole discretion, will determine whether you are Disabled based on medical evidence and your eligibility for benefits under the long-term disability policy maintained by the Company, if any. The date of the Board of Director’s determination will be considered your date of Disability for purposes of this Agreement. (c) The Company, in its sole discretion, may accelerate the vesting of your Restricted Shares. 4. Custody of Certificates. The Company shall retain custody of all stock certificates evidencing Restricted Shares. You shall not be entitled to obtain custody of your stock certificate until you become Vested in your Restricted Shares. The stock certificate shall bear a legend referencing this Agreement and describing the terms and conditions of the applicable restrictions on transfer. 5. Restrictions on Transfer of Restricted Shares. By signing the Agreement, you agree that you will not sell or transfer your Vested Restricted Shares to a third party unless the Company does not agree to purchase such stock, as provided under Section 6 below, and the Company approves the sale to the third party. As a consequence of the foregoing, the certificates for Restricted Shares shall contain a legend substantially in the following form: The sale or other transfer of the Shares of Stock represented by this certificate, whether voluntary, involuntary or by operation of law, is subject to certain restrictions on transfer set forth in the 2005 Valley Financial Corporation Key Employee Equity Plan, in the rules and administration procedures adopted pursuant to such Plan and in an Agreement dated April 27, 2005. A copy of the Plan, such rules and procedures and such Restricted Stock Agreement may be obtained from the Secretary of Valley Financial Corporation. -------------------------------------------------------------------------------- 6. Effect of Termination of Employment. If your employment with the Company terminates for any or no reason (other than retirement, Disability or death), all Restricted Shares that are not then Vested shall be forfeited. You shall not be entitled to any payment for or compensation with respect to such unvested Restricted Shares. 7. Tax Liability and Income Tax Withholding. You agree as a condition of this Restricted Stock award to pay to the Company, or make arrangements satisfactory to the Company regarding the payment to the Company of, the aggregate amount of any federal, state or local income taxes of any kind required by law to be withheld with respect to the Restricted Shares when the fair market value of the Restricted Shares become taxable. You hereby authorize the Company to sell all or any part of the Restricted Shares if necessary to protect the Company from incurring a withholding tax liability. 8. Adjustments. If the number of outstanding shares of Company stock is increased or decreased as a result of a subdivision or consolidation of shares, the payment of a stock dividend, stock split, or any other similar changes in capitalization, the number of Restricted Shares shall be appropriately adjusted by the Company, whose determination shall be binding. 9. Employment Rights. The award of Restricted Shares under this Agreement does not confer upon you any right to continue as an employee of the Company or limit in any respect the right of the Company to terminate your employment. 10. Shareholder Rights. You will have the right to receive dividends and distributions and will have the right to vote Restricted Shares, both unvested and Vested. If any such dividends or distributions are paid in share of the Company’s stock, the shares will be subject to the same restrictions on transferability and the other provisions of this Agreement as are the Restricted Shares with respect to which they were distributed. 11. Governing Law. This Agreement shall be governed by the laws of Virginia. 12. Acceptance of Award. You may accept this award and elect to receive the Restricted Shares by signing and returning the enclosed copy of this Agreement. Your signature will evidence your agreement to the terms and conditions set forth in this Agreement and the Plan. This Agreement will not be effective until is signed and returned. 13. Entire Agreement, Amendment. This Agreement constitutes the entire agreement between you and the Company and shall be binding upon your legatees, distributees, and personal representatives and the successors of the Company. This Agreement may only be amended by a writing signed by both you and the Company.   Valley Financial Corporation By:   /s/ Ellis L. Gutshall Its:   President / Chief Executive Officer Date:   July 5, 2005   Signature:   /s/ J. Randall Woodson -------------------------------------------------------------------------------- Exhibit A VALLEY FINANCIAL CORPORATION RESTRICTED STOCK AWARD Election to Include Value of Restricted Property in Gross Income in Year of Transfer Under Code Section 83(b) The undersigned hereby elects to have the provisions of Section 83(b) of the Internal Revenue Code of 1986, as amended (the “Code”), apply to purchases and grants of the property described below. The undersigned provides the following information in accordance with Treasury Regulation Section 1.83-2: 1. The name, address and taxpayer identification number of the undersigned are:      Name_________________________________________       Address_______________________________________       _____________________________________________       Social Security No. ________-________-_____________    2. Description of property with respect to which the election is being made: __________ shares of restricted common stock of Valley Financial Corporation (the “Company”) awarded to the taxpayer pursuant to an Agreement between the taxpayer and the Company dated as of _____________, 2005. 3. The date on which property is transferred and the taxable year for which the election is made: The shares of restricted stock were awarded and transferred to the taxpayer as of _____________, 2005. The taxable year to which this election relates is calendar year 2005. 4. The nature of the restriction(s) to which the property is subject: The shares of restricted stock are forfeitable and not transferable until the Vesting date and only then if all of the conditions set forth in Section 2 off the Restricted Stock Agreement have occurred or been satisfied. 5. Fair market value: The aggregate fair market value of shares of restricted common stock subject to this election, as described in Section 2 above (determined with regard to nonlapse restrictions only), is $                    . 6. Amount paid for property: Except for services to be rendered, no consideration was paid for the shares of restricted stock. -------------------------------------------------------------------------------- 7. Furnishing statement to employer: A copy of this statement has been furnished to Valley Financial Corporation.   Dated: ___________________ ________________________ Signature

Exhibit 10.1   [NITROMED LETTERHEAD]   January 6, 2006   Manuel Worcel, M.D. 20 Gloucester Street, Number 4 Boston, MA  02115   Dear Manuel:   It is my pleasure to extend to you this offer of your continued employment with NitroMed, Inc. (the “Company”) on a part time basis, effective as of your resignation as the Chief Medical Officer on January 5, 2006.  On behalf of the Company, I set forth below the new terms of your employment with the Company:   1.             Effective as of January 6, 2006 (the “Effective Date”), your title will change from “Chief Medical Officer” to “Medical and Scientific Advisor”, and your status will change from full time employee to part time employee.  As “Medical and Scientific Advisor”, you will be responsible for supporting various research, clinical and marketing efforts with the internal NitroMed team as well as with key external stakeholders, plus such other duties as may from time to time be assigned to you by the Chief Executive Officer. As “Medical and Scientific Advisor”, you will report to the Chief Executive Officer, however, you will no longer serve as a member of the Executive team.  You may however, on occasion be asked to participate in certain key decision making processes.  As Medical and Scientific Advisor, you shall continue to be covered by the Company’s mandatory indemnification provisions and its D&O insurance.   2.             As of the Effective Date, your base salary will be at the rate of $200,000 per year, based upon 2 full time days of service per week and may be adjusted from time to time in accordance with normal business practices and in the sole discretion of the Company.  You will not be eligible for the annual incentive program.   3.             On and after the Effective Date, you may continue to participate in the Company health benefit programs that the Company establishes and makes available to its employees from time to time, provided you are eligible under (and subject to all provisions of) the plan documents governing those programs.   4.             You will be entitled to illness and vacation days consistent with the standard policies of the Company for part-time employees.   5.             In accordance with the terms of your outstanding option agreements, each of which is listed on Exhibit A hereto (collectively, the “Awards”), for so long as you continue to be an employee of the Company on and after the Effective Date your currently outstanding Awards will continue to vest and become exercisable in accordance with the terms of each such Award and the applicable stock incentive plan pursuant to which such Award has been made.  You may be eligible to receive such future stock options grants as the Board of Directors of the Company shall from time to time deem appropriate.  In addition, to the extent that the Company accelerates the vesting of any stock options granted to its executive officers, it will provide the same acceleration of vesting with respect to the Awards held by you.   --------------------------------------------------------------------------------   6.             If your employment is terminated by the Company without cause, you will be entitled to receive up to six months continued base salary payments.   7.             The Non Competition and Non Solicitation, Confidentiality and Invention and Nondisclosure Agreements dated December 3, 1993, July 1, 1993 and December 3, 1993 by and between you and the Company shall remain in full force and effect on and after the Effective Date.  The Company acknowledges that you may, while you are employed by the Company and/or thereafter, consult with, provide services to, be employed by or have an interest in venture and investment funds making life science investments (each, a “Venture Fund”).  It shall not be a breach of the above-referenced agreements if (a) you assign any Developments (as defined in the above-referenced agreements) or related patent rights or copyrights to a Venture Fund or any of its portfolio companies so long as such Developments do not relate to the present or planned business or research and development of the Company and were not created, made, conceived or reduced to practice in connection with your service to the Company under paragraph 2; (b) you make investments in, or serve on the board of directors of a, portfolio company of a Venture Fund; or (c) any portfolio companies of a Venture Fund solicit or hire any current or former Company employees so long as you did not actively participate in such solicitation.   8.             This letter shall not be construed as an agreement, either express or implied, to employ you for any stated term, and shall in no way alter the Company’s policy of employment at will, under which both you and the Company remain free to end the employment relationship, for any reason, at any time, with or without notice.  Similarly, nothing in this letter shall be construed as an agreement, either express or implied, to pay you any compensation or grant you any benefit beyond the end of your employment with the Company.  Except as specifically set forth in Sections 5 and 7 above, this letter supersedes all prior understandings, whether written or oral, relating to the terms of your employment, including without limitation that certain Offer Letter dated July 29, 1993 by and between the Company and you.   If this letter correctly sets forth the terms under which you will continue to be employed by the Company on and after the Effective Date, please sign the enclosed duplicate of this letter in the space provided below and return it to Lisa Kelly, Vice President of Human Resources.     Very truly yours,           By: /s/ Michael Loberg     Name: Michael Loberg   Title: President and Chief Executive Officer   The foregoing correctly sets forth the terms of my continued employment with NitroMed.  I am not relying on any representations other than as set out above.   /s/ Manuel Worcel, M.D.   Date: January 6, 2006   Name: Manuel Worcel, M.D.       --------------------------------------------------------------------------------   Exhibit A   Outstanding Stock Option Awards as of January 6, 2006   Option Agreement by and between NitroMed, Inc. and Manuel Worcel, M.D., dated June 19, 1995.   Option Agreement by and between NitroMed, Inc. and Manuel Worcel, M.D., dated April 2, 1997.   Option Agreement by and between NitroMed, Inc. and Manuel Worcel, M.D., dated January 26, 1998.   Option Agreement by and between NitroMed, Inc. and Manuel Worcel, M.D., dated June 16, 1999.   Option Agreement by and between NitroMed, Inc. and Manuel Worcel, M.D., dated June 16, 1999.   Option Agreement by and between NitroMed, Inc. and Manuel Worcel, M.D., dated January 30, 2001.   Option Agreement by and between NitroMed, Inc. and Manuel Worcel, M.D., dated June 17, 2003.   Option Agreement by and between NitroMed, Inc. and Manuel Worcel, M.D., dated December 1, 2003.   Option Agreement by and between NitroMed, Inc. and Manuel Worcel, M.D., dated December 1, 2003.   Option Agreement by and between NitroMed, Inc. and Manuel Worcel, M.D., dated May 18, 2004.   Option Agreement by and between NitroMed, Inc. and Manuel Worcel, M.D., dated May 18, 2004.   Option Agreement by and between NitroMed, Inc. and Manuel Worcel, M.D., dated July 19, 2004.   Option Agreement by and between NitroMed, Inc. and Manuel Worcel, M.D., dated May 16, 2005.   Option Agreement by and between NitroMed, Inc. and Manuel Worcel, M.D., dated May 16, 2005.   --------------------------------------------------------------------------------

  Exhibit 10.1 SUMMARY OF EXECUTIVE BONUS PLAN PURPOSE The purpose of the Executive Bonus Plan is to encourage the achievement of defined corporate and individual performance objectives that contribute directly to the profits of Dayton Superior Corporation (the “Company”). DEFINITIONS   •   Plan means this Executive Bonus Plan.     •   Compensation Committee means the Compensation Committee established by the Board of Directors of the Company.     •   Participant means an employee selected to participate in the Plan.     •   Year means a calendar year. ADMINISTRATION Except for the authority reserved to the Compensation Committee as described herein, the Plan shall be administered by the Dayton Superior Corporation Administration Group, which consists of the President and Chief Executive Officer, Vice President and Chief Financial Officer, Vice President, — Corporate Accounting, Vice President — Human Resources, and Corporate Treasurer. The Compensation Committee must approve the selection of all Participants in the Plan and the payment of all bonuses awarded under the Plan. The Compensation Committee annually shall determine: (i) the performance measure(s) on which annual bonuses under the Plan for that year will be based, (ii) the target for the performance measure(s) so determined, (iii) the relative weighting to be given to each selected performance measure, if more than one, and (iv) the threshold and range, if any, of performance for each performance measure for that year for which bonuses will be paid to Participants. The determination of the Company’s actual performance under the identified performance measure(s) for a year shall be made by the Compensation Committee. In determining whether bonuses are payable under the Plan for a particular year, the Compensation Committee, in its sole discretion, may take into account such factors, including unusual or non-recurring items, as it deems appropriate. Notwithstanding that the identified performance measures are not met to the specified level for the payment of bonuses under the Plan in any year, the Compensation Committee, in its sole discretion, may approve the payment of discretionary bonuses under the Plan, as it deems appropriate. Each Participant in the Plan for any year shall have a bonus opportunity that shall be a percentage (which may vary based on the relative achievement of the performance measures determined by the Compensation Committee) of the Participant’s base salary. The percentage bonus opportunity may vary among Participants based on the position and level of responsibility of the Participant and market-based compensation comparisons. The bonus opportunity for Participants who are executive officers of the Company shall be recommended by the President and Chief Executive Officer of the Company and shall be approved by the Compensation Committee. The bonus opportunity for Participants who are not executive officers of the   --------------------------------------------------------------------------------   Exhibit 10.1 Company shall be approved by the President and Chief Executive Officer of the Company, subject to review by the Compensation Committee. ELIGIBILITY Eligibility for the Executive Bonus Plan will be reviewed by the Compensation Committee each year. As a condition to receiving payment of an annual bonus under the Plan, a Participant must be employed by the Company or a subsidiary at the time that the bonus is paid. If a Participant ceases to be employed by the Company or a subsidiary prior to the time bonuses under the Plan are paid, the Participant will forfeit all rights to such bonus. Subject to approval by the Compensation Committee, annual bonuses under the Plan generally will be made by March 15th of the year following the year for which the bonuses are earned, subject to completion of the annual audit of the Company’s financial statements. LIMITATIONS The Plan shall not be construed as a contract of employment. No rights in the Plan shall be deemed to accrue to any Participant, and no Participant or other person shall, because of the Plan, acquire any right to an accounting or to examine the books or affairs of the Company. The Compensation Committee may at any time terminate or amend the Plan as it shall deem advisable and in the best interest of the Company.